What Went Wrong with Tata Motors Nano
“An amazing ‘invention’ that didn’t turn out to be an innovation” – that’s how one expert described Tata Motors’s Nano. Indeed, the current predicament of the $2,000 compact car that was introduced in India with great fanfare in 2008 holds some valuable takeaways for aspiring disrupters.
Before I get into what can be learned from this unfortunate story, here’s a bit of background: In India, entire families too poor to afford a car usually crowd onto a single motor scooter and take to the streets in what would be a comedic scene if it weren’t so dangerous. A decade ago, Tata Motors’s chairman Ratan Tata decided to make a “people’s car” that would appeal to these poor Indian families. It was heralded as one of the greatest – and most disruptive — innovations in the auto industry since the Model-T.
Fast forward today, though, and the company has sold under 250,000 Nanos since deliveries began in 2009, and sales in March were off by 86% from a year earlier, according to a recent Bloomberg BusinessWeek article. The piece, entitled “Tata’s Nano, the World’s Cheapest Car, Is Sputtering,” blamed the lackluster sales to the car being “too cheap—at least for consumers who don’t want to be associated with a low-end ride.” It explained that the company is planning to add improvements including innovative doors, automatic transmission, and a diesel engine to try to invigorate interest in the model. These moves would also increase the price to be comparable to rival cars.
Hearing this, I was concerned that the company might have misdiagnosed the Nano’s problems, since decreasing its differentiation and raising its prices would suck the life out of, not breathe new life into, the brand. So I reached out to Dain Dunston, co-author of “Nanovation: How a Little Car Can Teach the World to Think Big and Act Bold.”
The book, published in 2011, remains an inspiring and instructive read, with its eight transferable rules for driving innovation in any business. But in light of the current status of Nano, I was curious to hear how Dain would characterize what went wrong. There were problems, he explained, on two fronts: business model and customer.
Business model — Apparently Tata might have designed an innovative product, but it overlooked the need to innovate in its channel strategy as well. According to Dain:
“The target market knew how to buy scooters but they didn’t know how to buy cars. In India the two processes are completely different and it appears that many people were simply intimidated to go into a car dealership. Tata doesn’t sell scooters and appears to have underestimated this issue. [Also] their dealer network is almost entirely urban and they didn’t really have a way to reach out to small towns and villages, where much of the real target market lived.”
Customer — Tata made two mis-steps here. First, the company designed for what it thought its customers should have, instead of figuring out what they really wanted:
“Because of the secrecy surrounding the project — the engineers couldn’t even tell their families what they were working on — they never really got out with the families on the scooters to find out what they really wanted. They never spent the days riding on the saddles with them as they went through their days. For an earlier vehicle, a micro-truck called the Ace, engineers went out and rode thousands of miles with owners of small trucks and auto rickshaws to learn what really motivated them. As a result, the Ace was and continues to be a big seller.”
And second, it didn’t understand the cultural drivers of customers’ brand perceptions:
“Because of the intense perception of class position in India, it turns out that many poor people would rather buy a used, higher-end car than buy a Nano, which would mark them as poor (unless they were Bollywood stars buying them for fun).”
Given these assessments, it seems that Tata might be looking at the wrong solutions to revive the business. Instead of defaulting to product changes that may or may not stimulate enough demand to offset higher prices, perhaps the company would be better off revisiting its initial vision and developing an entire brand experience that is disruptive.
It could start with researching the full range of needs (rational and emotional) of its target customers and developing a channel strategy that meets their shopping and purchasing requirements. It could also launch a marketing campaign that counters the poor customer image. Dain’s parenthetical comment about Bollywood stars may actually hold a seed of an idea. Perhaps it could spark the Indian version of the Leo-DiCaprio-drives-a-Prius phenomenon and make Nano’s design and cheap price cool and aspirational.
Widening the innovation perspective to include sales, distribution, and marketing should enable Tata to realize the full potential of a brand that had once held such great promise.
A broader lesson about disruptive innovations can be derived from Dain’s final remarks:
“In the end, the passion to solve a great social problem and the ingenuity and elegance of the solution were no match for not understanding what the customer really wanted.” (emphasis mine)