tata case study

CONSUMER BEHAVIOUR CASE ON

TATA Nano and Its Repositioning-‘Missed’ opportunity or ‘Lost’ opportunity?

Submitted to: Prof. Prashant Mishra Submitted By: Anirban Chandra(122011) Lokesh Kumar Dhaker(122047)

On August 31st , 2013

CONTENTS Abstract ...................................................................................................................................................... 2 Nano-History of Engineering Marvel-The utilitarian and functional appeal: ................................................. 2 Automotive industry In India and Nano’s Strategy: ...................................................................................... 2 Nano’s Appeal for the customers................................................................................................................. 3 Consumer behaviour for NANO’s Buying decision ........................................................................................ 3 Framework .......................................................................................................................................................... 3 Tata Nano First Advertisement (2010)-consumer perception ........................................................................ 4 Factors affecting Tata Nano’s Buying decision-Perecption/Performance ....................................................... 4 Nano as a status symbol and effect of reference group: ................................................................................... 4 Price point and its proximity towards the competitors:..................................................................................... 4 Risk, discomfort and performance: .................................................................................................................... 4 Product promotion, service, dealers: ................................................................................................................. 4 Why it could be a ‘missed opportunity’? ...................................................................................................... 5 Misfired strategy of pay first-drive later and Marketing misadventure: ............................................................ 5 Austerity-trumped by emotion and status symbol ............................................................................................ 5 International effect and Absence in small cities:................................................................................................ 6 Negative image on safety: .................................................................................................................................. 6 Used car market:................................................................................................................................................. 6 Indian Middle class customer: ............................................................................................................................ 6 Action plan after decline in sales: ................................................................................................................ 7 Marketing campaign through television & Financing arrangements: ................................................................ 7 Extended warranty with scheme on low cost service and sales network: ......................................................... 7 Effect of these Action Plan implications: ............................................................................................................ 7 TATA Nano-Repositioning as Smart City Car ................................................................................................. 7 TATA Nano-positioning and repositioning effect ............................................................................................... 8 Tata Nano-Repositioning advertisement and its IMPLICATIONS ....................................................................... 8 Salient features of the repositioning .................................................................................................................. 8 Future ........................................................................................................................................................ 9 References................................................................................................................................................ 10 Exhibits..................................................................................................................................................... 11

Page 1

ABSTRACT With its launch on 23rd March 2009, the 6 years episode came to an end of much fanfare and hype from Media due its image of people’s car and the political disturbances around its production. The image of cheapest car, the vision of two wheelers consumers migrating to Nano, people speculating about the traffic congestion and increased pollution were the main concerns. But after few years, with declining sales figure of Nano, Mr Ratan Tata, during his last year as TATA group chairman, defined it as a missed opportunity. In August 2013, TATA Group’s new chairman, Mr Cyrus Mistry, outlined the plan to reposition Nano as a smart city car. All these raise the question, what went wrong with Tata Nano. The Case examines the situation and company’s different marketing communication (advertisement, positioning and repositioning) from consumer behaviour perspective. NANO-HISTORY OF ENGINEERING MARVEL-THE UTILITARIAN AND FUNCTIONAL APPEAL: Ratan Tata’s vision of a low cost car for affluent but cost sensitive Indian middle class was the main inspirations behind Nano. To meet the challenges of making the production cost within the rupees one lakh limit, manufacturing cost was reduced without compromising quality. The nickname Nano shows the extreme engineering behind it. Starting from scratch, all the unnecessary curves and all unnecessary components were removed to simplify production process. A low cost and lightweight driveshaft was designed by GKN Driveline India and a new two cylinder 624 cc engine was designed by TATA motors. The engine was placed in the rear of the car to decrease the overall size. One piece plastic dashboard, only one windshield wiper, and tyres with 12 inch steel rim were among the cost cutting approaches. The engineering excellence is shown in the several patents in Nano’s design (34 patents in the power train design) .Along with that, Nano had the single alternative single injector system, all alumina body (improving mileage), and electronic engine management system (stabilizing and performance enhancing feature during acceleration and cruising). The Rs 1 lakh model did not have the features like air bag, power steering, anti-lock brakes etc. Hence, the features of other commonly available compact cars were compromised to meet the price point of basic model in Nano (Though models like CX and LX, which were priced higher, had those features). AUTOMOTIVE INDUSTRY IN INDIA AND NANO’S STRATEGY: Automotive industry in India has recorded a growth rate of 17% though the per capita ownership is low in comparison to the developed nation. Indian road condition, congestion and fuel efficiency made the two wheelers as the dominating market for Indian automobile industry. Hence only 16% of the total vehicle sales are accounted by the passenger vehicles. Hence Nano with proposed price point between the two wheelers and nearest four wheelers was supposed to create a new market for its own. Its competition was supposed to be a substitute, which are two wheelers. Though in terms of fuel efficiency and manoeuvrability two wheelers would score more, Nano was pitched on the safety and aspirational values attached to a car.

Page 2

Nano was targeted at the two wheelers’ segment by providing a family vehicle for the two wheelers consumers at affordable price level. For two wheelers consumers the main factors Nano tried to address were more comfort and safety than the two wheelers with some status symbol and aspiration of upgrading from two wheelers to the four wheelers status with some minimal changes in the price. NANO’S APPEAL FOR THE CUSTOMERS For the target customers (Middle-class with two wheelers) Nano gave them a chance to afford a car who until then could only afford a two wheeler. The common observation with families travelling precariously on a two wheeler with huge luggage probably makes a business case for Nano as a safe, all-weather, affordable, and convenient family transport. Nano gave the usual services and warranty prevalent in the market (18 months).while comparing with Maruti800; it has 21% larger interior space with 80L luggage space. With emission standards of Euro 4,Bharat stage-3 compliant with tested frontal clash and only 4m turning radius, Nano scores well on the functional consumer surplus(while comparing with models by other manufacturers)(Exhibit1 and Exhibit2) CONSUMER BEHAVIOUR FOR NANO’S BUYING DECISION FRAMEWORK

Demography

Social status

Values

Emotion

Culture

Personality

Motives

Marketing activities

Reference groups

Perception

Nano Buying Decision

learning memory

We can judge the consumer buying decision of NANO based on the several parameters which can affect the decision parameters. Based on this, we can see how NANO fared on these different aspects and how it’s positioning affects the decision parameters.

Page 3

TATA NANO FIRST ADVERTISEMENT (2010)-CONSUMER PERCEPTION The Initial advertisement was clearly targeted at the two wheelers market. Exhibit3 shows the Tata Nano launch advertisement With the presence of impressed neighbours, presence of people on two wheelers praising the New Nano, a small kid waiting for the new Nano, and a family on two wheelers looking impressed by the presence of Nano in the neighbourhood-all indicating the fact that the Product is targeted at Middle class households waiting. Throughout its communication it was not pitted against the existing small cars by established players but was positioned as a viable up gradation for the two wheelers consumers. Though the product was mainly intended for the two wheeler customers, the advertisement was catering to more of the middle class family values building on the emotional connect with the product. FACTORS AFFECTING TATA NANO’S BUYING DECISION-PERECPTION/PERFORMANCE NANO AS A STATUS SYMBOL AND EFFECT OF REFERENCE GROUP: Status symbol, family-car image, suggestions from friends, and low maintenance cost would comprise maximum of the variations for the customer’s buying decision. But unfortunately because the perception of ‘poor’ people’s car, it failed to score on the status symbol criteria. Moreover the perception turned to be a self-fulfilling cycle. With friends and neighbours’ negative perception about the car, the reference group’s impression and suggestion gets impacted and fuelling the network of negative impression cycle. PRICE POINT AND ITS PROXIMITY TOWARDS THE COMPETITORS: Even though the promised price point was one lakh, the variants ultimately turned out to be in the range of 1.5-1.8 lakhs. Hence in terms of price point also, it gets more nearer to the established players Maruti or Hyndai. With more payment people can afford Maruti’s Alto or Hyundai’s Eon with which the stigma of ‘poor’ people’s car is not attached. And based on the price point it was Further from the two wheelers and neared to the other passenger cars. RISK, DISCOMFORT AND PERFORMANCE: The negative perception created by the incident of Nanos catching fire increased the riskiness of the product. Along with that, the noise level of the engine due to its position in the rear made it score more on the discomfort scale. Though it has superior fuel efficiency in the car segment, the speed limit of 80kmh makes it unsuitable for driving on highways. PRODUCT PROMOTION, SERVICE, DEALERS: Product promotion did not see any celebrity endorsing the product. At the same time service issues, absence for test drives, dealers’ absence contributed to the negative image created for Nano.

Page 4

WHY IT COULD BE A ‘MISSED OPPORTUNITY’? MISFIRED STRATEGY OF PAY FIRST-DRIVE LATER AND MARKETING MISADVENTURE: The targeted customer segment was the lower middle class people for whom the pay first model would mean only instant onetime cash outflow for which they were not ready. So bulk of the customers consisted of people treating Nano as 2 nd or 3rd vehicle for family or just a symbol of national pride. Hence the initial sales figure were dominated by the segment for which the product was not intended for. As the fad ceased to exist, and the plausible flag bearer of lower middle class customer group did not exist, the appeal was not self-sustaining. The initial potential group could enhance and increase the appeal among their friends, neighbours, which did not happen. Along with the absence of any television campaign, the dealing with potential customers was also not appropriate. The company thought the customer would behave the same test drive approach whereas maximum of the customers were shy and apprehensive about coming to the showroom. AUSTERITY-TRUMPED BY EMOTION AND STATUS SYMBOL Banking solely on the price point (Highlighting the one lakh price in the initial phase) might have backfired on Tata Nano. The initial positioning missed the main motivation Indians would buy a Car. The aspiration of a life which is tempting and appealing, glamorous than the life they are used to. Now when you play the aspiration and glamour card, the only functional and utilitarian value might not be always the priority. Sales data of Nano shows that almost 38% of the buyers bought the most expensive model and only 20% of the customers went for the basic lowest range model. So, even the existing consumers also don’t consider that ‘Money is everything’. Tata Nano’s appeal could have been towards the ‘reverse snob’ who can buy any car but would buy Nano not only because of price but because of convenience and the fact the car is famous. In India, we have 200000 millionaire households, a few high profile customers among them would attach an aspirational appeal for the 100 million strong middle class markets which would be an ideal market to target for Nano. If we compare the other internationally acclaimed mass market car players like Ford with Nano, we can see that In India Ford dint play the price card and rejected the ultra-low cost category. With its Ford Figo, it tried (almost 4 lakhs price) to features of advanced technology like blue tooth even for the low end models. With Indian car market primarily (70%) lies within the range of 8000$13000$.The figure shows that Indians Buy Cheap might be misleading instead by buying a Car people would want to show to their friends that they are succeeding. In case of Nano, from conception, design, marketing, the competitive advantage projected was only price. But consumers wanted comfort and convenience with the feel of better lifestyle even by paying a little extra. Evidently that is why Maruti did not try to compete on the price point with Nano. The obvious logic would be if someone is only concerned about price, he would stick to two wheelers only.

Page 5

INTERNATIONAL EFFECT AND ABSENCE IN SMALL CITIES: Even in other subcontinent markets where the market is similar and number of motorcycles outnumbers cars, Nano has the same fate of being marked as cheap car. For example, in Sri Lanka, with many GPS equipped Nano it has the taxi car image. For other international markets, the modified version through the Tata Pixel, it wants to acquire the European Market. The space problems, coupled with recessionary situation in Europe, might create a market for Tata Pixel where convenience and economics might override emotions based on the utilitarian value of the product. Tata Motors, in its initial campaign targeted the middle class families, but its distribution channel didn’t support that strategy.in 2011, out of its 619 sales outlets, maximum of them were in big cities. Hence even though the target customers were supposed to be outside the big metro cities, its distribution was not in line with the positioning. NEGATIVE IMAGE ON SAFETY: Tata Motors failed to clarify on the events of its Nanos catching fire. The most acclaimed feature of safety was questioned in the Media which added fuel to its negative perception. Though Tata Motors made amends for it by installing a shield to the catalytic converter, the damage was done (with monthly sales down to 500 units in November 2010. USED CAR MARKET: The bare bone features of Tata Nano enhanced the used car market substantially as the used car by reputed manufacturers will be competitively priced with Nano. The used cars by other manufacturers might have a greater appeal in terms of convenience, brand appeal and the 1st car and family vehicle. INDIAN MIDDLE CLASS CUSTOMER: Indian Middle class customer, with rising income level but still the limited disposable income has a side inclined towards the hard bargaining for the functional or utilitarian products. At the same time, these same customers are aspiring and aiming to go up the social ladder. Hence the aspiration and its target place these customers in the conflicting zone with the hard lining utilitarian stance. In effect they are very tough customers. Nano was positioned as a completely utilitarian product in a segment which they want to see as the aspirational symbol.

Page 6

ACTION PLAN AFTER DECLINE IN SALES: MARKETING CAMPAIGN THROUGH TELEVISION & FINANCING ARRANGEMENTS: Initial phase had seen low cost marketing. According to Business standard, for a new car the advertising budget in 2009 used to be INR 200-300 million whereas for Nano it was INR 50 million. Now with decrease in sales, television campaign started to reach out to the customers. In the initial phase, almost 95% of the purchase price customers were required to deposit. But to attract customers, in the new action plan, new financing arrangements (90% loan) with tie-ups with 28 banks for low interest cost loan scheme was launched. EXTENDED WARRANTY WITH SCHEME ON LOW COST SERVICE AND SALES NETWORK: Warranty extension of four years and low maintenance service scheme (INR 99 per month) was launched to serve the after sales expectations of the customers. Along with the existing sales network of 690 branches in 2010, additional 210 showrooms were created with minimal features (F class showroom- 500 SQM area containing only one Nano) .The Company also started awareness campaign through display in Big bazaar stores. EFFECT OF THESE ACTION PLAN IMPLICATIONS: Sales figure increased in first half of calendar year 2011(42.7% sales growth in comparison to 2010) but it was not sustained (sales dropping to 66.3% in 2011 Q3).This shows the intrinsic problems of the product in consumers mind-set(only price) which can’t be avoided by taking short terms measures(as followed in the action plan). TATA NANO-REPOSITIONING AS SMART CITY CAR Instead of going only for the low income group customers, the product has been repositioned as the smart city car targeting the young (high on aspiration, low on income) population. Television campaign in 2012 and the new television campaign ‘celebrate awesomeness’ reflects company’s redefined strategy.

Page 7

TATA NANO-POSITIONING AND REPOSITIONING EFFECT

Utility, price

Nano Positioned low cost family vehicle (2009-10)

Missed opportunity

Nano Repositioned as smart city car (2013)

?????????

Nano Buying Decision Emotional connect

TATA NANO-REPOSITIONING ADVERTISEMENT AND ITS IMPLICATIONS TATA motors now positioned Nano (2013) as smart city car with CNG version and improved features like power steering. Tata Nano’s new repositioning keeping the vibrancy; freshness of the urban youth is evident in their new marketing campaign of ‘celebrating awesomeness’. (Exhibit4)The varied number of colour option, use of language, beat of the music show the intention of TATA motors to put Nano in line with the lifestyle of urban middle class youth. The possible Salient features of the repositioning

1. Targeted at young population with friends(high aspiration, low income comfortable drive with friend’s group) 2. Urban youth for specifically the female (the vibrant colours and fashionable colourful clothes)with this, the product appeal will go towards the female population putting it against the two wheelers market of Scooty. 3. This approach is more of convenience type with style for the female population. The message in the advertisement is for the young and high on self-esteem urban female population for whom it would be the first cars. 4. The positioning of Nano is now as the second car for the family keeping in mind the convenience factor for the new adults in the family for high middle class people. The safety of four wheelers will give some added advantage in comparisons to scooty. 5. The social appeal of Nano might play a crucial role here. India is typically still marked as a male dominated society. So the poor man’s car image would carry a more negative perception toward a man but in case of an urban young female population, the stigma of ‘poor’ image won’t be attached with the car. Hence the consumer buying decision can be freely influenced by the safety, maintenance, vibrancy of the product.

Page 8

6. With a New CNG version in the horizon, the rising petrol price risk will also be mitigated and hence the product will have a nice appeal for the urban youth from economic point of view. FUTURE With new repositioning strategy of TATA motors for NANO as a smart city car, it is evident that the company is not trying to sell the price point and low cost family vehicle image but also on features and appeal to the new young urban customer. There is no doubt about the growth story of India’s middle class but will they accept the new avatar of NANO? Or will the modified new model TATA pixel will replace NANO altogether?

Page 9

REFERENCES Positioning the TATA nano(A), KEL602 (2011). Tata Motors Case Study, ML00001-033 (December 2011). newapaper article. (2013). Retrieved from India today: http://businesstoday.intoday.in/story/tata-motors-to-repositionnano-as-smart-city-car/1/197973.html Chiranjeevi, C. (2009). Nano, Tata’s ‘People’s Car’: Who is Marketing. IBSCDC. Gambhiraopet, K. (2010). Tata Nano: Consumers’ Post-purchase Behaviour. IBS-CDC. Hundal, B. S. (2010). Consumer behaviour towards TATA nano-Perceptual study. IUP journal of Management Research. Jena, A. K. (2009). Tata’s Nano:A Small Car with Large Consumer Surplus? IBSCDC. Manas Ranjan Tripathy, S. P. (2012). The Turnaround of Tata Nano: Reinventing the Wheel. MDI-Vision SAGE. Marphatia, R. (2008). Surveying the scene. Paintindia. rAMSinGhAni, M. (2012). Disruptive innovation-Technology review(MIT). The Trouble with India’s People’s Car. Swati Singh, P. S. (2012). The Turnaround of Tata Nano: . MDI-SAGE. Thottam, J. A. (2011, October 24). Little car that could not. Time International (Atlantic Edition)., pp. p39-41.

Page 10

EXHIBITS

Exhibit-1

Source: Thottam Jyoti, “Global Business”,http://www.time.com/time/magazine/asia/0,9263,501090406,00.html,March23rd 2009

Exhibit2

Source: “Indian Automobiles”, http://www.surfindia.com/automobile/tata-nano.html

Page 11

Exhibit-3: TATA Nano Initial Advertisement

Page 12

Exhibit-4 TATA Nano-celebrate awesomeness advertisement

Page 13

Page 14