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A Big Goal for a Small Car

9/18/2012 --

Case study by Scott Moore examines Tata's Nano from idea to launch and how the company adjusted to the challenges.

ANN ARBOR, Mich. — Part of the ethos at India's Tata Group is to make innovative products for the world's poor. Chairman Ratan Tata, seeing families in India pile onto two-wheelers on the road, envisioned a small, safe car at a price those customers could afford. This led to development of the Nano, which Tata envisioned costing around $2,500. It was an ambitious goal. Professor Scott Moore details the challenges of launching the car and the company's response to them in the case study, "Growing Pains of the Tata Nano." The case presents a number of angles to examine the widely publicized project — strategy, operations, marketing, and politics. It also raises the question of what constitutes a base-of-the pyramid product, which means one that is suitable for the world's poor.

What drew your interest to the Tata Nano?

Moore: Its development, from concept to launch, was really complicated. It received tons of positive press for a very long time, and then the results were mixed, and that got less press. I want students and people who read the case to think about what "success" means in a variety in different ways.

The chairman of Tata was an enthusiastic supporter of the Nano, both the idea of it and the product. It was up to the company to make it a reality, so how is success measured against that backdrop?

Moore: In part, success becomes making the boss happy. In reality, the definition of success on this probably changed over time as the company reacted to the changing environment, changing reality, changing production schedules, and changing politics to try to figure out how to make the best of it.

Do you see this as a study in strategy, operations, marketing, or base-of-the pyramid concepts?

Moore: It depends. I hope that students and readers pick up a couple of those directions. I tried to make the case rich enough so that they can go with whatever direction they want to go. Obviously, the base of the pyramid story is really strong there. Itís a matter of playing that idea off against all the realities of rolling the car out, finding the market, getting it to market, and how a competitor should act. So it really hits a number of areas.

How has the competition reacted?

Moore: By not copying what Tata did and sticking to their own strategies. One of the reasons Tata put the car out there was because it would be a difficult product to match, considering the price.

Speaking of which, creating a product that met the price of $2,500 seemed to be one of the big challenges.

Moore: One of the issues they faced was that it was such a long time between the promise and when the car actually appeared, about six years. The price of materials can rise, monetary rates change, the price of labor changes, there was a big problem with the first plant they wanted to build it at, and reality shifts. They couldn't raise the price too much without a negative reaction.

But is it also true that since the chairman of the company was a great champion of the Nano, they didnít give up and now benefit from some of the things they learned along the way?

Moore: Yes, that can happen. If you believe in the dream and believe in what the company is trying to deliver, it's a strength. If you don't believe in it, it's a weakness. This comes back to redefining success. They didn't hit projections out of the gate, and there were some safety concerns. So they made some moves. They extended the warranty, started working with banks on financing, and tried to increase the pride of ownership. They've lined up export markets and created a product line that includes the Pixel, an upscale version of the Nano, which is still very low-priced. The other questions to ask are what they learned technologically and organizationally to make such a low-priced car possible. It's a good question for students and it depends on how they define success. If you think the very low end is a good market to be in, then you'd think the learning process would help. The more skeptical might ask how long that took and at what cost.

Do you think the Nano, especially with the enhanced version, is a base-of-the-pyramid product?

Moore: I think readers and students should ask and answer that question. It was priced very low, but $2,500 is still more than a lot of people at the base of the pyramid make in a year. If you say a different version isn't a base-of-the-pyramid product at $4,000, then where is the cutoff? It gives students a chance to define what base of the pyramid is.

— Terry Kosdrosky



For more information, contact:
Terry Kosdrosky, (734) 936-2502, terrykos@umich.edu