Learning from Tata Motors' Nano Mistakes
Posted on Harvard Business Review: January 11, 2011 8:12 AM
It's been a rough season for Tata Motors' much-publicized "people's car," the Nano. In November, while overall auto sales in India's booming economy rose more than 22%, Tata sold only 509 Nanos, down precipitously from the 9,000 it sold the previous July, news that's been trumpeted in disparaging headlines from New York to Sydney.
There are no shortages of reasons for the Nano's poor showing: production delays, fires, the stigma attached to buying a "cheap" car. But the real problem is not with the car; it's with the hype surrounding it that tied Tata's hands.
Setting (or encouraging) high pre-launch expectations limits your ability to perfect your business model post-launch. But, as my co-authors and I discuss this month in HBR, this flexibility is essential to emerging-market innovation and product strategy. You have to get a lot of things right to successfully bring a product as novel as the Nano to market. First, you have to conceive of something people will actually want. (That's really three steps—thinking up something that's wanted, identifying who actually wants it, and working out the details of how and under what circumstances they will use the product.) You have to devise a way to produce it reliably and profitably at the price those people will pay. And you need to communicate a clear, targeted value proposition, differentiated from competing offerings.
Tata has had trouble with just about every one of those steps, and this fact has played out very publicly.
Is there anyone who hasn't heard the story about how Ratan Tata conceived of the Nano as safe, affordable alternative for Indian families weaving in and out of New Delhi traffic perched precariously on the backs of motorscooters? Or how the famous 1 lakh price (variously valued at anywhere from $2,000 to $2,500, depending on exchange rates) was prompted by an offhand remark to a reporter? (Here's just one version of that the story, as related by a Tata executive to a Harvard audience last October.) Expectations could not have been more public for what the Sydney Morning Herald's Amrit Dhillon referred to as "the pop star of the car world."
But, as pop stars come to understand, fame is fickle. On the one hand, the early hype predictably fueled early demand. On the other, large initial demand required the company to build the car at scale from the outset, which proved publicly problematic when the company ran into problems purchasing land for a new factory in West Bengal. Production for the first 100,000 cars was delayed for more than 18 months.
Then it turned out that the car doesn't really sell for 1 lakh. In fact, the New York Times reports, a fully equipped Nano sells for only about $800 less than the Suzuki Alto, which "has a bigger engine, more storage space and a longer track record than the Nano." That last factor is particularly important in the wake of dramatic accounts of some Nanos bursting into flames, an unfortunate irony for a car touted as a "safe."
Nor, it seems, is the car popular with its original target market. Nano customers are not upgrading from motorscooters, Dhillon reports; they're people looking for a fun, trendy second car for running errands.
A cheap car that's not really cheap. A safe car whose safety has been questioned. A poor people's car that poor people aren't buying. That sounds like a failure, certainly.
But really it's not. It's par for the course for almost every breakthrough innovation. There's nothing unusual about a company having to adjust the price, the production process, the marketing, or even the market of a breakthrough offering. The Nano's price changes, the new maintenance contract Tata is rolling out to assure buyers of quality, the test drives it's introducing, the new smaller showrooms, and the new commercials—all widely discussed in the press—should not really be news.
In fact, I can think of only one example of a CEO who pre-announced an innovation that was going to change the world and actually delivered it. That's Steve Jobs of course. A far more common path to success is the one forged by E Ink, which early on envisioned several potential applications of its printing invention—billboards, radio-paper products, and e-books. Rather than pick one and go for broke, E Ink executives wisely (and quietly) made small-scale bets on all three approaches, spending a little to learn a lot about what would and wouldn't work and which path it should eventually pursue. Similarly, long before most people had heard of the low-power fridge ChotoKool (or read about it in our HBR article) Godrej & Boyce spent quite some time investigating people's refrigeration needs, designing and redesigning the product, and redoing its distribution strategy, carefully, slowly, and quietly.
Had Tata piloted the Nano quietly on a small scale in a production run of, say, 200 in a small city like Durgapur in West Bengal or Ranchi in Jharkand, its engineering, pricing, financing, and marketing could have been adjusted far from the limelight to suit the needs of an optimal target customer. Then, like the "overnight sensations" who seem to have acquired instantaneous talent—but in fact spent years quietly perfecting their craft—the Nano might have made its debut to the wider world with less hype and greater effect. It might not have been a 1 lakh car or even an alternative to motorscooters. But when it first appeared in the mainstream, it would have been right product for the right price in the right market.
Matthew J. Eyring is the president of Innosight, a strategy innovation consulting and investment firm with offices in Boston, Singapore, and India.
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