Tata Nano Case Study

Background:

This case starts how Ratan Tata, Chairman of Tata Sons, promised in Geneva, 2007 the introduction of a mini car at an affordable price of 1 lac rupees thus making it the cheapest car of the world. This lead to Tata Motors researching and developing a car that would be compact in size, with quality parts and affordable at the same time. The company was finally able to reach a consensus on the design of the car and thus started planning the production of car.

Cheapest Car Initiative:

Initially, the plan called for a production plant to be installed in Singur. Three designs are approved for the Tata Nano. The most basic model is the cheapest one, costing only 1 lac rupees with no added features such as air conditioning, power steering etc. The car is announced in the Delhi Expo show and receives immediate media interest, however is termed as the “Cheapest Car” which may have a negative connotation attached to it.

Problems in production:

Mid installation, the plant at Singur has to be abandoned due to issues arising with the locals and thus production plant is shifted to Sanand in Gujrat, India. Soon however production is temporarily shifted to Patnagar plant at a capacity of only 50,000 annually. This hampers the supply of Nano in the market and kills the hype that had been created over the car. Nevertheless, Tata had promised to deliver it in July 2009, and the company reached its target.

The car was dubbed as the “People’s Car” for bringing the opportunity of personal mobility to small families who were unable to own higher end cars. The bookings were made where two methods were available to book cars. The online application had a 200 rupees cost whereas dealer shop had 300 rupees. booking cost. However, the main problem at the end turned out to be the down payment to be made for the car. The company required a 95% upfront payment of the cost of the car.

This led to a decrease in demand as those unable to produce disposable cash to afford the car were not able to make bookings even. Over and above that, due to the low production capacity, bookings were confirmed on a lottery basis where those who won the lottery would receive the cars and the rest had option to continue waiting or back out of the purchase. This also led to a major decline in demand as the car had now already received negative publicity due to all these delaying factors.

Nano’s Competition:

Competition wise Nano was indirectly in competition with Maruti 800, whereas their other competitor in the small cars was Tata Indica that competed with Maruti Alto. The car was mainly targeted as being a low cost alternative for 2-wheel drivers who could now have the convenience of a four wheeler and thus cater to the whole family as well as being safer then 2-wheelers. Moreover, it was a low maintenance and fuel efficient car that competed well in these aspects with other cars.

Downward Sales & Overbookings: