Back in 2008-2009, at the inception of Supply Chain Matters, we focused on a number of global supply chain strategy topics. One of those topics was the introduction of the Tata Nano automobile in India, which promised to be revolutionary for the automobile industry, especially in emerging economies. In a posting in March 2009, Lessons of the Tata Nano and Rethinking Big Three Supply Chains, we called attention to a BusinessWeek article at the time that had its theme as to what can Detroit learn from the Nano.
That article made the statement: ”Tata didn’t set the price of the Nano by calculating the cost of production and then adding to margin. Rather it set $2500 as the price that it thought customers could pay and then worked back, with the help of partners willing to take on a challenge, to build a $2500 car that would reward all involved with a small profit“.
A lot has occurred since that time, and Tata Motors has struggled with a number of challenges related to the Nano these past 4 years. Sales of this model have declined to about 2500 per month from a peak of 10,000 per month in April 2012.
This week, the Wall Street Journal published a story, Why the World’s Cheapest Car Flopped? The WSJ observes that India’s consumers had the final say. Younger buyers, climbing into the middle class view their car purchase as a social statement, and they do not want that statement to be perceived as cheap. Just as it is in China, Europe and United States, the peer pressure circling a car purchase is very real, regardless of the economy. The car purchase is identification, at least in perception.
After investing nearly $400 million in product development and additional millions in building a customized factory with capacity to build 15,000-20,000 cars per month, Tata has gone back to the drawing board. The first base model had a Spartan interior with no stereo radio and air conditioning. The new challenge for Tata is described as changing existing perceptions, which is a tough challenge for any auto maker. The new Nanos will have improved sound systems, interiors and other amenities.
New TV ads have the tagline “Celebrate Awesomeness”.
So perhaps Detroit had it right in the beginning. Design a car that consumers, even those of entry-level will buy, calculate the production cost and margin. In turn, Tata’s supply chain ecosystem must adjust to this new awareness.
Of even more interest, Tata now owns Jaguar and Land Rover, each of which caters to status conscious auto buyers.
Tata has obviously acquired important learning.