Tuesday, July 24, 2012

They’ve finally got The Equation Right

With Sales of Nano once Again on The Rebound, current Tata Motors’ CEO Carl-Peter Forster seems to have Understood The Direct connect between Advertising and Sales in The Indian Market. But Perhaps, this is also a Great time to Re-‘Reposition’ The Car. B&E does a Case Summary

When Ratan Tata, Chairman, Tata Motors, shared his vision of making a Rs.1 lakh car at the Geneva Motor Show, in 2003, there was cynicism and doubt from all quarters. Tata’s ambition was deemed unrealistic and critics wondered how it would be possible to make a car at almost half the price of the cheapest car (Maruti 800) available in the market. At a time when the automotive industry was still in thrall of “bigger is better” way of thinking, industry executives scoffed at the idea of an ultra low-cost bare bones car. But for Tata and his core team of five engineers led by Ravi Kant (the then MD, Tata Motors), the Nano car project was borne out of deep conviction, and not by any flashy ambition to stun the market and rivals. The team had prepared its ground well, going over all the details of the project with meticulous care and finesse. As such, for them, there was never a shadow of doubt about the viability and feasibility of the project.

So, when Tata unveiled the Nano at a jam-packed Tata Motors pavilion at the 9th Auto Expo in New Delhi on 10th of January 2008, there were wild cheers and rave reviews for the world’s cheapest car. Everyone, including Tata Motors, assumed that a product with such a low price would be a runaway success. And true to the euphoria and buzz generated by Nano’s launch, the diminutive car racked up more than 200,000 advance orders when it went on sale in April 2009. But the heady feeling did not last long. The Singur controversy over acquisition of farm land for building the Nano plant in West Bengal, along with the subsequent increase in the car price, poor distribution and instances of Nano cars catching fire proved to be a wet blanket for all those expecting the car to be a game changer for the auto industry.

By November 2010, sales of Nano had plummeted to 509 units, a sharp drop from recorded sales of 9,000 units in July 2010. That came as a shocker to not only market analysts but to Tata Motors as well. The dismal November sales was a rude awakening call for Tata Motors, which was counting on its small wonder to attract an annual demand of not less than one million. Yes, there were issues with respect to the sales outlets causing late deliveries and growing concerns amongst people about the quality at such a low price (Rs.137,555 for the lower end model).

But the most critical issues perhaps have been only two – the first one has relates to positioning. With over 11 million two-wheelers sold in India last year (according to SIAM), the company initially only targeted the two-wheeler owners to switch over to the Nano. In all his credible efforts to position the car as the alternative for the family which used a two-wheeler to travel around, Ratan Tata perhaps inadvertently positioned the innovative product as the poor man’s car. In other words, while the intent was brilliant societally, for any consumer buying the Nano, there was the inherent danger of being viewed by his social group as poor. Not even a poor man wishes to be identified as a poor man – and the Nano, to some extent, was doing just that. In summary, there was a great disconnect in the kind of people the company was reaching out to and the kind of people it wanted to sell to.

The second mistake was both in the quality and quantity of advertising. Quality of advertising relates to the both the medium of advertisements used and the kind of advertisement used. For example, while Nano was intended by the company for the lower-end belt, instead of reaching out to the intended segment and understanding their purchase behavior, Tata Motors relied heavily on non-conventional methods: They created a special Nano website where one could design their own Nano and play games; used social networking sites such as Facebook and Orkut; leveraged blogs; and purchased online advertising. The online medium was hardly the right way to sell to their target segment and the strategy failed to create buzz around the car. Why did Tata Motors do this? One, because they perhaps thought that the word of mouth recall would be enough to exponentially increase the sales of Nano. Automobile experts are as guilty for this as some even commented that Indian roads will become jam packed within a few quarters of Nano sales. The company did release print ads; but that too as a statement of social action rather than as a sales strategy. Worse, the company refused to straddle the typical sales promotion strategies of having promotional offers, discounts et al being advertised regularly. In fact, the company did not even advertise otherwise regularly. Those were perhaps the banks giving auto-loans that were advertising.

As a result, the company ended up selling 75% of Nano cars in five major cities in India rather than the expected all India demand. And here comes the biggest repositioning learning for current CEO Carl-Peter Forster. For 50% of the people who bought the Nano, it has been their second car. If Carl understands this correlation, then perhaps this is the best time to rejig the ad positioning of Nano to beseech the prospective consumer with the punchline, “Tata Nano: Your first, second car,” than continuing the low-end positioning.

But CEO Carl has done something more – and intelligently. He has ensured that starting September 2010, Nano ads have started appearing in the electronic media channels, and now with increasing frequency. The plain and simple statistical connection between number of ads and sales has been forgotten in the past by many practitioners; luckily, it seems Carl has regained the connection.

In recent months, Tata Motors has also reviewed the issues related to production, quality standards and supply chain management of Nano cars. The company is additionally chalking out plans to enter new growth markets and export to countries like Thailand, Malaysia and the Philippines. To push sales, the company has already announced open sales of Nano cars for the entire country. For a long time Nano was not available off the shelf in many states. “It was only after the inauguration of the Sanand plant that we could plan for open sales of Tata Nano. We decided that we would do this in a phased manner in tandem with fine-tuning our marketing & sales infrastructure along with the finance support” said a Tata Motors spokesperson to B&E. By January 2011, the company had extended open sales to the rest of the country instead of the earlier system of having to book and wait for delivery.

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