A big U turn by the small car, Tata Nano

Small Wonder

When the Tata Group Chairman Ratan Tata announced  the very idea of Rs 1 lakh-car primarily for lower middle-class segment in 2003 -- a  family of four ( papa, mum and two kids) whose mode of transportation was scooter – a sort of an indulgence to upgrade from scooter to car, rivals in the industry just smiled, if not mocked at the idea.

But Ratan Tata was serious of his intention and even spelt out that Tata Motors would conceive a small car which will be cheap, affordable, fuel-efficient and above all sturdy to withstand the rigours of any mega city traffic.

Undeterred by rival criticism, Tata pursued his dream  -- needless to say – of making affordable personal transportation available to millions. He didn’t leave anything to chance to make the success of world's ultra-cheap car from India. Though production Nano had initial problems as Tata Motors was forced to shift the car plant from West Bengal to Gujarat, the company launched Nano, country’s smallest car,  in March 2009.

It was done through the booking route since it had only limited capacity and deliveries of the much-talked about small cars began in July 2009, as per a staggered calendar.  

Initial troubles

As the intial booking response was huge, the company decided to initially sell the car only through booking list and free sales or open sales of Nano was introduced in a phased manner, to fine tune the marketing & sales infrastructure and the finance support.  “So, we began with one state in August, gradually adding three to four till December, by when we covered 12 states. In January 2011, we extended open sales to the rest of the country,” a Tata Motors spokesperson said.

But then, like any ambitious project that has its share of (teething) problems, Nano too had its share. As a few cars caught fire for unclear reasons, it dampened the excitement of prospective buyers -- albeit temporarily – and led to an all-time low sale of 509 units in the month of November 2010.  

Another problem the company faced was booking related. The ‘pay-first, drive-later’ booking model adopted by it attracted a bunch of customers for whom the car wasn't quite targeted for. Of the 2.06 lakh bookings the company got initially, a big chunk were urban buyers who were actually purchasing this as a second car. Many booked the car hoping to pocket a premium by selling the right.

But as sales dipped, their initial excitement wore off and cancellation mounted. Also, the distribution strategy failed to bridge the last mile to the consumer segment that group chairman Ratan Tata built this car for. Lower income customers were apprehensive and hesitant to walk into large Tata Motors showrooms.

Reaching out

Not allowing the temporary setback to affect his enthusiasm, Ratan Tata (now 73) -- who will retire in about two years' time -- charted out the path with a renewed vigour. He forged a  crack team from his trusted lieutenants at Tata Motors who reworked execution strategy and put in place a new and unconventional distribution system.

All this helped Nano sales picking up fast and reach a peak of 10,000 units mark in April 2011. Sales started the upward journey from December 2010 (see chart). the  What’s more, a 10-member crack team headed by R Ramakrishnan , VP (commercial-passenger cars), and Girish Wagh, vice-president & head (small car project), are now monitoring the Nano's progress, say top officials.

The company adopted a two-prong strategy for the Nano revival plan. First, Tata Motors set up 210 'F Class showrooms', each only about 500 sq ft in size and stocking just one car in smaller towns, and hired 1,200 people to man them. Then, it tied up with value retailer Big Bazaar to gain traction among the 150 million footfalls the retailer gets every year.

“There is a Nano parked in every Big Bazaar outlet and the touch and feel experience has accelerated decision-making, especially in smaller towns,” says Future Group Customer Strategy President Sandip Tarkas, who heads this initiative at Big Bazaar, which has 70 outlets in smaller cities and towns. This was in addition to the company’s 619 odd regular sales outlets.

Of course, Tata Motors spokesman said, this is a continuing initiative and will be deepened, as is required. Besides, the company is exploring appointing full-fledged dealerships, only for the Tata Nano, in small towns.

The general approach of taking a vehicle closer to where the customer is a learning from the Tata Ace, which too since its launch has been made available through dedicated outlets, in addition to regular commercial vehicle showrooms.

Now that Nano is on a growth path, the company expects first-time buyers to account for over 80 per cent of the sales of the small car in the coming months.   However, Tata Motors' Vice President  R Ramakrishnan points out that 80 per cent of the bookings during the first round were from buyers who already owned a vehicle, while the remaining 20 per cent were from first-time buyers. He recently said: “The proportion is now shifting. Last month, over 50 per cent of our sales were reported from first-time buyers. We are expecting the numbers to increase by another 30 percentage points over the next few months.”

Loan facility

To make the car buying easy the company made financing arrangements with about 29 public sector banks, private banks, non-banking finance companies, cooperative banks.

Customers can avail of options up to 90 per cent at easy rates. Over and above that, its  own captive finance arm, Tata Motors Finance, is clearing loan applications in just 48 hours to customers.

“Our teams are working with financiers at regional, state and even branch levels for smooth and effective functioning,” the spokesman said.  Thanks to these efforts sales of Nano have picked up in rural markets too. Even as Tata Motors' focus on tier-II cities is seen as a correct strategy as they are natural markets for the Nano, says Abheek Singhi, partner & director of The Boston Consulting Group, yet he feels: “….but I think the vehicle would have to be more rugged for the rural market where the roads are bad and users are not well versed with good upkeeping of a car  .”

New assurance

To boost consumer confidence -- especially after some Nanos catching fire on roads -- Tata Motors had announced various schemes, including offering a free four-year/60,000-km extended warranty and a comprehensive maintenance contract for new buyers at Rs 99 a month. Volumes for the compact car have picked up since then.

In sync with its avowed goal of converting scooters and mobike owners to upgrade in favour of Nano, the company has come out with ‘Mega loan cum exchange mela’ for existing two-wheeler owners. “...we are moving in the direction we had initially targeted.

Over one million 2-wheelers are sold in the country every month. We expect bike buyers to account for a rise in Nano sales,” Ramakrishnan said. Besides, depending upon the relevance of a scheme in a particular geography, we have schemes for exchanging a two-wheeler or a car.

Other schemes have included a Tanishq gift voucher for Rs 5,000 for a woman buyer, an anniversary offer an accessory package (in January marking the unveiling of the Tata Nano in January 2008), free insurance (ran in March).

Industry sales

Even as the Nano registered its best sales ever in April, in macro terms the automotive industry itself saw a sharp deceleration. Industry sales in April grew only 13 per cent, after a 30 per cent growth recorded in FY11, as per the data released by Society of Indian Automobile Manufacturers (SIAM).

However, smaller cars did much better than the more expensive and larger cars which grew much slower than the smaller ones.  Though the Nano bucked this trend, but it is still ranked only 14th in the best-sellers list, way behind the Maruti Suzuki Alto, Swift, Wagon R and even bigger cars like the Dzire.

In that sense, Nano still has a long and difficult terrain ahead to steer.  Moreover, it will still have to work hard to maintain the  an image that its is as safe as any other car in the country.