What Tata’s Nano should have learnt from Ikea

Forgive the attempted pun on one of the readings for this week – “Learning from Tata's Nano”. In this post, I have tried to relate 2 separate articles from this week’s readings. I will compare Tata’s launch of the Nano with Ikea’s mission to bring inexpensive furniture to consumers’ homes. Disclaimer: I have had the opportunity to ride in a Tata Nano on the roads of Mumbai, India, and some of the opinions may be personal.

We understand from the Ikea case that it sells furniture at prices which are 30-50% less than those of competitors. Once a “problem” or a need for a particular product is identified, the very first step in its strategy to bring the product to market is to fix a price point, and then to choose a manufacturer. Only then does it design a product taking these as fixed constraints, but still ensures that it looks classy. They then focus on the cheapest ways to ship it to stores, and sell products in a carefully choreographed setting. The end result is inexpensive products which do not make the consumers feel cheap.

Let’s compare this to Tata’s strategy for the Nano. Tata identified the market need for an affordable car (but missed the market sentiment – more on it later). The then CEO, Ratan Tata, promised a car for Rs. 1 lakh (roughly $2,500 at that time – a version of the story claims the number  was initially an arbitrary amount stated as an example during a discussion with journalists). It also designed the car with the price point in mind, by leaving out all the non-essentials. The BusinessWeek article suggests that the Nano’s modular design and an “open distribution” model were innovative concepts in the automobile industry. This is, in a way, comparable to Ikea’s concept of sometimes assembling a product from its parts for the first time in the store. There was also a huge hype around the launch of the world’s cheapest car.

So what didn’t work for Nano, and what they could’ve learnt from Ikea?

1. No manufacturing plan before product design: Tata had to open a new plant in Gujarat, which was a major challenge as the initial plan to have it in West Bengal fell through. This caused a huge delay in bringing the car to market – and Tata could not cash in on the initial excitement. It should have figured its supplier and manufacturing strategy to leverage existing operations, instead of starting from scratch.
2. The “cheap” price: The “sell” of it being the cheapest car in the world came to be associated as a stigma for its owners, rather than a sense of pride. Tata should have sensed this sentiment and taken steps to make the product seem more “tasteful” rather than just inexpensive.
3. The Nano did not look “classy”: Tata did take steps like using an aluminum engine, and light-weight steel to keep costs down; but they couldn’t make the car look classy. It came out looking like a cheap toy car.
4. Not a Rs. 1 lakh car: The version which came at the promised price was an extremely basic one, and did not have some generally required features. The version with some of these feature included, was well over the 1 lakh price point and not too far from the cost of a used Suzuki Alto, a car with a bigger engine and larger storage space.

The manufacturing, pricing and marketing could’ve been adjusted to ensure the Nano’s success, but the hype and constant spotlight surrounding its launch didn’t allow the company much flexibility.

References:

Apart from the assigned readings on Tata Nano and Ikea, I have referenced the following articles for this post:

Okulski, Travis. "The Nano Is Failing - Business Insider." Business Insider. N.p., n.d. Web. 4 Sept. 2013. <http://www.businessinsider.com/tata-nano-failure-2011-12>.

Madhavan, N. " Nano: The blemish on Ratan Tata's otherwise brilliant run - Business Today ." Business Today: Business News, Latest Stock Market and Economy News India from Businesstoday.in. N.p., n.d. Web. 4 Sept. 2013. <http://businesstoday.intoday.in/story/tata-nano-a-blemish-on-ratan-tata-brilliant-record/1/191897.html>.

Eyring, Matt . "Learning from Tata's Nano Mistakes - Matt Eyring - Harvard Business Review." HBR Blog Network - Harvard Business Review. N.p., n.d. Web. 4 Sept. 2013. <http://blogs.hbr.org/cs/2011/01/learning_from_tatas_nano_mista.html>.

Powell, Alvin . "Building the cheapest car |  Harvard Gazette." Home - Harvard Public Affairs & Communications. N.p., n.d. Web. 4 Sept. 2013. <http://news.harvard.edu/gazette/story/2010/10/building-the-cheapest-car/>.