Tata Nano

The Peoples Car that Promises to

Reconstruct the Automobile
Industry

Questions to Consider

Did Tata Nano, as originally conceived, create

exceptional utility?

Was it strategically priced to capture the target mass

of four-wheeler noncustomers?

Did it exercise target costing and hit its cost target?

Did it effectively overcome hurdles for adoption?

Despite its initial success, by the time the Nano was

commercially available, sales fell short of performance
expectations. In your opinion, what were the major
causes for Tata Nanos setback? Can you explain this
outcome using the framework of blue ocean strategy?

VIDEO

PART I
The Peoples Car:
Exceptional Utility at Low Cost

Competition in the Automobile

Industry
Motor Vehicle Sales in 2009

Passenger Car Sales in 2009

Small and
compact (50%)
Other
passenger cars

Passenger cars (15%)

Other vehicles

Noncustomers of the Automobile Industry

The
Market

First
Tier

Second
Tier

Third
Tier

Three-tiers of
Noncustomers

1st tier: Existing passenger car owners who were dissatisfied with their cars
high maintenance costs (such as fuel and insurance), adverse effect on the
environment, or the less-than-satisfactory maneuverability on Indias rough road.

2nd tier: Two-wheeler buyers who could not afford a passenger car, as the price
of an entry-level car was about 5 times that of a scooter.

3rd tier: The great masses of Indian people who did not even own a scooter and
relied on public transportation for their daily mobility needs. (90% of the Indian
families did not own a motorcycle.)

The Sequence of a BOS Move

Buyer Utility
Is there exceptional buyer utility in
your business idea?

Yes

No - Rethink

Price
Is your price easily accessible to the
mass of target buyers?

No - Rethink

Yes
Cost
Can you attain your cost target to
Profit at your strategic price?

No - Rethink

Yes
Adoption
What are the adoption hurdles
in actualizing your business idea?
Are you addressing them up front?

No - Rethink

Yes
Commercially
Viable Blue Ocean Idea

Passenger Cars: The Biggest Blocks to Utility

The Buyer Experience Cycle
1.
Purchase

Customer
Productivity

2.
Delivery

3.
Use

4.
5.
Supplement Maintenance
s

X
X

The Utility Levers

Simplicity

Convenience

6.
Disposal

Risk
Fun and
image

Environmental
friendliness

X
X

Blocked utility

Two Wheelers: The Biggest Blocks to Utility

The Buyer Experience Cycle
1.
Purchase

Customer
Productivity

2.
Delivery

3.
Use

4.
5.
Supplement Maintenance
s

6.
Disposal

The Utility Levers

Simplicity

Convenience

Risk

Fun and
image

Environmental
friendliness

Blocked utility

Reconstructing Across Alternative Industries

Mr. Ratan Tata envisioned a form of transport that
reconstructs across
a typical small car and a motorcycle; a vehicle that could
be affordable and low cost enough to be within everyones
reach; a Peoples Car, built to meet all safety standards,
and designed to meet and exceed emission norms and be
low in pollution and high in fuel efficiency.
Alternative Industries
Alternative
Industries
Strategic Groups

From
Competing
within

Chain of Buyers
Complementary Offerings

To Creating
across

Functional/Emotional Appeal to Buyers

Time
Six Paths Framework

Reconstructing Across Alternative Industries

Two wheelers

Four wheelers

Tata
Nano
Affordable price
Fuel Efficiency
Easy
Maneuverability

Safety
Comfort in allweather
conditions
Durability, Speed

Tata Nanos Four Actions

Eliminate
Luxury features

Raise
Space and Comfort
Eco friendliness
Fuel economy
Maneuverability
Easy financing

Reduce

Create

Models and Colors

Materials and Parts
Performance

Easy access to purchase

Pride and Status

Strategy Canvas of Tata Nano

Tata Nano
Hig
h

Small & compact

cars

Offering Level

Motorcycles
Low
Models &
Colors

Price

Luxury
features

Performanc
e

Material &
Parts

Safety

Space &
Comfort

Fuel
economy

Eco friendliness

Easy
financing

Maneuverability

Pride &
Status

Easy access
to purchase

The Sequence of a BOS Move

Buyer Utility
Is there exceptional buyer utility in
your business idea?

No - Rethink

Yes
Price
Is your price easily accessible to the
mass of target buyers?

Yes
Cost
Can you attain your cost target to
Profit at your strategic price?

No - Rethink

?
No - Rethink

Yes
Adoption
What are the adoption hurdles
in actualizing your business idea?
Are you addressing them up front?

No - Rethink

Yes
Commercially
Viable Blue Ocean Idea

Strategic Pricing against Alternatives

Step 1. Identify the price corridor of the mass

Step 2. Specify a level within the price corridor
Three alternative product/service
types
Different
Different form,
form,
Same Form
Same function
and
function,
same
objective

High degree of legal and

resource protection
Upper-level
pricing

Price
Corridor
of the
Masses

Mid-level
pricing

Low-level
pricing

Difficult to imitate

Some degree of legal and

resource protection

Low degree of legal and

resource protection
Easy to imitate

Size of circle indicates is proportional to number

of buyers that product/service attracts

The Strategic Pricing of Tata Nano

Rs
400,000

Rs
300,000

Rs
200,000

Small and
compact
cars

Used cars

-Mr. Ratan Tata, Chairman of

Tata Group

Tata Nano

Rs
100,000
Rs 80,000
Rs 30,000

I think the cheapest car was

about 2 lakh rupees and a high
end motorcycle was maybe of
course went over a lakh of
rupees but most of them were
about 30,000-40,000 Rs. So
something
around
a
hundred thousand or one
lakh would be a figure that
would be enticing.

Rickshaws
Two
wheelers

Ox carts

The Sequence of a BOS Move

Buyer Utility
Is there exceptional buyer utility in
your business idea?

No - Rethink

Yes
Price
Is your price easily accessible to the
mass of target buyers?

No - Rethink

Yes
Cost
Can you attain your cost target to
Profit at your strategic price?

Yes
Adoption
What are the adoption hurdles
in actualizing your business idea?
Are you addressing them up front?

Yes

Commercially
Viable Blue Ocean Idea

No - Rethink

No - Rethink

VIDEO

PART II
Create a Win-win for Tatas Profit:
Target Costing Based on
Excellent Utility and Strategic
Pricing

A Cheap Car: Cutting Costs across the Board

Tata Nano
Hig
h

Small & compact

cars

Offering Level

A cheap car

Low
Models &
Colors

Price

Luxury
features

Performanc
e

Material &
Parts

Safety

Space &
Comfort

Fuel
economy

Eco friendliness

Easy
financing

Maneuverability

Pride &
Status

Easy access
to purchase

Target Costing of Tata Nano

And we made another important
decision,
which was we should not give the
market a half car or a pseudo car. It
should be a full car,
price remaining the same.
Mr. Ratan Tata, Chairman of Tata Group

Key Principles of Cost Reductions for

Tata Nano

Target costing should be based on:

Delivering the key utilities that Indian families value
Strategic pricing of the Nano

Key Levers Pulled to Achieve the

Cost Target
The Strategic Price
The Target Profit

The Target Cost

Streamlining and
Cost Innovations

Partnering

Pricing Innovation

Tata Nano Achieving the Cost

Target
Streamlining and
Cost Innovations
Eliminated non-essential
options

Eliminated or reduced
non-essential parts

Reduced the use of raw

materials while ensuring

safety

Cost innovated on

technical norms (e.g.,

engine size & position)

Partnering
Created a Suppliers

Outreach Program to
jointly pursue cost
savings.

Collaborated with banks

on Nano financing and
publicity.

Used retail stores and

post offices as
distribution channel.

Planned to deliver the car

in SKD kits to satellite
mini-factories.

The Sequence of a BOS Move

Buyer Utility
Is there exceptional buyer utility in
your business idea?

No - Rethink

Yes
Price
Is your price easily accessible to the
mass of target buyers?

No - Rethink

Yes
Cost
Can you attain your cost target to
Profit at your strategic price?

No - Rethink

Yes
Adoption
What are the adoption hurdles
in actualizing your business idea?
Are you addressing them up front?

Yes

Commercially
Viable Blue Ocean Idea

No - Rethink

Major Adoption Hurdles of a Business Idea

Employees can be skeptical and disaffected.

Partners can be unconvinced and uncooperative.

The general public can be resistant and critical.

Tata Nano BOS Ready to Take Off

Employees were proud and motivated to be part of the

history-making team.

Business partners were engaged from the design stage

and motivated to pursue cost innovations to help Tata
Nano achieve the target cost.

The Peoples Car was well communicated to and

received by the general public.

Within two weeks of the Nanos commercial launch in

2009, its official websites received 20,000,000 hits.
Order applications reached 200,000 the biggest sales
uptake in the history of global automobile industry.

The Blue Ocean Idea Index (BOI Index)

BOI Index

Tata Nano

Utility

Is there exceptional
utility? Are there
compelling reasons to
buy the offering?

Price

Is the price easily

accessible to the mass
of target buyers?

Cost

Does the cost

structure meet the
target cost?

Adoption

Are the adoption

hurdles addressed up
front?

Safe, comfortable, reliable,

environmental friendly vehicle
that met Indian families
desire for upward mobility at
low cost.
Priced at one lakh ($1,984)
against two wheelers; the
cheapest car then was priced
at 2.5 lakh ($4,960).

Tata Nano team achieved the

target cost through cost
innovations and partnering.

Employees and partners wee

motivated; the public was
ready to accept the product.

Tata Nano: Disappointing Performance Results

Sales of Tata Nano failed to meet performance

expectations.

Why didnt the Tata Nano strategic move unlock

huge demand as expected?

What went wrong in the execution of Tata Nanos

blue ocean strategy?

VIDEO

PART III
People Matter:
The People Proposition-Strengths, Weaknesses and
Consequences

Creating an Aligned Set of Strategy

Propositions
VALUE
PROPOSITION
The utility buyers
receive from an offering
minus the price they
pay for it.

PROFIT PROPOSITION

STRUCTURALIST
APPROACH
The alignment of
the three strategy
propositions in
pursuit of EITHER
differentiation or
low cost.

The revenues an organization

generates from an offering
minus the cost to produce and
deliver it.

PEOPLE
PROPOSITION
The positive
motivations and
incentives put in place
for people needed to
support and implement
the
strategy.

RECONSTRUCTIONIST
APPROACH
The alignment of
the three strategy
propositions in pursuit of
BOTH differentiation
and low cost.

Aligning the Three Propositions of BOS

Value Proposition
Utility Price

Blue Ocean
Strategy
Differentiation
AND
Low Cost

Profit Proposition
Revenue- Cost

People
Proposition
Employees, Partners and
Other Stakeholders

Two Major Challenges for Tata Motors

Sudden and sharp increase in raw material prices

Unrest at the Tata Nano manufacturing plant in

Singur, led by Mamata Banerjee, a political
opposition leader fiercely against the Tata Nano
initiative.

Sharp Rise of Commodity Prices in 2008

Tata Managements Response

Practiced 3Es to promote cost innovations.
Employees Broke down silos to leverage expertise and
skills.

Peopl
e

Partners

Practiced 3Es to seek continued

cooperation.

External
stakeholde
rs

A strong people proposition with regard to

employees and partners supported Tata Motors to
overcome hardships and achieve the cost target.

Political Hurdle and Tatas

Setback
Practiced 3Es to promote cost innovations.
Employees Broke down silos to leverage expertise and
skills.

Peopl
e

Partners

External
stakeholde
rs

Practiced 3Es to seek continued

cooperation.

Won support of local government.

Practiced 3Es with local communities.
Overlooked the political opposition
led by Mamata Banerjee.

Violence and confrontation finally resulted in the

relocation of the Tata Nano plant.

Relocation of the Tata Nano

Manufacturing Plant

Singu
r

Sanand
2100 Kilometers
(1304 miles)

Consequences of the Singur Setback

Unavoidably increased costs.

Delayed the production and launch of Tata Nano.

Compromised Tata Nanos original value

proposition.
Tata Nano was sold as another car in conventional
dealerships.
The perception about Tata Nano changed from the
peoples car to the cheapest car.

Misalignment of Strategy Propositions and

Consequences
Value Proposition
Utility Price

Blue Ocean
Strategy
Differentiation

X
Profit Proposition
Revenue- Cost

AND
Low Cost

X
People
Proposition
Employees, Partners and
Other Stakeholders

Reviving Tata Nano Key Factors to

Bring Back
Hig
h

Small & compact

cars

Offering Level

Key factors to
bring back

Tata Nano

Low
Models &
Colors

Price

Luxury
features

Performanc
e

Material &
Parts

Safety

Space &
Comfort

Fuel
economy

Eco friendliness

Easy
financing

Maneuverability

Pride &
Status

Easy access
to purchase