There was clearly something deeply flawed about the Rs.1 lakh price fixation for the Tata Nano. The obsession with this figure, from the day that it was a gleam in Ratan Tata’s eye, has cost the company dear, besides giving low-cost cars a bad name.
For all its hype, Tata Motors Ltd sold just 229,157 Nanos since deliveries began in July 2009, and according to a Bloomberg report, sales in March were off by 86% from a year earlier. The hangover of low pricing has impacted the company’s entire product line including the Indica, the Indigo and the Safari, all of which ranked near the bottom of J.D. Power’s 2012 India Initial Quality Study.
Since the term “bottom of the pyramid” was coined by the late C.K. Prahalad, the poor, living in low and middle-income countries have received increasing attention from marketers. The bottom of the pyramid attracts companies because of its promise of a large potential consuming mass with pending demand, low consumer expectations and slight competition. The Nano’s failure shows this concept went awry and that case studies are not transferable in different matrices. What works for Hindustan Unilever’s tea /soap/ washing powder or Chik shampoos does not necessarily work for a higher value product. The Nano as a car-in-a-sachet was an unworkable concept. Incidents of overheating early on ended up deterring many curious buyers despite the Tata brand that works fine in all other spheres.
The Maruti 800 was the real people’s car in India. Significantly, at the time it was launched it was priced above the Fiats and the Ambassadors. Yet a generation, sick of the poor quality of the existing cars with their antiquated features, couldn’t get enough of the 800 which always seemed to be appropriately priced but overwhelmingly reliable.
The Nano’s positioning as the “upgrade-from-scooter” may have built a romantic aura around its creation but defies the basic theory of pricing which contends that “the price for any specific good/service is the relationship between the forces of supply and demand.” The Rs.1 lakh tag was based neither on demand nor on supply. Consequently, the tag of the “lowest priced car in the world” may have been great for garnering media eyeballs but did little to satisfy real consumer needs.
Successful products normally follow one of three approaches to pricing. A simple “cost-plus” strategy or one derived after researching how much a consumer is willing to pay. Finally, of course, there is competitive pricing, whereby a company figures out what its competitors are charging, then pegs its own prices accordingly. Rs.1 lakh was an arbitrary figure fixed somewhere between the cost of a two-wheeler and the then lowest priced car in the Indian market. Following none of the existing canons of pricing, it needed something special in the product or its positioning if it had to succeed. The failure of the Nano proves it had neither of those virtues.
Reinventing the wheel to produce the cheapest mousetrap in the market is a flawed strategy. Tata Motors’ experience with the Nano shows that.