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The Age of the Nano
March 24, 2009
This may be hard to believe, but Tata Motors' [Get Quote] 'Rs 1 lakh car' has much in common with the one-rupee shampoo sachet and the five-rupee Coke. Like those low-unit value, fast-moving consumer goods, the Nano, launched finally on Monday after many vicissitudes, can be expected to alter the dynamics of its market like nothing before.
Ratan Tata has made the same strategic bet with the Nano that Hindustan Unilever did with shampoo sachets in the late 1980s. Just as HUL looked to expanding a stagnant market for shampoos with sachets to draw in first-time users, especially in conservative rural markets, Tata is hoping to convert two-wheeler users to car owners, both urban and rural.
The numbers appear to pan out: the two-wheeler market is 12 million, against a passenger car market of roughly 1.2 million; that means the Nano has an addressable market that is 10 times larger. Also, it's the car market that is growing as rising incomes raise people's aspirations, in contrast to the more sedate two-wheeler market.
Still, there may have been a time when Tata's strategy appeared counter-intuitive. Shrinking sales of the Maruti 800, another small-sized product that successfully contradicted buyer dynamics in 1984, suggested that the market for cheap, small cars had pretty much been maxed out.
This was the same counter-argument against launching low-value units of shampoos and Coke. In shampoos, the market at the time was moving towards producing large 'economy' packs to induce sales. Likewise with colas, where Coke and Pepsi vied to offer larger and larger packs (watching from the sidelines, the astute Ramesh Chauhan decreed the battle for size a waste).
In passenger cars, too, the numbers suggest that the market appears to be moving towards more expensive mid-sizers rather than cheap, small cars. In that sense, the launch of the Nano can be seen as what B-school case studies describe as a 'disruptive' element (though last year's controversy over the location of its mother plants gave 'disruptive' a different meaning altogether).
If Mr Tata is looking for global precedence, he has it in the tiny Beetle Bug from Volkwagen. Initially Hitler's idea of a 'people's car' (hence the name), it was launched in the US in the 1960s when the big American car companies were producing chrome-and-steel behemoths; so almost everyone predicted an early demise.
Yet, despite sneers from the jocks that the Bug would be a woman's car, it acquired iconic status. And this, long before the oil shock saw the car market shift from giant American gas guzzlers to sleek Japanese fuel efficiency.
As for the Nano, much will depend on how well the company manages costs. The success of HUL's shampoo sachet strategy was reaped by Chennai-based CavinKare. Coke, too, saw the cola market expand with its Rs 5 offering, but eventually found the cost of producing and marketing small bottles unsustainable.
Tata has already locked itself into a challenge with the catchy Rs 1 lakh pricing and the claim that the Nano would be the world's cheapest car. It has now been disclosed that the launch price will hold for only the first 100,000 cars; even if prices go up somewhat, the car will remain by far the cheapest on the market and should logically be the vehicle of choice for the young, other first-time buyers and those seeking to upgrade from two-wheelers.
It is a market position that is hard to beat, especially since those who have driven the car assert that it is not a tinpot, but very much the real thing.