Different drivers

Why the Tatas succeeded with the Ace but not with the Nano

One company, two contrasting experiences. Where the Nano has struggled to live up to its pre-launch hype, just a few years earlier, the success of the Ace caught Tata Motors completely by surprise. So much so that the company scrambled to set up a new plant to meet demand. Are there lessons to be learnt from these two extreme experiences?

The ace up Tata’s sleeve

In the mid-1980s, intra-city haulage in India shifted to the sleek, modern-looking light trucks produced by four Indo-Japanese joint ventures (JVs). But the surprise winner of the light commercial vehicle (LCV) race was the incumbent leader of the commercial vehicle industry, Tata Motors. Where low levels of indigenisation made the JVs vulnerable to a stronger yen, Tata Motors designed LCVs that were rugged and suited to Indian conditions, using the engineering skills that had been built under legendary CEO Sumant Moolgaokar as well as the company’s understanding of Indian roads. The rest is history. Tata Motors’ flagship LCV, the Tata 407, recently celebrated its silver jubilee.

The lower extreme of the LCV market — really small vehicles that carry less than a tonne and make last-mile deliveries — remained largely untouched till the early 2000s. This segment was addressed by small, three-wheel vehicles that lacked power or aesthetics, and instead constituted both an eyesore and a traffic hazard. Tata addressed this opportunity with the Ace. 

It was a textbook product development. Before the team started work on the product, it interviewed over 600 people who would potentially be involved in purchasing or using the Ace — these included drivers, cleaners, financiers, owners and mechanics. Inputs from these interviews were used to define the attributes of the product. An input from a buyer that he would get a better marriage proposal if the vehicle were to have four-wheels rather than the usual three underlined the boost in status associated with a four-wheel vehicle. 

Innovation happened not only in the product development process but in other parts of the supply chain. Tata Motors introduced new concepts like e-procurement, close vendor partnerships and co-location with vendors to optimise the supply chain. A new service network was created that focused on training mechanics in small towns. To facilitate all this fresh thinking and align the development process with the needs of a young and aspirational market, Tata Motors put together a young and dynamic team under Girish Wagh to drive the Ace development process. 

In all this, Tata Motors’ top management didn’t lose sight of the economics of the user, and product development was subject to a non-negotiable target cost that had its basis in market dynamics. More than 500,000 vehicles were built on the Ace platform in its first five years. If imitation is a sign of success, the Ace was a clear winner — competitors like M&M and Piaggio soon launched me-too products.

Small car, big problems

In recent months, as Tata Motors has re-positioned and re-launched the Nano, the company’s explanation for its struggle to live up to expectations has revolved around marketing. Company spokesmen have explained how the market labelled the Nano a “low-cost” car, and this kept customers away and they have argued that the company failed to effectively dispel this notion.

Yet, comparing the development process of the Nano with that of its successful cousin the Ace, that argument appears incomplete. Yes, there is a market-related issue, but not the way Tata Motors describes it.

As is well known, the vision, motivation and top management support for the Nano came from group chairman Ratan Tata, reportedly after he saw a family of five precariously perched on a motorcycle in heavy city traffic. Ratan Tata played an important part in the product, including setting its launch price, and test driving it at various stages of its development. Most importantly, Tata Motors was anxious to maintain a veil of secrecy around the product and, hence, most decisions regarding the Nano were taken internally, and apparently without the market inputs that characterised the Ace’s development. Instead, engineering-based optimisation to lower costs was the focus of the Nano’s development.

Another challenge to the Nano came from the new product introduction process. Looking back now, the few, but well-publicised fire accidents that happened soon after the Nano’s launch seriously damaged its market potential. For a cash-strapped individual making the transition from two wheels to four, safety concerns and a potentially poor re-sale price clearly dampened enthusiasm. Re-sale worries were accentuated by the reluctance of banks to reduce the customer’s margin needed for a loan to buy a Nano. Also, remember that excellent durability and re-sale value are the enduring advantages of the Maruti 800 and Alto, the current favourites of first-time car buyers.

Of course, to be fair, Tata Motors got distracted by the challenge of making a last-minute shift of its plant from Singur to Sanand. And the rosy initial booking numbers delayed the company’s exposure to market realities. It didn’t help that many of the buyers were not from the stated target market for the car, and were much more critical of the Nano when they compared it to existing vehicles. 

But, my key “takeaway” from the Ace and Nano stories is that a market-driven development process betters your chances of success. You might be thinking of Steve Jobs who famously observed on multiple occasions that he didn’t go and ask users what they wanted because it was his job to find better solutions for them. But Jobs was a master designer (think of a Gucci or a Salvatore Ferragamo) with tremendous intuitive insights. Few people have those skills. For those who don’t, listening to the market carefully is a less risky approach to product innovation.