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1.0 INTRODUCTION TO THE COMPANY - TATA Motors Limited
TATA Motors Limited is a part of the TATA group of companies. It was established in the year 1945 as a locomotive manufacturing unit. Under a joint venture with Daimler Benz AG of Germany, TATA motors developed its first commercial vehicle in 1954. Today, it is India's largest automobile company (www.tatamotors.com, 2009).
The company has manufacturing units in 6 states in India. Headquartered in Mumbai, India, it also has operations in United Kingdom, South Korea, Thailand and Spain through subsidiaries and associate companies. Apart from passenger cars, TATA also produces commercial utility vehicles (Small, Medium and Heavy trucks) and military vehicles (Ambulance, Bus, 4X4 & 6X6). It ranks fourth in the world for truck manufacturing and second in the world for bus manufacturing (www.tatamotors.com, 2009).
TATA motors was the first company from the Indian engineering sector that was listed in the New York Stock Exchange (www.tatamotors.com, 2009). Among its recent achievements is the acquiring of the UK based luxury car brand Jaguar Land Rover from Ford Motor Company in June 2008. In 2009, TATA Motors launched the least expensive car in the world, TATA NANO, with a starting price of Rs. 120,000 (approx $ 2500, GBP 1277).
2.0 The scope of the report:
This report analyses the following:
- Understanding consumer Identity of the Indian middle class; how a product was envisioned to suit the need.
- Understanding culture and consumption behaviour of the Indian middle class: formulation of marketing activities for the launch of Tata Nano.
- Understanding the influence of reference group on the Indian middle class; contemporary marketing tactics to adopt innovative technologies and counter influence of negative reference groups.
3.0 TATA NANO - The People' Car
Ratan Tata, the Chairman of TATA Group, unveiled NANO on 10th January 2008, at the 9th annual Auto Expo at Pragathi Maidan in New Delhi. The car was named ‘NANO' because it depicted ‘high technology and small size'. It was the least expensive car in the world and was termed ‘The People's Car' as it focussed on the Indian middle class who comprised of the majority of the Indian Population.
It has three versions: TATA NANO, TATA NANO CX and TATA NANO LX which were priced at approx Rs 120,000, Rs 150,000 and Rs 180,000(including VAT and registration) respectively.
The booking of TATA NANO took place between April 9th and April 25th of 2009, during which 203,000 cars were booked.
4.0 Tata Nano and the Indian Middle Class - CONSUMER IDENTITY
4.1 A desire for a higher social status:
According to Diana Farrell and Eric Beinhocker of the McKinsey Global Institute, Indian middle class can be divided into 3 different economic categories namely, Aspirers, Seekers, Strivers.
Aspirers - They earn between Rs. 90,000 - Rs 200,000 ($1,969-$4,376) per year. Farmers, Small shop owners, semi-skilled industrial and service workers fall into this category.
Seekers - They earn between Rs 200,000 - Rs 500,000 ($4,376- $10,941) per year. They range from University/College freshers to mid level government and business executives.
Strivers - They earn between Rs 500,000 - Rs 1,000,000 ($10,941-$21,882) per year. They are also considered as the upper middle class. They range from senior government and business officials to managers to skilled professionals. They are brand conscious. They try to adopt a lifestyle that is socially acceptable and at the same time considered trendy (Business Week, 2007)
For the lower Indian middle class, namely; the aspirers and the seekers, owning a car remained a sign of wealth they could not achieve until recently. They found themselves trapped between their desire for a modern lifestyle and their lack of financial resources (Tracking the growth of the Indian middle class, 2007). They work hard and save up even to buy a scooter worth Rs 45,000 ($1000). One would come across a family of four or sometimes even more, riding on a motor bike, dodging luxury cars and bullock carts.
For Rajesh Murthy, 32, who belongs to the lower middle income category of New Delhi, the Nano has been an object of desire. “I saw it (Tata Nano) two years ago, and since then I have been dreaming of bringing it home, surprising my parents. Oh, my wife, she will be so happy.” He says. (Business Week, 2009).
4.2 Importance of the public self
India, like many Eastern countries, gives a lot of importance to the public self. An individual is judged by his religion, caste, family name, state which he belonged to, and so on. The impact of socio cultural beliefs on the personality and the behaviour in general, is extremely strong (Shivani et al, 2006. Quoted by Saikat Banerjee, 2008). Social acceptability has more value in India than individual achievements. Success is determined more by what it means to the society rather than oneself.
The Social Hierarchy in India has deep roots both in terms of income as well as age (which on some level reflects wisdom). It is perceived that it takes time and effort to move up the ladder (Dev and Babu, 2007. Quoted by Saikat Banerjee, 2008). People tend to indulge in activities that project them as being higher in the hierarchy. It is considered as a means for them to experience and in some ways achieve their ideal self. Be the person they want to be. According to Solomon et al, people consume goods and services either to highlight or hide certain aspects of the self.
4.3 A shift in taste and lifestyle:
Recent studies show that the Indian urban middle class is well educated and are employed in the private sectors. The average annual savings rate of the household which used to be 13% of GDP during the period between 1980 and 1984, increased to over 22% as per recent estimates (Business Line, 2008). The standard of living has increased considerably when compared to the previous generations. Another factor for the shift in the taste and lifestyle of the middle class consumer is the penetration of media. Revelation of the urban lifestyle has been accepted and desired (www.ksoils.com, 2009). As a result, people have realised the need to adopt a lifestyle that is higher in the eyes of the society. “Since the first time I saw the Nano, I started to hate my motorcycle,” says Murthy (Business Week, 2009).
4.4 Marketing activities to suit consumer traits:
“It is the sight of a family of four struggling through rain on a motorcycle” that made Billionaire Ratan Tata come up with the idea to build the world's cheapest car (Business Week, 2009). When Tata Motors in 2004 set out to create a car that would convince India's lower income families to upgrade their motorcycles to four wheelers, they had a unique issue to focus on. The car needed to be developed and priced at Rs 1,00,000 in order to make it affordable. It should also have all the necessary utilities to appeal to the target.
An evidence of marketing as a culture of an organisation can be distinctly seen from the way the engineers at Tata Motors developed a product to focus on the core objectives. They realised that it had to be smaller than the standard car. A smaller car needs a smaller engine and a smaller engine consumes less fuel. The engineers set out to create the car with lesser number of parts than usual. For instance, wheels of the NANO have three bolts instead of four. The seats are in one single moulded piece. As a result of such innovative methodologies, the car was built with one third of the usual parts. It weighs 600 kgs which is 83 kgs lesser than its nearest competitor Maruti Suzuki 800. It also has 21% more room than its nearest competitor. For Girish Wagh, GM TATA Motors, who was the brain behind TATA NANO, the challenge was to create the least expensive car, maintain quality standards and at the same time create a car that was safe on the road.
The car was positioned as “The peoples' car” and priced at Rs 1 lakh (excluding VAT). It was launched in 2009. The car's features matched up to the consumer's expectation and it was utilitarian and hedonic for it appealed to the desire for a higher social status and rendered value. In a survey collected from prospective buyers revealed that price of the Nano was the major factor that attracted them towards it. 55% said price attracted them more than design, technology and mileage.
5.0 Staying close to the Indian Household - Culture & Consumer Behaviour
5.1 Understanding Indian Culture
5.1.1 Family life and values
In India, family is the most important cultural institution that has been in existence for ages. They give a lot of emphasis on family unity. Joint families have been a way of life for many centuries. As Indian societies modernised, the younger generations preferred to move out of home forming nuclear families comprising of husband, wife and kids. Over the years nuclear families have become wide spread. But even then, family ties remain and are strong. Brands that identify and support family values are accepted and they perform well in the Indian market.
5.1.2 Language diversity
The diversity of the Indian languages is extreme. India has 19 languages (including English) and over a thousand dialects. Hindi is the national language and is spoken by 40% of the entire population. English is taught in schools as primary or secondary language. Though English is becoming a common platform of communication amongst people who do not speak other vernacular languages, a majority of Indians find it easier to communicate in their mother tongue. Such wide array of languages is both a challenge and also an opportunity for marketers. When focussing on a smaller segment, it would be easier for a marketer to relate directly through their language. But it becomes complicated when launching a nationwide campaign.
5.2 Consumption pattern
As the economy developed, the consumption pattern of Indian middle class also changed. The change can be sensed by the consumption behaviour towards mobile phones and even personal care products which did not occupy a major space in the consumers shopping cart until the turn of the century. According to Eric D. Beinhocker, Diana Farrell, and Adil S. Zainulbhai, the discretionary spending of the Indian middle class will grow from 52% to 70% in the next fifteen years.
In India, transportation occupies the highest category of expense after food. A study done by Eric D. Beinhocker and Diana Farrell, to understand consumption patterns among middle class Indians, revealed that a major portion of the household budget would be spent on transportation and mainly on purchase of cars in the coming years.
5.2.1 Trend towards used cars
Another important issue to focus on would be the market for used cars. According to Maruti Suzuki India Ltd. True value division which deal with used cars, the market for used cars is 10% more than that of new cars. The ideology of sticking to the same car for 10 -15 years has gone. People buy cars for a maximum of 3-5 years before they sell it to buy a new one. The market for used car has grown by 25% in the last three years and is expected to grow in the future. By the entry of organised players in the used car segment, consumers have become more attracted towards it.
5.2.2 Tendency to act upon add-ons
The new Indian middle class is well informed of the products available and are brand conscious to a huge extent. They are ready to spend but spend wisely. It is difficult to make them buy a product or a service if it does not render desirable value. Consumer behaviour in India is also influenced by freebies, discounts, lucky draws, and other such add-ons. Marketers have influenced consumption behaviour over the years by coming up with innovative ways to attract consumers through such add-ons.
5.3 Marketing activities to suit consumer traits
Tata motors had made it clear from the very beginning that the Nano was targeted at the Indian middle class family. Though Ratan Tata, during the launch of the Nano, had mentioned that “the Nano would also provide young Indians a safer means of transport”, the primary target for the Nano has always been the middle class nuclear family to be specific. It was necessary that in the initial stages of the promotion of the Nano, all communication carried the word ‘family' in it. Whether it was radio, press, online or even PR, this has been constant.
But this was not enough. The strategy had to focus on the family at all times. The company had come up with several innovative ways to appeal to the Indian tendency to act upon add-ons as well. Tata motors had announced before the launch that only 1 lakh cars would be sold in the first 12 months. The owners of the cars would be decided based on random computerised allotments.
The application and the initial deposit for the Nano were Rs. 300 and Rs. 2999 respectively. To increase the point of contact for the consumer, applications were available in over 30,000 locations across the country. The forms were available in Tata owned stores that focussed on family like; world of Titan, Croma, Westside and Tata Indicom outlets. The forms were also available online for Rs 200. Tata had also entered into tie-ups with over a dozen banks to provide financial aid to prospective buyers. Those who missed out during the first allotment have the option of retaining the deposit amount and get an interest of 8%. The value seeking tendency in Indian middle class needed assurance that they were compensated if they do not win the first allotment.
The company had also come up with loads of merchandise like Tata Nano watches, Cell phones, T-Shirts etc which would be sold or given away as freebies during the booking process in all Tata owned stores. This again was a means to catalyse word of mouth promotion.
Another aspect that the marketing of the Nano shaped was the drastic change in the used car market. The idea of getting a brand new car for a much lesser price than a used car, stuck to the mind of most consumers. The Nano was targeted at the two wheeler owners who wanted to upgrade to four wheelers. Middle class Indians who have the tendency to opt for used cars due to financial constraints preferred the alternative. This had a huge impact on the used car market. The decline in demand forced the price of used cars to be reduced by 30% (approx). In a survey collected from potential buyers revealed that 35% of the buyers preferred Tata Nano against 8% who opted for second hand cars. It should be noted that the used car market in India is as big as the new car market. The Nano has successfully positioned itself to cater to both new and used car consumers at the same time.
6.0 Influence of reference group on consumer behaviour
Influencing customer behaviour and managing relationship has become key factors for marketing success. Consumers are bombarded with promotional messages from all corners. As a result of which they have become cynical about brands and their promises. Consumers today are influenced by reference groups while making decisions.
6.1 Influence of virtual communities:
Indian consumers today, like most consumers worldwide, are moving towards online social communities and blogs for information about products. According to ComScore Inc, Virtual communities like Facebook and Orkut, have about 5 million and 12.8 million members respectively. (http://www.comscore.com/Press_Events/Press_Releases/2009/2/India_Social_Networking, 2009). Realising this fact, companies are moving away from traditional means of advertising to content creation in order to influence behaviour by conventional means.
6.2 Negative influence of reference groups:
According to Solomon et al, Consumption behaviour is influenced by both positive and negative reference groups. During the launch of the Nano, many NGOs protested against it. Traffic congestion and pollution were the main reasons behind the protest. According to Crisil research, 58 million two wheeler owners could afford a Nano (with financial aid). This makes half of the Indian population which is 1.17 billion.
NGOs and environmental organisations like Green Peace have protested against the Nano for prolonged carbon footprint. Such negative influence on the consumers can have drastic effect on any organisation. Consumers seek guidance from more than one reference group. According to Solomon et al, consumers stay away from products that portray a negative image. They do this so as to please a positive reference group. In this case, the NGO's were the ones that the consumers were trying to please and it was necessary for TATA Motors to counter the influence.
6.3 Marketing activities to suit consumer traits:
The marketing team at Tata Motors have effectively made use of the online media to connect with prospective buyers. The website (www.tatanano.com) provides all the information needed. It is equipped with the Nano game, Blogs/ links to online communities and regular updates on information regarding Nano. Booking of the Nano can also be done online. According to tatanano.com, the website got 30 million hits since the day of launch and 4000 online bookings were made during the period from April 9th - 25th 2009. Orkut, India's leading social networking site has 378 communities dedicated to Tata Nano. Clearly, the product has created a lot of public interest.
Extensive PR and Viral marketing tactics were used to counter the accusations of NGOs. During the launch of the Nano, Mr Ratan Tata made it clear that the car complied with “euro III” as required by Indian Standards. This speech/message was posted on YouTube. It has received over 4 lakh hits as of December 1st 2009. Ratan Tata, at the Tata motors annual meeting, mentioned that the Nano is 12% less polluting than two wheelers. According to The Hindu Business Line, over 50,000 articles were written about the Nano since the launch. It was important for Tata Motors to make it clear that the Nano's contribution to pollution was less compared to most of the cars in the market.
Though Tata Motors have been able to convince consumers about the minimal emission of the Nano, they have still not been able to provide a solution for the concerns regarding traffic congestion. A suggestion could be to sell the car only to first time car buyers in the initial stages. No doubt, the Nano has more demand than Tata Motors can supply. It would be a wise move to restrict sales only to first time car buyers at least for the first few months.
Another suggestion could be to make use of the vernacular media to reach out to people who do not speak Hindi or English. As mentioned earlier, India is a country of extreme diversity when it comes to languages. Though vernacular press were used for promotion, the advertisements were in English on most occasions.
It is also important for Tata Motors to hold on to its customers. Over 2.03 lakh cars were booked in the first wave. It should be noted that these customers fall within the ‘innovators' and the ‘early adopter' category and in most instances organisations develop their products based on the reaction of these groups. Tata Motors cannot wait for customer reactions to modify or develop the car and cannot afford to lose these customers because of the size in numbers.
This report analyses consumer behaviour towards Tata Nano and the organisations' marketing activities. Three aspects of consumer behaviour, namely; Consumer Identity, Culture and Consumer behaviour, and Reference Groups, have been dealt in detail. The report reveals that Tata Motors have done a good job in understanding Indian middle class consumption behaviour. The launch of the Tata Nano has been Successful. It would be interesting to learn how Tata moves ahead with its new found success.