Random Walk - Nano's nano sales

I'm introducing another section on my blog - Random Walk - comprising of topics unrelated to markets, but important enough in their specific domain.

As my first attempt at Random Walk, I'll focus on the recent news article related to Nano's sales and how its pricing and positioning has gone completely haywire. We'll also take a quick look at what Tatas should be looking at in terms of strategic improvements  to rectify this situation.

Apparently, Nano sold just about 509 units in November 2010, giving the term "Nano sales" a completely new meaning ! Compare this with Merc's Nov 2010 sales of 518. Talk about low prices, low margins combined with low volumes - it's the worst nightmare of any business.

With Micro-credit going under just before Nano Sales, it looks like "small" is the new challenge for businesses. However, in both cases, there's nothing wrong with the business model per se, but with positioning and retaining the trust of clients. Just as an example, Tata promised more space in Nano as compared to its peers, and stuck to his promise - but by increasing the height of the car and reducing the length...so if you want more leg space, its expected that you wouldn't mind shifting your position by 90 degrees...;)

Even in terms of positioning, "cheap" will, and can work only in the initial stages of launching a product, but its been carried on for too long, with not much focus on quality. Besides, with the base version of Nano costing about 1.7 lacs, Tata has, somewhere down the line, forgotten the meaning of the term "positioning" itself - Positioning of your product is never what YOU think your product is about, its always what your CUSTOMER thinks what your product is about....and people most definitely will not consider 1.7 lacs as cheap...especially when a good product like Maruti 800's price is just round the corner.

Managing this kind of positioning is not just a marketing challenge, but a humongous operational challenge as well. I thought of a few broad areas which need work from Tata stable:

• With volatile commodity and currency prices, the Procurement and Finance departments need to have really tight budgets, as every dollar of overshoot will impact the nano-margins directly. Hedging of commodities and currencies can even be centralized for group companies (tata steel, TCS, Tata motors, etc.) to achieve efficiencies of scale.
• The pricing from suppliers has to be the best, and innovative measures need to found to make best use of Transfer Pricing Mechanisms (legally, if possible) [Transfer pricing - If Tata Steel sells steel to Tata Motors, they can price it close to their costs or even below it, giving Tata Motors an edge in their raw material pricing. This is called Transfer Pricing and is considered illegal as the pricing is not market determined, results in tax evasion and is also monopolistic in nature]. 
• Add some features that enthrall the customers - while still keeping the costs low.  
• Innovation is also required on financing customers, else, in this era of easy credit, low down-payment, the perception factor about difference in EMIs of Nano v/s M800 will be fairly negative.
• Internally, employees have to be proud of the product, its quality and its best-value-delivered status....for they are also the prospective customers of Nano. I don't have figures on this, so I'd really like to know how many people working in Nano manufacturing plant actually own one as well !
• Quality cannot be compromised on...all component parts have to undergo stringent testing, even if it results in some escalation of costs.
• Positioning needs to evolve from just "cheap" to something-to-be-proud of...like "Hamara Bajaj". Customers need to feel good while driving the car...I've heard of cases where people driving Nano have been sneered at by people overtaking the car...!
• The sales team needs to be trained, so that they don't get defensive about Nano's pricing and positioning.
• To maintain the margins, the incentives need to shift from pure monetary lines to value based...for example, a dealer selling more than X Nanos per month will move to a preferred-dealer list for Tatas, where the margins on other Tata products are higher. Launch a reward-points based approach for dealers and bulk-purchase customers...the reward points can either be encashed for various goodies ranging from Tata-Indicom Leased line connection at reduced prices, to TCS's consulting services for Business solutions...
• And most importantly, trust with various parties needs to be created and maintained...for example, news about Nanos going up in flames could have been turned into an opportunity by replacing those instantly and additionally giving the customers some free goodies...imagine the kind of news that it would've made...!

Overall, the thinking and culture in the entire system needs to change - because something new is being done for the first time in this world, the world's cheapest car has been launched in the world's fastest growing small-car market...the old / usual ways of doing business (selling Indicas, Safaris, Dicors, etc.) will not work here...something new is required, something disruptive, that can shake-up the system and show everything in a new light...

And till that happens, Nano sales will remain exactly that...