Tata Motors, Sales slide, and Dichotomy between a cab and a car

Last week one of the news dailies published a news item titled ‘Tata Motors struggling to reverse sales slide: aggressive marketing and deep discounts not enough’.

The car industry is passing through a rough patch. A variety of macroeconomic factors and buyer sentiments are working simultaneously against the industry.  The data released (Jan 2013) by the industry body revealed that auto industry has gone down to its lowest growth rate (close to 3%) since 2002-03. Inflationary pressures, economic uncertainty and customer sentiments are externally imposed constraints which seem to be discouraging people to indulge in big ticket buys.  Industry leader Maruti reported clocked in almost similar unit sales this Jan (compared to last year), Hyundai registered 1.45 % increase. But Tata Motors experienced a huge slide by a massive 61% against the previous year’s figure.

This kind of situation elicits two kinds of responses. It is not uncommon for managers to search and use tools of immediate sales revival.  Consequently marketing aggression degenerates into excessive use of sales incentives aimed to trigger impulses in favor of promoted brand. Common to car industry are tactics like free insurance, music systems, interest free loans and service package. But the reality of competition is harsh. Any attempt to disturb the market equilibrium by use of tangible or economic value manipulation is quickly copied and neutralized by other participants in the industry.  This brings us to the question why Tata Motors’ decline is disproportionate to overall industry and other players there in?

Tata Motors created a huge splash at the time when Indica was launched (1989). It’s punch line ‘More car per car’ said a lot about the vehicle. Here was product which packed everything more-space, price (less), mileage, trust- to appeal to value sensitive middle car buyers.  The measure of trust that potential buyers reposed in Tata brand can be gauged by huge booking figure (over a lac) which Indica received within weeks of its announcement. Soon after its launch Indica went on to become one of the top selling hatchbacks in India. Later Tata Motors moved up the product spectrum by launching other models like Indigo (three box sedan), Indigo CS(compact sedan), Indigo Marina, Manza, and Aria.

At the heart of Indica’s appeal was trust which flowed from identity that this brand drew straight from company name TELCO. Tata Motors was previously named as Telco which produced commercial vehicles, primarily trucks. The engine of Indica was developed internally which was based on the engine used by the company for its pickups and SUVs. It was a logical extension of the company to move into technologically adjacent market by derivation and modification of what moves the vehicle. Externally, to customers, the Tata name allowed this off spring to tap into huge equity reservoir developed over the decades.  So the name (market assets) and engine (internal capability/ asset) combination created an irresistible offering. So strong has been the link between the offspring and the mother brand, that even now the brand is called ‘Tata Indica’.

Tata being a strong player in commercial segment wanted to move into burgeoning car market.  At the heart of this move were synergies which could be harnessed. Car enjoys a lot of engineering commonalities with commercial vehicles. So to an automotive engineer, a move from commercial vehicle to private vehicle is incremental. The reality in customer mind may not be the same. The customer point of reference to perceive a car (Tata’s car) is likely to be radically different. The term car evokes a very different normative frame, which is created by other brands in the category. A car in customer’s imagination is everything but not anything associated with commercial vehicle.  A car is an identity expression device; it is an instrument of indulgence.  What appears to be a smooth transition internally is not so externally in the mental world of customers.  Hence Indica made a lot of sense to commercial segment (cabs) but fails to excite a typical car/sedan buyer. A quick car ownership survey can establish this fact.

In the world of marketing the idea of creating a brand that appeals to all is very un-marketing. It is counter to the concept of segmentation and targeting. It for this reason, brands especially with the symbolic core have to erect barriers which prevent it from going to non-customers.  Consider how car Audi, Skoda and Volkswagen are strategically positioned which may share internal commonalities but are very different from one another in terms of appeal and appealed.

Brand, intentions and change

Brand is a connecting devise. It links up marketer’s intentions with that of consumers. First, marketer conceives, articulates and then expresses the brand into a concrete reality. The reality so created later is sensed, perceived and decoded by consumers. A brand succeeds or fails depending upon the extent to which it stands for what its potential customers want it to.
Brands seek constancy amidst change. Change and constancy are the two sides branding coin. Marketers wish to create perpetual brands but it is not easy to achieve. The environmental dynamism work to disturb brand’s equilibrium. Check beneath a long term floating brand, a lot of devil like paddling happens. Nothing remains constant behind the scene. Marketing elements are orchestrated to both adapt and innovate with moving times. Brands are like boats not on still water of a pond rather water of rivers of different currents. When the water flows beneath the boat, it must adjust and adapt to maintain its position.
Often brand names undergo a change often subtle and sometimes radical. Consider the following cases:
• International Business Machines became IBM
• Anderson Consulting became Accenture
• Lucky Goldstar become LG
• Delhi Cloth Mills became DCM
• Kentucky Fried Chicken became KFC
• Telco became Tata Motors
• Levis Signature became Denizen (with Levis mentioned next in small letters)
• Hero Honda has become Hero
• Initially Bajaj forayed into motorcycle market with Kawasaki Bajaj which later moved on to use Bajaj name with all bike sub brands (like Bajaj Pulsar) now even Bajaj name is dropped and sub brands are the brands
• Maruti Zen after a long stint emerged as Zen Estilo and now it is Estilo more than Zen
• Anchor brand of electrical switches is now ‘Anchor by Panasonic’
• Apple Computers became Apple Inc

All these changes are symptomatic of the efforts by brand managers to keep their brands on course. Change is sometimes a compulsion thrust upon by external forces. And often it is a result of voluntary proactive strategizing aimed to seize an emerging business opportunity.

Consider the cases like Arthur Anderson and Kentucky Fried Chicken. These companies were forced to adopt new identity for their past had become a burden (Anderson’s accounting scandal) or irrelevant (Kentucky’s association with ‘fried’ -unhealthy and ‘chicken’ -controversial processing practices). Recently Hero Honda has been rechristened as Hero MotoCorp. This change was necessitated because of the joint venture between the two companies coming to an end in 2010. When Aditya Bira Group acquired cement business of L&T the company was given nod to use L&T name only for a year. L&T sold off its cement business because it wanted to focus on high value businesses and cement did not fit with its vision of the future. Birla had to create a new brand name which subtly leveraged the strengths of L&T brand without making any explicit reference to L&T. Accordingly ‘Ultra Tec’ brand was born which was positioned as ‘ The engineer’s choice’.

International Business Machines evolved into shorter abbreviated form ‘IBM’ with twin objectives: first to leverage the existing equity and secondly get the brand out of business machines closet. Here the brand redefined its scope beyond computing machines to embrace much wider mission of providing ‘solutions’. Tata’s Tata Locomotive Company changed into ‘Tata Motors’ because Telco enjoyed equity in commercial vehicles market which could be both a strength and weakness. On a higher plane all trucks also belong to vehicle category but trucks related associations could be dissonant for a car buying customer who sees car as an extension of his self. With a vision to become a total automotive player, the company combined ‘Tata’ (constant- equity leverage) with ‘Motors’ (umbrella term for all kinds of vehicles and suppression of truck related associations). Apple Computers also changed its identity to ‘Apple Inc’ to make the brand free from the narrow confines to computers as a product category. The company intended to participate in a wider space of electronics. Delhi Cloth Mills was India’s one of the top business houses during the pre liberalization era. The company changed its identity to ‘DCM’ to deemphasize ‘cloth’ associations and simultaneously leverage its equity develop business in new business areas.

Two extreme ends of branding are individual and umbrella branding. Companies (e.g. Unilever and P&G) in the western markets follow individual branding strategy for a variety of reasons. The product brands are often does not share any link with company behind it. The brand singularly drives consumer buying. This is when a product brand can stand on its own (value) in the market. Tata Motors also seem to be going GM (Ford adopted different model) way in terms of branding. Its first launch ‘Indica’ became a success primarily because of the equity it leveraged from ‘Tata’ brand (it was called Tata Indica). ‘Indica’ evolved into ‘Indica Vista’ (Vista suffix was used to suggest new refinements that brand incorporated) and now it is pushed as ‘Vista’ (sedan class). Now the brand is taking a new direction and relegating the old utility or functionality centric associations that ‘Indica’ had appropriated in the background. The car market has been evolving both at the supply and demand ends. There is distinct shift in favor of aesthetics and experience beyond functionality which is now taken for granted. ‘Indica’ has become endorser for ‘Vista’ which is being promoted as an aesthetically pleasing feature rich offering.
‘Sumo’ was initially endorsed by ‘Tata’ directly which later evolved into ‘Sumo Grande’ (suffix added to suggest more contemporized image). Now the brand in its new variant has dropped ‘Sumo’ to acquire new identity as ‘Grande MK II’. Dropping of ‘Sumo’ is done to drop utility vehicle associations and give the new variant and new contemporary sporty identity. ‘Sumo Grande’ now has become ‘Grande Dicor’, the addition of suffix ‘Dicor’ attempts to get a rub off from ‘Safari’ (sports utility vehicle). Here the brand also is making a move away from rational-utilitarian concept in favor of lifestyle and sporty orientation.

Tata Motors: ‘More car per car’to ‘more luxury per car’ and carpet bombing

In the recently announced results Q2 (September 2011) Tata Motors posted great results. Its net profit registered an increase of about 100 times to Rs 2223 crore compared to Rs 22 cores of the previous year. , Tata Motors posted Rs 1600 cores as against Rs 22 cores Q2 2011. This is an impressive turnaround. Tata Motors has become a matter of debate when it acquired Jaguar Land Rover (JLR) spending whopping $2.5 billion (Rs 12500crores) dragging the company into red (consolidated net loss of Rs 2505 in 2008-9).

Tata Motors is at the top of Indian automobile industry. It participates in both commercial and passenger vehicle markets. In a short span to time the company has evolved from primarily being a maker of commercial vehicles to a force to reckon with in the passenger market as well. Has the trajectory of the company something to do with architecture?

Ratan Tata is an architect from Cornell University. An architect is different from an engineer. Architect is trained to have a global perspective whereas engineers by are possessed by details. Architects have an integrative mindset by which they visualize parts as a whole, engineers are narrowly focused (I owe this to my discussions with Prof Mitra yesterday). An architect’s role is to visualize a structure by observation of both what is ‘present’ and what is ‘missing’. Tata Motors under the stewardship of Ratan Tata is carefully architected into a complete motor company not merely a company with different divisions. An aggregation of parts is not the same as an integrated ‘whole’.

Let us turn to the company’s architecture. Starting as a locomotive manufacturer in 1950 the company went on to expand into commercial vehicles. The ‘Tata’ name and the symbol ‘T”, as a result, got inextricably connected with commercial vehicles. With the sight of burgeoning passenger car market, the company entered the market with ‘Tata Indica’ (combination of ‘Indian’+ ‘car’) with the proposition ‘more car per car’. The idea was to lure price/ value sensitive buyer and company generated huge volume. This success was followed by moving up to the next level of sedan and then came ‘Indigo’( 2002)This was three box or sedan version of Indica. The brand Indigo derived from Indica (‘Indi’ used to leverage upon the equity) was further expanded by adding a station wagon variation ‘Indigo Marina’ (‘Marina’, attempted to indicate the modification, 2004). Later in 2009 the company further expanded its Indigo sedan range upward and launched ‘Indigo Manza’. This extension was meant to take the Indigo brand further up as the brand was given an image of luxury (the color, body shape and features underwent a change). Meanwhile Indica brand was toned up (V2 and Vista) and horizontally ‘Xeta’ was launched to branch into the petrol segment. Besides the movement upwards, the company moved downward by creating an ultra economy segment by the launch of ‘Nano’ (2009). In its latest move the company has launched ‘Vista’ (2011). A premium hatchback positioned as a compact which offers sedan like experience. In terms of branding and communication the company, ‘Vista’ plays down its connection with Indica to give it a new image.

The company leveraged its diesel engine prowess and also grew by moving into adjacent segment of the vehicle market by launch of SUVs. Tata Sierra and Tata Estate (now discontinued) and Tata Sumo were early entries into this segment. Tata Safari (launched in 1998) later fitted with ‘Dicor’ engine became a serious player. In 2010, the company launched a ‘cross over’ vehicle named ‘Aria’ combines three concepts: sedan, MPV and SUV (2011).

In the sedan market, now the company faced a challenge further to ‘move up’ in the segment hierarchy. The top ends of the car markets are dominated by companies with heritage advantage. The luxury brands besides functionality are created by heritage or pedigree and ‘exclusion’. The class connotations are generally the hall mark of luxury brands. Tata’s equity leveraged very successfully into the lower ends of the market was inept for this segment. And then came JLR acquisition. This leapfrogged the company into a space which excluded a company like Tata. A company can make cars as fine as Jaguar or Land Rover, what can’t be manufactured is the ‘imagery’ associated with brands like these. These are formidable barriers to entry.

Tata Motors starting with Indica (1999) both moved up and down  and horizontally to participate in adjacent segments. It is akin to carpet bombing by which attempt is made cover up the entire target area so that no space is left out. The growth trajectory that the company has adopted certainly has something to do with the discipline of architecture. The company has been architected to be serious player in the emergent car market flattened by the forces of globalization.