Frugal Innovation - Case of Tata Nano

Table of Contents

  • Introduction
  • Frugal Innovation Case of Tata Nano
  • Business models
  • Strategy
  • Tools and Techniques used
  • Important business decisions
  • Market analysis data
  • Structure
  • Recommendations
  • Conclusion

Frugal Innovation in Tata Nano

Frugal innovation is a term referring to the process of developing products or services that are low-cost, easy to use, and environmentally sound. Frugal innovation is about reducing the complexity, cost, and resource consumption of products or services while maintaining or improving their performance and quality (Yip et al., 2019).Frugal innovation means developing products or services that are low-cost and designed for peoples 'needs in emerging markets, where consumers have different budgets--and tastes--than those of developed countries. Regarding frugal innovation in India, the most outstanding example is Tata Motors Ltd's world-cheapest car, the compact little Nano.

Tata Nano, the low-cost car developed by Indian company Tata Motors, is one of the most famous examples of frugal innovation. In 2008, the Tata Nano was introduced as the world's most miniature expensive car at a relatively low price of around $2000. Tata Nano was developed for millions of Indians who could not afford the expense of an average car but wanted to move up from motorbikes or scooters (Khadaria and Mishra, 2023).The Tata Nano was a new product that defied the wisdom of many car companies. It showed that frugal innovation could benefit customers and businesses alike, providing low-cost solutions to unmet needs.

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Frugal Innovation Case of Tata Nano

Business models

Tata Motors' first business model was modular design. With a minimal number of parts and components, the manufacturing cost and complexity for Tata Nano are reduced. The car also had a modular structure, making it easy to customise and amend (Albert, 2019). For instance, customers could select different colours to suit their tastes and needs-modular design made The car more adaptable to foreign markets and environments.Tata Motors's second business model was reverse engineering. The Tata Nano was based on existing low-cost vehicles in other markets, such as China and Iran (Hossain, 2021). These cars were studied by Tata Motors, who applied their features and technologies to the Indian context, taking customer needs into account. Take the Tata Nano as an example. Because it had a rear-mounted engine, fuel efficiency improved, and noise and vibration levels were reduced. Reverse engineering also enabled Tata Motors to study the best practices of other car makers and avoid their mistakes (Lei, Gui and Le, 2021).
The third business model that Tata Motors employed was value engineering. To keep the costs down, Tata was willing to eliminate or simplify all those features considered unnecessary bells and whistles on a car: air conditioning, power windows, radio, etc. (Lei, Gui and Le, 2021). Naturally, they used poorer quality materials- like plastic instead of metal for parts- and smaller tires, which reduced total manufacturing cost. Through value engineering, Tata Motors cut the price of its car without sacrificing quality or performance. Value engineering has made the vehicle more environmentally and energy-efficient (Costa, Teixeira, and Brochado, 2021). The frugal supply chain was the fourth business model that Tata Motors used. Utilising their existing network of suppliers and dealers, local entrepreneurs, and the labouring community helped reduce distribution costs. The car was also sold in unorthodox channels, including online platforms, mobile stores, and rural fairs. Its frugal supply chain enabled Tata Motors to spread its customer base and raise market share (Hossain, 2021).

The fifth model that can be used is bottom-up innovation. In developing and designing the Tata Nano, there was a lot of customer feedback and co-creation (Winkler et al., 2020). Tata Motors conducted surveys, focus groups, and field tests with potential customers to understand users' needs, preferences, and expectations (Costa, Teixeira, and Brochado, 2021).The company also requested suggestions and ideas from the public via online platforms and contests. The car met customers' real needs and desires through bottom-up innovation. Bottom-up innovation planted a sense of ownership and loyalty in the customers.

A critical element of frugal innovation is to streamline the design, deleting unwanted functions and features and focusing on what's valuable. The Tata Nano was designed following this principle, and the number of parts was minimisedwhile making a simple design (Ploeg et al., 2021). Take the Tata Nano, for example; it has only one windshield wiper and one side mirror. Each wheel only has three lug nuts instead of five, as usual. There's no power steering, air conditioner, or radio (Singh, Seniaray and Saxena, 2020). It has a small engine with two cylinders and 35 horsepower coupled to a four-speed gearbox (Sharma, Mishra and Sharma, 2023). These design decisions kept the weight and price of the car down without sacrificing performance or safety (Sahdev, Hassan and Yadav, 2024). Another approach to frugal innovation is carefully optimising the materials for building products. Frugal innovators seek out cheaper and more efficient substitutes or reuse existing materials they find in these ways as much as possible. Tata Nano adopted this strategy, which used plastic and glue rather than metal welding for items such as doors, roofs, and dashboards (Albert, 2019). Not only was this cheaper and lighter, but it made the car more environmentally friendly--plastic is more accessible to recycle than metal. The Tata Nano also employed tubeless tires, which are economical and durable (since they lack inner chambers or valves).

Frugal innovation has another strategy. It is to make full use of the advantages that the local ecosystem affords, including our partners, suppliers, and customers willing to provide the organisation with low-cost resources and services-- while they also bring valuable feedback and reveal all kinds of needs that we're not even aware exist out there already in society (Winkler et al., 2020). This strategy enabled Tata Nano to involve local stakeholders in its development and distribution. Tata Motors, for example, teamed up with local suppliers to supply low-cost parts and services (Sahdev, Hassan and Yadav, 2024). A few of these suppliers were small-scale entrepreneurs who conducted business from their homes or workshops. The car was also distributed through a network of dealers, service centres, and mobile units; as a result, Tata Motors' reach extended to customers in rural areas.Innovating the business model is a fourth way to do frugal innovation (Sharma, Mishra and Sharma, 2023). In other words, it means finding new revenue streams and cutting costs at the same time while adding value for customers. Tata Nano adopted such a strategy with flexible customer financing plans, including loans or instalments at low-interest rates. This enabled low-income customers to get a car without having to pay in full upfront (Ploeg et al., 2021). Tata Nano also established new revenue streams by selling car accessories, insurance, and maintenance packages. These products and services improved the customer's experience and loyalty.

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Tools and Techniques used

Tata Motors adopted a design for manufacturability (DFM) philosophy, one in which the product is designed to be quickly and efficiently mass-produced using existing production processes and equipment (Tiwariand Bergmann, 2019). By eliminating redundant features, Tata Motors unnecessarily used materials and components in the design of their cars by applying DFM concepts. The Tata Nano has just one windshield wiper, a single side mirror and three lug nuts per wheel. There is no power steering or air conditioning. Making these design choices reduced both the weight and size of the car, as well as its cost; they also brought down energy consumption and pollution (Sharmelly and Ray, 2021). Yet the DFM principles also paved the way to cutting down on parts and their complexity, making mass production more attainable for Tata Motors.

Another tool that Tata Motors used was the open innovation strategy. That means working with outside partners and stakeholders to bring their knowledge and expertise. With the open innovation approach, Tata Motors could draw on new ideas and technologies from anywhere in its walls to outside: suppliers, customers 'opinions or feedback, and universities (Yip et al., 2019). Tata Motors, for instance, teamed up with the German engineering house Bosch to develop a low-cost engine management system that was developed especially for the Tata Nano (Singh, Seniaray and Saxena, 2020). The system was specifically designed to meet Indian customers 'needs for low fuel consumption, high reliability in running and ease of maintenance. Through open innovation, Tata Motors was able to take advantage of the local knowledge and skills possessed by its suppliers as well as distributors. It could thus be changed by tailoring it or adjusting varying regions of use (Ravichandran, Kulshrestha and Nadig, 2022).

The third tool Tata Motors used was customer-centric thinking, which involves discovering what customers need and want from your product or service (Ravichandran, Kulshrestha and Nadig, 2022). With a customer-centred perspective, Tata Motors has the key value propositions and benefits it could deliver to its potential customers - affordability, safety/security, comfort & convenience (Tiwariand Bergmann, 2019). The company also conducted a lot of market research and focus group discussions to verify their assumptions about the customer groups they had identified and which products went with each. Responding to these things, Tata Motors adjusted several design and feature items of the car: leg room was increased, many more colours and various accessories were added, and overall safety standards were raised.Local Sourcing was another tool Tata Motors incorporated into the Nano (Sharmelly and Ray, 2021). By relying on local suppliers and partners for car production and distribution, including marketing efforts, transportation expenses and environmental impact were reduced (Khadaria and Mishra, 2023). In addition, this strategy formed a network of local entrepreneurs and interests that drove the innovation process to become involved in social development there.

Important business decisions
The first business decision that led to the Tata Nano being frugal was a smaller, lighter car. The Tata Nano measures only 3 meters long and 1.5 meters wide (or about the size of a Smart car). It has an engine sizing up at half a litre, producing less than forty horsepower; there is room for just one windshield wiper (Khan and Melkas, 2020). It also lacks power steering and has no air conditioning and a radio; there are not even any seat belts, let alone airbags. These elements saved on the amount of material and fuel used and reduced emissions (Melkas, Oikarinenand Pekkarinen, 2019). Moreover, Tata Motors reduced the car's size and weight to allow for easier manoeuvring or parking in crowded city centres. The second decision made by Tata Nano Frugal was to streamline production. The parts of the Tata Nano are fewer than those on an ordinary car, and they can be easily assembled or disassembled. It also used modular design, in which parts were assembled by various suppliers at different locations (Cai et al., 2019). Doing so eliminated the need for enormous, expensive factories. They could be sourced locally and personalised. The manufacturing process was also simplified to reduce the maintenance and repair costs of Tata Motors cars.

The third decision that made it possible to make Tata Nano cheap was the reuse of existing sales channels. It was advertised through the channels of other firms in Tata Group, such as those responsible for sales and distribution (Hossain, 2020). These companies included: The unusual media used to reach them were rural banks, cooperatives and self-help groups. It also offers flexible financial services such as instalment payments, loans and leases (Khan and Melkas, 2020). Tata Motors also used existing distribution channels to make the car more accessible and affordable. The fourth decision to make the Tata Nano cheap was a unique selling point. However, the Tata Nano was never advertised as a budget car but rather an economical vehicle with value for money. It filled the wishes of low-economy consumers who wanted to go from two wheels to four without compromising on safety or comfort(Cai et al., 2019).

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Market analysis data
Regarding market analysis and customer acceptance, Tata Nano faced many obstacles. The market research done by Tata Motors at the beginning was based on interviews with potential customers who said they wanted a low-cost car that could substitute for their two-wheelers (Levänen, Hossain,and Wierenga, 2022). The company estimates that there are some 65 million Indian two-wheeler owners who could be potential Tata Nano customers. However, the actual demand for Tata Nano was well below expectations. Many customers saw it as a low-caste car that substituted quality and status with price alone. They also preferred big names like Maruti Suzuki or Hyundai to Tata Motors. In addition, the negative publicity caused by fire or safety problems, production delays and distribution difficulties hampered Tata Nano's progress (Melkas, Oikarinenand Pekkarinen, 2019). Political protests led the company to relocate its plant from Singur to Sanand, which cost it time and money. In addition, limited production capacity and dealer network meant the company couldn't deliver cars on time to customers who had booked them in advance. In 2013-14, Tata Nano sales plunged to as low as 21,965 units from the previous year's peak of 74.

So, faced with various challenges, Tata Motors developed a new strategy for selling the Nano as an innovative city car for young working people. The company also unveiled intelligent new features and various versions of Tata Nano: for example, the inclusion of power steering made driving easier; air conditioning made things more comfortable when going on those hot African days; and a music system enabled you to enjoy yourself as you moved along. Alloy wheels helped make your ride more classy while everybody could have different colour options. It also switched its sales and distribution channels, using social media, online platforms and mobile showrooms to target people in the city who were more tech-friendly (Levänen, Hossain,and Wierenga, 2022). This enabled Tata Nano to restore its image and appeal among the target segment, boosting sales in 2014-15 up to 37,689 units.

Several aspects should be considered regarding the structure of the Tata Nano that indicate it is a case of frugal innovation. One decision was to reduce the size and weight of the car. The Tata Nano is only 3 meters long and a mere 1.5 meters wide, so it's easily manoeuvred through thick traffic and fits into tiny parking spaces (Kroll and Gabriel, 2020). Weighing only 600 kg, this reduces fuel consumption and emissions. Instead of offering four lug nuts per wheel, the car provides only three; instead, there's one side mirror and door handle for every door. There is also just a single windshield wiper.The second decision was to simplify the engine and transmission of the car. The Tata Nano's power plant is a rear-mounted, two-cylinder 624 cc petrol engine with 33 horsepower and delivers a maximum torque of 48 Nm. No radiator, power steering or air conditioning unit (Hossain, 2020). No fuel injection system either. The car has a four-speed manual transmission operated by a gear lever on the dashboard.

The third decision was to use substitute materials and parts for the car. To save space and money, the Tata Nano has a plastic fuel tank located right under the driver's seat, tubeless tires, puncture-resistant and low rolling resistance (Ananthramand Chan, 2021). The windshield on the car is laminated, which costs less and is safer than tempered glass. The vehicle has a digital instrument panel with a speedometer, fuel indicator, odometer and warning lights.The fourth decision was to use existing capabilities and partnerships to develop and dispatch the car (Santos, Borini,and Oliveira Júnior, 2020). There were 500 engineers on the Tata Nano design team, drawn from Tata Motors and its suppliers. They used platforms or technologies borrowed from other Tata vehicles to develop their little car. The car was produced at a plant in Sanand, Gujarat, with an annual production capacity of 250,00 units (Kroll and Gabriel, 2020).

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Several recommendations can be made to improve the Tata Nano. The first is to improve the quality and safety standards of the car because there have been many reports in several regions about technical problems with it or that it has caught on fire (Lim and Fujimoto, 2019). All this affects both customers 'reputation and trust towards you: The company must ensure the car meets at least minimal standards of quality and safety, but it should also put money into R & D to enhance performance and reliability. The company should also conduct periodic inspections and tests, recalling or repairing faulty cars as soon as possible (Ananthramand Chan, 2021).The second advice is to increase the options in the product portfolio, styles, and colour schemes; for example, different colours are available on Blu-Ray Disc players. The company needs to know the customers 'needs and desires and give them more options to personalise their cars (Niroumand et al., 2020). The same is true for the vehicle itself. Besides electric or hybrid models, innovative technology and social networks could also enhance the company's novelty value and competition with other cars.

The third suggestion is to relabel the car and promote it as a good deal, not just cheap or crap. That way, they can beat the negative stereotypes about low-priced products in people's minds. The company should rechristen the car and give it a new image that reflects its features and advantages (Niroumand et al., 2020). Assuming that the company has a social impact--as one often hears said these days, bringing mobility and empowerment to millions of people, creating jobs and opportunities for many more tens or hundreds of thousands of men and women around China, reducing carbon emissions-the firm should also state its contribution to society (Lim and Fujimoto, 2019) publicly.The last recommendation is that stakeholders in the ecosystem, including government agencies and regulatory bodies, industry associations or civil society organisations, and academic institutions, should be invited to work together for a favourable environment to foster frugal innovation (Santos, Borini,and Oliveira Júnior, 2020). The company must find partners among these stakeholders for support regarding policy formulation, infrastructure development, tax incentives or subsidies, and other aspects such as research grants and public awareness campaigns.

The Tata Nano was dubbed a pioneer in frugal innovation and gained worldwide renown. But the car also had problems with quality, safety, performance, and consumer perceptions. Many customers who wanted more features and functionality were disappointed that the car did not meet their expectations. The vehicle also had technical problems, including overheating and catching fire. Its low price also gave the car a bad image among customers who thought it symbolised poverty and minor status. The vehicle sales did not reach expectations and gradually decreased over time.Tata Nano showsthe fruits of frugal innovation and its dangers. It demonstrates the value creation that thrifty innovation can achieve for customers and society by identifying unmet needs and solving problems in a shortage of resources. It also illustrates how the quality, safety and performance can cause problems for frugal innovation products that affect their acceptability. Tata Nano affords valuable lessons for all future frugal innovators who dream of creating products or services that are inexpensive but also desirable, reliable and sustainable.

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FAQ: Frugal Innovation - Case of Tata Nano

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