Let me illustrate what happens when the middle class grows very quickly and how companies react to that with an example from India. So India, as we start seeing, is a country that since the year 1991, has managed to grow very, very quickly in spite of the many bottlenecks facing the country in terms of politics, infrastructure. and access to education. The Indian economy has grown not just in terms of the service sector, but also in manufacturing. The entire economy has become more competitive. Although in the years 2013 and 2014, the economy slowed down. The long-term growth prospects remained quite optimistic. Now, India's middle class has been growing, as the economy has expanded. In the year 2014, no more than 15% of the Indian population was middle class, and remember, the definition that we are using here is, individuals that have at least $10 per day but no more than a 100. By the year 2030, the projection is that the proportion of the population in India that will be middle class might approach 50%. As a result, social, political, and consumer behavior is rapidly changing in India. And of course many companies are taking good notice. So, let's focus on one particular product, which is the one that you see on the screen right now. My question to you is, do you recognize this vehicle? Well, some of you may be thinking that's the Smart car, which is a European car. Actually, a very expensive car, meant for use in crowded cities. But this is not a Smart. This is a Tata Nano. Tata, is a very well established Indian company. And the Nano, is this affordable car that they launched into the Indian market back in the year 2009. This car was meant to be transportation for the family. For the new families that are becoming middle class in India. It was priced originally at a level of $2,500. It had a 634 cc engine. And the company's target was to sell about one million of these cars every year. The car was meant to be an alternative to the use of bicycles or three-wheelers. And it was introduce into the market as the world's cheapest car. Now, for those of you who know about what happened, it will be easy to see why this project by Tata, actually ended up as an abject failure. The company barely managed to sell 250,000 of these cars in the first four years, after it was originally introduced into the market. Overall, the company lost market share in India and the profits came down very quickly. So my question to you is, what went wrong? Because the middle class has been expanding very quickly in India, and middle class consumers want to have a car. So, why didn't they buy Tata Nanos? Well, the reasons for the failure are diverse. First of all, there were some quality problems. A few of the early Nanos caught on fire. Also the Nano was so cheap, that it didn't include many amenities, for instance, it didn't have air conditioning. But more importantly, the point that I really want to make here is that, the middle class consumer is aspirational in his or her tastes. Cars, automobiles are a projection of the owner's self-image. Competitors of Tata Motors such as Suzuki, Hyundai and Ford, offered better models at a slightly higher prices. The Indian consumer preferred more expensive, or relatively more expensive cars, over the world's cheapest car. Because they felt that those other vehicles were more consistent with their new position in society as members of the middle class. To make the point, let me quote, a typical middle class consumer from India. His name is Shushant Sharma. At the time, the Nano was introduced, he was 22 years old, and he was a computer operator. He was thinking about buying a Nano or perhaps a two-wheeler motorbike, and both of these products were about the same price. In the end, he bought the bike and this is the reason, quote, "I don't like the way the Nano looks to people and it's all about the look". "I take the bike to work. But if I have to go hang out with my friends or go for a marriage, then I prefer a car. But I would prefer to sit at home if I have to go in a Nano." end quote. So in other words, this Indian consumer was not alone in thinking that the Tata Nano was not the right car for the middle class. In fact many middle class consumers in India, when they saw the advertisements for the Tata Nano and remember it was built by the company itself as the world cheapest car, they thought, that's a great car for poor people but not for me because I'm middle class.
