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Snakes do not work that way!
I'm not going to argue the business case because I don't have the numbers, but let's keep something in mind here, even if you are making money and revenue this does not mean you are as successful as your investment could be. Tata, and a few business journals, have noticed that the Nano is not selling as it should. Tata is a major player and this is a gigantic segment of population, so they need to get it right regardless of how profitable the current vehicle is. A closer to home example would be if you're going to try to be a major player in the American mainstream car market you have to have a strong offering in the midsize segment. So whether your last midsize model made money or not, you still have to redesign it for a new generation and get back into the fray. Otherwise you will be missing out on one of the highest volume and most competitive landscape in automobiles.
So to answer your comment, yes companies do, especially if it's a market they can't afford to lose.
WSJ has an interesting article 2 years ago on the subject.
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Sorry, my marketing analyst side just came out.