Session 15_Rural Empowerment

8/3/2019 Session 15_Rural Empowerment

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Marketing to Rural India: Making the EndsMeet

February 19, 2009
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On one side are the fast-moving consumer goods (FMCG) and the consumer durablescompanies. On the other are consumers in rural India, potentially the largest segment of the

market. Finally, the two are coming together.

The fact that this has not happened in the past is not for want of trying. In Mumbai and NewDelhi corner offices, executives have long recognized that to build real sales volumes they willhave to reach outside the big cities. In several categories, rural India already accounts for thelions share. According to MART, a New Delhi-based research organization that offers ruralsolutions to the corporate world, rural India buys 46% of all soft drinks sold, 49% of motorcyclesand 59% of cigarettes. This trend is not limited just to utilitarian products: 11% of rural womenuse lipstick.

Other numbers are equally revealing. According to the National Council of Applied EconomicResearch (NCAER), an independent, non-profit research institution, rural households form71.7% of the total households in the country. Spending in this segment is growing rapidly andconsumption patterns are closing in on those of urban India. Jagmohan Singh Raju, a professor

of marketing at Wharton, says: No consumer goods company today can afford to forget that therural market is a very big part of the Indian consumer market. You cant build a presence for a

brand in India unless you have a strategy for reaching the villages.

Several European multinational firmsand a few U.S. firmshave been making inroads intorural India for years. Companies such as Unilever, Phillips and Nestle have long been known toIndias rustic dukaandaars, or merchants. Among U.S. firms, companies such as Colgate andGillette have made considerable headway. According to Raju, marketing to rural customers often
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involves building categories by persuading them to try and adopt products they may not haveused before. A company like Colgate has to build toothpaste as a category, which means

convincing people to change to toothpaste instead of using neem twigs to clean their teeth, whichwas the traditional practice, he says. This is difficult to do and requires patience andinvestment by companies. Its not like getting someone to switch brands.

Companies that have figured this out are doing better in the villages than in the cities. Soft drinksgiant Coca-Cola is growing at 37% in rural markets, compared with 24% in urban areas.According to Hansa Research, a market research firm that has published a Guide to IndianMarkets 2006, the penetration of consumer durables has risen sharply in Indias villages between

2000 and 2005. In color TVs, sales are up 200%; in motorcycles, 77%. In absolute numbers,however, the penetration is still low. Coke, for instance, reaches barely 25% of the rural market.This means the upside potential is huge for companies that develop effective rural marketingstrategies.

According to NCAER, the low penetration rates can be attributed to three major factors: low

income levels, inadequate infrastructure facilities and different lifestyles. But income levels aregoing up, infrastructure is improving and lifestyles are changing. Almost a third of the ruralpopulation now uses shampoo compared with 13% in 2000, according to Hansa Research.

FMCG and consumer durables companies have in the past tried tinkering with all the four Ps

product, pricing, promotion and placeof the marketing mix. Hindustan Leverwhich is inthe process of changing its name to Hindustan Unilever to reflect the fact that it is the Indiansubsidiary of the Dutch conglomerateis among Indias largest FMCG companies. It has beenhighly successful in marketing in rural India and has been a pioneer in reaching out to thesmallest of villages with innovative products such as single-use packets of shampoo that sell fora penny. (The rural consumer uses shampoo on rare occasions; she does not want to invest in a

bottle.) Independent agencies run media vans that show movies in distant villages. They havelive promotions and demonstrations during breaks.

The area where innovation has moved to center stage is in the fourth Pplace (or distribution).Infrastructure has always been the bugbear of the Indian marketer. Distribution channels canmake or break a companys rural marketing efforts. To sell in villages, products must be priced

low, profit margins must be kept to the minimum and the marketing message must be keptsimple.

Empowering Women Consumers

Hindustan Lever, whose 2006 revenues were $2.8 billion, has been learning these lessons fornearly a decade. The companys Project Shakti (its name means strength) was born out of this

realization, and it has become a case study for business schools and evolved beyond its originalgoals. The objectives of Project Shakti are to create income-generating capabilities forunderprivileged rural women by providing a small-scale enterprise opportunity, and to improverural living standards with greater awareness of health and hygiene, says Dalip Sehgal,

executive director of the Shakti initiative.


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Hindustan Levers drive into rural India was prompted in part by growing competition. When the

Indian economy opened up in early 1990s, multinationals such as Procter & Gamble stepped uptheir activities, forcing Hindustan Lever to seek higher revenues and growth by reaching intovillages with 1,000 or fewer residents. Launched in 2001, Project Shakti was an important part ofthis strategy. It involved working with rural self-help groups (SHGs) to educate rural women,

while also making them part of the companys marketing network. Women from SHGs becomeShakti entrepreneursdirect-to-home distributors [of Hindustan Lever products] in ruralmarkets, says Sehgal. This micro-enterprise offers low risks and high returns. The productsdistributed include a range of mass-market items especially relevant to rural consumers, such assoap, toothpaste, shampoo and detergent.

The Shakti website features a video profile of Rojamma, a young woman from the state ofAndhra Pradesh in Southern India, as an example of a typical Shakti distributor. A mother of twowho was left to fend for herself and two daughters after her husband abandoned the family,Rojamma initially made ends meet by working in her parents fields. She then joined the Shakti

project and became a distributor of Hindustan Lever products, speaking in village after village to

impoverished and often illiterate women about the need to bathe their children and wash theirclothes regularly and also selling them soap and detergent. The commission Rojamma earned onher sales helped provide for her family. Today she is a proud entrepreneur and enjoys not onlythe money she earns from the project but also the respect of society, says Sehgal. The lives ofthousands of women have changed because of Shakti.

A typical Shakti distributor sells products worth Rs 10,000-15,000 (around $250) a month, whichprovides an income of Rs 700-1,000 (around $25) a month on a sustainable basis. While this maynot seem to be a high income, it makes an enormous difference to women who live in remotevillages in dire poverty. In many cases, earnings from Shakti help them double their householdincome. Much of the additional income goes to educating children, and also to purchasingconsumer durables such as television sets, which further expands the rural market for suchproducts. Some Shakti distributorswhom the company calls entrepreneurs invest theextra money in buying vehicles such as motor scooters that allow them to go into more villages.

Indeed, with help from Shakti distributors, Hindustan Lever has been able to reach ruralconsumers in thousands of remote Indian villages. According to media reports, Shaktidistributors now account for 15% of the companys sales in rural India. Meanwhile, the potential

for growth is enormous, since studies have shown that just 15% of Indian consumers useproducts such as shampoo. According to Whartons Raju, there are behavioural reasons whyrural consumers represent a sound bet for companies that are willing to invest in reaching them.Affluent consumers demonstrate that they have arrived by buying bigger houses or cars.

People at lower income levels do so by buying premium brands. This means brand loyalty isvery high among less affluent consumers. That is why the rural market is critical for companies.The first-mover advantage is significant.

The Shakti model was piloted in 50 villages of the Nalgonda district in Andhra Pradesh. It hasnow spread to more than a dozen states, creating 26,000 women distributors covering 80,000villages. By 2010, the goal is to recruit 100,000 Shakti distributors covering 500,000 of Indias


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more than 600,000 villages. This initiative has been extremely successful, says Ajay Gupta,CEO of www.ruralnaukri.com, a job site for the rural market.

In addition to the distribution network, the Shakti project includes Shakti Vani (or voice), asocial awareness program, and iShakti, a community portal. Desktop computers are set up in the

homes of Shakti entrepreneurs, says a Hindustan Lever spokesperson. These computers areequipped with software developed by Unilever through which users can access content incategories including education, employment, agriculture, health and entertainment. They can alsoask questions on any of these subjects and have them answered by experts.

iShakti is in its early days; it was launched in November 2004. The Vani project, however, isoperational in more than 20,000 villages in states like Madhya Pradesh, Karnataka, Chattisgarhand Andhra Pradesh. Hindustan Lever has also tied up with partners such as Tata ConsultancyServices, Indias largest software firm, which is actively involved with the iShakti portal, andICICI, a financial services institution that is involved with providing micro-credit loans. With thenetwork now in place, other companies want to hop on to the Shakti bandwagon. One service

that is likely to be added soon is insurance.

ITCs eChoupal Initiative

Another innovator in rural distributionthe $3.6 billion, Calcutta-based tobacco-to-hotelsconglomerate ITChas also been trying to build a platform that others can use. At a recentseminar on rural marketing, ITC chairman Y.C. Deveshwar outlined plans to create a trust thatcould work as an agency through which companiesboth private and publiccould marketgoods and services to Indian farmers. The trust route would hopefully make other companiesmore willing to sign up with their offerings. ITC has the right credentials to launch this trust.Like Hindustan Levers project Shakti, its eChoupal venture has been the subject of several case

studies.

ITCs foray into an enhanced distribution network came from the recognition that the existingagri-produce distribution channels were inefficient. The company exports various agriculturalproductssoybean, rice and wheat, to name a few. It needs to source them from farmers.

In 2000, ITC embarked on an initiative to deploy technology to reengineer the procurement ofsoybeans from rural India, says S. Sivakumar, CEO of ITCs agri-business division. Kiosks called eChoupalsconsisting of a personal computer with Internet access were set up at thevillages. He explains that soybean farmers could access this kiosk for information on prices, buthad the choice to sell their produce either at the local market or directly to ITC at their hublocations. A hub location services a cluster of eChoupals. By purchasing directly from thefarmer, ITC significantly improved the efficiency of the channel and created value for both thefarmer and itself.

While the eChoupal network was initiated to facilitate more efficient and effective procurement,

the connectivityboth physical and informationalbetween the farmer and the market that itfacilitated has allowed ITC to use it for distribution of goods and services from the market to thefarmer, says Sivakumar. It has thus evolved into a business platform.


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The eChoupal infrastructure consists of:

* A kiosk with Internet access in the house of a trained farmer, called a Sanchalak. This kiosk iswithin walking distance of target farmers.

* A warehousing hub managed by the former middleman, called a Samyojak. This is within atractor-driveable distance of target farmers. (The former middlemen were given a role to avoidresistance to the project. They joined because they could see that their traditional business was injeopardy.)

* A collaborative network of companies orchestrated by ITC with a pan-India presence.

This is, of course, a simplified structure. And there has been a stream of new initiatives. Forinstance, in August 2004, ITC introduced the Choupal Sagar, a rural retail outlet at the hub. Thefirst was set up at Sehore in Madhya Pradesh. This 7,000 sq. ft. mall sells consumer goods aswell as agri-products, says Sivakumar.

The benefits to the farmer are obvious. And ITC itself gains. Apart from the more efficientchannel, there is money to be made from the reverse flow. In 2005-06, ITC generated $23million selling chemicals and fertilisers. That may not sound like much, but its early yet. In a

recent move, ITC has set up its first urban outlet, the other end of the eChoupal chain, to retailfresh fruit and vegetables.

What about other companies? Does it make sense for them to climb on the bandwagon?Sivakumar gives the example of PI Industries, which has increased its market share in MadhyaPradesh from 12.3% in 2003 to 33% in 2005 after partnering with ITC to sell through theeChoupal. The eChoupal project is already benefiting more than 3.5 million farmers, says

Sivakumar. Over the next decade, the eChoupal network will cover more than 100,000 villages,representing one-sixth of rural India, and create more than 10 million e-farmers.

Room for All

Both Project Shakti and eChoupal have been around for less than a decade. Which is likely tosucceed? Observers say there is place for both; the Indian rural market is huge. According toWhartons Raju, while Shakti and eChoupal are different in orientationone focuses onindividuals while the other is corporate-basedeach has been very successful in its own way.You cant think of success just in financial terms, he says. Both projects have created

tremendous goodwill for Hindustan Lever and ITC. That is no small asset, especially for ITC,

whose initials once stood for Indian Tobacco Company.

Sivakumar claims the ITC model is superior because it involves two-way traffic. We arestarting with raising rural incomes, he says. The level of affordability in rural India is low. Forconsumers to buy products, you have to first put more money in their pockets. We are creating avirtuous circle of higher income, higher productivity and higher consumption. He adds that

there is a distinction between the commission paid to Shakti entrepreneurs and the micro-creditarranged for them, and the eChoupals efforts to raise rural incomes by improving agricultural


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efficiency for the whole community. At Hindustan Lever, company officials are equallyconfident about Project Shakti. They say they are in the business of creating entrepreneurs andarranging micro-credit for them. This, too, has a catalyzing effect on the whole community.

Raju believes that the drive to gain access to rural retailers is, in some ways, as critical as the oneto reach consumers. If you look at rural retail in India, the outlet size is very small. Merchantswill often stock just one brand in a category; they do not have the resources to stock multiplebrands. They will stock the brand that sells the most.

This lesson has hardly been lost on Indian-owned companies. Over the coming months, the battlefor rural wallets will include not just European and U.S. multinationals but also fast-growingIndian companies. A retail initiative by the $22.6 billion Reliance Industries is a case in point.The Mukesh Ambani-led group plans to pump in $5.5 billion over the next few years to create afarm-to-storefront infrastructure for a pan-India retail network. (Only part of this money is forthe rural component.)

Mukesh Ambani has company. Brother Anil Ambani, who parted ways with him in 2005, isconnecting rural India through Reliance Infocomm, a mobile services provider. Its network nowencompasses 240,000 towns and villages, accounting for 42% of the rural population. It plans todouble the rural coverage to 400,000 villages, making up 50% of the rural population.

There are many others. The rural initiative of the Mumbai-based $1.3 billion House of GodrejGodrej Aadhaarplans to set up 1,000 stores across India in the next five years. Delhi-basedtelecom major Bharti Airtel chairman Sunil Mittal has tied up with Wal-Mart, which will need itssupply chain. From the Goenkas to the Gulabchands, from the Tatas to the Thapars, every majorIndian business group has plans to move into the hinterland.

Like Thoreau and Tolstoy, Gandhi, revered as the father of modern India, believed that thecountrys future lay in her villages. These days, every marketer would agree.

Knowledge@Wharton
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Session 15_Rural Empowerment