A humiliating loss of 400 Million USD in the 2000 and a flat 2001 made Coca Cola India (CCI) rethink and reinvent its strategies in India. The flat sales in the urban areas made it clear for the CCI that they would have to shift focus to the untapped rural markets. Sanjeev Gupta, the deputy president of Coca Cola India realizing the potential of the rural market, restructured the strategies and targeted the common man of the village which resulted in a spectacular growth of 65 % in urban areas compared to the 33 % growth in rural areas.
What brought this turn around? What change in strategies did CCI implement to strike a success ratio of this magnitude? “The answer lies in three A's says of rural marketing” Sanjeev Gupta :
Affordability : The first ‘A' focused on product pricing . The average income of a rural worker is 42 $ a month. Coca Cola launched a 200 ml bottle for just Rs.5 ( 10 cents ) , a affordable amount on the pockets of the rural audience.
Acceptability : The advertisement with the tag line - 'Thanda Matlab Coca-Cola ' was targeted at rural and semi-urban consumers. The series of Amir Khan Ads on hill station acting like a nepali and those in a Punjabi ‘ Yaara da Tashan' were a great success and an important aspect focusing on acceptability. Except TV ads, CCI also concentrated on 47,000 hatts (weekly markets) and 25,000 melas ( fairs ) held annually in various parts of the country.
“ Yara da tashan Ad featuring Amir Khan”
The third ‘A' focused on strengthening its distribution network there. Rural India meant reaching 6,27,000 villages spread over 32,87,263 square kms; it meant getting distributors to travel 200 kms to reach five shops with drop sizes of less than a case. It realized that the centralized distribution system used by the company in the urban areas would not be suitable for rural areas. In the centralized distribution system, the product was transported directly from the bottling plants to retailers. However, CCI realized that this distribution system would not work in rural markets, as taking stock directly from bottling plants to retail stores would be very costly due to the long distances to be covered. CCI started making a hit list of the potential villages from various districts. To ensure full loads, large distributors (Hubs) were appointed, and they were supplied from the company's depot in large towns and cities. Full load supplies were offered twice weekly against payment by demand draft. On their part, the hubs appointed smaller distributors (Spokes) in adjoining areas. The smaller distributors undertook fixed journey plans on a weekly basis and supplied against cash. The distributors also hired rickshaws (cycle operated vans) that travelled to villages daily. At another level, the problem of low working capital of the small retailer was addressed through smaller drop sizes. It was possible to have smaller drop sizes because of the higher service frequency of the hub and spoke model.
CCI's success on India's vast, rural markets is a lesson on how to grow an untapped market. It is an indication that if an MNC does its home work right and gets the right distribution mix, then it need not restrict itself to India's urban middle class.
Reference : icfai.com
Business week , May 27 , 2002
Financial express , July 12 , 2005