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Study of Marketing Strategies of Hindustan Unilever Limited and Proctor & Gamble
Submitted in partial fulfillment of the requirements of the course
Post Graduate Diploma in Business Management
Mr. Arun Kumar
The Fast Moving Consumer Goods (FMCG) sector is a corner stone of the Indian economy. This sector touches every aspect of human life. The FMCG producers now realize that there is a lot of opportunity for them to enter into the rural market. The sector is excited about the rural population whose incomes are rising and the lifestyles are changing. There are as many middle income households in the rural areas as there are in the urban. Thus the rural marketing has been growing steadily over the years and is now bigger than the urban market for FMCG. Globally, the FMCG sector has been successful in selling products to the lower and middle income groups and the same is true in India. Over 70% of sales is made to middle class households today and over 50% of the middle class is in rural India. The sector is excited about a burgeoning rural population whose incomes are rising and which is willing to spend on goods designed to improve lifestyle. Also with a near saturation and cut throat competition in urban India, many producers of FMCG are driven to chalk out bold new strategies for targeting the rural consumers in a big way. But the rural penetration rates are low. This presents a tremendous opportunity for makers of branded products who can convert consumers to buy branded products. Many companies including MNCs and regional players started developing marketing strategies to lure the untapped market. While developing the strategies, the marketers need to treat the rural consumer differently from their counterparts in urban because they are economically, socially and psycho-graphically different to each other. This paper covers the attractions for the FMCG marketers to go to rural, the challenges, the difference between the rural and the urban market and the suitable marketing strategy with the suitable example of companies and their experience in going rural.
Description Page No.
Rural Market 1
Rural Marketing - Challenges And Opportunity 2
Impulse to go Rural 6
Rural Initiators 11
Rural Vs Urban Consumer 15
Rural marketing Strategies 19
About HUL 24
HUL Distribution Model 28
HUL Distribution Effort 30
Partnership Opportunities 38
HUL in foreign Market 38
Proctor & Gamble 40
P & G Strategies 42
INDIAN RURAL MARKET
Rural Markets are defined as those segments of overall market of any economy, which are distinct from the other types of markets like stock market, commodity markets or Labor economics. Rural Markets constitute an important segment of overall economy, for example, in the USA, out of about 3000 counties, around 2000 counties are rural, that is, non-urbanized, with population of 55 million. Typically, a rural market will represent a community in a rural area with a population of 2500 to 30000.
Rural products of India are unique, innovative and have good utility and values. Large number of these rural products (like handicraft items, food products, embroidery, clothes & other products) sustains a significant segment of the population in the rural areas. Several attributes of rural products can be identified, for which, it has a demand in the market. Out of the lots, ‘ethnic origin’ and ‘indigenous design & appearance’ are two traits of rural products, attracting a premium in the market. But, contrary to this, the non-uniformity of rural products (from one another) and lack of its quality control measures has been creating a negative demand. Besides, the small sized and dispersed production units of these rural products hinder realization of the economies of scale in marketing and result in high transaction costs per unit of output. Niche-based products have no local market. Products in local use are also not marketed horizontally; they often first travel down to market through a long chain of intermediaries and then up to more difficult locations in the rural areas. In the process, the people in rural areas suffer from both low prices as producers and high prices as consumers. In this conflict, rural products loss its equilibrium and the supply side becomes exponentially high. Because of this hazard, rural entrepreneurs face acute economic loss and rural markets become stagnant. Therefore, there is an emergent need for Building sustainable market linkages for rural products, so that, it can be connected to larger markets and farmers can get a sustainable livelihood.
Interestingly, for FMCG and consumer durable companies, any territory that has more than 20,000 and 50,000 population, respectively, is rural market. So, for them, it is not rural India which is rural. According to them, it is the class-II and III towns that are rural. According to the census of India 2001, there are more than 4,000 towns in the country. It has classified them into six categories-around 400 class-I towns with one lakh and above population (these are further classified into 35 metros and rest non-metros), 498 class-II towns with 50,000-99,999 population, 1,368 class-III towns with 20,000-50,000 population, 1,560 class-IV towns with 10,000-19,999 population. It is mainly the class-II and III towns that marketer's term as rural and that partly explains their enthusiasm about the so-called "immense potential" of rural India.
Demographic details of Indian rural markets:
• About 285 million live in urban India whereas 742 million reside in rural areas, constituting 72% of India's population resides in its 6, 27,000 villages.
• The number of middle income and high income households in rural Indian is expected to grow from 46 million to 59 million.
• Size of rural market is estimated to be 42 million households and rural market has been growing at five times the pace of the urban market.
• More government rural development initiates.
• Low literacy rate
• Increasing agricultural productivity leading to growth of rural disposable income.
• Lowering of difference between taste of urban and rural customers.
RURAL MARKETING-CHALLENGES AND OPPORTUNITIES
The Indian rural market with its vast size and demand base offers great opportunities to marketers. Two-thirds of countries consumers live in rural areas and almost half of the national income is generated here. It is only natural that rural markets form an important part of the total market of India. Our nation is classified in around 450 districts, and approximately 630000 villages which can be sorted in different parameters such as literacy levels, accessibility, income levels, penetration, distances from nearest towns, etc.
The rural market certainly offers a big attraction to marketers, it would be naive to think that any company can easily enter the market and walk away with sizable share. Actually the market bristles with variety of problems. The main problems in rural marketing are:
1. PHYSICAL DISTRIBUTION AND CHANNEL DISTRIBUTION
The problems of physical distribution and channel management adversely affect the service as well as the cost aspect. The existent market structure consists of primary rural market and retail sales outlet. The structure involves stock points in feeder towns to service these retail outlets at the village levels. But it becomes difficult maintaining the required service level in the delivery of the product at retail level.
2. UNDERDEVELOPED PEOPLE AND UNDER DEVELOPED MARKET
Even today about 75 districts in the country are drought prone and no new technology worth the name has percolated to increase the living standard of the living of these people. In addition, the farmer with small agriculture land holding has also been unable to take advantage of the new technology. The no. of th people below poverty line has not decrease in appreciable manner. Thus, the rural market by and large are the characterized by underdeveloped people and hence underdeveloped market
3. LACK OF PROPER PHYSICAL COMMUNICATION FACILITY
Nearly 50 % of the villages don’t have road even today. Most villages in the eastern part of the country are inaccessible during monsoon season, hence the distribution effort put by the manufacture prove expensive and sometimes of no consequence. To be effective the products have to be physically moved to places of the point of consumption or place of purchase
4. MANY DIALECTS AND LANGUAGES
Even assuming that media are available for communication, the no. of language and dialects vary widely from state to state, region to region and probably district to district. The massage has to be delivered in local language and dialects. Even tough the number of recognized language are only 16, the no. of dialects is estimated to be around 850.
5. LOW PER CAPITA INCOMES
Even tough about 35 – 37 % of the gross domestic product is generated in the rural areas; it is shared by 66% of the population. Hence the per capita income is low, compared to urban areas. This apart, the distribution of the incomes is highly skewed, since the land holding pattern, which is the basic asset is highly skewed. Thus the rural population presents a highly heterogeneous scene. These aspects require very careful consideration while evolving distribution strategy for the rural market.
6. LOGISTICS, STORAGE, HANDLING AND TRANSPORT
It has been seen that the transportation facility is poor in rural areas. A leading company, which distribute its consumable product in rural areas use bullock carts and camel back for the physical distribution and transportation of goods in to inaccessible areas. In some villages there may not be a shop from where product can be made available to a rural consumer. Thus willingness to enter the rural market alone is not sufficient, but identification of shopkeeper, offering them credit assuring periodic supply and motivating them also become very crucial.
7. MARKET ORGANIZATION AND STAFF
The size of market organization and the staff is very important, to have an effective control. Comparative to the rural market will involve large marketing organization and staff. How many manufacturers and marketing men can afford such huge investment in term of personnel and also keep an effective control on it, need examination.
8. PRODUCT POSITIONING
In a highly heterogeneous market, product positioning become very difficult , otherwise the product range will be to wide. A wide product range will give rise to distribution problems. Even company like broke bond have packets priced from 50 paise onwards. The very product positioning limits the market only to such segments of farmers. While positioning is possible in of durables, positioning is difficult in consumables. so this warrant designing new products or redesigning the existing one to suit the rural wants, habits and need, based on the purchasing power
9. LOW LEVEL OF LITERACY
The literacy rate is low in the rural areas as compared to the urban areas. This again leads to problems of the communication for the promotion purpose. Print medium becomes ineffective and to the extent irrelevant in the rural areas since its reach is poor and so is the level of literacy. The dependence should be more on electronic media – cinema, Radio and television. While access to the television advertisement is very expensive so radio and cinema appears fairly easy. Also counterfeiting product with look-alike name and symbol cut the revenue of the producer of genuine product.
The Indian Fast Moving Consumer Goods (FMCG) industry began to shape during the last fifty odd years. The FMCG sector is a cornerstone of the Indian economy. This sector touches every aspect of human life. Indian FMCG market has been divided for a long time between the organized sector and the unorganized sector. Unlike the US market for FMCG which is dominated by a handful of global players, India’s Rs. 460 billion FMCG market remains highly fragmented with roughly half the market going to unbranded , unpackaged home made products. This presents a tremendous opportunity for makers of branded products who can convert consumers to buy branded products. Globally, the FMCG sector has been successful in selling products to the lower and middle income groups, and the same is true in India. Over 70% of sales is made to middle class households today and over 50% is in rural India. The sector is excited about a burgeoning rural population whose incomes are rising and which is willing to spend on goods designed to improve lifestyle. Also with a near saturation and cut throat competition in urban India , many produces of FMCGs are driven to chalk out bold new strategies for targeting the rural consumer in a big way. MART, the specialist rural marketing and rural development consultancy, has found that 53 per cent of FMCG sales and 59 per cent of consumer durable sales lie in the rural areas. Of two million BSNL mobile connections, 50 per cent went to small towns and villages; of 20 million Rediffmail subscriptions, 60 per cent came from small towns; so did half the transactions on Rediff's shopping site. According to a study by Chennai-based Francis Kanoi Marketing Planning Services Pvt Ltd, the rural market for FMCG is worth Rs.65,000 crore, for durables Rs 5000 crore, for tractors and agri-inputs Rs.45,000 crore and two- and four-wheelers, Rs.8000 crore. In total, a whopping Rs. 1,23,000 crore. This could be doubled if corporate understood the rural buying behavior and got their distribution and pricing right.
IMPULSE TO GO RURAL
There are many reasons that have urged the FMCG companies to enter the uncharted territory of rural India. Some of the attractions are discussed below.
1. LARGE POPULATION
The rural Indian population is large and its growth rate is also high. Over 70% India’s one billion plus population lives in around 627,000 villages in rural areas. This simply shows the great potentiality rural India has to bring the much needed volumes and help the FMCG companies to bank upon the volume driven growth.
2. RISING RURAL PROSPERITY
India is now seeing a dramatic shift towards prosperity in rural households. To drive home the potential of rural India just consider some of these impressive facts about the rural sector. As per the National Council for Applied Economic Research (NCAER) study, there are as many ‘middle income and above’ households in the rural areas as there are in the urban areas. There are almost twice as many ‘lower middle income’ households in rural areas as in the urban areas.
Income group 2001-2002 2006-2007
Total(urban and rural) Rural % Total (urban and rural) Rural %
High 1.48 0.41 27.7 2.96 0.7 23.6
Middle 69.18 4.83 64.8 90.25 59.85 66.3
Low 32.29 29.52 91.42 20.41 95.8 95.7
Total 102.95 74.76 72.6 114.52 80.96 70.7
According to NCAER projections, by 2006 – 07, the lowest income class (i.e.Rs.2500 and below) will shrink by more than 60%. The higher income classes are likely to double by 2006 – 07. This apparently is the result of development work, which happened under the five years plans and other special programs such as land reforms, rural electrification rural communication, and rural credit facilities, etc. The absolute size of the rural market is thus expected to double that of urban India. But despite the high rural share in these categories, the rural penetration rates are low, thus offering tremendous potential for growth. According to Mr. D. Shivakumar, Business Head (Hair), Personal Products Division, Hindustan Lever Limited, the money available to spend on FMCG (Fast Moving Consumer Goods) products by urban India is Rs. 49,500 crore as against is Rs. 63,500 crore in rural India.
3. GROWTH IN MARKET
The purchasing power in rural India is on steady rise and it has resulted in the growth of the rural market. The market has been growing at 3-4% per annum adding more than one million new consumers every year and now accounts for close to 50% of volume consumption of FMCG. The growth rates of lot of FMCG are higher in rural markets than urban markets. In product categories like toilet soaps, talcum powder, cooking oil, vanaspati ghee, tea, cigarettes and hair oil, the share of rural market is more than 505. The table below indicates the market size of FMCG products in 2001 – 02 and 2006 – 07 based on the annual growth rates compounded for 1994 – 99 period. The estimated annual business from rural markets was Rs 1,23,000 crore, comprising Rs 65,000 crore of FMCG, Rs 5,000 crore of durables, Rs 45,000 crore of agricultural inputs including tractors and Rs 8,000 crore of two-wheelers and four wheelers. Twenty nine per cent of the rural people own cars, 27 per cent own colour televisions, 24 per cent own refrigerators and 10 per cent own washing machines, which points to the untapped potential in the rural areas. "We therefore have to look at the rural market very seriously for future expansion," said Mr Nandakumar while inaugurating the Business Line Club and delivering the keynote address on the topic, `Brand Building Beyond the Urban' under the auspices of the Departments of Business Management and Commerce of the Auxilium College here on Friday.
Table 4. Rural FMCG market
Category Growth % 2001-2002 2006-2007 Rural Market Share %
Total Rural Share Total Rural Share
Toilet soaps 13.4 9645 6021 18086 11291 62.4
Body talcum 23.65 1445 793 4237 2292 54.1
Toothpaste 23.5 3198 1441 9376 4140 45.1
Cooking oil 10.91 20946 15731 35295 25806 73.4
Vanaspati 7.63 4549 2846 6648 4108 62.6
4. EFFECTIVENESS OF COMMUNICATION
An important tool to reach out to the rural audience is through effective communication. “A rural consumer is brand loyal and understands symbols better. This also makes it easy to sell look - alike", says Mr. R.V Rajan, CMD, Anugrah Madison Advertising. The rural audience has matured enough to understand the communication developed for the urban markets, especially with reference to FMCG products. Television has been a major effective communication system for rural mass and, as a result, companies should identify themselves with their advertisements. Advertisements touching the emotions of the rural folks, it is argued, could drive a quantum jump in sales.
5. IT PENETRATION IN RURAL INDIA
Today there are over 15 million villagers in India who are aware of the Internet and over 300,000 villagers have used it! Ten years back, history was created with Public Call Office phone booths (essentially manually operated payphone facilities), opening in every corner of the country. This experiment was an instant success and contributed to hundreds of thousands of jobs. Over the next two years, WorldTel is expected to provide 1000 centres in Tamil Nadu with 2 to 20 terminals in each centre. If successful, this experiment can be replicated easily to all 27 states leading to over half a million Internet users through this experiment alone! The existing 600,000 public call offices in India will soon be transformed into public 'tele-info-centres' offering a variety of multimedia information services. The rural consumers spend time and money to access higher level information. Studies have indicated that if the content has direct relevance and will result in commercial gains, people in rural areas are willing to pay for information services. Consumerism has altered rural buying behavior in recent years. Spending patterns of those who spend are now adapting to face the technology bug. Today's rural children and youth will grow up in an environment where they have 'information access' to education opportunities, exam results, career counseling, job opportunities, government schemes and services, health and legal advice and services, worldwide news and information, land records, mandi prices, weather forecasts, bank loans, livelihood options. If television could change the language of brand communication in rural India, affordable Web connectivity through various types of communication hubs will surely impact the currency of information exchange. As the electronic ethos and IT culture moves into rural India, the possibilities of change are becoming visible.
6. IMPACT OF GLOBALIZATION
The impact of globalization will be felt in rural India as much as in urban. But it will be slow. It will have its impact on target groups like farmers, youth and women. Farmers, today 'keep in touch' with the latest information and maximize both ends. Animal feed producers no longer look at Andhra Pradesh or Karnataka. They keep their cell phones constantly connected to global markets. Surely, price movements and products' availability in the international market place seem to drive their local business strategies. On youth its impact is on knowledge and information and while on women it still depends on the socio-economic aspect. The marketers who understand the rural consumer and fine tune their strategy are sure to reap benefits in the coming years. In fact, the leadership in any product or service is linked to leadership in the rural India except for few lifestyle-based products, which depend on urban India mainly.
Rural marketing involves more intensive personal selling efforts compared to urban marketing. Marketers need to understand the psyche of the rural consumers and then act accordingly. To effectively tap the rural market a brand must associate it with the same things the rural folks do. This can be done by utilizing the various rural folk media to reach them in their own language and in large numbers so that the brand can be associated with the myriad rituals, celebrations, festivals, melas and other activities where they assemble.
One very fine example can be quoted of Escorts where they focused on deeper penetration. In September-98 they established rural marketing sales. They did not rely on T.V or press advertisements rather concentrated on focused approach depending on geographical and market parameters like fares, melas etc. Looking at the 'kuchha' roads of village they positioned their mobike as tough vehicle. Their advertisements showed Dharmendra riding Escort with the punchline 'Jandar Sawari, Shandar Sawari'. Thus, they achieved whopping sales of 95000 vehicles annually.
"Going rural" the new marketing mantra-all corporate companies agreed that the rural market the key to survival in India. The real India lives in villages-6, 38,365 villages to be precise. This is where the fortunes of many of Indian biggest corporations are likely to be shaped. To expand the market by tapping the countryside, more and more MNC`s are foregoing into rural markets. Among those that have made some headway are HLL, Coca-cola, LG Electronics, Britannia, Standard life, Philips, Colgate Palmolive, ITC and the foreign-invested telecom companies. Gone are the days when a rural consumer went to a nearby city to but branded Products and services`. Time was when only a select household consumed branded goods, be it tea (or) jeans. There were days when big companies flocked to rural markets to establish their brands. Today, rural markets are critical for every marketer-be it for a branded shampoo (or) an automobile. Time was when marketers thought van campaigns, cinema commercials and a few wall paintings would suffice to entice rural folks under their folds. Thanks to television, today a customer in a rural area is quite literate about myriad products that are on offer in the market place. An Indian farmer going through his daily chores wearing jeans may sound idiotic. Not for Arvind Mills, though. When it launched the Ruf & Tuf kits, it had created quite a sensation among the rural folks as well within few months of their launch.
MARKETING OF CONSUMABLES AND DURABLES IN RURAL MARKET
There has been tremendous growth in the consumption of packaged good in rural areas. The factors contributing to the growth of the rural; market is the growth of population, growth in rural incomes, and the government’s investment in the rural development programs. Such continued investment in the rural development programs will further strengthen and sustain the growth in coming years. In addition there is considerable expansion of the rural retail network and also Dordarshan expanding all over India has also contributed to the growth of the rural sector. This growth can also be related to the marketing mix adopted by the major companies, which have been traditionally operating in the rural markets.
There is need to redesign or modify the product to suit the rural market, while there may not be much maneuverability for redesign or modification for some of the product, it is possible in several other. There are examples of redesign to suit rural market like tea packet costing only 50 paise.25gm of Colgate tooth powder, small size lifebuoy soap. it can be reasonably be assumed that the product manufactured and spold in urban areas can also be sold in rural areas but with some expaections. This require extensive of market research. The need for a rethinking on the product specific to the rural demand lies in the fact that there are numerous imitation products in the rural market which look like original product, but are priced cheaper. Examples:-
Original product Imitation product
Cadburys Eclairs Chaoudhary Eclairs
Nirma Narima, Nilima
These products also have sufficient demand to sustain local manufacturer. Reason behind such wide range of products sold in the rural areas seems to be the heterogeneous nature of the product market. Hence there is a need of the marketing men to think in term of the products specifically designed or modified for the rural market. Incidentally this may go on to meet the demand from the poorer section of the urban population
Pricing is another crucial issue of rural marketing. By and large, it is well known fact that the rural per capita income is much lower than the urban per capita income. Hence in case of rural customers, there is no need low priced product or redesigns product, whose unit cost will be low, Mostly this done by reducing the packaging size. Similarly cheaper blend of tobacco is used to make cheaper cigarettes like Hero, Honey dew etc. The rural market offer a huge potential, if only product is made available to it in suitable form and price. The pricing aspect is contingent upon the product, its size of packaging, ingredients used in product, packaging material used and other factor. Generally speaking there have been only a few attempts in this direction to redesign and modify product for the rural market.
The strategy of distribution should take into account the purchasing habit of the rural people. While consumables are purchased in the village shop or Shandies or in bigger villages, the consumer durables are purchased only in Mandi centers, large towns or nearby cities. Hence the distribution centre has to take the purchasing habit of the rural people into account, so that product may be available at the appropriate location.
In villages beyond the reach of the distribution system, the shopkeepers make their own arrangement for the procurement. Most of them commute to the nearby town to get the supply. But the expenses incurred resulted in the village shopkeepers charging consumers more than the maximum retail price. Generally, the village shopkeeper invest their funds in purchases and rarely ever get credit facilities, which if available is made available for very short duration only. Since the quantum of purchase by the village shopkeeper is very small, the margins are also very meager. The ultimate consumer product reflects the lack of distribution network.
A very elaborate distribution system is necessary in the case of consumer items through it is not the case with consumer durable items since the rural consumer purchase those items only from the Mandi towns, other larger towns and nearby cities. Essentially, a distribution system like appointment of dealers or stockiest or distributor should penetrate up to that level, where the rural consumer make their purchase depending upon whether it is consumable or durable items.
Among all the element of the marketing mix, promotion should receive adequate attention of manufacturing and marketing men. Apparently promotional measures adopted by various companies are one of the factors which have probably resulted in tremendous growth of the rural market.
With the expansion of broadcasting facility, which now cover more than 90% of the population in the country, the opportunity for promotion of products in the rural areas have opened up. Many companies have taken advantage of the facility. Accordingly to govt. statistics the telecasting stations cover more of the rural population than urban areas, given the radius of area on which the program can be seen. While reach of the program cannot be questioned, the issue is of the number of customer having the access of the television set for viewing. The access can be limited to higher strata of rural of rural consumers who own television sets and to those where community television sets are available, this issue merits consideration, if this medium is to be used. Apart from television, the other rural promotion measure adopted by different organizations is worth consideration.
Colagate -Palmolive has used Van promotion in rural areas. Their main objective was direct customer contact, demonstration of the product, sample to consumers and spot sales. This was done sometime during 1987. The campaign was more for selling a concept of “oral hygiene” to the rural consumers than the product itself. Apart from going to the village they also selected places of mass gathering like shandies. The younger children were asked to brush/clean their teeth with the paste/powder and tell other about the feeling of freshness they experienced. In the meantime, the salesmen approached the village shops and motivated the shopkeepers to stock their products. Either the companies can operate their own vans or operate vans through their dealers and stockiest. They could even engage professional agencies like video express or video on wheels for rural promotion activities.
There has been a concerted effort on the part of manufacturers and marketing men to sell products specifically designed for the rural market. The brand awareness created by these products has given rise to a number of imitation products sold at cheaper price. In addition, regional branded and local unbranded product also thrives in rural market. The distribution mechanism takes care of village with at least a population of 5000 persons and the rest are left to make their own arrangement for procurement and sale. The policy with regard to distribution varies widely from company to company. Several innovative promotional measures are adopted by various companies in rural area. Van promotion in rural areas by both owned and hired vans, is widely adopted by companies to create awareness for the products – consumables and consumer durables
RURAL VS URBAN CONSUMERS - CHALLENGES
The biggest mistake a FMCG company can make while entering the rural India is to treat it as an extension to the existing urban market. But there is a vast difference in the lifestyles of the rural and urban consumers. The rural Indian consumer is economically, socially, and psycho graphically different from his urban counterpart. The kind of choices that an urban customer takes for granted is different from the choices available to the rural counterparts. The difference in consumer behavior in essence stems from the way of thinking with the fairly simple thought process of the rural consumer in contrast to a much more complex urban counterpart. On top of this there has hardly been any research into the consumer behavior of the rural areas, whereas there is considerable amount of data on the urban consumers regarding things like - who is the influencer, who is the buyer, how do they go and buy, how much money do they spend on their purchases, etc. On the rural front the efforts have started only recently and will take time to come out with substantial results. So the primary challenge is to understand the buyer and his behavior. Even greater challenge lies in terms of the vast differences in the rural areas which severely limits the marketer’s ability to segment, target and position his offerings. The population is dispersed to such an extent that 90% of the rural population is concentrated in villages with population of less than 2000. So the geographical spread is not as homogeneous as it is with the urban areas owing to vast differences culture and education levels. Also with agriculture being the main business of rural sector the purchasing power of rural consumer is highly unpredictable which can lead to high variations in demand patterns.
One more gray area that needs to be probed into is the importance of retailer in rural trade. Rural consumer’s brand choices are greatly restricted and this is where the retailer comes into the picture. The rural customer generally goes to the same retailer to buy goods. Naturally there’s a very strong bonding in terms of trust between the two. Also with the low education levels of rural sector the rural buying behavior is such that the consumer doesn't ask for the things explicitly by brand but like "laal wala sabun dena" or "paanch rupey waali chai dena". Now in such a scenario the brand becomes subservient to the retailer and he pushes whatever brand fetches him the greatest returns. Thus, as there is a need to understand the rural consumer, similarly need is there to study the retailer as he is a chief influencer in the buying decision.
Dynamics of rural markets differ from other market types, and similarly rural marketing strategies are also significantly different from the marketing strategies aimed at urban or industrial consumers. This, along with several other related issues, have been subject matter of intense discussions and debate in countries like India and China and focus of even international symposia organized in these countries.
Rural markets and rural marketing involve a number of strategies, which include:
Client and location specific promotion
Joint or cooperative promotion..
Bundling of inputs
Management of demand
Unique selling proposition (USP)
Partnership for sustainability
Client and Location specific promotion involves a strategy designed to be suitable to the location and the client.
Joint or co-operative promotion strategy involves participation between the marketing agencies and the client.
'Bundling of inputs' denote a marketing strategy, in which several related items are sold to the target client, including arrangements of credit, after-sale service, and so on.
Management of demand involve continuous market research of buyer’s needs and problems at various levels so that continuous improvements and innovations can be undertaken for a sustainable market performance.
Developmental marketing refer to taking up marketing programmes keeping the development objective in mind and using various managerial and other inputs of marketing to achieve these objectives.
Media, both traditional as well as the modern media, is used as a marketing strategy.
Unique Selling Propositions (USP) involve presenting a theme with the product to attract the client to buy that particular product. For examples, some of famous Indian Farm equipment manufactures have coined catchy themes, which they display along with the products, to attract the target client, that is the farmers. English version of some of such themes would read like:
The heartbeats of rural India
With new technique for a life time of company
For the sake of progress and prosperity
Extension Services denote, in short, a system of attending to the missing links and providing the required know-how.
Ethics in Business. form, as usual, an important plank for rural markets and rural marketing.
Partnership for sustainability involve laying and building a foundation for continuous and long lasting relationship.
RURAL MARKETING STRATEGY
Considering the type of environment the rural market operates and its associated problems, and so also the experience of the manufacturing and marketing men who operate in the rural market, it is possible to evolve effective strategies for the rural marketing.
RURAL MARKET SEGMENTATION
Unlike urban market it is possible to segment the rural market also. The basis of segmentation can be similar – demographic profile, socio – economic characteristics, exposure to modernization, and income levels. Given the rural occupation pattern there are certain specific characteristics which have to be taken into account. Some of the typical characteristics which help companies in rural marketing segmentation are:-
• Land holding pattern
• Irrigation facility
• Progressiveness of farmer
• Cropping pattern
• Mix of enterprises
• Education level
• Sociological factor
• Occupation categories
An appropriate segmentation of the highly heterogeneous rural market and identification of the needs and wants of different segmentation will form the very basis for rural marketing strategies. For the rural market, it will be ideal to think of strategies from the marketing mix point of view: product, price, place and promotion. In addition to the strategies of marketing mix element wise, the recent concept of social marketing has also been an important concept.
Social marketing is very appropriate for the Indian rural market, since the standard of living is very low and any effort to educate the rural consumers would result in the expansion and growth of the rural market in a generic sense.
1. SMALL UNIT PACKAGING
2. LOW PRICED PACKAGING
3. NEW PRODUCT DESIGNS
4. STURDY PRODUCTS
5. UTILITY ORIENTED PRODUCTS
6. BRAND NAME
For evolving the pricing strategies, the manufacturers and marketing men should think in term of low unit price and low volume packaging with an impression of sturdiness and utilities which should be enhance. Wherever necessary, redesigning of the product can be thought of depending on the customs and habit of rural customers. In addition, a brand name or logo or symbol is very essential for the rural consumer to identify the product with. It can be seen why the imitation product manufacture adopt the same style of packaging and printing. “Light joy” and “light boy”, the imitation products of lifebuoy toilet soap also carry a red and white coloured wrapper. This can also be seen in many more products like “friends and lovely” face cream. A rural consumer identifies the product from the colour of packaging and also low purchase price.
1. LOW COST /CHEAP PRODUCTS
2. AVOID SOPHISTICATED PACKAGING
3. REFILL PACKS/ REUSABLE PACKAGING
4. APPLICATION OF VALUE ENGINEERING – This is a technique which can be tried to evolve the cheaper products, by substituting the costly raw material with the cheaper one. Such application can be seen in the case of costly metal been replaced by cheaper reinforced plastic. Milk protein is costly but soya protein is cheaper but the nutrition content is the same. during early 70’s Britannia industries bring a product called “ PROBISK ” with soya protein.
The pricing strategy for the rural market will entirely depend upon the scope for reducing the price of the product to suit the rural incomes, and at the same time not compromising with the utility and sturdiness of the product. As seen earlier, nearly two-thirds of rural population belongs to lower income brackets and such an attempt will expand the market considerably.
Given the literacy rate of the rural population and distribution of the rural consumers, the promotion measures or strategies to be chosen should be cost effective. In addition, consumable products may warrant the use of mass media, since the target market is very large, but the durables products will require personal selling efforts because of the smaller size of the target consumers.
1. Mass media
2. Hoardings/wall painting
3. Shandies / Hats / Jathras / Melas
4. Non price competition
5. Special campaigns
6. Other mass media
i. Hand bills and booklets
iv. Gift schemes
v. Agro-techniques for crop cultivation
7. Personal selling and opinion leader
1. COVERAGE OF VILLAGES: - with improved communication facilities, it is possible to reach distribution van to the villages. The frequency of visits may be fixed, depending upon the off- takes or sales realization, so that the distribution cost can be minimized, but not at the cost of cutting down or rural population. These distribution cabs can be used for promotion works also. For villages with very less population, the distribution can be left to the initiative of the shop keepers and dealers in larger villages and to the shopkeepers of the small villages. The distribution arrangement requires serious consideration by manufacturing and marketing men, if they have to exploit the potential of the rural market
2. USE OF CORPORATIVE :- Over three lakh corporative society operate in the rural areas for or different purposes like, marketing co operatives, dairy corporative, farmer service corporative societies, consumer corporative and other multipurpose corporative. Given the number of such societies, there is at least one corporative society of one form or another for every two or three villages. These societies are linked to higher level of society like taluk, district or state level. Thus these corporative have an arrangement for centralized procurement and distribution through their respective state level federation. Such state level federation can be motivated to procure and distribute consumables items and low level durables items to the member societies for selling to the rural consumers
3. UTILIZATION OF PUBLIC DISTRIBUTION SYSTEM: - The Public Distribution System (PDS) in the country is fairly well organized. The revamped PDS places more emphasis on reaching remote rural areas like hills and tribal areas. Effective utilization of the PDS system should be explored by the manufacturing and marketing men, since they already have a distribution set up.
4. UTILIZATION OF MULTIPURPOSE DISTRIBUTION CENTRE BY PETROLEUM / OIL COMPANIES: - With a view to cater the rural market, the petroleum/ oil companies have evolved a concept of multi-purpose distribution centre in rural areas. They also provide fertilizers and seeds. The rural consumer who possesses tractors, oil engine pump sets and mopeds, frequently utilized these outlets for their requirements. These outlets can be profitably utilized for selling consumable and durable items also.
5. DISTRIBUTION TO FEEDER MARKETS/ MANDI TOWNS:- The villagers visit these town at regular intervals not only for selling the agricultural produce but also for the purchase of cloth, jewellery , hardware, radios, torch cells and other durables and consumer product. Hence a good distribution network should touch the identified feeder market and mandi towns. From the feeder market and mandi town, the stockiest or wholesaler can arrange for distribution to the village shop in the interior places.
Social marketing now hold an important role in the marketing activity and is now viewed as a social obligation. Social marketing is the design implementation and control of programs, seeking to increase the acceptability of a social idea or cause in target groups. It utilizes the concept of market segmentation, consumer research, concept development, communication, facilitation, and incentive and exchange theory to maximize target group response. This is also known as idea marketing or public issue marketing. the purpose of social marketing is to bring about a change in behavior and attitude through social advertising and social communication. The manufacturing men and marketing men can play a vital role in such activity, since they have the necessary capability to communicate, which can benefit the society and in turn lend a good image to the company also. The strength of the companies is in their forceful communication abilities and the far reaching network
HINDUSTAN UNILEVER LIMITED
About the company
Hindustan Unilever Limited (abbreviated to HUL), formerly Hindustan Lever Limited, is India's largest consumer products company and was formed in 1933 as Lever Brothers India Limited. It is currently headquartered in Mumbai, India and its 41,000 employees are headed by Harish Manwani, the non-executive chairman of the board. HUL is the market leader in Indian products such as tea, soaps, detergents, as its products have become daily household name in India. The Anglo-Dutch company Unilever owns a majority stake in Hindustan Unilever Limited.
The company was renamed in late June 2007 to "Hindustan Unilever Limited" to provide the optimum balance between maintaining the heritage of the Company and the future benefits and synergies of global alignment with the corporate name of "Unilever". This decision will be put to the Shareholders for approval in next "Annual General Meeting". HUL is one among those companies in the country that derives huge revenues (over 50 per cent) from the rural areas. Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods company, touching the lives of two out of three Indians with over 20 distinct categories in Home & Personal Care Products and Foods & Beverages. They endow the company with a scale of combined volumes of about 4 million tonnes and sales of nearly Rs.13718 crores.
HUL is also one of the country's largest exporters; it has been recognised as a Golden Super Star Trading House by the Government of India.
The mission that inspires HUL's over 15,000 employees, including over 1,300 managers, is to "add vitality to life." HUL meets everyday needs for nutrition, hygiene, and personal care with brands that help people feel good, look good and get more out of life. It is a mission HUL shares with its parent company, Unilever, which holds 52.10% of the equity. The rest of the shareholding is distributed among 360,675 individual shareholders and financial institutions.
HUL's brands - like Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond's, Sunsilk, Clinic Plus, Pepsodent, Close-up, Lakme, Brooke Bond, Kissan, Knorr-Annapurna, Kwality Wall's– are household names across the country and span many categories - soaps, detergents, personal products, tea, coffee, branded staples, ice cream and culinary products. They are manufactured over 40 factories across India. The operations involve over 2,000 suppliers and associates. HUL's distribution network, comprising about 4,000 redistribution stockists, covering 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers.
HUL has traditionally been a company, which incorporates latest technology in all its operations. The Hindustan Unilever Research Centre (HURC) was set up in 1958, and now has facilities in Mumbai and Bangalore. HURC and the Global Technology Centres in India have over 200 highly qualified scientists and technologists, many with post-doctoral experience acquired in the US and Europe.
HUL believes that an organisation's worth is also in the service it renders to the community. HUL is focusing on health & hygiene education, women empowerment, and water management. It is also involved in education and rehabilitation of special or underprivileged children, care for the destitute and HIV-positive, and rural development. HUL has also responded in case of national calamities / adversities and contributes through various welfare measures, most recent being the village built by HUL in earthquake affected Gujarat, and relief & rehabilitation after the Tsunami caused devastation in South India.
HUL has changed its strategy towards rural markets in order to tackle its somewhat flat growth in these areas. As against its earlier strategy of each business division dealing with the rural market on an individual basis, the multinational has now adopted a single organisational-push approach to achieve greater penetration and sales.
HUL derives over 40 per cent of its sales from rural India, which makes this part of the market a critical growth aspect for the company.The company is now looking at the rural market from an organizational point of view rather than from the individual businesses’ point of view. This approach is expected to lead to better cohesion, greater push and deeper penetration, which would eventually lead to better sales. Several of HUL’s major business categories — such as fabric wash, personal wash and beverages — already get over 50 per cent of their sales from rural areas.
However, officials say that it is not enough that individual business divisions push their own strategies for the rural market, adding the company would have to work in unison in order to achieve a balanced growth.
Example of HULs rural marketing strategy:-
A unique example is Hindustan Lever's Lifebuoy soap. In rural India, health is of paramount importance, because indisposition is very directly related to loss of income. Lifebuoy, whose core equity is health and hygiene, has for decades now been synonymous with soap in rural India.
At the same time, if products have to come up the order in the rural purchase hierarchy, they have to be affordable. If rural India today accounts for about half of detergents sales, it is because HUL has developed low-cost value-for-money branded products, like Wheel. The company has also taken initiatives to create markets even for apparently premium products, by offering them in pack sizes, like sachets, whose unit prices are within the reach of rural consumers. For example, initiated in the 1980s, sachets (Rs.2, Re.1, or 50 paise) today constitute about 55% of Hindustan Lever's shampoo sales. With media reach gradually increasing, rural consumers today, where the media has its footprints, share the same aspirations with their urban counterparts. HUL has responded to the trend with low unit price packs of even other products - Lux at Rs.5, Lifebuoy at Rs.2, Surf Excel sachet at Rs.1.50, Pond's Talc at Rs.5, Pepsodent toothpaste at Rs. 5, Fair & Lovely Skin Cream at Rs.5, Pond's Cold Cream at Rs.5, Brooke Bond Taaza tea at Rs.5.
HUL Penetration in Rural Market:-
The First major step taken by HUL to penetrate the rural market is that it evolved its distribution model. Secondly in 1998 HUL’s personal products unit initiated Project Bharat, the first and largest rural home-to-home operation to have ever been prepared by any company.
The project covered 13 million rural households by the end of 1999. Along with Operation Bharat, HUL conceptualized Project Streamline to enhance its control on the rural supply chain through a network of rural sub-stockists based in these villages. This gave the company the required competitive edge, and extended its direct reach to 37 per cent of the country’s rural population. Then HUL started Operation Harvest which was used as a medium of communication with the villagers. During these exercise, vans from HUL and its distributors did the rounds of 30,000 villages giving promotional packs, showing products ads and identifying key retail and distribution points.
The principal issue in rural development is to create income-generating opportunities for the rural population. Such initiatives are successful and sustainable when linked with the company’s core business and is mutually beneficial to both the population for whom the programme is intended and for the company. Based on these insights, HUL launched Project Shakti in the year 2001, in keeping with the purpose of integrating business interests with national interests.
Today Hindustan Unilever Ltd has more than doubled its direct rural reach with 30,800 `Shakti' entrepreneurs covering 1-lakh villages in 15 States at the end of 2006 through its project shakti. The next stage of Project Shakti was even more ambitious. HUL has piloted `I-Shakti', an IT-based rural information service that provides solutions to key rural needs in the areas of agriculture, education, vocational training, health and hygiene. The project has been set up in 8 villages in Andhra Pradesh, and is functional since August 2003.
EVOLUTION OF HULS DISTRIBUTION MODEL
To meet the ever-changing needs of the consumer, HUL has set up a distribution network that ensures availability of all their products, in all outlets, at all items. This includes, maintaining favorable trade relations, providing, innovative incentives to retailers and organizing demand generation activities among host of other things.
HUL has followed a strategy of building its distribution channels in a transitional manner; and in different successive phases of the evolution of its distribution system, has penetrated well into the rural market.
The first phase of the HUL distribution network had wholesalers placing bulk orders directly with the company. Large retailers also place direct orders, which comprised almost 30 percent of the total orders collected.
The company salesman grouped all these orders and placed an indent with the Head Office. Goods were sent to these markets, with the company salesman as the consignee. The salesman then collected and distributed the products to the respective wholesalers, against cash payment, and the money was remitted to the company.
The focus of the second phase, which spanned the decades of the 40s, was to provide desired products and quality service to the company’s customers. In order to achieve this, one wholesaler in each market was appointed as a “Registered Wholesaler,” a stock point for the company’s products in that market. The company salesman still covered the market, canvassing for orders from the rest of the trade. He would then distribute stocks from the Registered Wholesaler through distribution units maintained by the company. The Registered Wholesaler was given a margin of 1 per cent to cover the cost of warehousing and financing the stocks held by him. The Registered Wholesaler system, therefore, increased the distribution reach of the company to a larger number of customers.
The highlight of the third phase was the concept of “Redistribution Stockiest” (RS) who replaced the REGISTERED WHOLESALERSs. The REDISTRIBUTION STOCKIST was required to provide the distribution units to the company salesman. The REDISTRIBUTION STOCKIST financed his stocks and provided warehousing facilities to store them. The REDISTRIBUTION STOCKIST also undertook demand stimulation activities on behalf of the company.
The second characteristic of this period was the changes brought in as the company realised that the REDISTRIBUTION STOCKIST would be able to provide customer service only if he was serviced well. This knowledge led to the establishment of the “Company Depots” system. This system helped in transshipment, bulk breaking, and acted as a stock point to minimise stock-outs at the REDISTRIBUTION STOCKIST level.
In the recent past, .significant change has been the replacement of the Company Depot by a system of third party; the Carrying and Forwarding Agents (C&FAs). The C&FAs act as buffer stock-points to ensure that stock-outs did not take place. The C&FA system has also resulted in cost savings in terms of direct transportation and reduced time lag in delivery. The most important benefit has been improved customer service to the REDISTRIBUTION STOCKIST.
Operation Bharat — HUL’s Rural Distribution Effort.
HLL implemented a major direct consumer programme called Project Bharat, which covered 2.2 crore homes. Each home was given a box, at a special price of Rs.15, comprising a low unit-price pack of hair-care (Clinic shampoo), dental (Pepsodent toothpaste), skin-care (Fair & Lovely) and body-care (Pond’s Dream flower talc) products along with educational leaflets , audio-visual demonstrations, film songs and mythological serials interspersed with ads of Lever product. Close to 160 vans and over thousand promoters (sales staff of the distributors or some other private operators) were pressed into Operation. The cost came upto roughly Rs.13 crore. Each van, equipped with a TV arid VCR, had six ‘promoters’. The project helped eliminate barriers to trial, and strengthened salience of both particular categories and brands.
In 1998, HUL launched Operation Streamline to extend their distribution. Operation Streamline is one of the major initiatives undertaken by HUL in recent times to penetrate the rural markets. In the case of Operation Streamline, the goods are distributed from the C &F Agents to the Re-distributors, who in turn pass it on to the Star Sellers. Being a cross-functional initiative, the Star Seller sells everything from detergents to personal products, etc. Operation Streamline opened up a new distribution channel beyond the territories that were covered by HUL’s 7,500 odd distributors. In less than two years, it has doubled’ the company’s reach in rural India. Lever’s distribution network now covers 60 per cent of the villages with population greater than 2,000, and having motor able roads. Example:- Penetration levels for its Fair & Lovely cream shot up nearly three times in just three months of launch of project. Interestingly, there appears to be a convergence around the prescription that HUL has created to crack opens the rural markets. For the additional 30,000 villages that HUL wanted to reach, it created a super stockiest; sub-stockiest structure. The super-stockiest in the bigger towns service these sub-stockiest, who are paid 1-2 per cent more margins that the retailers. This is to cover the sub-stockest’s costs in servicing retailers in his area. Since the distributor cannot cover these retailers regularly, these sub-stockiest are essentially stock points. Then, once dealers do the necessary demand creation exercises and as such off takes increases.
Under the Indirect Coverage (IDC) method, company vans were replaced by vans belonging to distribution Stockiest, which serviced a select group of neighbouring markets.
The reach of conventional media and, therefore, awareness of different products in rural markets in weak. It was also not always feasible for the distribution Stockiest to cover all these markets due to high costs involved. Yet, these markets are important since growth opportunities are high. The company decided to initiate mobile van operations in a focused manner to create both awareness and point of purchase access. Operation harvest endeavored to supplement the role of conventional media in rural India and, in the process, forge relationships and loyalty with rural consumers. Operation Harvest also involved conducting product awareness programmes on vans. There are 1.2 million urban retail outlets, and another 3.6 million shops in rural areas. Depending on their business objectives, marketer’s use varying definitions for what is rural. Whatever be the case, to extend their reach, marketers begin by ‘seeding’ the new territory, mostly through a brand awareness exercise. As HUL demonstrated with Operation Harvest, this exercise is best done through van operations. During this exercise, vans from HUL and its distributors did the rounds of 30,000 villages giving promotional packs, showing products ads and identifying key retail and distribution points.
Cinema Van Operations
The Redistribution Stockiest typically funds these. Cinema Van Operations have films and audio cassettes with song and dance sequences from popular films, also comprising advertisements of HUL products. But over a period of time, van operations (usually run by the distributor or a third party) have also been used to regularly service retailers in these smaller markets rather than only making contract with the end consumer. These successive ‘Operations’ have enabled the company far deeper penetration levels than other companies. HUL recognized early in its rural distribution initiative that market share would be created only when demand is built up through awareness, trial and consistent availability. The company literally had to build up’ the market village by village in its rural initiative. Cost-effective distribution solutions were as first attempted by HUL, and many other companies are veering around to that option today. It has been working well for HUL, so others are beginning to experiment with it.
Life Swastiya Chetana
In 2002, HLL has launched a similar large- scale direct contact, called Lifebuoy Swasthya Chetana, which will cover about 5 crore people in 15,000 villages of 10 states. The project aims to generate awareness about good health-and-hygiene practices. It is a multi-phased activity which works towards effecting behaviour change amongst the rural population it touches. It demonstrates that “visible clean is not really clean” thereby proving the importance of washing hands with soap. It targets children as they are the harbingers of change in society and mothers since they are the custodians of health.
The campaign has been divided into various phases. In the initial phase, a Health Development Facilitator (HDF) and an assistant initiates contact and interacts with students and influencers of the community, i.e. village community representatives, medical practitioners, school teachers etc. A number of tools such as a pictorial story in a flip chart format, a "Glo-germ demonstration" and a quiz with attractive prizes to reinforce the message are used. The "Glo-Germ demonstration" is a unique tool to make unseen germs visible and emphasize the need to use soap to wash hands and kill germs. The first interaction with students is then replicated with the women and finally the rest of the community. The various stages reinforce the message and learnings, which is crucial in order to effect awareness and behaviour change in favour of hand wash hygiene.
The programme has touched 27000 villages and 80 mn people over the last four years. In 2006 alone LBSC contacted 10,000 villages in UP, MP, Jharkhand and Bihar. This on-going project is committed to spreading the message of health and hygiene and touching more lives in rural India over 2007.
Being India’s leading personal wash health brand, Lifebuoy saw a role for itself in propagating the message of hygiene and health in villages. We launched our Lifebuoy Swasthya Chetna initiative keeping this rationale in mind.
HUL’S PROJECT SHAKTI
HUL has been proactively engaged in rural development since 1976 with the initiation of the Integrated Rural Development Programme in the Etah district of Uttar Pradesh, in tandem with the company’s dairy operations. This Programme now covers 500 villages in the district. Subsequently, the factories that HUL continued establishing in less-developed regions of the country have been engaged in similar programmes in adjacent villages
These factory-centered activities mainly focus on training farmers, animal husbandry, generating alternative income, health & hygiene and infrastructure development.
The company has acquired a wealth of experience and learning from these activities. In addition to money, there is a marked change in the woman's status within the household, with a much greater say in decision-making. This results in better health and hygiene, education of the children, especially the girl child, and an overall betterment in living standards.
The most powerful aspect about this model is that it creates a win-win partnership between HUL and the consumers, some of whom will depend on the organization for their livelihood, and builds a self-sustaining cycle of growth for all. It has since been extended to in Andhra Pradesh, Bihar, Chattisgarh, Gujarat, Haryana, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan, Tamilnadu, Uttar Pradesh and West Bengal with the total strength of over 40,000 Shakti Entrepreneurs.
Shakti has three initiatives.
• The Shakti Entrepreneur, a microenterprise initiative
• the Shakti Vani program which translates as ‘the voice of Shakti’, training women to be communicators in the villages
• IShakti, a group community portal that enables users to access information in a variety of areas. The software is voice enabled for illiterate users.
HLL starts with the route sales person who identifies the Shakti entrepreneur for village. HLL then provides the products and helps her understand what to do and how to realize maximum income. Through the Shakti Vani program women are trained in health and hygiene issues then teach what they have learned to the village communities. In 2004, Shakti Vani covered 10,000 villages and the vision is to cover 50,000 villages in 2005.
iShakti, the Internet-based rural information service, has been launched in Andhra Pradesh. It provides information and services to meet rural needs in medical health and hygiene, agriculture, animal husbandry, education, vocational training and employment and women's empowerment. The vision is to have 3,500 kiosks across the state by 2005.
The Shakti Amma’s are the wealth creators for their villages. They learn about products, prices, returns, and being and advisor and helper to their customers in the village. Often they have simple goals, by Western standards, for their earnings wishing to buy a telephone, a scooter for transportation, or education for their children. Nearly as important as the money they are earning is the improved social standing for the women. As a Shakti Amma, each woman is looked up to by villagers, approached for advice, and fulfilled by the knowledge that she is helping other people as well as her own family.
Shakti is HUL's rural initiative, which targets small villages with population of less than 2000 people or less. It seeks to empower underprivileged rural women by providing income-generating opportunities
In general, rural women in India are underprivileged and need a sustainable source of income. NGOs, governmental bodies and other institutions have been working to improve the status of rural women. Shakti is a pioneering effort in creating livelihoods for rural women, organised in Self-Help Groups (SHGs), and improving living standards in rural India. Shakti provides critically needed additional income to these women and their families, by equipping and training them to become an extended arm of the company's operation.
A Shakti entrepreneur sets off with 4-5 chief brands from the HUL portfolio - Lifebuoy, Wheel, Pepsodent, Annapurna salt and Clinic Plus. These are the core brands that they layer it with whatever else is in demand like talcum powder or Vaseline during winters.
The Shakti model trains women from SHGs to distribute HUL products of daily consumption such as detergents, toilet soaps and shampoos - the latter's penetration being only 30 per cent in rural areas. The women avail of micro-credit through banks. The established Shakti dealers are now selling Rs 10,000-Rs15,000 worth of products a month and making a gross profit of Rs 700-Rs1,000 a month. A typical Shakti entrepreneur earns a sustainable income of about Rs.700 -Rs.1,000 per month, which is double their average household income. Shakti is thus creating opportunities for rural women to live in improved conditions and with dignity, while improving the overall standard of living in their families.
Fair And Lovely(FAL) Vani operates under the aegis of Hindustan Unilever’s Project Shakti, a network spread across 18,624 villages in the states of Tamil Nadu, Andhra Pradesh, Maharashtra, Uttar Pradesh, Bihar and West Bengal. FAL Vani is engineered to empower rural women in earning a livelihood, while improving the distribution and reach of FAL.
The job of identifying villages for activation programmes rests with the HUL sales team. Once a village has been selected, HUL team meets key opinion leaders (KOLs) like the sarpanch, the school principal, an important businessman or anyone who is highly regarded by the villagers. “It is always better to meet and inform them that we are planning a programme in the village, lest there be trouble in the future,” Punjabi informs. The KOLs also help the activation team in selecting a local ‘FAL didi’ for that particular kasbah or mohalla.
The FAL didi is someone of a friendly disposition, is well-known in the village and in the good books of most villagers. Her role is to help gather the crowd for the presentation.
The baithak is at Baniyapara, where about 30-35 women in the age group of 25 to 30 have assembled. The crowd also comprises young teenaged girls and children. Here, I’m introduced to FAL Vani, 19-year-old Rakhiba Khatoon. The FAL Vani is a trained HUL employee who conducts the programme. Khatoon uses a flip-chart to tell the story of Moon Moon, a village girl who goes to town to study and wants to participate in a dance competition. But Moon Moon lacks in confidence because of her complexion. On the advice of her roommate she starts using FAL, and doesn’t just win the competition, but also returns to her village and starts a dance-school for kids. Khatoon then invites a girl from the crowd and demonstrates the right method of applying FAL. This is followed by an ‘application challenge’, where a dozen women from the crowd are given a minute to apply FAL: the one who applies it the fastest and in the right way wins.
I-Shakti kiosks have been set up in 8 villages in Andhra Pradesh, and have been functional since August 2003. The kiosks have received an overwhelming response from the local populace. During the launch of these kiosks, important village members like the sarpanch, schoolteacher and doctor are invited to help reinforce relationships with the villagers. The kiosks remain open from 9 a.m. to 7 p.m., six days of the week. To enable access to the services, users have to register themselves first and obtain the unique registration number. An id card with the registration number is provided for use every time they visit the kiosk.
The kiosks offer information chiefly in the form of audio-visuals in the following areas:
• Health & Hygiene
• Legal services
• Veterinary services
The information provided in the above areas is called from the best available resources, taking additional care to ensure that information, especially in areas like agriculture, is locally relevant and includes inputs from home-grown experts. These experts are also available on request, to help provide solutions to problems raised by users through a query mailing system. A farmer from the village can obtain a quick solution to a pest problem with his crops. People can also send queries on health and hygiene to a local doctor for a speedy response. Villagers can avail of discount coupons from the kiosk for medical treatment from doctors operating in local areas. 'I-shakti’ has also tied up with Azim Premji Foundation to deliver innovative educational modules to students of classes VIII-XII through the kiosk. Local school teachers have also been involved in the process. A similar partnership is in place with Tata Adult Literacy for adult education.
Partnership Opportunities of HUL
HUL is keen to work with Corporates, State Governments and NGOs with the common goal of rural development.HUL is looking to engage in mutually beneficial partnerships with other corporates on both the Shakti as well as the i-Shakti platforms. As per plans to extend Project Shakti into other states, HUL seeks the support of State Governments, through their rural development departments to establish contact with SHG NGOs in their respective states. HUL is working with over hundred NGOs across the country and would like to collaborate with more NGOs who are interested in extending the Shakti initiative amongst their SHGs in different states.
HUL IN FOREIGN MARKET
The project has emerged as a successful low-cost business model and enhanced HUL’s direct rural reach in the so-called media-dark regions. Armed with micro-credit, r ural women become direct-to-home distributors of Unilever brands in rural markets. The Fortune 500 transnational which sells foods and home and personal care brands in about 100 countries has stepped up focus on the project given that emerging markets now contribute around 44% to global revenues.
The effort is expected to help Unilever tap fresh growth avenues in emerging markets in the face of recessionary trends in the US and Europe. Also, given the saturation of urban markets, companies try to re-engineer their business models to derive growth from rural consumers.
The project is being customised and adapted in other Unilever markets such as Sri Lanka, Vietnam and Bangladesh. It is being considered for other Latin American and African markets. In Bangladesh and Sri Lanka, it is being promoted as Joyeeta and Saubaghya, respectively. There is a similar initiative in Vietnam as well.
COMPANY SUCCESS IN RURAL MARKET
The rural micro-enterprise has helped the Rs 13,717-crore Hindustan Unilever in pushing growth rates in several categories such as personal wash, fabric wash, shampoos, oral care and skin care. Brands like Annapurna, Lux, Lifebuoy, Breeze, Wheel, Fair & Lovely, Lakme, Ponds, Clinic Plus and Pepsodent have sold good numbers in smaller markets, company sources said. Overall, around 50% of Hindustan Lever’s revenues came from the rural markets in India.
HUL sources said the project currently contributes ‘handsomely’ to the company’s sales. The project was started in 2001 to empower underprivileged rural women by providing income-generating opportunities, health and hygiene education. Shakti’s ambit already covers about 15 million rural population. Several rural pockets are populated by less than 2000 individuals but are seen as unreachable and remain untapped by consumer goods makers.
Industry officials say the awareness level of rural consumers about products and brands are lesser than the urban markets. Also, urban business models are not really successful in tapping the full potential of several small clusters of consumers across remote markets.
PROCTOR & GAMBLE
P & G
Procter & Gamble Co. is a Fortune 500, American multinational corporation headquartered in Cincinnati, Ohio, that manufactures a wide range of consumer goods. As of 2008, P&G is the 6th largest corporation in the world by market capitalization and 14th largest US Company by profit. It is 10th in Fortune's Most Admired Companies list (as of 2007). P&G is credited with many business Innovations including brand management, the soap opera, and the Connect + Develop initiative.
In the 1880s, Procter & Gamble began to market a product, an inexpensive soap that floats in water. The company called the soap Ivory. William Arnett Procter, William Procter's grandson, began a profit-sharing program for the company's workforce in 1887. The company's leaders began to diversify its products as well and, in 1911, began producing Crisco, a shortening made of vegetable oils rather than animal fats. As radio became more popular in the 1920s and 1930s, the company sponsored a number of radio programs. As a result, these shows often became commonly known as "soap operas".
In January 2005 P&G announced an acquisition of Gillette, forming the largest consumer goods company and placing Unilever into second place. This added brands such as Gillette razors, Duracell, Braun, and Oral-B to their stable. The acquisition was approved by the European Union and the Federal Trade Commission, with conditions to a spinoff of certain overlapping brands. P&G has agreed to sell its SpinBrush battery-operated electric toothbrush business to Church & Dwight. It also divested Gillette's oral-care toothpaste line, Rembrandt. The deodorant brands Right Guard, Soft & Dri, and Dry Idea were sold to Dial Corporation. The companies officially merged October 1, 2005.
In July 2007 the company's operations are categorized into 3 "Global Business Units" with each Global Business Unit divided into "Business Segments," according to the company's June 2007 earnings release.
Baby Care and Family Care segment
Fabric Care and Home Care segment
Health & Well-Being
Snacks, Coffee and Pet Care
P&G has been operating in India for the last 10-12 years, and has been able to build stable equity in brands like Vicks, Ariel, Head & Shoulders, among others. The Cincinnati-based parent operates through two subsidiaries — Procter & Gamble Home Products, which is wholly-owned, and Procter & Gamble Hygiene and Health Care, in which it holds 65 per cent. The latter reported a net profit of Rs 77 crore on gross sales of Rs 449.8 crore in the year ended June 2002.
After the successful implementation of the Golden Eye distribution model, which was put in place by the company’s former managing director Gary Cofer, the next move is to invest in distribution and penetration. According to Mr Khosla P & G managing director (India) “Golden Eye is the most efficient distribution system in the country. The challenge is to win the hearts and minds of the consumer by being cost efficient. We are putting this in place and hope to accomplish the task in the next 2-3 years.” P&G had earlier pronounced that its strategy would largely revolve around the urban consumer, given the huge growth potential therein.
In India P &G found itself headlock with HLL on most of the front and losses ground in almost all of them. HLL has better Local market understanding and a robust distribution channel. Some examples are
1991: Breaking new ground to create a premium segment in the Hindustan Lever Ltd (HLL)-ruled detergents market, Procter & Gamble India (P&G) launched Ariel. Costing thrice as much as the most expensive product till then-Surf with Wash Boosters-the compact detergent powder dominated the slot for 7 years. Then, in 1998, HLL's Surf Excel with Active Oxygen became the segment-leader. 1992: Capitalising on the high-quality, high-performance image built by the brand, P&G's Ariel bar quickly grabbed 7 per cent of the detergent bars segment, a remarkable achievement against well-entrenched competitors like HLL's Wheel and Rin. By 1998, however, its marketshare had dropped to less than 1 per cent. 1993: P&G unveiled Ariel Super Soaker, a mid-segment detergent powder still riding on the equity of the mother brand, gaining a 5 per cent share of the competitive market in the very first year. But, as HLL quickly hit back with Rin Power White, the brand started losing share, and commands just 1 per cent of the segment five years later.1994: Slotting the global soap brand, Camay, which already had the image of a premium product, into the popular price-segment, P&G took its competitors by surprise. In just 2 years, Camay built a marketshare of 6 per cent-only to lose a quarter of it by 1999 because of a renewed assault on the segment by HLL's Lux International and Dove. 1995: P&G launched Pantene, its global shampoo brand, in a virtually stagnant market. Within 12 months, it soaked up a marketshare of 11 per cent. But, with HLL fighting back with Clinic and Sunsilk, Pantene's share had come down to 6 per cent 36 months later.
VALUE PRICING STRATEGY
Procter & Gamble made dramatic and long-term changes in its pricing and promotion strategy. Procter & Gamble (P&G), a leading consumer packaged goods producer, instituted a "value pricing strategy" during which it boosted advertising while simultaneously curbing its distribution channel deals (in-store displays, trade deals), and significantly reducing its coupon promotions
Things which inspired P&G to initiate this value pricing strategy was
1. logistical efficiency - P&G was concerned with the cost of administering promotions, and the effect of up-and-down swings in demand on the production system.
2. P&G was concerned with the impact of promotions on brand loyalty, fearing that on one hand they attracted "cherry-picking" bargain hunters who could care less about the brand, and on the other hand they weakened the loyalty of their core customers. It is also thought that one of the prime architects of the strategy
As a result, over the course of six years (1990 through 1996) P&G reduced its coupon expenditures by over 50&percnt, reduced its distribution channel deal expenditures by 20%, and increased its advertising expenditures by 20&percnt
From 1990 -1996, the net price paid by consumers of P&G products increased 20.4% (due to the decrease of coupons use by 54.3%, and reduction in price cuts). Meanwhile P&G increased advertising by 20.7%, and decreased channel deals by 15.7%.
During the same time period, the overall competition's (including companies such as Colgate, Unilever, and Gillette) net price paid increased 10%, advertising increased 6.3percent;, deals increased 13.1 percent;, and coupons decreased 17.1 percent;. Of the three competitors, only Gillette lowered prices and it increased coupons use by 127.6 percent; -- far more than Colgate. Overall, the competition did not completely cooperate with P&G, but neither did it take full advantage in a mad grab for market share. P&G's Value Pricing Strategy showed no change in share of requirements or category usage, but it did end up with a reduced penetration rate, which declined 16 percent. This was because the cut in promotions resulted in fewer consumers buying P&G brands, and neither the cut in promotions nor the increase in advertising had any appreciable effect on SOR. Overall, P&G's market share decreased 16percent. It lost 16% of share, but made up for this through increased prices 20%, a lower cost of good sold, and efficiencies in production
P&G's Operation Golden Eye
P&G's rural turnover is small. P&G's presence is limited. In fact, even P&G's top brand, Vicks-which accounts for 23 per cent of its sales-is sold mainly in the metros. What is significant is that, even in urban markets, P&G is focusing only on key outlets, in what it calls Operation Golden Eye. It is the classic 20-80 solution; concentrate on the outlets that contribute the maximum to sales, leaving the rest to the wholesaler.
The price-insensitive nature of the premium end of the market suits P&G, which has not been entirely comfortable in price-sensitive segments. The criteria for selling a product through a wholesale channel are that it must have strong consumer-pull, which a brand like Vicks has.
P&G wants to shift the basis of competition to non-price issues. Price-insensitive consumers buy on the basis of the value perception-the difference between the benefits of the product and its price. P&G, possibly, did some value-mapping P&G's focus on Ariel Microshine, which is targeted strictly at the premium compact powder segment of the detergents market, is driven by the same logic. Indeed, the compact segment is growing at 10 per cent per annum while the rest of the market is limping along at 2 per cent.
P&G's decision to concentrate on high-margin segments is also driven by the need to sustain its marketing drive. Narrowing its focus will lower P&G's marketing expenses. P&G's ad spend ran up to Rs 80 crore-an estimated 11 per cent of its sales of the advertised products. By contrast, HLL spent only 6 per cent of its sales on advertising, proving that P&G's ad rupees were not providing great returns in terms of turnover. In future, P&G will no longer need to advertise on expensive mass-market channels, like Doordarshan, because the markets it will now cater to can be reached through Cable and Satellite (C&S) channels, where tariffs are between 10 and 25 per cent lower.
P & G has always focused it energy and strategy on better and quality products but Indian market is price sensitive market and by adopting low price strategy HLL was eating P&G market share in both urban and rural market. Hence in rural market P & G management compromise on the quality of the product and bring it down a little. P&G began to acknowledge that high prices would hinder the Indian from using its products on a large scale, so it began trying an approach it learned from its competitors in the Philippines and China – it began selling shampoo sachets at the price of Rs.3. Slowly and slowly rural masses accepted shampoo a big way and start asking for the small bottles of shampoo. Which increased the revenue of P&G but soon was copied by HLL and other competitor
According to a study by the National Council for Applied Economic Research (NCAER), there are as many 'middle income and above' households in the rural areas as there are in the urban areas. Moreover, there are almost twice as many 'lower middle income' households in rural areas as in the urban areas. At the highest income level there are 2.3 million urban households as against 1.6 million households in rural areas. As per the NCAER projections, the number of middle and high-income households in rural India is expected to grow from 80 million to 111 million by 2007. In urban India, the middle and high-income market is expected to grow from 46 million to 59 million. Thus, the absolute size of rural India is expected to be double that of urban India. But despite the high rural share in these categories, the rural penetration levels are low, thus offering tremendous potential for growth. But rural India isn’t just being developed as a consumer market. It is also being developed as a cost effective supply chain. With a judicious blend of click & mortar capabilities, agricultural communities in villages use internet kiosks - known as i-shakti - to access ready information in their local language on the weather & market prices.
It becomes amply clear that rural India has to be the hot target in future for FMCG companies as it presents a plethora of opportunities, all waiting to be harnessed. Many of the FMCG companies are already busy formulating their rural marketing strategy to tap the potential before competition catches up. With extensive competition not only from MNCs but also from the numerous regional players and the lure of an untapped market has driven the marketers to chalk out bold new strategies for targeting the rural consumer in a big way. All biggies in the industry be it HLL, Marico, Colgate-Palmolive or Britannia, P&G are showing deep interest in rural India. However not everything is all rosy and there exist some gray areas in the rural strategies also. To increase sales, growing the consumer pie rather than sharing it, has emerged as one of the key strategies being used by FMCG majors. Offering more product variants, categories, price points, sizes and different marketing and distribution channels, all form part of a FMCG corporate’s strategy. It is clear that rural markets have caught the eyes of FMCG marketers and it is being targeted through experiments in a big way. But is it a right marketing strategy? Or will it prove to be an expensive mistake? Well that’s the issue most FMCG companies face today and the one we discuss here. They are also able to disseminate knowledge on scientific farm practices & risk management. Whether the objective is to increase market share or to lower transaction costs, the end objective is to improve the robustness of the rural supply chain. Moreover, there are scalable and robust models, and, given the right policy environment, it should be possible to seamlessly integrate them in the months and years to come.
In the end it is certain that FMCG companies will have to really gain inroads in the rural markets in order to achieve double digit growth targets in future. There is huge potential and definitely there is lot of money in rural India but the smart thing would be to weigh in the roadblocks as carefully as possible. The companies entering rural market must do so for strategic reasons and not for tactical gains as rural consumer is still a closed book and it is only through unwavering commitment that the companies can make a dent in the market. Ultimately the winner would be the one with the required resources like time and money and also with the much needed innovative ideas to tap the rural markets.