Unilever in India – Hindustan Lever’s Project Shakti – marketing FMCG to the Rural Consumer Submiited to Dr. G Sridhar By Garima Dhamija (ePGP-‐03-‐113) As a part of Sales and Distribution Management
Q. What are the key features of Shakti? What are its positive aspects and what are its drawbacks? Facing a loss in turnover in sales and net profit, HUL was ready to launch something new to be used to jumpstart to higher level of revenues. Keeping this in mind HUL introduced project Shakti, a flag-‐ship program with this and another objective of capturing untapped rural markets. In other words, Project Shakti was launched with the aim of winning a share the rural market and creating a social impact. HUL partnered with recipients of the micro-‐credits by offering the village women to be micro-‐entrepreneurs. HUL tied up with MACTS to sell its products, which subsequently would sell it into the Self Help Groups (SHGs). One member in each group was selected as an entrepreneur. The entrepreneurs sold the products to the local outlets at a price keeping in mind that the retailer could further win a margin when selling to consumers. HUL sold its products at a discount to the entrepreneurs at a price that would enable them to avoid channel conflict. In order to help the entrepreneurs grow their businesses, HUL • hired RSP to coach women. • pressed into service the incentive mechanism for newly appointed entrepreneur (cash rewards for visiting a cluster of homes in addition to the incentives on amount . Additional incentives on selling some particular brands) • collaborated with local banks to defer the first installment of loans by a few months. Positives of Shakti • An opportunity to capture the rural market and to add to revenue • Created a possibility to increase net profit • Initiated a communication to create a brand name synonymous with rural population • Is s social platform to better economic prospects and therefore standard of living of rural India. • Started Shakti Vani to create health consciousness. Drawbacks-‐ • High dependence on SHG. So the places where SHGs are not prominent it there are no mechanisms for Shakto to work well. • Possible conflicts in selecting an entrepreneur in SHGs. • Channel conflicts can happen with the discounts that are offered to the entrepreneurs.
• Margins to retailers are limited , so also the margins to entrepreneurs. Q.What was the motivation for the Shakti initiative? Was it a CSR activity? To handle increasing competition as a result of the changes in the economy (also the liberalization brought about in 1991), Unilever tried to find a new area of business. There was a gap in the rural markets both financially and socially. As per as the case, the motivation was both to find a new market and to improve the standard of living by giving a boost to the incomes . Since CSR entails “community growth and development” and “deliberate inclusion of public interest into corporate decision making” (source – wikipedia), Shakti inititative does fall into CSR. Q. How can Shakti make a contribution to HLL’s bottom line? Make an economic case. What is the Economic Value created by Shakti? What is the social value? Shakti was launched to capture the lower ranks of the economic pyramid. • There are above 600,000 villages across India. • Unilever’s reach is upto 100,000 villages. • Shakti can tap a large chunk of the untapped 500 million population. • direct distribution to rural market. • MACTS-‐ partners to SHGs, would purchase the products from Unilever and the sell it to SGH entrepreneur, who then can sell it directly to the consumers or through retailers. • Many incentive mechanisms to the entrepreneurs to motivate them. Tie ups with some local banks to help the entrepreneurs to late repay loans. This project was also bolstered with the introduction of Shakti Vani and iShakti. • Shakti Vani-‐ encouraging health consciousness • iShakti-‐ Empoer people with information Economic Value – • Number of villages-‐ 638,365. • Total population -‐700 million • Tapped village market-‐ 100,000 • Total Population-‐ 220 million • Untapped village market-‐ 538,365 • Total population-‐ 480 million • In 2003 total turnover -‐ 2231.232 • In 2004 total turnover-‐ 10040.54
(USD) So, Shakti has given a good result in the total portfolio and good growth in revenue over a period of time For entrepreneurs With an investment of Rs 10000, they had the potential to achieve sales of upto Rs 120,000 and earn Rs 700 per month (including Rs 200 to be paid out for loan payment.) This would be over and above other incentives. Q.What are the critical challenges facing HUL in making Shakti work? What should Shakti’s managers do? If Shakti can not become profitable, should HUL continue the programme? Why? Challenges • Motivation of Entrepreneurs – They should organize formal training to develop skills and create a viable business. • Shakti Vani should be kept intact and thus can connect it to the people there. • Should introduce some promotional products during social get togethers and for special occasions • Out of more than 30 products, 4 products have 50% share. So managers should stress upon these products to penetrate rural markets further. They should continue with the project. This has to be looked at from the long term perspective. This is the project that gives them a very first mover advantage and can reap much benefit in years to come. They have already received good results out of it and Shakti had contributed 1% to 3% in its total revenues in one or two years. So still they can reach as much as an additional 250 million consumers by 2010. So focusing on the selected geographies (districts) and focusing efforts on the existing entrepreneurs should help. Also, the positioning, as a socially responsible organization will also hold Unilever in good stead always.