Accenture masters of_rural_markets


Published on

  • Be the first to comment

  • Be the first to like this

Accenture masters of_rural_markets

  1. 1. Accenture Research ReportMasters of rural markets:The Hallmarks of High Performance
  2. 2. ContentsForeword: Unleashing India’s rural 03multiplier effectGrowing business confidence in 05rural opportunitiesThe attractions and distractions of 09rural marketsDistinctive capabilities that enable 15companies to succeed in India’s hinterlandFramework factors critical to nurturing 28distinctive capabilitiesDeveloping the right capabilities—and 29acting on themLast word 312
  3. 3. ForewordUnleashing India’s rural multiplier effect But rural India’s contributions to But, there is one more theme that the nation’s economic success—and cannot be ignored. It is about the the obvious potential for profitable enormous disparity in incomes and growth—is just a part of the promise living standards and lack of social- of wholehearted commitment to doing infrastructure across India. business beyond the city centers and suburbs. India’s rural markets offer Accenture firmly believes that unprecedented opportunities for businesses that are benefiting by global and local companies to providing goods and services to rural experiment with approaches and consumers have a duty to bring business models, which if successful, more inclusive, sustainable, social may be replicated in rural markets of and economic growth to those other emerging economies. consumers’ communities.India is on the march. Its momentumis not only evident in metros— This report chronicles the business As this report explains, businesses canit is apparent in small towns and sector’s growing confidence in do much to accelerate employment,villages as well. Collectively, all India’s rural markets. It draws on educational opportunities,over India’s rural heartland and in the new Accenture survey results infrastructure development, andits teeming cities, India is readying to demonstrate the strength of wealth creation. In particular, theyfor an even more impressive era of business leaders’ belief in the future are in prime position to help bringeconomic growth. of the rural opportunities in India education, healthcare and productive and their willingness to invest in the employment to a youthful workforceThere is no question that India’s rural opportunities. Just one snapshot: more whose size promises to make itmarkets are becoming a powerful than half of our survey respondents the major engine of India’s futureeconomic engine. One telltale sign: foresee 20 to 50 percent of their workforce and economy.rural accounts now comprise over 50 revenues coming from rural marketspercent of new subscribers for some of over the next three years. We believe this report can acceleratethe leading telecom providers.1 those efforts. We look forward to The report also offers a framework discussing its findings with you.The rural multiplier effect is what that highlights the characteristics ofexcites policy makers and business high-performance businesses in ruralleaders alike. For every new markets. The framework identifiesopportunity for a villager to use his three distinctive capabilities−themobile phone to protect his crops, ability to create, shape and developthere is a knock-on opportunity for markets; the ability to adapt and Sanjay Dawarhim to purchase a small refrigerator optimize supply chains; and the APAC Supply Chain Leador a motorcycle. There is a growing ability to co-create value throughrealization that global investment and innovative use of technology. Thegrowth will increasingly come from report explores each of these tenets inrural populations, as their savings detail, before highlighting the facets oftranslate into consumption. organizational culture essentials to the organization’s growth strategy. 3
  4. 4. 4
  5. 5. Growing business confidencein rural opportunitiesIndia’s rural markets2 present (c) The government has increased (e) Policy measures such as theopportunities that companies spending in rural areas, from US$9 US$13.9-billion waiver of agriculturalseeking to become high-performance billion for the financial year ending loans and the National Ruralbusinesses cannot afford to ignore. March 2007 to an anticipated US$16 Employment Guarantee SchemeBut the size and scale of those billion for the financial year ending (NREGS), which guarantees 100 daysmarkets (three-fourths of the country’s March 2010.3 of employment to one member ofapproximately 1.1 billion people live in every rural household, have helped tovillages) have been offset by concerns (d) Improved access to finance and reduce rural under-employment andabout the profitability of these markets institutional credit has brought greater raised wages. The official minimumand the durability of rural demand. cash inflows to rural households. average per-day wage paid under Institutional credit to the agriculture NREGS has increased from INR65Now, though, there is abundant and allied sectors increased from (US$1.4) in 2006-07 to INR84evidence to indicate that businesses INR695.6 billion (US$14.5 billion) (US$1.8) in 2008-09.5are seeing more promise in India’s in 2002-03 to INR2.6 trillionhinterland. There are several strong (US$55 billion) in 2008-09.4regional and macroeconomic reasonsfor greater confidence. And, thereis a growing body of statistics todemonstrate that rural markets, fueledin part by rising purchasing power, holdreal prospects for profitable growth Figure 1.1. Government budgeted expenditure on rural developmentacross a wide range of industry sectors. 20Five reasons for greater businessconfidence in rural India(a) Rural spending is now lessdependent on farm income, which now 15constitutes less than 50 percent of thetotal rural income. Income remittances US$from migrant rural populations and billionincreases in nonfarm activities suchas trading and agro-processing are 10boosting nonfarm income.(b) The increase in procurement prices(the minimum price that farmers earn 05on produce sold to the government)is putting more money into the handsof the rural population. A series ofgood harvests, on the back of severalgood monsoons from 2005 to 2008,has accelerated rural employment inagricultural and allied activities. Source: Ministry of Rural Development 5
  6. 6. Figure 1.2a. FMCG—Rural market share as percent of all India market The increase in rural purchasing power is reflected in many ways. Rural incomes have been growing at more than 7 percent over the past few years, helping to account for almost 40 percent of India’s total consumption of goods and services6. Non-food expenditures are growing at an 8.2 percent annual compound rate. Rural households are purchasing a wide range of products—cars, flat-screen televisions, microwaves—that until recently would have been beyond their reach. Some industrial sectors have seen surprising growth coming from rural consumers. Fifty percent of revenues from the fast moving consumer goods (FMCG) sector now come from rural sales7. In the case of the telecom sector, subscriber base in the semi-urban and rural markets (Circle C geographies) has grown at a phenomenal 98 percent over the last five years in comparison to other circles representing metrosSource: National Council for Applied Economic Research (NCAER) and urban markets (see Figure 1.2c.).6
  7. 7. Figure 1.2b. Automobile—Share of rural market as a Figure 1.2c. Total teledensitypercent of all India market (ownership per hundred population)Source: Edelweiss Research Source: Telecom Regulatory Authority of India (TRAI) *data for the period April 2009 to September 2009 7
  8. 8. 8
  9. 9. The attractions and distractionsof rural marketsThe macroeconomic data clearly point Rural markets present Rural presence strengthensto the soaring potential of India’s opportunities competitivenessnonurban markets. But the statistics The overarching trend that emerged Our survey findings indicate thatdo not give clues to how interested from our survey findings is that corporate leaders believe a ruralbusiness leaders might be in the businesses are confident about the presence can help strengthen theiropportunities at hand. Nor do they opportunities that rural India has to overall competitiveness. As Figuresay whether companies are prepared offer. Further, they plan to strengthen 2.2 illustrates, the investmentto make the kind of investments that their presence in semiurban and decision depends on factors thatare required to unlock long-term rural areas over the medium to long range from access to cheap labor term8. More than half of our survey pools and sources of raw materialsvalue from rural markets. respondents foresee 20 to 50 percent to market expansion and an of their revenues coming from the improved public image.Are business executives who do rural market over the next threeexpress interest in the nation’s rural years. And, more than 65 percentopportunities typically looking at them of the organizations surveyed haveas consumer markets or as sources of already invested in rural India, inraw materials and labor—or both? Do some cases more than five years agothey believe they have what it takes (see Figure 2.1).to understand what exactly ruralconsumers want now and in future?And have business leaders really begun Figure 2.1. Businesses are investing in rural marketsto identify the challenges and drivers (Percent of survey respondents)that will influence their approaches torural opportunities?To get answers to questions such asthese, Accenture commissioned aquantitative survey of 109 large andmid-sized multinational and domesticcompanies with revenues ranging from 21%US$200 million to more than US$10billion (see "About the research" formore information).We also interviewed select C-suiteexecutives from companies in a rangeof industries to learn more aboutwhat made them succeed in ruralmarkets. Here are the key findings,highlighting the attractions anddistractions of rural markets. 9
  10. 10. Figure 2.2. Rural markets offer opportunities across the value chain(Percent of survey respondents) match tax breaksRural markets are home to Rural markets suffer from the lack of granular informationresources and talent persistent structural handicaps on rural markets and consumers,Rural markets encompass eager Issues such as inadequate and limited access to financingconsumers who want to share the fruits infrastructure, low literacy, options. Timely data collection onof India’s industrial growth. More than and high levels of poverty raise demographics and consumptionhalf of the senior executives surveyed serious question marks about patterns is difficult; data analysis iswere keen to tap rural areas’ new the sustainability of the rural no easier. One retailer related howsegments of consumers (see Figure 2.2). opportunity. Our survey findings difficult it was to switch suppliersFrom a supply-side perspective, more from one season to another because indicate how concerned businessesthan 40 percent wanted to access raw rural customers, hit by a season of are about these issues. Around 74materials. Unsurprisingly, more than a poor crops, could no longer affordthird of respondents agreed that rural percent of respondents reported that lack of proper linkages for roads, a particular commodity at the pricemarkets offer labor pools at much lower they had paid a year earlier.cost than in urban markets. railways and telecom infrastructure are big hindrances. Another 40Rural markets are crucibles for percent cited the lack of skilledbusiness model innovation talent and 34 percent highlighted fragmented demand patterns asMany consumers in rural areas lack key challenges. Other barriers tothe prejudices that make their urban profitability and scalability includecounterparts resistant to change.They are keen to experiment withnew products, new services and newprocesses. “Ready to be trained ruraltalent is far more hard-working,experimental, ready to adjustand learn,” was the opinion of anexecutive in a telecom company.10
  11. 11. Figure 2.3. Key external barriers to expanding in rural markets Rural markets are costly to enter(Percent of survey responses) More than 60 percent of respondents identified the size of the necessary upfront investments as the biggest hurdle towards establishing rural operations (see Figure 2.4). For instance, each of the 4,100 kiosks (containing a computer with a V-SAT connection) set up under ITC’s e-choupal scheme cost between US$3,000 and US$6,0009 to install and about US$100 for annual maintenance. That translates to an average initial investment of US$20.5 million and a variable cost of US$0.4 million each year. Skilled local talent is hard to find in rural regions Compounding this issue, companies also find that their trained, seasoned staff are very reluctant to relocate to rural areas. Forty�three percent of respondents said this was a challenge. Commented one mobile content services executive: “Most of the young people we interview say they have already done their rural stint and are not keen to spend moreFigure 2.4. Key internal barriers to establishing successful rural operations time there. We have recently made three offers for the position of rural(Percent of survey responses) marketing lead but all three have been turned down.” Success in rural markets demands flexible approaches More than a third of the respondents cited their inability to create flexible business models as one of the key internal barriers to establishing a successful rural presence. That finding meshes with a recent Accenture research report which concluded that mobile-phone entrepreneurs who have successfully penetrated urban markets are struggling to implement business models that can earn them sustained profits from their rural operations.10 11
  12. 12. 12
  13. 13. About the researchThis report draws on three major to their companies’ strategy and Accenture also interviewed selectresearch components. First, operations in India. Respondents C-level executives across a rangeAccenture conducted a quantitative represented companies in consumer of industries to understand howsurvey to discover how companies goods−manufacturing, banking, they are shaping their strategies toview the rural market opportunity, communications, electronics harness the rural market learn what kinds of investments and high technology, capital The interviews also sought tothey are making in rural areas to markets, automotives, insurance, understand how companies areaccess growth opportunities, and pharmaceuticals and consumer addressing human resources issues,to understand the challenges that goods−retail. Around 57 percent of marketing infrastructure, and supplycompanies face while operating in respondents belonged to domestic chain challenges as they venture intorural areas. The data was collected Indian public companies, 23 percent rural markets.through an online survey, conducted to domestic Indian private companiesbetween June and August 2009. and the remaining 20 percent toThe survey was completed by Indian subsidiaries of multinationals.respondents from 109 large and mid-sized multinational and domestic Secondly, between March andcompanies, with revenues ranging November 2009, Accenture undertookfrom US$200 million to more than extensive secondary research into theUS$10 billion. All respondents held rural strategies and operations of morepositions of influence with regard than 100 companies.Figure 2.5. Revenue breakup of business survey respondents Figure 2.6. Industry classification of business survey respondents 6 19 10% 10 10% 5% 13
  14. 14. 14
  15. 15. Distinctive capabilities that enablecompanies to achieve high performancein India’s hinterlandFigure 3.1. Key imperatives for profitable and sustainable growth in rural markets(Percent of survey respondents)A growing number of companies, large have been able to accelerate the At the base of the framework areand small, are steadily transforming adoption of their products and ensure the organizational imperativestheir rural operations into viable profit consistent availability by investing in that sustain high performance overcenters. They have been successful comprehensive market development the long term—what Accenturein selling to unsophisticated buyers and by making their supply chains refers to as performance geographically dispersed locations as efficient as possible. And, they And, at the core of the frameworkusing appropriate “reach strategies.” have effectively utilized technology is a set of three distinctive and social networks to achieve the capabilities—the capabilities thatSo what can other organizations scale necessary to reach diverse customers value highly and whichseeking to achieve high performance consumer segments across rural India. competitors cannot easily copy. Thelearn from these leaders? And how And, in some cases, they are taking leaders’ ability to create markets iscan they think in terms of applying lessons learned in India and applying foremost; it involves highly effective successfully in other emerging markets. market analysis, leading to productthe lessons learned to other rural localization and innovation. Theirmarkets worldwide? We asked our ability to set up and extract valueC-suite respondents to identify the Drawing from the key learnings of from supply chains enables themimperatives for profitable growth in our research, Accenture proposes a to adapt to the varied and volatilerural markets. It quickly became clear framework to unlock long-term value demands of rural markets. And, theirthat supply chain and distribution from rural markets and become a high- understanding and mastery of theefficiency is the most important performance business (see Figure 3.2). enablers of supply chain efficiency issuccess factor, followed closely by The framework is headed by market their third key capability.product localization and innovation focus and position involving selection(see Figure 3.1). of rural markets—a combination of All three distinctive capabilities products and geographies, which can are underpinned by the need forEssentially, the rural market best generate long-term value for the organizations to become part of theleaders have mastered product company. This decision to invest in social fabric of the communities indevelopment and pricing, arrived at rural markets is intrinsic to the core which they work and to build socialan optimal channel mix, and set up strategy of a company and is best networks using local participation.local partner networks that work guided by the company’s long-term The bulk of the discussion that followswell and generate revenue. They vision and strategic fit. will be about the three distinctive capabilities. Each merits a closer look: 15
  16. 16. Figure 3.2. Building blocks of high performance1. Leading companies effectively Creating new categories into customized mobile phones forcreate, shape and develop markets Businesses may need to develop new the rural market. Sold as a part of theRural lifestyles and behavioral trends products tailored to the unique needs “bundled offers” by different telecomare increasingly coming to resemble and circumstances of rural consumers. providers, the phones are priced aturban patterns, in both form and An example: BP Energy India saw less than INR2,000 (US$42) and arevariety. Like urban consumers, the an opportunity to offer a cleaner feature rich, with multilingual keypads,rural middle class is buying more fuel alternative for the traditional a built-in flashlight and FM radio.fairness creams, whereas many of charcoal- and wood-fired stoves usedthe rural poor are keen to invest in a in the countryside—a move that the Setting the right price pointsmobile phone connection. Growing company believed could convert 3.6 The rural market leaders usuallyaspirations are as much a factor in billion potential consumers to more address their customers’ pricerural markets as price sensitivity and environment-friendly energy solutions. perceptions in two ways: by offeringan acute sense of value for money. The company bought patented low-priced products in the firstSuccess in those markets calls for technology from the Indian Institute place, with a range of even cheaperknowing how to balance those factors. of Science (IISc) that used fuel variants; and by selling products as pellets made from agri-waste to run discrete units rather than in multi-Creation and development of markets smokeless stoves; it had successfully unit packs. Many FMCG companies,in the hinterland involves building sold the pellets to nearly 200,000 selling products ranging from biscuitsconsumer understanding, product households by early 200811. to shampoos, have introduced smallercustomization, relevant pricing, value pack sizes to increase categoryengineering, and innovative modes Customizing productsof advertising and promotion—all penetration. The rural market experts Rural consumers typically define value may also practice value engineering,designed to increase consumption andopen up new markets. The following in terms of the functional focus of lowering the input costs by usingactivities stand out: a product or service—its durability, alternative materials for raw materials affordability, and fit for multiple uses. or as packaging alternatives. Nokia translated this perspective16
  17. 17. Generating awareness and A leading producer of motor oil and However, small, focused initiativespromoting products through the lubricants has leveraged similar are now under way, using consumerright media media to support its field marketing feedback as input for crucial marketing resources: its vans roam the factors such as product design, priceSince rural consumers typically lack countryside to shape demand and points and positioning in the rightthe product awareness of their urban increase penetration of its products distribution channels. For example,counterparts, consumer education and among tractor and motorcycle users. Godrej tapped into the connections ofgeneration of interest are mandatory The company’s demand generation Swayam Shikshan Prayog, leveragingfirst steps for market creation. strategy relies in part on promoting a some of the microfinance institution’s mix of premium and value-for-money customers—local self-help groupsNon-conventional and interactive brands. It also enlists influencer groups (SHGs)—to “co-create” a custommedia such as puppet shows, and live such as well-respected mechanics and product for the rural market: a minidemonstrations in haats and rural fairs retailers to advocate for its brands. fridge without a compressor that runshave proven effective. Hindustan Lever on a battery, weighs less than 8kg,ran a brand awareness exercise called Capturing and analyzing data in has a top-loading storage system and"Operation Harvest" that used theaudiovisual media and delivery vans novel ways is priced at only INR3,200 (US$67).to provide “mobile entertainment” in Developed through iterative rounds Detailed information on the ruralthe form of songs and film sequences, of consumer feedback, this unique consumer continues to be elusiveinterspersed with the company’s product demonstrates the value of because of the dearth of mechanismsads. The company targeted 30,000 capturing the many nuances of the for capturing data and analyzing“high potential” villages with at least it. Organized retail units typically rural consumer’s needs.2,000 people each and good road provide such mechanisms, but theyconnections. The vans traveled to do not usually operate in out-of-the-six villages a day, distributing free way communities. Further adding toproduct samples. The goal was to the challenge is the lack of definingpromote product trials and identify key parameters such as income categoriesdistribution and retail points based on and ownership patterns across ruralaudience interest12. consumer clusters. 17
  18. 18. 18
  19. 19. LG them to read instructions written in English or to operate the product.Who This need had been overlooked for years, ever since television becameBased in Korea, LG is the world’s accessible in rural homes. LG spentleading manufacturer of consumer close to US$50,000 in developing aelectronics. India, the company’s unit with on-screen display optionslargest market in the Asia Pacific in the regional languages of Hindi,region, generated 35 percent of Tamil and Bengali. It priced the modelthe company’s India revenues from with rural affordability in mind atrural sales. INR14,400 (US$300), still INR2,000 (US$42) more than equivalentUnderstanding markets and products from other companies. Butinvesting in their needs "Sampoorna", with its customizedLG Electronics has seen sustained year- features that gave the rural consumeron-year growth in its India business, ease-of-use, was a complete hit,largely driven by its aggressive selling more than 100,000 sets in themarketing and distribution strategy. first year of its launch.The company expects future growthto come from the nonmetro market, Building the foundations forcalled the semiurban and rural market. growthIn the company’s lexicon, all cities LG also invested early in building aand towns other than India’s seven strong district networking system tolargest cities fall into the semi-urban drive its marketing efforts, creatingand rural category. The company a hierarchy of 45 area offices anddecided to focus on two aspects of the 59 rural/remote area offices14. Withvalue chain to capture this market— the infrastructure in place, LG thenunderstanding consumer needs better mounted a campaign for distributionand strengthening the distribution and penetration. Today, the companyafter-sales service reach. has more than 9,000 sales and service dealers working throughDifferentiator different rural sales channels, close to 1,100 distributors and 40 branchLG set up a lifestyle research team warehouses supplemented by anto analyze the needs and preferences elaborate customer service initiative.of the rural consumer in-depth. Called the "211" initiative or "ServiceSince the price-value tradeoff was When You Want", complaint area critical purchase determinant handled within a maximum of 24and usage satisfier for the rural hours. The IT infrastructure for theconsumer, the company investigated "211" program currently exists in 100its various nuances, leading to some cities and will soon be extended toinnovative product customization. 200 more, deepening the company’sIn 1998, LG developed a television ability to service its semi-urban andbrand specifically for the rural rural, christening it "Sampoorna".This region-specific branding was This frontal strategy of insight-basedunprecedented for a multinational product customization, backed by acorporation. Further, the product had strong retail, distribution and servicefeatures that addressed needs revealed presence, has made the customer’sby the research: a majority of the shelf-to-use journey smooth andsemiurban and rural consumers are satisfying. Volume growth, a furthercomfortable with regional languages goal, can be driven in line with demandbut have little or no understanding generation, creating a strong supplyof English, making it impossible for chain backbone for the company. 19
  20. 20. Figure 3.3. Key barriers to setting up efficient rural supply chains(Percent of survey responses)2. Market leaders adapt and profitability in rural marketing. But eliminating brokerage costs, betteroptimize their supply chains given the nascent character of the controlling end supplies, and developing rural market, businesses need to its producer base for the long term.Our survey findings show that view profitability there in terms of The e-choupal network relies on self-corporations face major structural low margins and high volume. They driven computer kiosks with VSATroadblocks in setting up efficient must focus on building their market connections, manned by a sanchalak,rural supply chains, with as many infrastructure properly from the or conductor. Farmers can use thisas 68 percent of respondents citing start, with the right sourcing and channel to quote their prices directlyinadequacies in physical infrastructure, procurement features and with supply to ITC and to close deals promptly,including substandard or non-existent chain linkages and structures that leading to greater transparency androads, rail and telecom networks (see act as growth multipliers over the creating a level playing field for allFigure 3.3). Another 50 percent point long term. Here are some of the most producers. The channel is also usedto the absence of effective distribution important supply chain activities: to transfer information that helpsand retail linkages—facilities which, if farmers earn better returns and survivebusinesses have to build them, usuallyinvolve heavy capital expenditure. Sixty Optimizing sourcing processes market fluctuations. There are regular data feeds on crop and region-specificpercent of the respondents considered The transformation of farm-to-market farming methods, weather and real-these factors to be major deterrents to linkages holds particular appeal given time crop prices16.doing business in rural markets. that India boasts the world’s second� largest farm output. Corporations can improve their sourcing processes by The e-choupal network has sinceInvestments in better transportation, using the following initiatives: evolved into a retail format; more thanwarehousing, infrastructure and 50 companies use this network tostorage can boost returns over the sell products ranging from seeds andlong term for all participants in the Replacing middlemen with direct fertilizers to bicycles and insurancesupply chain. Our analysis shows that manufacturer-to-producer linkages: policies. The e-choupal networkthe specific supply chain functions By replacing the middlemen who had relies on self-driven computer kiosksof sourcing, procurement and acted as its procurement agents, ITC with VSAT connections, manned by adistribution offer the most scope forged direct links with producers "sanchalak", or a "person in-charge".for improvement and increasing through its e-choupal network, thus20
  21. 21. Process outsourcing: Contract farming and retail outlet. We suggest the in rural areas19. Procter & Gamble hashas been steadily expanding in India. following approaches to overcome the agreements with Godrej and MaricoA relatively new phenomenon, the distribution obstacles: Industries, and also with Nirma, topractice uses forward contracts distribute Camay Soaps. Leveraging feeder towns, adopting abetween buyers and producers to hub-and-spoke distribution model:reduce the risks involved in agricultural India’s postal service, a captive network Under the traditional dealer-distributoractivity, guaranteeing timely raw with a deep rural reach, is the world’s chain model, companies have a directmaterials at a fair price. Since large largest postal network, with more than presence in certain towns, with acorporations dominate contract 200,000 post offices, almost 89 percent distributor/dealer at the district level,farming, professional help is readily of them outside urban areas. State and, sometimes, sub-distributors oravailable to provide seeds, fertilizers Bank of India has partnered with India stockists at the tehsil headquarterand free technical guidance, raising the Post to provide banking facilities to the level. To increase penetration further,quality bar and performance levels. The people in rural areas of Punjab. Under companies have historically reliedcontract farming model also creates a this collaboration, India Post will act as on wholesalers. Yet within the ruralvirtual web of inter-relationships with a business correspondent of State Bank distribution structure, small retailersindirect beneficiaries, attracting banks, of India in the unbanked areas20. and consumers use feeder townsinsurance firms and even storage and (usually large villages) or mandis asequipment companies. Wheat farmers Using mobile retailing and sourcing and replenishment points.are using contract farming through an distribution options: Delivery vansassociation among Hindustan Unilever, and sales vehicles can reach the Most large companies lack a directRallis and ICICI Bank17. rural interior. Nokia makes contact presence in the feeder towns. A possible solution would be to increase sub- with its customers in remote villagesFarm process outsourcing, a variant of through its "Care-on-Wheels" program, distributor and sub-stockist presencethe contract farming model, involves providing after-sales service, building lower down the chain, a model that hasa single corporate entity that acts as loyalty and supplementing the worked very well for the FMCG industry.the buyer, with manufacturers as the company’s rapidly growing distribution To ensure that this model succeedscustomers. The model’s strength lies in network in rural India21. for other industries too, businessesthe market control that such a large need to maintain low working capitalbuyer acquires, and also in the benefits Key enablers to enhance supply investments and quick cycle times,of outsourcing. Manufacturers can chain efficiency resulting in maximum returns forbetter focus on their competencies. channel partners. Companies could push The Accenture survey further exploredSoft drinks and snacks manufacturer products deeper into the markets by the factors that enhance the efficiencyPepsiCo India, for example, acts as a establishing company-owned outlets of rural supply chains. Improvingfarm process outsourcer, leveraging in feeder towns and large villages with infrastructural linkages, training localits experience in contract farming. LT heavy consumer traffic. talent, improved data collection andOverseas, a rice miller and owner of thepopular Daawat basmati brand, is one information on rural markets, and use The hub-and-spoke distribution of technology emerged as key enablersof PepsiCo India’s clients. With PepsiCo model is another option for reaching (see Figure 3.4).India taking care of its cost, quality and customers in remote areas. Coca�sourcing concerns, LT Overseas is the Cola uses this model; its productspre-contracted buyer for more than are transported from bottling plants4,000 rice farmers across Punjab to the hubs or large distributors andand Rajasthan18. from the hubs to the spokes or smaller distributors in semi-urban areas. TheseReaching the customer small retailers then distribute productsTranslating customer segmentation and to village retailers.analysis into strategies and tactics forreaching them is especially challenging Infrastructure-sharing amongin India’s fragmented and unfamiliar non-competing companies: Byrural markets. Sixty thousand villages collaborating with companies thatin India have no form of retail outlet, already have a well-entrenchedmaking it very difficult to reach reach, new entrants can quickly scalepotential customers there. But, three up and expect quicker returns. Themillion retail outlets exist in the infrastructure provider gains a steadyremaining villages. The challenge is source of revenue at no additional to get products to those outlets For instance, Samsung has partneredand replenish them consistently and with the Indian Farmers Fertilizerreliably. Any logistics problems spell Cooperative (IFFCO) to market itsadditional costs for both supplier handsets using IFFCO’s broad presence 21
  22. 22. 22
  23. 23. Hero Honda Differentiator in the district headquarters. Under him are “authorized representatives”— Hero Honda’s consumer researchWho smaller dealerships where locals can highlighted the power of communities make purchases and also get theirHero Honda, the world’s largest and extended families within the rural bikes serviced. The company recognizesmanufacturer of two-wheelers, context. The company consequently that while someone might be willinggenerates over 40 percent of sales from built its rural marketing strategy to travel 50km to buy a bike, he mightrural areas. around the role of influencer groups. not want to travel that distance every Called the "Har gaon, har angan" time the bike needs servicing. TheseActing on the rural “opportunity” program, 500 sales representatives ARDs are appointed and managed by were initially hired and given workRecognizing the potential of the rural the dealers through a profit-sharing tasks rather than sales targets. Theymarket, the company set up a separate mechanism. Since Hero Honda avoids were required to meet potentialrural vertical in 2007 based on the directly managing the ARDs, there are customers and opinion leaders inbelief that enhanced rural mobility no additional investments in the supply villages. Rural elders and powerfulwould be a growth multiplier for chain from its side. The company has influencers such as teachers andthe agrarian economy. Hero Honda, quickly ramped up its touch points panchayat members were roped inin keeping with its strategic vision, with customers, increasing its network to spread the campaign’s message toundertook a series of initiatives related of showrooms and service centers to prospective customers. Since then,to product development, consumer around 4,000. Hero Honda has simultaneously beenunderstanding, marketing, distribution running two-month-long "waves",and after-sales service. a kind of marketing campaign, that In line with its consumer insight- coincide with the pre-harvest seasons driven product and marketing strategy,Understanding rural mobility of April and September-October. This Hero Honda has kept the brand freshneeds gives the company an early start in and appealing to rural consumers influencing and forming purchase through product differentiation. TheThe rural motorbike owner’s product intent and opinions. Each wave has company relies heavily on variantsexpectations differ from his urban so far resulted in additional sales of and refreshers which cost much lesscounterpart’s. Hero Honda knew that 15,000-16,000 motorcycles. All these than creating an entirely new product.fuel efficiency and smaller engine sizes “waves” are led by members of the It has launched some entry-levelwould be the governing characteristics influencer groups23. products with trimmings tailored toin this market. Yet the company suit the rural consumer, like adjustablerealized there were also finer consumer suspension, strong headlights andnuances and stepped up its market With a focus on building enduringresearch efforts. “Usage and attitude” relationships with rural customers, good ground clearance.studies were conducted by the in-house the "Har gaon, har angan" programresearch team and have since become a includes a number of activities withbiannual exercise. These studies capture no direct sales outcome. There aredifferent aspects of the consumer’s life, free service and check-up camps,ranging from brand awareness levels consultations for obtaining drivingand current modes of transportation licenses, safe riding educationalto product expectations and potential programs, health check- ups andusage opportunities. awareness camps. "Sikhao Baliye," another unique initiative, targetsThe company also does “rural footprint” rural women to persuade them tostudies on a quarterly basis to chart driving motorbikes.different events taking place in villages.The aim is to understand and map To help increase its reach to 70 percentevent suitability for promotional drives of India’s 6 lakh villages, Hero Hondaand increased sales push. They take the added a new layer of “Authorisedbrand to the customer when he is in Representatives of Dealers” (ARDs) toa happy mood, which typically occurs its distribution network, similar to theduring good harvests, festivals and hub-and-spoke model. Within a district,marriages, when there is cash the company’s main liaison is locatedin hand22. 23
  24. 24. Figure 3.4. Key enablers to enhance efficiency of rural supply chains(Percent of survey responses)3. High performers co-create Tapping rural sources to fill Using technology as avalue through innovative use of talent needs differentiatortechnology Rural youth are often unskilled In many instances, companies have and have little or no familiarity already adopted knowledge-basedThe ability to create and nurture with computers or with the English systems to streamline their logisticsnew markets and adapt and optimize language. Trained, urban talent is processes, increase efficiency and lowersupply chains are essential hallmarks unwilling to relocate to rural areas, costs. These companies use a variety ofto serve the rural markets. But high- leaving a huge demand-supply gap. tools to select the best delivery routesperformance businesses go beyond this: Business models adopted by some of and reduce the number of vehiclesthey employ technological platforms the vanguard outsourcing companies needed to transport goods. During theand solutions innovatively to co- offer an interesting insight into next decade, as multinationals begincreate value by actively involving local bridging that gap. Fostera, the country’s using the same sophisticated tools inresources. By utilizing technological first rural BPO, located in Tamil Nadu, India that they use elsewhere, theirplatforms to gather authentic data on hires poor youth from neighboring suppliers—both international andthe customer base—companies actively areas and trains them to handle local—will follow suit.find ways to improve their reach and customer queries in English, Tamil,scale as well as share the benefits. High�performance businesses also employ Telugu and Kannada. Fostera provides Meticulous planning must precedeinnovative approaches to overcome outsourcing services to telecom any such technology initiative. Beforetalent deficits. They utilize state-of- companies and banks, managing their moving to a rural location, the CIOthe-art technologies to nurture local help desks and service-related queries. needs to articulate how the companyhuman resource, thereby reducing their Such BPOs offer an employment and will overcome such basic obstaclesdependency on urban talent pools and training model that may be a template as the lack of IT awareness, weakparallely unlock income opportunities for entry-level talent development electrical power availability, poorin hinterlands. while providing a service platform for communications connectivity, and lack other rural-facing industries24. of trained people. At the same time, it is necessary to keep track of IT assets and manage multiple locations across a large network.24
  25. 25. Sumul, a district union that offers a wide range of agriculturalmanufactures dairy products for supplies such as fertilizers, seeds andGujarat Co-operative Milk Marketing pesticides, as well as services such asFederation, chose a capability-building soil testing, crop advisory and foliarapproach. When Sumul started to applications. The company maintainscomputerize, it faced internal resistance the PC terminals and provides softwarecomplicated by the realization that and connectivity upgrades acrossscaling up and managing would have this extensive network. Today, theto be done by its own people since organization is exploring the optionexternal skilled manpower was scarce. of using handheld devices that canThe union chose the “train-the-trainer” be directly connected to a centralizedapproach, starting with a small group server; the devices could provideof interested employees. Sumul is now online inventory accounting at everyworking on the Village Connectivity retailing point, print invoices, and giveProject, an initiative to connect 1,036 support for accounting and tax-relatedvillage co-operative societies through information. Further, the transaction-wireless and leased-line technologies25. related information would be used to build a database of farmers26.Tata Kisan Sansar, an umbrellaorganization that operates franchisee-run centers called Tata Kisan Sansarkendras (TSK), faced a similar problemin running its network of outlets. Thereare nearly 600 TSKs reaching about 4million farmers across 22,000 villagesin northern and eastern India. Eachcenter acts as a one-stop shop that 25
  26. 26. Tapping partnerships to source information and increase distribution reach RML has its own team of reporters who track 600 mandis in the country. It also has content�sharing. partnerships with agricultural universities. The information thus gathered is sent out to the farmers over all operators and all mobile phones. Those who want the service need to buy an RML Direct Card available in over 4,000 retail outlets. Then, they make a phone call to RML center specifying the information they need, their geographic location and the crops they grow. The user profile system developed by RML captures such individual farmer details, mobile number and preferences. This is then connected to the mobile delivery platform, which sends the messagesReuters Market Light Mobile phone calls that improve based on the user profiles. crop yieldsWho Each day, over 100,000 farmers in the Innovative solutions that areWith US$13.4 billion in revenues, states of Maharashtra, Haryana and profitable, yet socially relevantThomson Reuters is the worlds largest Punjab receive text messages on their Within the first 23 months of itsmultimedia news agency. mobile phones, giving them spot prices launch, more than 250,000 RML for their chosen crops from nearby quarterly subscriptions have been markets, news and crop-related advice bought by over 100,000 farmersBringing vital information to the for their region or crop, localized across 10,000 villages. The farmershinterland weather forecasts, and prices of supplies have realized huge financial benefits—Thomson Reuters’ focus in India was such as fertilizers, all according to their ranging from INR500 (US$10.4) toon finding strong and differentiated individual preferences and in a language as high as INR400,000 (US$8333). Inrevenue streams. Spotting a business of their choice. This SMS-based fact, a grape farmer in Nashik recallsopportunity in rural markets, information service, called Reuters how a RML weather alert helped himthe agency decided to launch a Market Light (RML), was launched two take action to save his crop, savingpersonalized information service for years ago. Access to such a range of him INR200,000 (US$4167). information has helped farmers improvefarmers. Farming communities in India their crop yields and their productivity For RML, the existing customeroften cannot access even the most for a wide range of produce while also base alone turns in revenues worthbasic information. Typically, small farms reducing risks. INR60 million (US$1.3 million).are located deep in the rural hinterland The cumulative impact across aand their only source of information RML expects to have more than a growing subscriber base can bewas Krishi Darshan on Doordarshan. million subscribers in three years. game changing in terms of bothBut this program gave them only a The subscription can be bought for a the company’s profitability andmacro view of things. Besides, most period of three, six or 12 months at overall returns to its relied on intermediaries for a price of less than US$3 per month. Thomson Reuters estimates thatlocal market rates. Since the latter Content is available in local languages its customers could well save morehad exclusive access to information, like Marathi and Punjabi. RML offers than US$5-6 billion 27.these intermediaries invariably took information on more than 250 crops, more than 1,000 markets and 1,800 The unprecedented and pioneeringadvantage of the farmers. Lack of local weather locations. Growth in businesses of RML has beenproper information about crop- recognized by and is a case study for mobile telephony has been a keyrelated technology was another huge the UN, the UK government, leading enabler, creating a market for value-challenge. Thomson Reuters sensed this added services. The market is growing academic institutions like Cambridgeas a chance to grow the market and fast, adding more than four million new University and London Businessmake a social impact. connections every month in rural India. School, and leading publications such as The Economist and the BBC.26
  27. 27. to US$20) a month on a sustainable basis. This translates into financial independence and social change for women who would otherwise live in poverty. Their new income often goes toward educating their children, and improving their overall quality of life. The Shakti ammas, in turn, become consumers of higher value items such as consumer durables29. Making a difference to the bottom line Shakti distributors now account for 15 percent of HUL’s sales in rural India. Initially run as a pilot in 50 villages of the Nalgonda district in Andhra Pradesh, the unexpected success of this project has encouraged HUL to expand it to 15 states, creating 37,000 women distributors covering 100,000 villages. By 2010, the goal is to recruit 100,000Hindustan Unilever to become micro-distributors. Shakti Shakti distributors covering 500,000 villages, touching lives of around 600 grew out of the need to strike theWho correct balance among return on million people30. investments, expanding reach andHindustan Unilever (HUL) is one of Because other companies are showing facilitating volume growth for theIndia’s largest FMCG companies. About interest in using the reach of HUL’s company’s product categories.30 percent of its revenues come from Shakti network, the company may findrural sales. The Shakti network uses women that it has generated an entirely new members of existing SHGs working revenue stream.Bringing innovation to the in villages, appointing them as sales“4th P” persons called Shakti Ammas. These Partnerships beyond distribution women then become direct-to-homeDistribution infrastructure has In addition to the distribution network, distributors of HUL products in ruralalways been the bugbear for Indian the Shakti project also includes “Shakti markets that would otherwise becompanies targeting the rural market. Vani” (or the “Voice of strength”)—a difficult to access through traditionalDistribution channels very often social awareness program operating in networks. The products distributedmust be built from scratch and their more than 20,000 villages in Madhya include a range of mass-market itemsefficacy makes all the difference Pradesh, Karnataka, Chhattisgarh, and especially relevant to rural consumers,to a company’s success. When HUL Andhra Pradesh. such as soaps, toothpastes, shampoosidentified rural markets as a potential and detergents28. “iShakti” is a portal initiated as a partgrowth target, it knew that successwould only come from innovation of Project Shakti. "iShakti" providesin all the 4 P’s of the marketing Empowering women consumers the rural community with a computermix—product, price, place and Shakti ammas are small entrepreneurs based information portal on keypromotion. The company decided to who invest in their distribution areas such as agriculture, health,increase penetration by extending its businesses, often using money they vocational training, legal proceduresreach to villages with populations of receive as microfinance loans. They and education. The computers are1,000, using new marketing options are specially trained to communicate equipped with the "iShakti" software,alongside the traditional distributor- in social environments such as which is based on a unique dialogue-led model. schools and village get-togethers, interactive technology developed and and to target non-users. They patented by Unilever. Users can surf across various content areas, accessingHelped by the self-help groups deliver goods right to the doorstep and service nearby clusters of at information or posting queries whichLaunched in 2001, “Project Shakti”, are then answered by experts. Many least three villages and as manya key element of HUL’s alternate organisations act as content partners as six. A typical Shakti distributordistribution strategy, involved using "iShakti" as a communication sells INR10,000-15,000 (US$208working with self-help groups (SHGs) channel to rural communities31. to US$312) worth of products eachto educate and train rural women month, earning INR700-1,000 (US$15 27
  28. 28. Framework factors critical tonurturing distinctive capabilitiesBeing a part of the local Building social networks withcommunity local participationTo succeed in rural markets, it is Since rural consumers are unfamiliarimportant for companies to engage with many commercial products,local communities as partners. It they often look to trusted sourceshas to be a collaborative model with such as friends and family for advicelong-term horizons. Rural market in making purchase decisions. Manyleaders such as HUL, ITC and Hero companies have developed innovativeHonda have moved beyond traditional communication pathways, oftenvendor roles to partner with local borrowing from social marketingcommunities; today, they regularly models to use word-of-mouthwork to develop skills and to generate advocacy. Effective social networksemployment locally. build partnerships among NGOs, self-help groups (SHGs), microfinanceIf companies are to build and retain institutions (MFIs) and local ruralpublic trust and confidence, particularly populations. These relationships havein rural regions, they must consistently a business and social use. For example,demonstrate that they are genuinely MFI-SHG combinations in India haveinterested in helping solve some of the access to 50 million consumers overmajor issues affecting socio�economic whom they also exert influence.development. For instance, there isno point in businesses waiting for This makes the MFI-SHG networkgovernments to figure out how to fix a powerful distribution and retailthe region’s infrastructure deficiencies channel that combines reach, proximity—they must make many of those to the consumer, and access to themselves. It is also a high impact, multipurpose channel since it captures and transfersA core point is that businesses have consumer needs and preferences,a moral and ethical responsibility influences and promotes purchases andto the communities in which they helps lower overall distribution costswork. In rural areas, they can make —and ultimately, grows the market.major contributions to employment,education, and health and welfare.Of course, the efforts must not beviewed simply as philanthropy—theyshould be about harnessing businesscapabilities to deliver profitablegrowth and social impact.28
  29. 29. Developing the right capabilities—and acting on themIt is one thing to exhibit appropriate Secure top-down commitment and At the same time, the organizationcapabilities from time to time, or in advocate constantly must build its rural workforce carefully.certain circumstances. But doing so Following the strategic commitment, Different skills and competencies areas part of normal working behaviors management must develop clarity on needed, such as cultural congruenceis a different matter entirely, and is how to proceed, including mapping and adaptability; employees do need toa hallmark of true high performance. organizational capabilities and be willing to live in rural areas and doAccenture believes that the habitual market conditions. Top managers need to show empathy and sensitivityapplication of such capabilities must continue to advocate for rural towards rural consumers and theirrequires buy-in from all the relevant initiatives, visibly and vocally. Even needs. They also require knowledgeplayers in the organization. When hugely successful initiatives like of the local language, the ability toit comes to serving rural markets e-choupal and Shakti have reached the handle several product lines, and ofeffectively, it is necessary for critical mass of volume only after many course, the creativity and enthusiasmeveryone across the organization to years of investment in scale and reach. to carry it all through in oftenthink and act in concert with those adverse circumstances.objectives. Here is what is required to Reshape your operating model andpromote that mindset: mindsetIntegrate rural markets into the Organizational priorities may needcore strategy to shift to meet the rural mandate. A business model that has leanedTreating a rural market foray as towards higher margins and loweran experiment or an exercise in volumes may need to adapt to aimage creation is very unlikely to low�margin, high�volume approachbring positive results. “The entire for the rural business operations,organizational philosophy has to be substantially affecting financialgeared towards treating rural markets planning and organizational a key part of the business,” saidone executive whose energy company Invest in the future workforcehas succeeded in India’s hinterland.The company’s leadership team must A long-term rural strategy requiresclosely match the organization’s core strong capabilities in talent creation,growth strategy with the drivers for planning and management, both at thegrowth in the rural market. First, the top and the bottom rungs of the skillsexecutives need to assess whether the pyramid. A key challenge is that trainedcompany’s core value proposition—its staff is reluctant to move to villagesproduct portfolio, price points, and while local labor is unqualified foroverall brand image—will appeal to most jobs. This capability gap requiresthe rural consumer. Once the points of innovative talent-creation models thatconvergence are clear, management tap the intrinsic strengths of localmust make a strategic commitment to labor; it also calls for strong leadershipthe rural effort, backed by a long-term commitment. Top managers can conveyfinancial investment and by clear the seriousness of their organization’smessaging to the entire organization. A rural commitment by personally servingsenior executive of an FMCG company stints in the hinterland. The top-downthat now thrives in rural markets noted message conveyed is that professionalthat, “Any organization wishing to growth lies in helping to drive ruralgrow in rural must be willing to invest market growth.and be patient. It has taken us manyyears to build this edge.” 29
  30. 30. 30
  31. 31. Last wordA large number of businesses merelyscratched the surface of the potential Notes 21. Investor%20Presentation_FY%2008.pdffor profitable growth in rural India. 1. India Brand Equity Foundation, 22., they have made only a dent in “Rural Market” dated August 2009, india/news/hero-honda-stepsrural-touch-the social infrastructure challenges points/368920/that keep so much of India’s ruralmarket.aspx 23. in the shadows. 2. The National Sample Survey Organization show/2009/may/20/slide-show-1-the- (NSSO) defines rural markets as those secret-behind-hero-honda-success.But as Accenture’s latest research areas with fewer than 5,000 residents, a htm#contentTopreveals, there is now real momentum population density less than 400 people per 24. both fronts. Whether it is LG’s square kilometer and at least 75 percent of fostera.htm the male working population employed asimpressive market-creation activities, agriculturists. 25. Honda’s customer outreach 26. village festivals or Thomson 3. Ministry of Rural Development centre/overview.htmReuters’ mobile content services 4. Economic Survey 2008-09 27. farmers to protect their crops, 5. Information Bureau, http://www. aspx?261224there are now abundant stories to 28. that businesses can and 6. Edelweiss, “Rural Market: Here to Stay” blog/marketing/rural-marketing-india/should make rural markets a central 7.ASSOCHAM, “The Rise of Rural India”, marketing-to-rural-india-making-the-ends-plank of their long-term strategy published in April 2009 meet.htmlfor growth. 8. As per the Census of India, semi-urban is 29. defined as mid-size cities and towns with india/article.cfm?articleid=4172There is ample evidence to indicate population of less than 100,000 but more 30. the best businesses help lift up than 5,000. mediacentre/pressreleases/2007/the lives of those less privileged. In 9. HUCelebrates75YrsInIndia.aspxa nation where income disparities library/7/576/ 31. Director’s Report in the 75th Annualand differences in living standards 10. “Wanted: New business models for Report of HLL for the year endingare so stark, it is the obligation of profitable rural expansion”, Accenture December 31, 2007those tapping rural markets to help Research Reportboost education levels, to provide 11. *US$1 = INR48, average exchange rateemployment, and to think in terms of aspx?id=Cooking-to-end-fuel-poverty/ for the period April 01, 2009 to Februarytheir long-term involvement in and 02, 2010 12. to the rural communities distribution-model-of-hul/2009/01/in which they work. 13. Research_and_Insights/Outlook/By_Issue/The high-performance businesses will Y2009/APassageToIndia.htmbe those that deliberately learn from 14. experiences in India and quickly ruralmarket.aspxapply those experiences elsewhere, 15. only in other emerging markets india/news/lg-india-will-bring-relevant-but in highly mature markets as well. products-to-indiafocusrural-markets-after-These are the companies that also sales-serviceit/356362/understand that today’s multi-polar 16. of dispersed economic power press06june07-a.htmdoes not simply refer to the growing 17. might of hubs such as spice/March2k3.pdfMumbai, Sao Paulo and Dubai. It also 18. that global investment and aspx?101604growth will come increasingly from 19. regions and populations the report_samsung-ties-up-with-world over. iffco_1167286 20. SBIIndia-Post-tieup-to-provide-banking- facilities-in-rural-Punjab/335652/ 31