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By Vidya Gorakshkar, Roll No. 16
Casestudy 1 Adeco in Rural markets QUESTIONS 1. Do you think the rural marketing strategy of Adeco was right? If you were the decision maker what suggestions would you give to Adeco? Answer The rural marketing strategy has some very commendable points. Some of the salient ones are that the Adeco tried to reach out to so far untouched segment of rural marketing. According to NCAER’s the rural population accounted for a significant chunk, in case of households earning between 2 to 5 lacs a year, the rural share was as high as 36%. Drought proofing of agriculture & dairy had contributed to rural prosperity, which made it a promising lucrative market waiting to be served. Before starting the countrywide sales promotion Adeco did experimentation on a smaller scale initially in Saurashtra & thereafter in Northern & Southern states. Adeco also did use innovative advertising & awareness generation drives using the local concept such as Chofulla & Gumbatbari apart from films & music. Adeco used Hub & spoke distribution model for distribution to ensure that rural market is reached and also catered effectively. Adeco tried to overcome the problems associated with the electricity & refrigeration problems in rural area by providing not only refrigerators but also the tin & thermacol boxes with an association with the local ice factories. In short Adeco had all the basics covered as far as rural markets are concerned, in depth knowledge of rural psyche, strong distribution channels and awareness form the basic pre-requisites for making a dent in rural markets. I feel that Adeco made a major mistake in pricing of the product, to penetrate the rural market Adeco kept the prices of ‘Chota Adeco’ far too low. The model used by Adeco was large volumes and low margin. The possible problems such as rise in the raw material prices, rise in transportation costs, rise the dealers & distributers would expect over a period of time were not foreseen & were not factored in while deciding the product price. Though foreseeing the unexpected events like the
fertiliser controversy is not possible, had the pricing been appropriate, it would have been possible for Adeco to sustain the bad patch had the price been appropriately decided. Increasing the price is always difficult, because customers are reluctant to do so. Had I been the decision maker I would have done following things; 1. Direct the advertisement campaign to overcome the ‘fertiliser controversy’, both nationally through newspaper & media advertisement, and also use local initiatives such as Chaufulla & Gumbatbari to this purpose. 2. I would not opt for cutting the margins of retailers, because if retailers do not have an incentive to push the product, they are less likely to do so. 3. I would suggest organising the meets of distributors and retailers to explain to them the ‘fertiliser controversy’ and that the subsequent tests suggest that Adeco products do not have fertilisers in them. Since they are the contact people for customers they can explain to customers if they ask about the fertiliser controversy. The reports of tests for safety norms, which cleared the allegations against Adeco, could be prominently displayed in shops selling Adeco products. Incentives could be given to retailers and distributers doing the maximum sales. 4. The Rs. 5 cost of Chota Adeco is too lowly set, instead of raising the price phasing out of 200 ml bottles and widely introducing the 300 ml bottles would be a better option. 5. Company can think of prominently building its community friendly & socially responsible image. Adeco’s belief that it should enhance and develop environment and strengthen local communities and the efforts done towards that end can be widely publicised. The help of Adeco’s board, comprising of eminent people like retd. Cabinet secretaries, army staff, chief justice, economists can be taken in this regard along with its employees and associates working in plants, franchisees, contract packers. Question 2 Analyse the business environment and highlight the factor/ factors you think have been responsible for the failure of the affordability strategy. Answer The SWOT analysis of Adeco reveal following findings Stregths • Adeco is world leader having more than 400 brands • Adeco reflected Indian tests & life style.
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Created direct & indirect jobs for Indians Socially responsible company. Strong distribution network Company owned & franchisee bottling operations, also an access to 29 contract packers. Introduced a affordability based penetration priced Chota Adeco at Rs. 5.
Weakness • Price point was advertised heavily which turned to be a weakness later on, because only thing which customers associated Adeco with was Chota Adeco at Rs. 5. • Margins were set too low, the increase in input cost resulted in losses. • To decrease losses retailers margins were reduced which resulted in drop in sales. • Pricing of 300 ml Adeco was not attractive to customers because of too much stress on Chota Adeco. Opportunities • Untapped market potential for colddrinks, global per capita consumption is 67.5 liters, whereas it is 6 bottles per person for Indians. Even within India, a great rural urban divide in consumption, highest of it is 50 bottles in Delhi. • Lucrative & expanding rural markets. • Increased aspirations of rural people to get facilities and consumer items like urban counterparts Threats • The biggest threat was the fertiliser controversy raised by Centre for Science & environment which resulted in set back. • Increased cost of inputs & distribution. Factors responsible for failure of the affordability strategy were 1. Too low margins which could not sustain the decline in volumes, because Adeco’s strategy was to reduce price & increase volume. The high volumes were expected to justify the trade off the distribution cost with incremental market penetration. 2. Consumer psyche, they related to Rs. 5 cost so closely that they could not dissociate from it. The strong campaign was a mistake, as price was too strongly embedded in people’s mind, and for them to get used to new price was not easy. The strong campaign stressing only one-price aspect of product was a factor responsible for the failure.
3. Looking at the facts given in the case study it seems that the Adeco company did not have the back-out plan in place. Obviously company could not have afforded to sell Chota Adeco at RS. 5 for ever, how to go ahead once you achieve the target sales in rural market as far as repackaging or re-pricing the product strategy was not well laid out. Question 3 What strategy could the company use to penetrate the rural markets of India? It is very much clear that rural India is prospering & do have a very fast growing appetite for the ‘lifestyle’ items. With 41% families having access to TV & thanks to Bollywood movies youth in rural areas, especially the neo-rich, do wish to imitate all those things that the urban youth does. Affordability strategy used by Adeco is good as a market penetration strategy. Adeco can capitalise on its distribution network and start offering other bigger size coca brands and also fruit beverages, health drinks to rural population so that there is a choice available to them as far as the product range, price range. The advertisement focus must therefore shift from affordability to aspirations of rural India for better lifestyle, leadership. The distributors and the retailers need to be kept happy and motivated by offering better margins and incentives, which will help in pushing the product. Question 4 Do you think increasing price is a good strategy? Adeco had no choice but to increase the price because it could not sustain itself. Adeco had a major dip in sales, both due to the fertiliser controversy, and also due to seasonal nature of cold drink sales. The consumption for rural consumers is seasonal linked to harvests, festivals & special occasions, when summer is over the demand goes down. But normally people are not ready to pay more for the products they have earlier paid a lesser price. Hence I think a better way of dealing with the issue was fast phasing out the Rs. 5 priced bottles. In the beverage product major costs that dictate pricing are the distribution costs, chilling – electricity charges & transportation costs. The major ingredient for the soft drinks 86 to 92% is water & others are sweeteners, aromatic substances, preservatives, colouring matters and other additives. Thus input costs don’t really dictate the pricing. Hence, selling bigger quantity at slightly higher price is possible, instead of rising price of chota Adeco.
I think company should concentrate on advertisement campaign to improve the public image of company & its products to overcome problems posed by the fertiliser controversy. Company should fast phase out the Rs. 5 priced Chota Adeco and replace it with a properly priced new 300 ml or more capacity bottles. Affordability policy had helped company to penetrate itself in rural markets, company needs to reinvent its advertising campaign shifting it away from mere low pricing & affordability to what rural community would dearly want recognition, status & improved lifestyle.
Case study 2 – Harsh Auto World
What would you advise Ms. Sunita? I would advice Ms. Sunita to use her qualification in business administration and her experience as an Asst. Director, marketing to turnaround her family business. This is especially so because even after changing her job, the job profile of Ms. Sunita would not change much because her present job responsibility includes attracting new members, complaint handling and member retention program. As she can still be using her skill set and also the fact that finding a new job after a year or two will not affect her career prospects, she can think of quitting her present job & dedicate her efforts for turnaround. Instead of selling the business at the distress price, she can work on improving its prospects. If she or her sisters develop interest in the business, they can continue with it later, if not the choice of selling it at a competitive price is always open. Though the company was in financial distress, the dealership proceeds had been more than sufficient to bring mortgage payments up to date, pay down all overdue accounts and leave some funds for future contingencies. This gave Sunita enough headway to at least try her efforts in the turnaround. Sunita’s decision to cut cost by not replacing the departing Sales representative, maintaining reduced inventory levels, and trying to make more efficient use of advertising promotion is appropriate. She needs to first analyse the SWOT of Harsh Auto world. The strengths are • Sunita’s familiarity with the working of Harsh auto world, since she used to work there earlier she was familiar with the operations, dealership, book keeping & marketing. • Sunita’s educational background (MBA) and work experience. • Harsh Auto World’s location in the sprawling suburban area. • Attractive modern facilities at the Show room.
Modern & well-maintained equipments in service department, which managed to made small surplus when other revenue sources were deteriorating.
The weakness • Sudden death of the proprietor, who was well known to all and was a consummate showman & entrepreneur. • Weakening financial conditions. • Squeezed margins due to decline in sale of new cars. • Mr. Keswani’s overemphasis on the sales, the service department was neglected. There was no computerisation, department was always understaffed. The service writers were not skilled / experts who can give proper estimates to customers. • The ambience of the service area was old & greasy, customers when came to get their cars repaired had to see a service writer in a cramped room with peeling paint. • A service manager who was gruff & argumentative, long time taken by service writers can wean the customers away from the service centre. Opportunities • Unfilled / vacant position of a service writer. It was clear from the customer feedback forms that Ms. Nisha Das was not doing her job well. Filling the post with a better person who knows the repair work, who can better estimate job and has a right attitude & better communication & interpersonal relationship is possible. Since Ms. Nisha das had recently quit, the possibility of recruiting a write person was much better. Threats • Turndown of regional economy. • Margins were quite low in sales of new cars • Customers were not satisfied with service & repair section, 30% opted for getting the repairs done from elsewhere. It is clear from SWOT that Ms. Sunita will have to take certain drastic decisions. Though her father neglected the service section, she will have to revive it for turnaround in business. The slowing regional economy and soaring margins of new car sales suggest that henceforth the major business will be possible from the service department. The 40% of revenues were from service department, and revenues were likely to increase when more people would either opt to buy a second hand car or would like to get their cars repaired from Harsh Auto World.
She can strengthen the department by 1. Automation: using computers to write the service, writing bills & invoices, which will reduce the time & stress on administrative staff. 2. Appointing right people: She need to appoint a right person as a service writer who would be a people friendly person, who also should have a detailed knowledge about estimating the costs of repair, since her sisters Milie & Julie can not do it all the time. 3. Appointing skilled mechanics who can handle the workload 4. Giving a face-lift to the area, most of the sales representatives did not take the new car owners to the service area because of the “too much contrast”. Making it mandatory for all the new car owners to visit the service area and allowing them an exposure to the modern equipments at the service area. 5. Ensuring that the service writers get all the necessary facilities, including Xerox & Fax machines, and right ambience in which they meet the customers. Especially so, because the service writer’s are the first contact points of the service section of Harsh Auto World for the customers. 6. She needs to work out strategies, which will not only aim at ‘customer satisfaction’ but will aim at ‘customer delight’. The new car owners could be contacted periodically to know whether there is any problem, periodic routine maintenance can be offered free of cost. The clients who remain loyal to Harsh Auto World can be offered some sort concessions, or free services. Sunita Keswanis current expertise in attracting new members, complaint handling, market research and member retention program that she put to use in her health care management can be used in the Harsh Auto world to attract new customers and retain old ones. 7. She may at a later stage start thinking of going into a dealership of spare parts of Ford as well as other companies so that her centre can be patronised by a wider clientele.