PROJECT ON RURAL DISTRIBUTION

SUBMITTED BY

AKHIL THARANEY

ROLL NO.66

TYBMS

(SEMESTER V)

H.R COLLEGE OF COMMERCE AND ECONOMICS

PROJECT GUIDE

KRIPA KALRAO

SUBMITTED TO

UNIVERSITY OF MUMBAI

ACADEMIC YEAR : 2013-2014

SUBMISSION DATE : 16TH NOVEMBER, 2013

1
 DECLARATION

I, Akhil Tharaney, student of T.Y.B.M.S (Semester V) at H.R. College of Commerce

and Economics, hereby declare that I have completed the project on “RURAL

DISTRIBUTION” in the Academic Year 2013-14. The information submitted is true

and original to the best of my knowledge.

Signature of Student

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 CERTIFICATE

I, Ms.Kripa Kalrao, hereby certify that Akhil Tharaney, student of T.Y.B.M.S

(Semester V) of H.R. College of Commerce and Economics, has completed the

project on “RURAL DISTRIBUTION” in the Academic Year 2013-14. The

information submitted is true and original to the best of my knowledge.

Signature of the Signature of the Principal

Project Coordinator of the College

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 ACKNOWLEDGMENT
It would be wrong on my part to entirely take credit for the outcome of this project. I

would like to thank my guide, Professor Kripa Kalrao for providing her valuable

insights into the topic and giving me direction as to how to go about it. This wouldn’t

have been possible without her keen insight into the topic and helpful attitude.

She was always approachable whenever I needed help and thoroughly guided me

while at the same time gave me freedom to be flexible as to how I wanted to structure

the project.

Lastly, I would like to thank my family and friends who have been extremely

cooperative and helpful.

AKHIL THARANEY

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 INDEX

SR.N TOPIC PAGE NO

O

1. Title Page 1

2. Declaration 2

3. Certificate 3

4. Acknowledgement 4

5. Objectives of the research 6

6. Scope of the research 6

7. Introduction 7

8. Selling in Rural India 13

9. Rural Distribution 21

10. HLL & ITC 27

11. HLL’s Project Shakti 32

12. ITC’s E-Choupal’s 44

13. Research Methodology 63

14. Conclusion 70

15. Bibliography 72

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OBJECTIVES OF THE RESEARCH

To find out –

 Why companies are going rural today, what is their main objective.

 Some of the strategies people use to promote their products – which is the most

affective way of reaching out to the rural market.

 How do companies go about the pricing of the commodity in such a way as to

attract sales for their products in the markets.

 If there are any differences in rural and urban market products

SCOPE OF THE RESEARCH

Following is the scope of the project in which I have included –

 A brief introduction on rural markets and how the concept of rural marketing has

emerged.

 Reasons why rural markets have become attractive and why companies are

targeting rural markets for distribution of their products.

 Opportunities available in the rural market and an insight on rural consumers

 What and which are the different strategies for selling products in Rural India.

 A study on HLL’s Project Shakti and ITC’s E-Choupal along with comparing the

way these two giants have performed

After doing an internship with HLL, in my survey I wanted to find out why are

companies going rural today, the strategies they are using to promote their products,

how they price their products.

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INTRODUCTION

The real India, they say, lives in the villages - 638,667 villages, to be precise. This is

where the fortunes of many of India's biggest corporations are likely to be shaped.

In recent years, rural markets have acquired significance, as the overall growth of the

economy has resulted into substantial increase in the purchasing power of the rural

communities. On account of green revolution, the rural areas are consuming a large

quantity of industrial and urban manufactured products. In this context, a special

marketing strategy, namely, rural marketing has emerged.

The reasons why companies are going rural are manifold. Higher rural incomes driven

by agricultural growth, increasing enrolment in primary schools, high penetration of

TV and other mass media have increased the propensity to consume branded and

value-added products in rural areas.

Marketers and manufacturers are increasingly aware of the burgeoning purchasing

power, vast size and demand base of the once neglected Indian hinterland. Efforts are

now on to understand the attitude of rural consumers, and to walk their walk and talk

their talk. The marketing mix of.many companies is now being tailored to rural tastes

and lifestyles. Mirc Electronics, which owns the Onida television brand, launched Igo,

which was positioned as a value-for-money brand targeted at rural markets, especially

at customers who were upgrading their black-and-white TVs, which constitute 65

percent of total colour television buyers. The Indian hinterland has been transformed

from a back-to-the-roots holiday destination to a business proposition.

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Government agencies like IRDA (Insurance Regulatory and Development Authority)

and NCAER (National Council for Applied Economic Research) define 'rural' as

"villages with a population of less than 5,000, with 75 percent of the male population

engaged in agriculture, etc". Two-thirds of the country's consumers (more than 700

million) live in rural areas and almost 26 percent of the national income is generated

there. And 10 consecutive good monsoons have led to improved returns from

agriculture (which is India's largest economic sector and accounts for 26 percent of

GDP, increasing the spending power in India's rural areas. India is divided into 597

districts, and has 638,667 villages, of which 32 percent can be reached and are

connected by pucca roads. However, 68 percent of the rural market lies untapped due

to various reasons ranging from inaccessibility to lack of awareness.

In all, there are more than 3.8 million retail outlets in rural India, averaging 5.8 shops

per village (the term 'shop' refers to any type of premises - haats, stalls, shacks - that

sell goods). Overall, the rural market has been growing at 3-4 percent per annum,

adding more than 1 million new consumers every year and now accounts for close to

50 percent of the volume of consumption of fast moving consumer goods (FMCG) in

India.

As a result, it is becoming an important part of the market development strategies of

all FMCG companies, including multinational ones, as well as consumer durables

businesses and services companies as well.

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What makes Rural Markets Attractive?

Rural market has following arrived and the following facts substantiate this.

 700 million people

 Estimated annual size of the rural market

FMCG Rs 65,000 Crore

Durables Rs 5,000 Crore

Agri-inputs (incl. tractors) Rs 45,000 Crore

2 / 4 wheelers Rs 8,000 Crore

 In 2001-02, LIC sold 55 % of its policies in rural India.

 Of two million BSNL mobile connections, 50% are in small towns/villages.

 Of the six lakh villages, 5.22 lakh have a Village Public Telephone (VPT)

 41 million Kisan Credit Cards issued (against 22 million credit-plus-debit cards in

urban) with cumulative credit of Rs 977 billion resulting in tremendous liquidity.

 Of 20 million Rediffmail signups, 60 % are from small towns. 50% transactions

from these towns on Rediff online shopping site

 There are 42 million rural households availing banking services in comparison to

27 million urban households.

 Investment in formal savings instruments: 6.6 million households in rural and 6.7

million in urban

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Opportunities:

 Infrastructure is improving rapidly.

 In 50 years only 40% villages connected by road, in

next 10 years another 30%.

 More than 90 % villages have been electrified, though

only 44% rural homes have electric connections.

 Rural telephone density has gone up by 300% in the last

10 years; every 1000+ pop is connected by STD.

 Social Indicators have improved a lot between 1981 and 2001

 Number of “pucca” houses doubled from 22% to 41%

and “kuccha” houses halved (41% to 23%)

 Percentage of BPL families declined from 46% to

27%

 Rural Literacy level improved from 36% to 59%

 Marketers can make effective use of the large available

infrastructure

 Post offices 1,38,000

 Haats (periodic markets) 42,000

 Melas (exhibitions) 25,000

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  Mandis (agri markets) 7,000

 Public distribution shops 3,80,000

 Bank branches 32,000

 Proliferation of large format rural retail stores which have been

successful also.

 DSCL Haryali stores

 M & M Shubh Labh stores

 TATA/Rallis Kisan Kendras

 Escorts rural stores

 Warnabazaar, Maharashtra (annual sale Rs 40 crore)

Rural Consumer Insights:

 Rural India buys;

 Products more often (mostly weekly).

 Buys small packs, low unit price are more important than economy.

 In rural India, brands rarely fight with each other; they just have to

be present at the right place.

 Many brands are building strong rural base without much

advertising support.

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  Chik shampoo is the second largest shampoo brand.

 Ghadi detergent is the third largest brand.

 Fewer brand choices in rural: number of FMCG brand in rural is

half that of urban.

 Buy value for money, not cheap products

Some Myths:

1. Myth-1: Rural Market Is a Homogeneous Mass

Reality: It’s a heterogeneous population. Various Tiers are present depending on the

incomes like Big Landlords; Traders, small farmers; Marginal farmers: Labors,

artisans. State wise variations in rural demographics are present viz. Literacy (Kerala

90%, Bihar 44%) and Population below poverty line (Orissa 48%, Punjab 6%)

2. Myth-2: Disposable Income Is Low

Reality: Number of middle class Households (annual income Rs 45,000- 2, 15,000)

for rural sector is 27.4 million as compared to the figure of 29.5 million for urban

sector. Rural incomes CAGR was 10.95% compared to 10.74% in urban between

1970-71 and 1993-94.

3. Myth-3: Individuals Decide About Purchases

Reality: Decision making process is collective. Purchase process- influencer, decider,

buyer, one who pays can all be different. So marketers must address brand message at

several levels. Rural youth brings brand knowledge to Households (HH).

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SELLING IN RURAL INDIA

The Indian rural market with its vast size and demand base offers a huge opportunity

that MNCs cannot afford to ignore. With 128 million households, the rural population

is nearly three times the urban.

As a result of the growing affluence, fuelled by good monsoons and the increase in

agricultural output to 200 million tonnes from 176 million tonnes in 1991, rural India

has a large consuming class with 41 per cent of India's middle-class and 58 per cent of

the total disposable income.

The importance of the rural market for some FMCG and durable marketers is

underlined by the fact that the rural market accounts for close to 70 per cent of toilet-

soap users and 38 per cent of all two-wheeler purchased.

The rural market accounts for half the total market for TV sets, fans, pressure cookers,

bicycles, washing soap, blades, tea, salt and toothpowder, What is more, the rural

market for FMCG products is growing much faster than the urban counterpart.

The 4A approach

The rural market may be alluring but it is not without its problems: Low per capita

disposable incomes that is half the urban disposable income; large number of daily

wage earners, acute dependence on the vagaries of the monsoon; seasonal

13
consumption linked to harvests and festivals and special occasions; poor roads; power

problems; and inaccessibility to conventional advertising media.

However, the rural consumer is not unlike his urban counterpart in many ways.

The more daring MNCs are meeting the consequent challenges of availability,

affordability, acceptability and awareness (the so-called 4 As)

Availability

The first challenge is to ensure availability of the product or service. India's 638,667

villages are spread over 3.2 million sq km; 700 million Indians may live in rural areas,

finding them is not easy. However, given the poor state of roads, it is an even greater

challenge to regularly reach products to the far-flung villages. Any serious marketer

must strive to reach at least 13,113 villages with a population of more than 5,000.

Marketers must trade off the distribution cost with incremental market penetration.

Over the years, India's largest MNC, Hindustan Lever, a subsidiary of Unilever, has

built a strong distribution system which helps its brands reach the interiors of the rural

market. To service remote village, stockists use autorickshaws, bullock-carts and even

boats in the backwaters of Kerala. Coca-Cola, which considers rural India as a future

growth driver, has evolved a hub and spoke distribution model to reach the villages.

To ensure full loads, the company depot supplies, twice a week, large distributors

which who act as hubs. These distributors appoint and supply, once a week, smaller

distributors in adjoining areas. LG Electronics defines all cities and towns other than

the seven metros cities as rural and semi-urban market. To tap these unexplored

country markets, LG has set up 45 area offices and 59 rural/remote area offices.

Affordability

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The second challenge is to ensure affordability of the product or service. With low

disposable incomes, products need to be affordable to the rural consumer, most of

whom are on daily wages. Some companies have addressed the affordability problem

by introducing small unit packs. Godrej recently introduced three brands of Cinthol,

Fair Glow and Godrej in 50-gm packs, priced at Rs 4-5 meant specifically for Madhya

Pradesh, Bihar and Uttar Pradesh — the so-called `Bimaru' States.

Hindustan Lever, among the first MNCs to realise the potential of India's rural

market, has launched a variant of its largest selling soap brand, Lifebuoy at Rs 2 for

50 gm. The move is mainly targeted at the rural market. Coca-Cola has addressed the

affordability issue by introducing the returnable 200-ml glass bottle priced at Rs 5.

The initiative has paid off: Eighty per cent of new drinkers now come from the rural

markets. Coca-Cola has also introduced Sunfill, a powdered soft-drink concentrate.

The instant and ready-to-mix Sunfill is available in a single-serve sachet of 25 gm

priced at Rs 2 and mutiserve sachet of 200 gm priced at Rs 15.

Acceptability

The third challenge is to gain acceptability for the product or service. Therefore, there

is a need to offer products that suit the rural market. One company which has reaped

rich dividends by doing so is LG Electronics. In 1998, it developed a customised TV

for the rural market and christened it Sampoorna. It was a runway hit selling 100,000

sets in the very first year. Because of the lack of electricity and refrigerators in the

rural areas, Coca-Cola provides low-cost ice boxes — a tin box for new outlets and

thermocol box for seasonal outlets.

15
The insurance companies that have tailor-made products for the rural market have

performed well. HDFC Standard LIFE topped private insurers by selling policies

worth Rs 3.5 crore in total premia. The company tied up with non-governmental

organisations and offered reasonably-priced policies in the nature of group insurance

covers.

Awareness

With large parts of rural India inaccessible to conventional advertising media — only

41 per cent rural households have access to TV — building awareness is another

challenge. Fortunately, however, the rural consumer has the same likes as the urban

consumer — movies and music — and for both the urban and rural consumer, the

family is the key unit of identity. However, the rural consumer expressions differ

from his urban counterpart. Outing for the former is confined to local fairs and

festivals and TV viewing is confined to the state-owned Doordarshan. Consumption

of branded products is treated as a special treat or indulgence.

Hindustan Lever relies heavily on its own company organised media. These are

promotional events organised by stockists. Godrej Consumer Products, which is

trying to push its soap brands into the interior areas, uses radio to reach the local

people in their language.

Coca-Cola uses a combination of TV, cinema and radio to reach 53.6 per cent of rural

households. It doubled its spend on advertising on Doordarshan, which alone reached

41 per cent of rural households. It has also used banners, posters and tapped all the

local forms of entertainment. Since price is a key issue in the rural areas, Coca-Cola

advertising stressed its `magical' price point of Rs 5 per bottle in all media. LG

16
Electronics uses vans and road shows to reach rural customers. The company uses

local language advertising. Philips India uses wall writing and radio advertising to

drive its growth in rural areas.

The key dilemma for MNCs eager to tap the large and fast-growing rural market is

whether they can do so without hurting the company's profit margins

Why Different Strategies?

Rural markets, as part of any economy, have untapped potential. There are several

difficulties confronting the effort to fully explore rural markets. The concept of rural

markets in India is still in evolving shape, and the sector poses a variety of challenges.

Distribution costs and non availability of retail outlets are major problems faced by

the marketers. The success of a brand in the Indian rural market is as unpredictable as

rain. Many brands, which should have been successful, have failed miserably. This is

because; most firms try to extend marketing plans that they use in urban areas to the

rural markets. The unique consumption patterns, tastes, and needs of the rural

consumers should be analyzed at the product planning stage so that they match the

needs of the rural people.

Therefore, marketers need to understand the social dynamics and attitude variations

within each village though nationally it follows a consistent pattern. The main

problems in rural marketing are:

• Understanding the rural consumer

• Poor infrastructure

• Physical Distribution

• Channel Management

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 • Promotion and Marketing Communication

Dynamics of rural markets differ from other market types, and similarly rural

marketing strategies are also significantly different from the marketing strategies

aimed at an urban or industrial consumer.

Strategies to be followed:

 Marketing Strategy:

Marketers need to understand the psyche of the rural consumers and then act

accordingly. Rural marketing involves more intensive personal selling efforts

compared to urban marketing. Firms should refrain from designing goods for the

urban markets and subsequently pushing them in the rural areas. 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.

 Distribution Strategy:

One of the ways could be using company delivery vans which can serve two

purposes- it can take the products to the customers in every nook and corner of the

market and it also enables the firm to establish direct contact with them and thereby

facilitate sales promotion. However, only the bigwigs can adopt this channel. The

companies with relatively fewer resources can go in for syndicated distribution where

a tie-up between non-competitive marketers can be established to facilitate

distribution. Annual “melas” organized are quite popular and provide a very good

18
platform for distribution because people visit them to make several purchases.

According to the Indian Market Research Bureau, around 8000 such melas are held in

rural India every year. Rural markets have the practice of fixing specific days in a

week as Market Days (often called “Haats’) when exchange of goods and services are

carried out. This is another potential low cost distribution channel available to the

marketers. Also, every region consisting of several villages is generally served by one

satellite town (termed as “Mandis” or Agri-markets) where people prefer to go to buy

their durable commodities. If marketing managers use these feeder towns they will

easily be able to cover a large section of the rural population.

 Promotional Strategy:

Firms must be very careful in choosing the vehicle to be used for communication.

Only 16% of the rural population has access to a vernacular newspaper. So, the audio

visuals must be planned to convey a right message to the rural folk. The rich,

traditional media forms like folk dances, puppet shows, etc with which the rural

consumers are familiar and comfortable, can be used for high impact product

campaigns.

Some Live Examples:

 Escorts: One very fine example can be quoted of Escorts where they focused on

deeper penetration. 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 bike as tough vehicle. Their advertisements showed Dharmendra

riding Escort with the punch line ‘Jandar Sawari, Shandar Sawari’. Thus, they

achieved whopping sales of 95000 vehicles annually.

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 HLL: HLL started ‘Operation Bharat’ to tap the rural markets. Under this

operation it passed out low–priced sample packets of its toothpaste, fairness

cream, Clinic plus shampoo, and Ponds cream to twenty million households.

 ITC: ITC is setting up e-Choupals which offers the farmers all the information,
products and services they need to enhance farm productivity, improve farm-gate

price realization and cut transaction costs. Farmers can access latest local and

global information on weather, scientific farming practices as well as market

prices at the village itself through this web portal - all in Hindi. It also facilitates

supply of high quality farm inputs as well as purchase of commodities at their

doorstep.

 BPCL: BPCL introduced Rural Marketing Vehicle (RMV) as their strategy for

rural marketing. It moves from village to village and fills cylinders on the spot for

the rural customers. BPCL considered low-income of rural population and

therefore introduced a smaller size cylinder to reduce both the initial deposit cost

as well as the recurring refill cost.

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RURAL DISTRIBUTION

Rural distribution is considered a nightmare because of the 638,667 villages spread

across the country. To make it easier, one needs to ask from where rural consumers

buy. In the case of durables, 90 percent is purchased from towns with a population of

20,000 plus (as per an IMRB study), totaling only 2,300. The situation with FMCG's

is more complex but not insurmountable. Direct supply up to the 20,000-plus-

population feeder towns should be quite sufficient, as each distributor would, in turn,

have supply networks of 100-plus outlets in 50-odd locations, which can cover all

villages up to the 2,000 plus population category.

Rural Distribution

Physical Channels of
Distribution Distribution

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Physical Distribution

Physical distribution is the process of delivering products to the marketing channels

and consumers. It encompasses the various activities involved in the physical flow of

the product, from the manufacturer to the consumer. It consists of transportation,

communication, warehousing.

Transportation

The transportation infrastructure remains underdeveloped in rural India. Although

India has the fourth largest railway network in the world, many parts of rural India

remain outside its reach. As regards road transport, nearly 50 percent of the 6 lakh-

odd villages do not have all-weather roads. Waterways are an easy transport option in

states like Kerala, Jammu and Kashmir etc.

Strategies: Many marketers, like LG and HLL, use animal carts to carry their goods.

Mobile traders are of immense help to FMCG companies that are penetrating rural

India. There are around two lakh mobile cycle traders in rural India, who sell brands

like Topaz, Lifebuoy, etc.

Communication

Communication plays a pivotal role in distribution for rural markets. Lack of proper

facilities like telephones, postal devices, Internet etc in rural areas poses a lot of

problems to marketers in servicing their retailers.

Strategies: Companies like ITC are using the Internet (e-choupal). Others like

nLogue Communications are harnessing the power of Internet for communication in

rural areas. It provides e-mail services in vernacular languages. Companies that are in

22
rural markets can take the help of such organisations and use them to communicate

with dealers.

Warehousing

Companies find it difficult to find suitable godowns in many parts of rural India.

There are no public warehousing facilities in the interiors of rural India. At the apex

level, Central Warehousing Corporation (CWC) and State Warehousing Corporations

(SWCs) do not provide their services beyond the district level. They reach only up to

the nodal points or major market centres. In the middle tiers are cooperatives at the

mandi level. Then there are rural godowns, which are owned by panchayat heads etc.

All these provide warehousing facilities only to their own members. As a result it is a

big problem for a company to store its goods in rural areas.

Strategies: HLL and lTC, the pioneers in rural marketing in India, have a fleet of

delivery vans for rural distribution. The vans take the products to retailers in every

nook and corner of the country. It is better for companies to have their own mobile

warehouses rather than using cooperative or central godowns. And thereby they save

on the cost of constructing warehouses of their own.

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Channels of Distribution

Channels play a pivotal role in marketing by performing a number of vital distribution

functions. Firms rely on marketing channels to generate customer satisfaction and to

achieve differentiation over the competition. Channels are thus a vital source of

competitive advantage for the firm.

The following are some problems of rural channels of distribution:

Multiple Tiers, Higher Costs and Administrative Problems

In the first place, the rural distribution chain requires a larger number of tiers,

compared to the urban one. The long distances to be covered from the product points

and the scattered locations of the consuming households cause this situation. At the

minimum, the rural distribution chain needs the village-level shopkeeper, the mandi-

Ievel distributor and the wholesaler/stockist in the town. And on top of them are the

manufacturers' own warehouses/branch office operations at selected centres in the

marketing territory. Such multiple tiers and scattered outfits push up costs and make

channel management a major problem. The scope for manufacturers' direct outlets

such as showrooms or depots is quite limited in the rural market unlike in urban areas.

It becomes expensive as well as unmanageable. The dependence of the firm on

intermediaries is much greater in rural areas as direct outlets are ruled out. But

controlling such a vast network of intermediaries is a difficult task. Control is mostly

indirect. And because of these factors the firm has to be more careful while selecting

channel members in rural areas.

Non-Availability of Dealers

24
Another problem is the availability of dealers. Many firms find that there are a limited

number of suitable dealers. Even if the firm is willing to start from scratch and try out

rank newcomers, the choice of candidates is really limited.

Poor Viability of Retail Outlets

Retail sales outlets in the rural market suffer from poor viability. A familiar paradox

in rural distribution is that the manufacturer incurs additional expenses on

distribution; still the retail outlets find that the business is unremunerative. The

scattered nature of the market and the multiplicity of tiers in the chain use up the

additional funds the manufacturer is prepared to part with. And no additional money

comes to any of the groups. Moreover, the business volume is not enough to sustain

the profitability of all the groups and the retail outlet suffers the most.

Inadequate Bank Facilities

Distribution in rural markets is also handicapped due to lack of adequate banking and

credit facilities. Rural outlets need banking support for three important purposes:

 To facilitate remittances to principals and to get fast replenishment of stocks.

 To receive supplies 'through bank' (retiring documents with the bank).

 To facilitate credit from banks.

As banking facilities are inadequate in rural areas, rural dealers are handicapped in all

these aspects. It is estimated that there is only one bank branch for every fifth village.

Inadequate Credit Facilities

25
Inadequacy of institutional / bank credit is another constraint. Rural outlets are unable

to carry adequate stocks due to lack of credit facilities. They are unable to extend

credit to their customers. Thus there is a vicious circle of lack of credit facilities

leading to inadequate stocking and loss of business, finally resulting in poor viability

of outlets.

To overcome the above mentioned problems companies like HLL and ITC have come

up with innovative distribution models that have met success in the rural markets.

26
HLL & ITC

27
28
Project Shakti is HLL's smart way to use self-help groups to directly cater to 1 million

homes every month in villages where traditional distribution systems cannot hope to

enter. E-Choupal is ITC's much-feted business model to build a trading platform with

rural India that already touches 3 million farmers. The two companies have to still

prove that the models are sustainable and scalable.

Project Shakti covers 60,000 villages across 12 states. It provides livelihood to 13,500

Shakti dealers, almost all of them poor women. The project now contributes a little

more than Rs 100 crore to the Lever topline, and is yet to break even. By the next

year-end, HLL believes Shakti's contribution could double and the project could

achieve cash break-even.

ITC's e-Choupal is the second largest agri products exporter from India. It has 5,050

choupals across six states, the company sources agri products worth almost Rs 850

crore from 31 lakh farmers. By 2010, it plans to extend coverage to 1.1 crore farmers

across 1 lakh villages in 15 states. ITC is now looking beyond mere procurement - it

has begun using its network of choupals and warehouses for a two-way trading

process that takes products and services to the farmers. It has started 30 Choupal

Sagars, its large rural shopping complexes replete with supermarket, petrol pump,

bank, healthcare and training facilities, and more.

29
Hindustan Lever Limited

Hindustan Lever Limited (HLL) 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

Rs.10,000 crores.

HLL 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 HLL's 36,000 employees, including over 1,350 managers, is

to "add vitality to life." HLL 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 HLL shares with its parent company, Unilever, which holds

51.55% of the equity. The rest of the shareholding is distributed among 380,000

individual shareholders and financial institutions.

HLL's brands - like Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond's,

Sunsilk, Clinic, 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 in close to 80 factories. The

operations involve over 2,000 suppliers and associates. HLL's distribution network,

30
comprising about 7,000 redistribution stockists, directly covers the entire urban

population, and about 250 million rural consumers.

HLL has traditionally been a company, which incorporates latest technology in all its

operations. The Hindustan Lever Research Centre (HLRC) was set up in 1958, and

now has facilities in Mumbai and Bangalore. HLRC 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.

HLL believes that an organisation's worth is also in the service it renders to the

community. HLL 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. HLL has also responded in case of national calamities / adversities and

contributes through various welfare measures, most recent being the village built by

HLL in earthquake affected Gujarat, and relief & rehabilitation after the Tsunami

caused devastation in South India.

Over the last three years the company has embarked on an ambitious programme,

Shakti. Through Shakti, HLL is creating micro-enterprise opportunities for rural

women, thereby improving their livelihood and the standard of living in rural

communities. Shakti also includes health and hygiene education through the Shakti

Vani Programme, and creating access to relevant information through the iShakti

community portal. The programme now covers about 50,000 villages in 12 states.

31
HLL's vision is to take this programme to 100,000 villages impacting the lives of over

a 100 million rural Indians.

HLL is also running a rural health programme – Lifebuoy Swasthya Chetana. The

programme endeavours to induce adoption of hygienic practices among rural Indians

and aims to bring down the incidence of diarrhoea. It has already touched 70 million

people in approximately 15000 villages of 8 states. The vision is to make a billion

Indians feel safe and secure.

32
PROJECT SHAKTI

33
 HLL’s Project Shakti

Shakti is HLL'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, health and hygiene education through the

Shakti Vani programme, and creating access to relevant information through the

iShakti community portal.

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.

Started in 2001, Shakti has already been extended to about 80,000 villages in 15 states

- Andhra Pradesh, Karnataka, Tamilnadu, Maharashtra, Gujarat, Madhya Pradesh,

Chattisgarh, Uttar Pradesh, Rajasthan, Punjab, Haryana, West Bengal, Orissa, Bihar

& Jharkhand. The respective state governments and several NGOs are actively

involved in the initiative.

Shakti already has about 25,000 women entrepreneurs in its fold. A typical Shakti

entrepreneur earns a sustainable income of about Rs.700 -Rs.1,000 per month, which

34
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. In addition, it involves health and hygiene

programmes, which help to improve the standard of living of the rural community.

Shakti's ambit already covers about 15 million rural population. Plans are also being

drawn up to bring in partners involved in agriculture, health, insurance and education

to catalyze overall rural development.

Shakti Vani is a social communication programme. Women, trained in health and

hygiene issues, address village communities through meetings at schools, village

baithaks, SHG meetings and other social fora. In 2004, Shakti Vani has covered

10,000 villages in Madhya Pradesh, Chattisgarh and Karnataka.

iShakti, the Internet-based rural information service, has been launched  in Andhra

Pradesh, in association with the Andhra Pradesh Government's Rajiv Internet Village

Programme. The service is now available in Nalgonda, Vishakapatnam, West

Godavari and East Godavari districts. iShakti has been developed to provide

information and services to meet rural needs in medical health and hygiene,

agriculture, animal husbandry, education, vocational training and employment and

women's empowerment.

35
The Project Shakti Model

The objective of Project Shakti is to create income-generating capabilities for

underprivileged rural women, by providing a sustainable micro enterprise

opportunity, and to improve rural living standards through health and hygiene

awareness.

Under the project, HLL offers a range of mass-market products to the SHGs, which

are relevant to rural customers. HLL is investing significantly in resources who

work with the women on the field and provide them with on-the-job training and

support. This is a key factor in ensuring the stabilization of their fledgling businesses.

HLL imparts the necessary training to these groups on the basics of enterprise

management, which the women need to manage their enterprises. For the SHG

women, this translates into a much-needed, sustainable income contributing towards

better living and prosperity. Armed with micro-credit, women from SHGs become

direct-to-home distributors in rural markets.

A typical Shakti entrepreneur conducts a steady business which gives her an income

in excess of Rs.1,000 per month on a sustainable basis. As most of these women live

below the poverty line, and hail from extremely small villages (with populations of

less than 2000), this earning is very significant, and almost twice the amount of their

previous household income.

36
For most of these families, Project Shakti is enabling families to live with dignity,

with real freedom from want. 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 HLL and the consumers, some of whom will depend on the organization for

their livelihood, and builds a self-sustaining cycle of growth for all.

How it works ?

Typically, a woman from a Self Help Groups (SHG is group of rural poor who

have volunteered to organise themselves into a group for eradication of poverty

of the members. They agree to save regularly and convert their savings into a

Common Fund known as the Group corpus. The members of the group agree to

use this common fund and such other funds that they may receive as a group

through a common management.), selected as a Shakti entrepreneur receives stocks

at her doorstep from the HLL rural distributor and sells direct to consumers as well as

to retailers in the village.

Each Shakti entrepreneur services 6-10 villages in the population strata of 1,000-

2,000 people.

Typically, a Shakti entrepreneur sets off with 4-5 chief brands from the HLL portfolio

- Lifebuoy, Wheel, Pepsodent, Annapurna salt and Clinic Plus. These are the core

brands; the company then layers it with whatever else is in demand like talcum

37
powder or Vaseline during winters. Other brands which find favour with a rural

audience are: Lux, Ponds, Nihar and 3 Roses tea. Typically, unit packs are small. All

the brands are national and HLL is cool to the idea of creating a rural-specific brand

as it will only dissipate the advertising media effort for the brands. To get started the

Shakti woman borrows from her SHG and the company itself chooses only one

person. With training and hand-holding by the company for the first three months, she

begins her door-to-door journey selling her wares.

A shakti entrepreneur on an initial loan of Rs 10,000 from her SHG to start the

enterprise, has a turnover of Rs 10,000-Rs 25,000 a month earns a profit of Rs 750-Rs

2,000 a month, an average return of 8 per cent. Creating opportunities to increase

rural family incomes puts more money in their hands to purchase the range of daily

consumption products - from soaps to toothpastes - that HLL makes. It also enables

HLL access hitherto unexplored rural hinterlands.

Regional brands, or even larger FMCG companies, do not have the kind of

distribution reach that HLL has established and in the long run, that could prove a

winner for HLL.

38
Micro-Credit Model

Micro-Credit
Bank / SHG (Self Consumers
Help Group)
NBFC
Repayment

Goods
Info Cash

NGO/

SHG Federation

Cash
Info Goods

HLL

Hll’s growth strategy was to ask SHG’shop to operate as “rural direct-to-home”

teams of saleswomen, who would accomplish several tasks by raising awareness and

educating people about Hll products as well as selling the product directly within their

communities.

HLL had the credibility to negotiate with the banks and convince them that the

company could provide the local women with a meaningful income-generating

activity. The new micro-entrepreneurs would thus be able to access micro-credit and

use it to stimulate both demand and consumption at the local level. This is a win win

situation as it modifies the traditional micro-credit model, without making the model

overly complex

39
 “Shakti” - Operartions

C&F
Agent

MACTS 1 MACTS 2 MACTS 3

SH SH SH SH SH SH SH
G1 G2 G3 G4 G5 G6 G7

Consumers

As part of the Shakti Project, HLL also worked with Mutually Aided Cooperative
and Thrift Societies (MACTs) in the Nalgonda District. The MACTs were
federations of 20 SHGs with up to400 members that elected a representative
committee to facilitate decision-making. The MACTs often acted as financing
agents for SHGs and, given their membership volume, were in a position to offer a
higher loan. These MACTs were fostered by the same NGOs that had earlier been
conduits of finance and advisory services to SHGs. The NGOs later handed over
supervision of the MACTs to the SHGs themselves, which could clearly better
identify with the basic issues and problems facing their members.

40
The Future of Shakti

HLL plans to extend Shakti to a 100 districts in Madhya Pradesh, Gujarat and UP.

There are other plans brewing. One is to allow other companies which do not compete

with HLL to get onto the Shakti network to sell their products. HLL is looking at

companies like Nippo, TVS Motor for mopeds, insurance companies for LIC policies.

The most powerful aspect about this model is that it creates a win-win partnership

between HLL and its consumers, some of whom will also draw on the organization

for their livelihood, and it builds a self-sustaining virtuous cycle of growth for all.

The next stage of Project Shakti is even more ambitious. HLL is now in the process of

piloting `I-Shakti', an IT-based rural information service that will provide solutions to

key rural needs in the areas of agriculture, education, vocational training, health and

hygiene. The project will be piloted in Nalgonda district again. Based on a palm pilot,

HLL is looking at sourcing appropriate low-cost hardware from Hewlett-Packard

while Unilever Research out of London is developing the consumer interactivity

software. Women in the rural areas are the catalyst of change and that is why HLL’s

whole programme keeps women in focus. Clearly, it's the rural women who give

Shakti its strength.

41
Learnings from the Model

1) For instance, the company initially decided to save distributor margins by cutting

one layer of distribution — the local distributor. These savings helped in giving

higher margins to the Shakti entrepreneurs and retailers. Stocks were directly sent

to the Shakti distributor from the local C & F (carry and forward) depots.

However, cutting the local distributor had its own shortcomings because they help

redistribute stocks in smaller quantities. To expect that service from a large C & F

depot was difficult.

2) The local distributors also managed issues like giving credit to the small retailer—

they had more information about the credit worthiness of local retailers or the

Shakti entrepreneurs. Within six months, HLL had to reinstate the local distributor

in Project Shakti.

3) Another learning was that most Shakti entrepreneurs had never ventured into

business. Thus, hand holding became critical. HLL invested in creating awareness

about the Shakti woman entrepreneur. HLL offered incentives to villagers who

buy from the Shakti representative.However, Shakti’s still trying to effectively

bring down distribution costs.

4) The BOP (bottom of the pyramid - largest, but poorest socio-economic

group.) is at least 5-10 per cent costlier than selling in urban markets. Manpower

costs is one area where a lot could be done — it forms 80 per cent of total costs in

selling to the BOP. The task is manpower intensive as employees are required to

42
 identify and develop new BOP markets, train the entrepreneurs and revisit existing

markets to ensure that it has adequate stocks. It has rolled out mobile trainers who

move from village to village and perform multi-functions from selecting

entrepreneurs, training them and hand holding. It is also experimenting with

exclusive trainers.

Project Shakti

Appearance of iShakti Kiosks

43
 A Shakti Entrepreneur

Shakti Vani: The Communicator

44
 ITC’s e-Choupals
ITC

ITC is one of India's foremost private sector companies with a market capitalisation of

over US $ 13 billion and a turnover of US $ 3.5 billion. Rated among the World's Best

45
Big Companies by Forbes magazine and among India's Most Respected Companies

by BusinessWorld, ITC ranks third in pre-tax profit among India's private sector

corporations.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers,

Packaging, Agri-Business, Packaged Foods & Confectionery, Information

Technology, Branded Apparel, Greeting Cards, Safety Matches and other FMCG

products. While ITC is an outstanding market leader in its traditional businesses of

Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining

market share even in its nascent businesses of Packaged Foods & Confectionery,

Branded Apparel and Greeting Cards.

As one of India's most valuable and respected corporations, ITC is widely perceived

to be dedicatedly nation-oriented. ITC believes that its aspiration to create enduring

value for the nation provides the motive force to sustain growing shareholder value.

ITC practises this philosophy by not only driving each of its businesses towards

international competitiveness but by also consciously contributing to enhancing the

competitiveness of the larger value chain of which it is a part.

ITC's diversified status originates from its corporate strategy aimed at creating

multiple drivers of growth anchored on its time-tested core competencies: unmatched

distribution reach, superior brand-building capabilities, effective supply chain

management and acknowledged service skills in hoteliering. Over time, the strategic

forays into new businesses are expected to garner a significant share of these

emerging high-growth markets in India.

46
ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is

one of the country's biggest foreign exchange earners (US $ 2.4 billion in the last

decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture

significantly enhance its competitiveness by empowering Indian farmers through the

power of the Internet. This transformational strategy, which has already become the

subject matter of a case study at Harvard Business School, is expected to

progressively create for ITC a huge rural distribution infrastructure, significantly

enhancing the Company's marketing reach.

ITC's wholly owned Information Technology subsidiary, ITC Infotech India Limited,

is aggressively pursuing emerging opportunities in providing end-to-end IT solutions,

including e-enabled services and business process outsourcing.

ITC employs over 20,000 people at more than 60 locations across India. Ranked

among India's most valuable companies by the 'Business Today' magazine, ITC

continuously endeavors to enhance its wealth generating capabilities in a globalising

environment to consistently reward more than 4,76,552 shareholders, fulfill the

aspirations of its stakeholders and meet societal expectations. This over-arching

vision of the company is expressively captured in its corporate positioning statement:

"Enduring Value. For the nation. For the Shareholder."

47
Introduction

ITC’s International Business Division, one of India’s largest exporters of agricultural

commodities, has conceived e-Choupal as a more efficient supply chain aimed at

delivering value to its customers around the world on a sustainable basis.

e-Choupal initiative is the single-largest information technology-based intervention by

a corporate entity in rural India, transforming the Indian farmer into a progressive

knowledge-seeking netizen. Enriching the farmer with knowledge; elevating him to a

new order of empowerment. e-Choupal delivers real-time information and customised

knowledge to improve the farmer's decision-making ability, thereby better aligning

farm output to market demands; securing better quality, productivity and improved

price discovery.

48
The model helps aggregate demand in the nature of a virtual producers' co-operative,

in the process facilitating access to higher quality farm inputs at lower costs for the

farmer. The e-Choupal initiative also creates a direct marketing channel, eliminating

wasteful intermediation and multiple handling, thus reducing transaction costs and

making logistics efficient. The e-Choupal project is already benefiting over 3.5

million farmers. Over the next decade, the e-Choupal network will cover over

100,000 villages, representing 1/6th of rural India, and create more than 10 million e-

farmers.

Launched in June 2000, 'e-Choupal', has already become the largest initiative among

all Internet-based interventions in rural India.'e-Choupal' services today reach out to

more than 3.5 million farmers growing a range of crops - soyabean, coffee, wheat,

rice, pulses, shrimp - in over 36,000 villages through nearly 6000 kiosks across nine

states (Madhya Pradesh, Haryana, Uttaranchal, Karnataka, Andhra Pradesh, Uttar

Pradesh, Maharashtra, Rajasthan and Kerela).

Highlights of the Model

 A digital transformation

ITC began the silent e-volution of rural India with soya growers in the villages of

Madhya Pradesh. For the first time, the stereotype image of the farmer on his bullock

cart made way for the e-farmer, browsing the e-Choupal website. Farmers now log on

to the site through Internet kiosks in their villages to order high quality agri-inputs,

49
get information on best farming practices, prevailing market prices for their crops at

home and abroad and the weather forecast – all in the local language.

 Linking farmers to remunerative markets

Farmers grow wheat across several agro-climatic zones, producing grains of varying

grades. Though these grades had the potential to meet diverse consumer preferences,

the benefit never trickled down to the farmers, because all varieties were aggregated

as one average quality in the mandis. Enter ITC's e-Choupal intervention. The e-

Choupal site is now helping the farmers discover the best price for their quality at the

village itself. The site also provides farmers with specialised knowledge for

customising their produce to the right consumer segments. The new storage and

handling system preserves the identity of different varieties right through the 'farm-

gate to dinner-plate' supply chain. Encouraging the farmers to raise their quality

standards and attract higher prices.

 Managing risks through technology

The e-Choupal site provides information that equips farmers with comprehensive

know-how to keep abreast of food safety norms to compete in the international

market. Information includes parameters for antibiotic usage, hygienic washing,

sanitised dressing and air-tight packing.

Coffee planters in India have for years been tossed between the highs and lows of the

international coffee market. The information needed to manage risks in the volatile

global coffee market, price updates and prevalent trends in coffee trading were just

not available to them. Launch of e-Choupal.com has equipped India's coffee planters

50
with appropriate knowledge base and risk management tools. The site arms them with

the latest prices posted on commodity exchanges like CSCE in New York and LIFFE

in London.

The problems encountered while setting up and managing these ‘e-Choupals’ are

primarily of infrastructural inadequacies, including power supply, telecom

connectivity and bandwidth, apart from the challenge of imparting skills to the first

time internet users in remote and inaccessible areas of rural India.

The e-Choupal Model

The e-Choupal model has been specifically designed to tackle the challenges posed by

the unique features of Indian agriculture, characterised by fragmented farms, weak

infrastructure and the involvement of numerous intermediaries, among others.

The Value Chain - Farm to Factory Gate:

51
e-Choupal’ also unshackles the potential of Indian farmer who has been trapped in a

vicious cycle of low risk taking ability > low investment > low productivity > weak

market orientation > low value addition > low margin > low risk taking ability. This

made him and Indian agribusiness sector globally uncompetitive, despite rich &

abundant natural resources.

Such a market-led business model can enhance the competitiveness of Indian

agriculture and trigger a virtuous cycle of higher productivity, higher incomes,

enlarged capacity for farmer risk management, larger investments and higher quality

and productivity.

Further, a growth in rural incomes will also unleash the latent demand for industrial

goods so necessary for the continued growth of the Indian economy. This will create

another virtuous cycle propelling the economy into a higher growth trajectory.

52
The Model in Action:

Appreciating the imperative of intermediaries in the Indian context, ‘e-Choupal’

leverages Information Technology to virtually cluster all the value chain participants,

delivering the same benefits as vertical integration does in mature agricultural

economies like the USA.

‘e-Choupal’ makes use of the physical transmission capabilities of current

intermediaries – aggregation, logistics, counter-party risk and bridge financing –while

disintermediating them from the chain of information flow and market signals.

With a judicious blend of click & mortar capabilities, village internet kiosks managed

by farmers – called sanchalaks – themselves, enable the agricultural community

access ready information in their local language on the weather & market prices,

disseminate knowledge on scientific farm practices & risk management, facilitate the

sale of farm inputs (now with embedded knowledge) and purchase farm produce from

the farmers’ doorsteps (decision making is now information-based).

Real-time information and customised knowledge provided by ‘e-Choupal’ enhance

the ability of farmers to take decisions and align their farm output with market

demand and secure quality & productivity. The aggregation of the demand for farm

inputs from individual farmers gives them access to high quality inputs from

established and reputed manufacturers at fair prices. As a direct marketing channel,

virtually linked to the ‘mandi’ system for price discovery, ‘e-Choupal’ eliminates

wasteful intermediation and multiple handling. Thereby it significantly reduces

transaction costs.

53
‘e-Choupal’ ensures world-class quality in delivering all these goods & services

through several product / service specific partnerships with the leaders in the

respective fields, in addition to ITC’s own expertise.

While the farmers benefit through enhanced farm productivity and higher farm gate

prices, ITC benefits from the lower net cost of procurement (despite offering better

prices to the farmer) having eliminated costs in the supply chain that do not add value.

THE E-CHOUPAL SYSTEM

The re-engineered supply chain looks very different from the existing system and has

the following stages:

E-Choupal Supply Chain

54
Pricing

The previous day’s mandi closing price is used to determine the benchmark Fair

Average Quality (FAQ) price at the e-Choupal. The benchmark price is static for a

given day. This information and the previous day mandi prices are communicated to

the sanchalak through the e-Choupal portal. The commission agents at the mandi are

responsible for entering daily mandi prices into the e-Choupal. If and when the

Internet connection fails, the sanchalak calls an ITC field representative.

Inspection and Grading

To initiate a sale, the farmer brings a sample of his produce to the e-Choupal. The

sanchalak inspects the produce and based on his assessment of the quality makes

appropriate deductions (if any) to the benchmark price and gives the farmer a

conditional quote. The sanchalak performs the quality tests in the farmer’s presence

and must justify any deductions to the farmer. The benchmark price represents the

upper limit on the price a sanchalak can quote. These simple checks and balances

ensure transparency in a process where quality testing and pricing happen at multiple

levels.

55
If the farmer chooses to sell his soy to ITC, the sanchalak gives him a note capturing

his name, his village, particulars about the quality tests (foreign matter and moisture

content), approximate quantity and conditional price.

Weighing and Payment

The farmer takes the note from the sanchalak and proceeds with his crop to the

nearest ITC procurement hub, ITC’s point for collection of produce and distribution

of inputs sold into rural areas. Some procurement hubs are simply ITC’s factories that

also act as collection points. Others are purely warehousing operations. ITC’s goal is

to have a processing center within a 30 - 40 kilometer radius of each farmer. There are

currently 16 hubs, but there will eventually be 35 in the state of Madhya Pradesh.

At the ITC procurement hub, a sample of the farmer’s produce is taken and set aside

for laboratory tests. A chemist visually inspects the soybean and verifies the

assessment of the sanchalak. It is important to note that this is the only test

assessment before the sale. Laboratory testing of the sample for oil content is

performed after the sale and does not alter the price. The reason for this is that

farmers, having historically been exploited, are not immediately willing to trust a

laboratory test. Therefore pricing is based solely upon tests that can by understood by

the farmer. The farmer accepts foreign matter deductions for the presence of stones or

hay, based upon the visual comparison of his produce with his neighbors. He will

accept moisture content deductions based upon the comparative softness of his

produce when he bites it.

ITC is working to change farmer attitudes towards laboratory testing. It is developing

an appreciation of better quality by using the subsequent lab tests to reward farmers

56
with bonus points if their quality exceeds the norm. At the end of the year, farmers

can redeem their accumulated bonus points through the e-Choupal for farm inputs, or

contributions toward insurance premiums.

After the inspection, the farmer’s cart is weighed on an electronic weighbridge, first

with the produce and then without. The difference is used to determine the weight of

his produce.

Hub Logistics

After the inspection and weighing are complete, the farmer then collects his payment

in full at the payment counter. The farmer is also reimbursed for transporting his crop

to the procurement hub. Every stage of the process is accompanied by appropriate

documentation. The farmer is given a copy of lab reports, agreed rates, and receipts

for his records.

Samyojaks, who are adept at handling large amounts of cash, are entrusted with the

responsibility of payment, except at procurement centers near large ITC operations

where ITC is handles cash disbursement. Samyojaks also handle much of the

procurement hub logistics, including labor management at the hub, bagging (if

necessary), storage management, transportation from the hub to processing factories,

and handling mandi paperwork for the crops procured at the hub. For his services in

the procurement process, the samyojak is paid a 0.5% commission.

Farmer Gains

57
Prior to the introduction of e-Choupal, farmers’ access to agricultural information was

incomplete or inconsistent. The only sources of information were word of mouth

within the village and the commission agent. E-Choupal allows farmers daily access

to prices at several nearby mandis. Some e-Choupal sanchalaks have taken this a level

further by accessing external pricing sources such as prices on the Chicago Board of

Trade, in order to track global trends and determine the optimum timing of sales.

Moreover, through e-Choupal, farmers have access to prices and make the critical

decision of when and where to sell his crop. Both factors work together to provide the

farmers a better price for their crops.

Under ITC’s system, farmers no longer bear the cost of transporting their crops to the

mandi and are instead reimbursed for transport to the procurement hub. The

transaction at the ITC hub is also much faster than at the mandi, usually taking no

more than two or three hours. Moreover, ITC’s electronic weighing scales are

accurate and not susceptible to sleight of hand like the manual weighing system at the

mandi. The system also does not require produce to be bagged, which avoids the

associated loss of produce by intentional spillage. Thus the e-Choupal system has

logistical and transaction efficiencies.

Finally, the ITC procurement center is a professionally run operation where the

farmer is treated with respect and served as a customer. The dignity accorded farmers

by the professional process of the e-Choupal cannot be understated. ITC’s recognition

that farmers are not simply agricultural producers, but integral partners in the supply

process has elevated the level of respect paid to them. Simple provisions such as a

58
shaded seating area where farmers can sit while waiting for their paperwork serve as

indicators of ITC’s respect for farmers and their produce. Though intangible, the self-

confidence created by this professional treatment is affecting the way farmers conduct

themselves. Sanchalaks and even commission agents have noted a change in farmer

attitudes.

The incremental income from a more efficient marketing process is about US$6 per

ton, or an increase of about 2.5% over the mandi system. Farmers also can make use

of the information available to them through e-Choupal to improve yields. Moreover,

the seed, fertilizer, and consumer products offered them through e-Choupal cost

substantially less than through other local sources such as village traders. Thus there

are meaningful net economic benefits to farmers, and it is having a measurable impact

on what farmers choose to do: in areas covered by e-Choupals.

ITC Gains

Direct reimbursement of transport costs to the farmer is estimated to be half of what

ITC used to pay the commission agents for transport to their factory. Removal of

intermediary manipulation of quality and the ability to directly educate and reward

quality in the customer base results in higher levels of quality in e-Choupal

procurement. This results in higher oil yields, which, in turn, lead to higher profits for

ITC.

E-Choupal also allows ITC to develop long-term supplier relationships with farmers

and attain some degree of supply security over time. Risk is also managed in the e-

Choupal system by a far stronger information infrastructure. Sanchalaks and

59
samyojaks working on behalf of ITC provide excellent bottom-up information on

pricing, product quality, soil conditions, and expected yields. This allows ITC to

better plan future operations

The e-Choupal Model At A Glance

The e-Choupal Infrastructure  ICT Kiosk with Internet

Access

 In the house of one trained

60
 farmer, Sanchalak

 Within walking distance of

target farmers

Warehousing Hub

 Managed by the erstwhile

middleman, Samyojak

 Within tractorable distance of

target farmers

The e-Choupal Services Relevant & Real-time

Information

 Commodity prices, Local

Weather, News

Customised Knowledge

 Farm Management, Risk

Management

Supply Chain for Farm Inputs

 Screened for Quality, Demand

Aggregation for Competitive

Prices & Efficient Logistics

Direct Marketing Channel for

Farm Produce

 Lower Transaction Costs, Better

Value through Traceability

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Lessons from e-Choupal implementation

 Allow The Community To Manage Itself

To build trust, ITC carefully hand-picked a farmer as a sanchalak to lead a community

of farmers. Since he is typically a person of stature in his community, the sanchalak

finds it far easier to enlist the support of the others. Of late, to strengthen community

ties, ITC has begun offering rewards for community building efforts.

 Don’t Dis-intermediate, Instead Redefine Roles

ITC took care to ensure that it did not knock out the intermediaries like the

commission agent from the value chain. Instead, it gave them a new role without

disturbing their income flow. As a result, the channel did not react adversely and

become a hindrance.

 Put Existing Relationships To Use

ITC’s cigarette distributors came in handy when the company began setting up wheat

choupals in UP. Cigarette volumes had begun to plateau, so these wholesale

distributors were open to a new revenue stream. They became responsible for storage,

mandi documentation and maintaining record.

 Offer Immediate Gains for Buy-In

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Since ITC’s model offered immediate gains for farmers rather than savings sometime

in the future, it was easier to sell the concept.

 Customer Feedback A Source Of Innovation

Any new initiative is first tested with the sanchalaks to check if it would be viable.

Besides, regular choupal meets are held. These help generate new ideas.

e-Choupal

ITC Choupal Sagar

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Gathering at an e-Choupal

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RESEARCH METHADOLOGY

 Formation of the Problem

After a summer internship at the Head Office of HUL, Andheri I was very keen on

exploring the reasons why companies are going stepping into the Rural Space and

wanted to learn how they are doing it. I was working under the Ponds Brand Manager

and got his insights for them going rural, the amount they spend on advertisement, the

ways they promote their products if any new strategies how do they go about it and

how they price their products.

 Techniques of Data Collection

PRIMARY

For this project the primary data is taken from the employees at HUL. The questions

were put forward to the brand managers of Ponds, Pears and Lifebuoy.

SECONDARY

The secondary information is taken from websites and books etc.

 Research Findings and Analysis

Results of the study

1. Why you chose Rural Market?

Respondent #1 - Majority of population lives in Rural India so it is a growing market

and urban markets are exhausted.

Respondent #2 – This is an untapped market, purchasing power is increasing.

Respondent #3 – The potential of the Rural economuy attracted HLL to enter rural

markets. The vast size of the population and growing scope for these markets attracted

HLL.

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2. Do you use some extra strategies for promotion?

Respondent #1 – Usually not, however it does depend on the competition.

Respondent #2- No

Respondent #3 – No

3. What is the most effective strategy for Rural Market?

[ ] Wall Paintings   

[  ] Customer contact   

[  ] Van campaigns

[  ] Event Management  

[ ] Radio

Respondent #1 – Wall paintings and Radio are the most strategies

Respondent #2 – Radio and Van campaigns

Respondent #3 – Wall Paintings, Van Campaigns and Radio

4. What marketing stratgey or scheme dramatically affects the sale of product?

[ ] Availability  

[  ] Good Advertising  

[  ] Low price/Cost

Respondent #1 – Availability and Low Price affects the sale of the products in the

market

Respondent #2 – Good Advertising and Low prices

Respondent #3 – Availability and Low prices

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5. Do you find any difference between rural and urban area’s product?

[  ] Yes

[  ] No

To this question all three respondents said yes that there was a difference between

rural and urban area’s products

ANALYSIS

We can conclude that companies are deciding to go rural as it is an untapped market

and there is an increase in the purchasing power of the people so there is a growing

scope which is attracting companies. Extra strategies are almost never used. We can

see that the most effective way to reach the rural mass is through wall paintings, van

campaigns and radio. Availability of the product and low cost of the product clearly

affect the sale of the product, if products are easily available and are at a low cost they

will be sell the most, so these strategies affect the sale of the product and there is a

difference in the product which is sold in the rural and the urban area’s because in the

rural area prices are generally low so the quality of the product is reduced so as to

meet their needs.

QUESTIONAIRE

1. What attracted HLL to rural areas?

Ans:- The potential of the Rural economy attracted HLL to enter rural

markets. The vast size of population and growing scope for these markets attracted

HLL.

2. Which products of HLL have gone Rural?

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Ans:- The list of products of HLL is very wide but to name few of brands that went

Rural are Lifebuoy, Lux, Liril, Hamam, Rexona in Soap segment. Wheel, Surf Excel,

Rin among detergents. Personal Care includes Fair&Lovely, Clinic Plus, Sunsilk,

Pepsodent, Close-up. Ponds in Skin care. Food & Beverages segment has Brooke

Bond Tea, Bru Coffee, KisanProducts Knorr Annapurna Salt,etc.

3. What are the Product strategies for rural markets?

Ans:- The product strategies has been described under Highlights but some as

Transactional Marketing , Relationship Marketing, Branding etc are important for

rural markets as Trust is the most important for Rural consumer in a particular

product.

4. What are the Pricing strategies for rural markets?

Ans:- The price does not drive rural markets but is very important to influence Rural

Consumer. Price Points and Value of the product is very important for Rural

Consumer. Further the pricing strategies have been described under Highlights.

5. What are the Promotion strategies for rural markets that you follow?

Ans:- HLL uses various Conventional and Non-Conventional media for promotion of

its products in Rural areas. Some of them are Advertising through T.V. & Radio, Wall

paintings , Haats and Melas , Folk Theatre , Puppetry Shows etc.

6. How different is promotion strategies in Rural areas?

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Ans:- It is completely different as Aspirations of rural consumer are completely

different. Urban Consumer can wait but Rural consumer wants instant gratification.

Promotion must inspire rural consumer and the product must be linked to their lives.

7. What is the importance of packaging in rural areas?

Ans:- Packaging is very important as it is the Biggest visual Clue to the Rural

consumer. It creates impact in their minds as the person can be illiterate or

semiliterate, the pack graphics, hygiene, Image create impression for rural consumer.

8. What are the problems faced in rural areas by HLL?

Ans:- The major problems faced in rural areas by HLL are Reachability due to

Unmotorable Roads, Flow of money is not on time, its just twice in a year as

investment is to be made by shopkeeper, Unorganized malls as kirana store

exists ,there is no one stop solution etc.

9 Who are HLL’s competitors in rural markets?

Ans:- As such there is no particular MNC who is in competition with HLL but there

are many small and unorganized competitor’s but in particular segments it faces

competitions from majors as in Fabric segment its Nirma, Ghadi etc. In personal wash

segment its JO, Chik shampoo, Velvette shampoo etc. Tea segment includes regional

players as Bagh Bakri in Gujrat, Milan in Maharashtra, Girnar tea etc.

10. Rural consumers have a unique profile. How does it creates problems for HLL in

Rural marketing?

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Ans:- Rural consumers needs are socio-based they do not like much of jazz . They

need to be exposed to environment to settle way. HLL to offer serious products has to

work more on Emotional platforms for the things rural consumer get related to they

accept the products easily.

11. What is the contribution of rural markets to HLL’s turnover?

Ans:- The contribution or rural markets in turnover is 30% of the HLL’s turnover and

generates around 50 % of revenues.

12. Among the products\brands which HLL are selling in rural areas, which are the

most popular there?

Ans:- The some of the most popular brands of HLL in rural areas are Lifebuoy, Lux,

Ponds, Fair and Lovely, Wheel, Vim, Pepsodent, Brooke bond, Annapurna salt,

Sunsilk, Clinic Plus etc.

13. What projects have HLL undertaken in rural areas in recent times?

Ans:- HLL has undertaken various projects it main project is Project Shakti. Recently

it undertook Project Vindhya Valley in Madhya Pradesh in Joint venture with the

State Government.

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14. What is the contribution of HLL to Rural development in India?

Ans: The contribution of HLL to rural development has been significant as It has

expanded size of rural markets for other companies, It gave immense value to rural

population, It contributed to economic development of the country by tapping rural

markets. HLL focused on health & hygiene, education, women empowerment, and

water management in rural areas. HLL has also responded in case of national

calamities /adversities and contributes through various welfare measures, most recent

being the village built by HLL in earthquake affected Gujarat, and relief &

rehabilitation after the Tsunami caused devastation in South India.

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CONCLUSION:

Thus looking at the challenges and the opportunities which rural markets offer to the

marketers it can be said that the future is very promising for those who can understand

the dynamics of rural markets and exploit them to their best advantage. A radical

change in attitudes of marketers towards the vibrant and burgeoning rural markets is

called for, so they can successfully impress on the 700 million rural consumers spread

over approximately six hundred thousand villages in rural India.

The two companies have done exceptionally well, in meeting the needs of the rural

population. In the final reckoning, both companies have managed to create a chain

that goes all the way down to village communities. The challenge now is to leverage

this better. For doing that, the two companies may have to take a leaf or two out of the

other’s book.

ITC has moved beyond its original procurementt model to embrace the opportunity in

rural distribution. But that opportunity is much larger than the company has yet been

able to grab. That’s why it is scaling up its distribution business by letting other

companies like Philips (bulbs), Marico (hair oils) and Duncan (tea) ride its network.

Other ITC group companies — those into fastmoving consumer goods, foods and

stationery — are preparing products tailormade for the choupals. Also, ITC has

launched its own personal care brands. This has for long been Lever’s core category,

and the multinational is likely to respond aggressively to ITC’s moves.

HLL’s challenges are of another nature. It still has to improve the incomes of the

Shakti entrepreneurs in order to retain their interest. To do that, it may need to widen

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its offerings — on its own or in partnership with other companies. It may also

consider local manufacturing by these entrepreneurs, where they use ingredients

supplied by Lever to make the final product. Above all, Lever would probably do well

to allow its distributors to run the channel.

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BIBLIOGRAPHY

 New Perspective In Rural & Agricultural Marketing – Ramkishen Y.

 www.hll.com

 www.hllshakti.com

 www.thehindubusinessline.com

 www.itcportal.com

 www.echoupal.com

 www.businessworld.in

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