Unlock Micriofinance
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Rural Marketing in India: Retailing Through
Microfinance Institutions
This is a time for MNCs to look at globalisation strategies through a new lens of inclusive
capitalism. For companies with the resources and persistence to compete at the bottom of the world
economic pyramid, the prospective rewards include growth, profits and incalculable contributions to
humankind,1 stated C.K. Prahalad and Stuart L. Hart, in their bookThe Fortune at the Bottom of
the Pyramid(2002). In India, rural markets contribute significantly to the growth of the countrys
economy. Realising the potential of these markets, big companies like Hindustan Unilever Limited(HUL), Coca-Cola, Godrej, Nokia, Bharti Airtel, Bajaj Allianz, etc., are customising their offerings to
cater to the bottom-of-the-pyramid market.
Of late, rural markets have caught the attention of multinational companies because of vast
opportunities offered by them. The increasing purchasing power of rural consumers, growing consumption
levels, media penetration into rural areas and saturation of urban markets are forcing these companies
to expand their rural outreach. But, poor transportational and poor infrastructural facilities are hindering
companies from penetrating into hinterlands. As a result, companies began reinventing their distribution
systems, to make the products reach every nook and corner of India. In this process, they tied-up with
Microfinance Institutions (MFIs) for distributing their products in rural areas. However, the partnership
between MFIs who work with a social mission and companies who operate with a for-profitmotive raises the question of sustainability of such partnerships in rural markets.
The Changing Landscape of Rural Markets in India
In the words of Mahatma Gandhi, India lives in its villages.2 The landscape of an Indian village
is often illustrated with expressions like clear blue skies, fresh green fields, swinging trees with
reflections in water, mud huts and cow-dung floorings, traditional bullock carts, serene temples and
This case study was written by Naga Sandhya Ramadugu and Girija Pasupuleti under the direction of Dr. Nagendra V. Chowdary,
IBSCDC. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of
a management situation. The case was compiled from published sources.
2009, IBSCDC.
No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever
without the permission of the copyright owner.
1 Prahalad C.K. and Stuart L. Hart, The Fortune at the Bottom of the Pyramid, http://www.cs.berkeley.edu/~brewer/ict4b/
Fortune-BoP.pdf, 2002
2
Rural Development, http://www.tn.gov.in/spc/tenthplan/CH_3.PDF
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peaceful village life. While, this beautiful village landscape portrays the rural scenic beauty, its
significance is much more than an artistic view. India is a land of 627,0003 villages nearly accounting
for 70% of its population (in the early 2000s). Indian hinterlands are vast in size, spread over3.2 million4 sq. km. and displays diversity in terms of culture, religious practices, language and dialects,
economic status, etc.
Despite cultural diversity, most of the rural India thrives on agriculture as its main occupation,
apart from the practice of non-farming and other traditional occupations (linked to religion). Indeed,
agriculture is considered as the lynch-pin of Indian economy because of its ability to generate
employment opportunities (in 2003, 60% of the total labour force was from agricultural sector) and
substantial contribution to Indian GDP (in 2008 at 17.2%)5 (although the share has been decreasing
over a period of time). The agricultural sector also forms base for many industrial and consumer
goods. While majority of rural India is dependent on agriculture, other employment patterns are also
emerging in these areas, which are similar to the urban ones. Rama Bijapurkar (Rama), the author ofWe Are Like That Only: Understanding the Logic of Consumer India , opines that the notion
about rural India being a mere agriculture-based economy does not hold true. Among other evidences,
in 20002001, the rural Net Domestic Product (NDP) shares comprised agriculture at 46%, industry
at 21% and services at 33%.6
When it comes to income generation, about 43%7 of the total national income generated is
contributed by rural India and is expected to grow in the coming years. Pankaj Gupta, practice head,
Consumer & Retail, Tata Strategic Management Group, stated, Total income in rural India (about
43% of total national income) is expected to increase from around $220 billion in 20042005 to
$425 billion by 20102011, a CAGR of 12%.8 These figures indicate the socio-economic status and
the increasing significance of rural India.
Ever since independence (1947), rural India has been striving towards substantial progress in
several social and economic indicators. For instance, 60%9 of the villages in India are connected by
roads (rural connectivity is one of the important components of rural developments). Similarly, more
than 90% of villages are electrified, though only 44% rural homes have electric connections10. Besides,
there has been a substantial growth in the literacy rate from 12.10% in 1951 to 59.40%11 in 2001.
These developments, apart from the awareness through media like radio, television, etc., led to
3 Rural Retailing, http://www.indiabiznews.com/biznews/categoryNewsDesc.jsp?catId=12618, July 21st 2009
4 Balakrishna P., et al., Selling in Rural India, http://www.blonnet.com/2004/02/16/stories/2004021600160900.htm, February
16 th 20045 The World Factbook, https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
6 Bijapurkar Rama, Rural Consumer India, We Are Like That Only: Understanding The Logic Of Consumer India , Penguin
Books India, 2007, page 228
7 Why Companies See Bright Prospects in Rural India, http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4386,
June 18th 2009
8 Ibid.
9 Pradhan Mantri Gram Sadak Yojana (PMGSY), http://pmgsy.nic.in/pmg61.asp
10 Katiyar Ruchi, Rural Marketing: Challenges, Opportunities & Strategies, http://www.coolavenues.com/know/mktg/
ruchi_1.php, 2006
11 Literacy as seen in the 2001 census, http://indiabudget.nic.in/es2001-02/chapt2002/chap106.pdf
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Rural Marketing in India: Retailing Through Microfinance Institutions
changing lifestyles of rural individuals (unlike earlier when they preferred buying basic products such
as soaps and oil), especially in terms of product demand, buying patterns and consumer behaviour.
With time, from an aspirant buyer class, this segment has transformed to a consuming class whichdesires to own branded goods (Exhibit I).
Exhibit IValue Orientation-based Market Structure Model
Source: Bijapurkar Rama, Rural Consumer India, We Are Like That Only: Understanding The Logic Of Consumer India,
Penguin Books India, 2007, page 70
*The numbers in the figure refer to the numbers of householders for each class in 1995, 2000 and
2006.
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Rural masses, like the urbanites turned savvy and exhibited similar consumption habits like
their urban counterparts, which in turn has triggered demand for various consumer products.
Rural markets account for half the total market for FMCGs like television sets, fans, pressurecookers, bicycles, washing soap, blades, tea, salt and toothpowder.12 The National Sample Survey
data of 20032004 reveals that rural India accounts for 62% of consumer expenditure in comparison
with 38% of urban India.13
The increasing demand from rural areas is attributable to factors like growth in income (Exhibit II)
and increase in purchasing power. According to Pankaj Gupta, Several factors have led to an increase
in rural purchasing power. The increase in procurement prices [the government sets the minimum
support price MSP for many farm products] has contributed to a rise in rural demand. A series of
good harvests on the back of several good monsoons boosted rural employment in agricultural and
allied activities. Government schemes like NREGS [National Rural Employment Guarantee Scheme,
which guarantees 100 days of employment to one member of every rural household] reduced ruralunderemployment and raised wages. Also, farmers benefited from loan waivers [introduced in the last
Union Budget].14
12 Selling in Rural India, op. cit.
13 Rural Consumer India, op.cit.
14 Why Companies See Bright Prospects in Rural India, op. cit.
Exhibit IIIncome Index of Rural India and Growth of Rural Households in each
Income Category (from 2005 to 2009)
Source: The Rural Potential, http://www.livemint.com/2009/03/25204646/099CEDD9-FDE2-4AE8-8345-10BB21374AB4ArtVPF.pdf
The sense of growing awareness among the rural masses helped them in knowing about the
provisions granted to them by the government. The various media communication channels such
as radio, television, satellite channels, cinema and internet also played a major role in improving
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Rural Marketing in India: Retailing Through Microfinance Institutions
rural demand, by influencing the attitude, perceptions and buying patterns of rural consumers
(Exhibit III). With shift in consumption, rural markets therefore, became attractive avenues for
several companies, both India-based and MNCs. Besides, the factors like saturation and highcompetition in urban markets also beefed-up companies to explore untapped rural areas. Unlike
earlier, where agro-based businesses highly focussed on rural markets, these markets also became
mainstay for businesses like FMCGs, two-wheelers, consumer durables, etc. Companies like HUL,
Britannia, Colgate Palmolive, Coca-Cola, etc., started catering to the needs of rural consumers.
Although, rural markets offer huge opportunity like urban ones, the nature of these two markets
is dissimilar. Rural markets are highly dispersed, lack infrastructural facilities, display low literacy
rates and exhibit huge diversity in language, cultural, religious and income aspects. For instance,
17% of villages account for 50% of rural population and 60% rural wealth15 (Exhibit IV).
15 Rural Consumer India, op.cit.
Source: Kanjilal Abir, et al., Media effect and its measurement in Rural India, http://www.exchange4media.com/e4m/
media_matter/matter_110804.asp
Exhibit IIIChanging Attitude of Rural India
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As rural India is largely dependent on agricultural sector, which is monsoon-driven, the economicstatus of the majority of rural population is linked with the natural environmental factors that are
erratic and unpredictable. Adding to this, there are many people living in the category of lower-
middle and low-income groups whose standard of living is relatively low. Therefore, companies face
difficulties in reaching out to rural consumers. As Rama says, If there is any one part of Consumer
India that epitomises the line every truism about India can be contradicted by another truism, it is
rural Consumer India.16
Companies began to evolve effective strategies to deal with these challenges. They conceptualised
a framework called 4 As Affordability, Awareness, Acceptability and Availability to tackle the
problems of rural markets. For instance, to make the products affordable to lower income groups,
companies introduced affordable packs like Chik Shampoo sachets priced at INR 1, Parle-G Tikki
Biscuit packs offered at INR 2, Lifebuoy soap (50 grams) at INR 2, etc.
Similarly, to create awareness about the products, companies customise promotional and advertising
strategies that are distinct from regular communication channels. They use wall paintings, cinema
vans, folk theatre, community programmes, congregating locations like fairs, haats (weekly rural
markets) and melas(also refers to fair), etc., for enhancing the visibility of product. To have a
larger impact of brand communication, the promotional activity is carried out in local languages and
Exhibit IVProfile of Indian Villages
Source: Bijapurkar Rama, Rural Consumer India, We Are Like That Only: Understanding The Logic Of Consumer India,
Penguin Books India, 2007, page 228
Population Number of Total
Villages Villages
(in %)
Less than 200 92,541 15.6 Hardly any shops in these 220,000 villages
200500 127,054 21.4
5011000 144,817 24.4
10012000 129,662 21.9
20015000 80,313 13.5 17% of villages account for 50% of rural populationand 60% rural wealth
500110,000 18,758 3.2
Total number
of villages 5,93,154* 100
*Inhabited villages; total number of villages is 6,38,691
16 Rural Consumer India, op.cit.
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dialects. For example, the local language newspapers and regional TV channels are used extensively
for promoting products in rural areas.
To make the products acceptable, companies customise them as per the needs and requirements
of rural consumers. For instance, in 1998, LG Electronics developed a television set called
Sampoorna, for a low price and good quality. This product was a huge success with sales of
100,00017 sets in the first year of its launch. On similar lines, companies also focused on availability
factor, i.e., to reach the far-flung areas of India. In order to accomplish this, companies revised
their existing distribution systems.
Distribution and Retailing in Rural India
For decades, distribution in rural areas remained a herculean task because of its geography and
sparse population. Lack of connectivity with rural areas, inadequate communication systems, badstate of roads (in few cases), high distribution cost to serve the interiors of villages, etc., deterred the
companies from entering rural areas. The deficiency in infrastructural facilities made the physical
distribution of goods a costly affair for marketers. Direct delivery of goods even to the top 1% of
villages costed twice as much as servicing urban markets.18 Even in the final phase of distribution,
i.e., retailing, companies sold their products through haats, melas, kirana shops and other
unorganised forms of retailing.
Kirana shops usually existed in rural areas with a population of more than 500. 19 These stores
often have a limited variety of products and hence sell them at high prices. The article Growing
Rural Retailcited, The typical shop is cluttered and congested with limited variety and few national
brands. Many of the goods are sold at prices higher than the maximum retail price with shopkeepersgiving goods shortages, transportation costs etc., as rationale. What these stores ended up doing,
according to Pradeep Kashyap, the director of MART, is make shopping for the rural consumer a
hellish experience.20 But, the number of unorganised retail stores in rural India is high in number.
According to the study conducted by Rural Marketing Agencies Association of India (RMAAI) and
Francis Kanoi Marketing Research (2008), the total number of rural retail outlets in India is estimated
at 4.1 million 21 (Annexure I).
17 Why Companies See Bright Prospects in Rural India, op.cit.
18 Aithal Rajesh K., Structure of Distribution in Rural Areas: Empirical Evidence from Villages in Karnataka and Gujarat,
https://www.irma.ac.in/researchandpublication/rp_detail.php?rp_id=404, August 2nd 2007
19 Growing rural retail, http://www.financialexpress.com/news/growing-rural-retail/184875/0, November 25 th 2006
20 Ibid.
21 Kamath Vinay, How rural retail stacks up, http://www.thehindubusinessline.com/catalyst/2008/08/28/stories/
2008082850100300.htm, August 28th 2008
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Companies nevertheless realised that rural markets can be mainly tapped with the focus on
distribution and retailing. As a result, every company began to design its own distribution strategy.
For instance, to penetrate into the rural markets, soft drink brands like Pepsi and Coca-Cola, adoptedhub and spoke format of distribution. Speaking about this model, George Kovoor, the then executive
vice president, traditional trade Pepsi Foods Ltd., (currently the vice president of China and Hong
Kong Market Units Pepsico Foods China), said, The spoke is typically closest to the retail outlets
and is serviced by a hub distributor who is supplied directly from the plant or the companys warehouse.
This format allows for large loads travelling longer distances and short loads doing short distances,
which is cost-effective.22 Speaking about transportation, a Coca-Cola spokesperson stated, We
use all possible means of transport that range from trucks, auto rickshaws, cycle rickshaws and hand
carts to even camel carts in Rajasthan and mules in the hilly areas, to cart our products from the
nearest hub.23
Another big company that realised the significance of sound distribution network and ensuredproduct availability in rural areas is HUL. HULs rural marketing initiatives indeed dates back to
mid-1980s, when Wheel detergent brand was introduced for rural consumers in response to Nirma
(which was launched by Karsanbhai Patel, an India-based chemist after recognising the vacuum in
affordable detergent segment in rural areas). Since then, HUL focused on rural markets and banked
upon them for its future growth. HUL, for reaching out to the rural consumer, emerged with innovative
methods of creating awareness about its products.
The company built a strong rural distribution network through ProjectBharat(home-to-home
operations), Project Streamline (for control on rural supply chains), Indirect Coverage Method,
Operation Harvest, Cinema Van Operations, etc. (Annexure II). Despite these programmes, HUL
could not penetrate deeper into the remote areas and consequently decided to launch a new project
on a much larger scale.
Microfinance Institutions: Corporates New Channel for Reaching Rural
Customers
In 2001, HUL came out with Project Shakti (Shakti) (Annexure II), with a vision to reach over
100,000 villages and 100 million consumers.24 The primary objective of this project was to enhance
the companys direct rural reach and provide a livelihood to the rural people. In order to accomplish
this objective, HUL decided to tap the potential of Self Help Groups (SHGs) of rural women. Aware
of the fact that the Indian microfinance sector is mainly based on womens SHGs, HUL partneredwith women from SHGs and made them direct-to-consumers sales distributors (direct-to-home
distributors) under Project Shakti.
According to this project, a woman from SHG, was appointed as Shakti dealer (called as Shakti
entrepreneur) and given stocks, comprising HULs products like Lifebuoy soap, Pepsodent toothpaste,
22 Shashidhar Ajita, Colas countryside crusade, http://www.thehindubusinessline.com/catalyst/2003/07/03/stories/
2003070300160300.htm, July 3rd 2003
23 Ibid.
24 Distribution Network, http://www.hul.co.in/HLL_Flash/knowus/bs_distributionnet.html
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Annapurna salt, Clinic Plus shampoo, etc. In order to carry out the business, the Shakti entrepreneur
was trained by HUL for 3 months, on various techniques of marketing and business management
(HUL provided training in support with district authorities and non-governmental organisations). Thecompany also provided ongoing support to Shakti entrepreneur in the course of business. This in
turn, enabled poor women to earn livelihood. A typical Shakti entrepreneur conducted business of
INR 15,000 per month, which gave her an income in excess of INR 1,000 per month on a sustainable
basis.25 Besides, by providing training and support, HUL also enabled them to become business-
savvy professionals, capable of running their own enterprise26.
To become a Shakti entrepreneur, a rural woman borrowed money from her SHG or a micro-
finance bank. SHGs were normally created and supported by government agencies, banks, or Non-
Governmental Organisations (NGOs) majorly by NGO-sponsored MFIs. Usually, a SHG comprises
of 1020 members, who were mostly poor and underprivileged people. These members organise
themselves into groups, save regularly and contribute these savings towards to a common fund. Thiscommon fund is used to give out loans for the needy group members.
While Shakti entrepreneur programme benefited rural women, it also paid-off well for HUL in
terms of rural sales. After 2 years of initiating this project, i.e., in 2003, Project Shakti contributed
to 10%15%27 of HULs rural sales. In terms of penetration, the company reached out to around
10,00028 villages (every Shakti entrepreneur served 610 villages, with the population ranging
from 1,000 to 2,00029). This initiative made HULs products available in the areas, which hitherto
lacked access and also increased brand visibility.
As Project Shakti distribution model became successful, the company extended this initiative to
several other inaccessible areas of the country. The company also planned to partner with non-competing companies (like insurance) to enable them access rural areas through Project Shakti
distribution model. Commenting on HULs partnerships with other companies, an analyst stated that
it was enlightened self-interest as more income in the hands of villagers could translate into greater
sales of the products of daily consumption that it sells.30
Taking inspiration from HUL, other companies started tying up with SHGs and MFIs for generating
business in rural areas. For instance in 2008, Godrej & Boyce, a consumer durables and industrial
products company, developed a nano refrigerator called ChotuKool for village segment. This
refrigerator was distributed through the SHG members ofSwayam Shikshan Prayog, an NGO run
MFI. Indeed for businesses, corporate-MFI tie ups are acting more than just being distribution channels.
The partnerships are enabling companies to understand the rural consumers better.
25 Distribution Network, op.cit.
26 Shakti Changing Lives in Rural India, http://www.hul.co.in/citizen_lever/project_shakti.asp
27 10% Of HLLs Rural Sales from Project Shakti, http://www.financialexpress.com/news/10-of-hlls-rural-sales-from-project-
shakti/79677/, November 25th 2003
28 Ibid.
29 Kamath Vinay, Where HLLs Shakti Comes From, http://www.thehindubusinessline.com/catalyst/2003/05/29/stories/
2003052900020100.htm, May 29th 2003
30 Kamath Vinay, HLLs Shakti to help partners in rural India, http://thehindubusinessline.com/2003/04/26/stories/
2003042601370600.htm, April 26 th 2003
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In the case ofChotuKool, on the basis of feedback given by MFI distributors, the product price
was brought down from INR 3,700 to INR 3,200.31 Besides, the refrigerator was co-created by
women of Osmanabad (a district in Maharashtra, India), who altered the products colour and design(ChotuKoolunlike a normal refrigerator works on battery and weighs only 7.8 kgs. It has to be
loaded with items from the top and the colour was candy red). The result of these alterations was
that it ensured rural consumers acceptability. Along side, the product also became easy for distribution,
with decrease in size and weight.
Along with companies, MFIs are also showing equal interest in collaborations, since they are
creating win-win situations. Companies-MFI partnerships are enabling to generate wealth in rural
segments and thereby reduce poverty rates. In the example of ChotuKool, the sale of each
refrigerator is generating commission of INR 150 for SHG member and INR 100 forSakhi Retail32.
As a result, many other MFIs like SKS Microfinance, Spandana Sphoorty are coming forward to
tie-up with companies, for distributing their products.
SKS Microfinance (SKS) collaborated with Metro, a German-based wholesaler to supply its products
to kirana shops that belongs to SKS loan borrowers. SKS through this collaboration launched a pilot
programme in Hyderabad, India, with the objective of improving the lives of poor by giving them access
to quality products. According to this programme, SKS loan officers take orders from kirana stores
and pass it to Metro through GPRS device. Once the orders are received, Metro delivers the goods
directly to the kirana shops. The advantage of this partnership is that, it helps the shop owners to
cut-down the time and cost involved in buying the goods. Metro provides a special inventory list for
SKS kirana stores, with a wide variety at reduced prices. As a result, both kirana owners as well as
their customers are benefiting. SKS is working not only with Metro but also on several other corporate
partnerships including, Airtel and Nokia and HUL. Moreover, the MFI had already tied-up with companies
like Bajaj Allianz and D.light to offer micro-insurance and solar lanterns, respectively.
Corporate-MFI Partnerships: The Opportunities and Challenges
For the last few years, microfinance sector in India has been witnessing a substantial growth.
According to industry estimates, MFIs serve over 50 million individual customers, majority of which are
served and governed through SHG model.33 Because of this wide reach, companies are looking at
MFIs and SHGs as potential distribution channels that can open up untapped rural markets.
On the other hand, MFIs are teaming up with companies with the idea of serving the poor in
better ways. Vikram Akula, CEO of SKS stated, Yet, linking with experts in various industriesallows us to better serve the poor. Micro-credit has certainly made great strides in helping improve
the lives of the poor. But by forging synergies with high-quality partners we are creating a whole
greater than the sum of its parts. The promise of microfinance is even greater when we do more
than what we could do alone.34
31 Karunakaran Naren, et al., Indias New Retailers, http://business.outlookindia.com/newolb/article.aspx?240795, July 11 th 2009
32 Sakhi is a company created by Swayam Shikshan Prayog (SSP) for direct delivery of quality goods to women and households.
33 Desai Kalpesh, Microfinance: Impact on the Indian market, Microfinance World, JulySeptember 2009, page 17
34 Akula Vikram, Microfinance is more than credit, Microfinance World, JulySeptember 2009, page 20
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Beyond this, MFIs are looking at the monetary benefits of such tie-ups, which can create a social
impact. For instance, the commission earned from sales, adds to the revenue of MFIs. This helps in
reducing the interest rates on loans, thereby benefiting the poor. Besides, corporate-MFI tie-ups arealso resulting in the creation of micro-entrepreneurs, who can earn livelihood and improve their
lifestyles. In this context the CEO of the Washington DC-based Grameen Foundation, Alex Counts
says, It will have a far-reaching impact on poverty, while generating profits up and down the value
chain from poor families to multinational corporations.35
Along side, collaborations with companies are also enabling MFIs to enhance their operational
efficiency. Prema Gopalan, founder of Swayam Shikshan Prayog says, Earlier, we spent 75 paise
for distributing a kg of fuel pellets (used in Oorja cooking stoves). Now, its down to 26 paise due to
better route planning and demand aggregation.36
The corporate-MFI partnerships however, are not exempted from challenges. One of biggest
challenges for such partnerships is the alignment of goals. While the basic objective of MFIs is
reduction of poverty and empowerment of poor, companies operate with the goals of maximising
profits and creation of value for shareholders. Therefore, blending the developmental approach with
profit perspective is a major challenge for corporates as well as MFIs. In this context, Vikram Akula
states, I should emphasise that we dont just partner with anyone. At SKS we do significant due
diligence on products to ensure that they are in the best interests of our customers. We make sure
our partners are aligned with our goal of empowering and serving the poor.37
Despite ensuring that corporate-MFI tie-ups benefit the poor, problems are cropping up at different
levels. For instance, Padmaja Reddy, MD of Spandana Sphoorty Financial (MFI) views that
companies are not really serving the poor with social objective. The MFI, which distributes PureIt(water purifiers) for HUL, asked the latter to reduce the retail price of the product, as tie-up between
them was saving huge distribution costs for HUL. But HUL declined to bring-down the price. Padmaja
Reddy opines, The company should transfer a portion of the benefits accrued to the consumer. The
partnership should benefit the poor.38 Hence, ensuring social vision becomes necessary for the
success of such partnerships.
At the independent level, both companies and MFIs are confronted with many difficulties. For
instance, producing cost-effective goods for the rural segments, creating awareness about the products
to rural poor, gaining their acceptability, etc., are few challenges at the companies front. Ensuring
that poor are always served with quality goods, consumers (MFI clients) are not obligated to purchase
the products, ensuring that the social mission of MFI is not overlooked, etc., are few challenges to bedealt by MFI.
Nevertheless, companies are increasingly leveraging the outreach of MFIs for penetrating into rural
markets. They are developing the business models that include poor in the value chain and create social
impact. At the same time, they are ensuring that such business models are commercially viable.
35 Indias New Retailers, op.cit.
36 Ibid.
37 Microfinance is more than credit, op.cit.
38 Indias New Retailers, op.cit.
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Annexure IEstimate of the Number of Retail Outlets in Rural India
Source: Kamath Vinay, How rural retail stacks up, http://www.thehindubusinessline.com/catalyst/2008/08/28/stories/
2008082850100300.htm, August 28th 2008
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financed his stocks and provided warehousing facilities to store them. The RS also undertook demand
stimulation activities on behalf of the company.
The second characteristic of this period we realised that the RS would be able to provide customer
service only if he was serviced well. This knowledge led to the establishment of the Company
Depots system. This system helped in transshipment, bulk breaking, and as a stockpoint to minimise
stock-outs at the RS level.
In the recent past, a significant change has been the replacement of the Company Depot by a system
of third party Carrying and Forwarding Agents (C&FAs). The C&FAs act as buffer stock-points to
ensure that stock-outs did not take place. The C&FA system has also resulted in cost savings in terms
of direct transportation and reduced time lag in delivery. The most important benefit has been
improved customer service to the RS.
The role performed by the Redistribution Stockists has also undergone changes over the years.
Financing stocks, providing manpower, providing service to retailers, implementing promotional
activities, extending indirect coverage, reporting sales and stock data, screening for transit damages
are some of the functions performed by the RS today.
HLL has grown manifold over the years. In the process, the number of factories and the number of
SKUs too have increased. In order to rationalise the logistics and planning task, an innovative step has
been the formation of the Mother Depot and Just in Time System (MD-JIT). Certain C&FAs were
selected across the country to act as mother depots. Each of them has a minimum number of JIT
depots attached for stock requirements. All brands and packs required for the set of markets which
the MD and JITs service in a given area are sent to the mother depot by all manufacturing units. The
JITs draw their requirements from the MD on a weekly or bi-weekly basis.
At present, HLLs products, manufactured across the country, are distributed through a network of
about 7,000 redistribution stockists covering about one million retail outlets. The distribution network
directly covers the entire urban population.
In addition to the ongoing commitment to the traditional grocery trade, HLL is building a special
relationship with the small but fast emerging modern trade. Our scale enables us to provide superior
customer service including daily servicing, improving their range availability whilst reducing
inventories. We are using the opportunity of interfacing more directly with our consumers in this retail
environment through specially designed communication and promotions. This is building traffic into
the stores while yielding high growth for our business.
An IT-powered system has been implemented to supply stocks to redistribution stockists on a
continuous replenishment basis. The objective is to catalyse HLLs growth by ensuring that the
right product is available at the right place in right quantities, in the most cost-effective manner. For
this, stockists have been connected with the company through an Internet-based network, called
RSNet, for online interaction on orders, despatches, information sharing and monitoring. RS Net
covers about 80% of the companys turnover. Today, the sales system gets to know every day
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what HLL stockists have sold to almost a million outlets across the country. RS Net is part of
Project Leap, HLLs end-to-end supply chain, which also includes a back-end system connecting
suppliers, all company sites and stretching right upto stockists.
RS Net has come as a force multiplier for HLL Way, the companys action-plan to maximise the
number of outlets reached and to achieve leadership in every outlet, by unshackling the field force to
solely focus on secondary sales from the stockists to retailers and market activation. HLL Way has
also led to implementing best practices in customer management and common norms and processes
across the company. Powered by the IT tools it has further improved customer service, while
ensuring superior availability and impactful visibility at retail points.
The challenge of the rural markets
70% of Indias population resides in villages. Penetrating the rural markets is, therefore, one of the
key challenges for any marketer. While rural markets present a great opportunity to companies, they
also impose major challenges.
At HLL, we have been at the forefront of experimenting with innovative methods to reach the rural
consumer.
Indirect coverage
Under the Indirect Coverage (IDC) method, company vans were replaced by vans belonging to
Redistribution Stockists, which serviced a select group of neighbouring markets.
Operation Harvest
The reach of conventional media and, therefore, awareness of different products in rural markets isweak. It was also not always feasible for the Redistribution Stockist to cover all these markets due to
high costs involved. Yet, these markets are important since growth opportunities are high.
Operation Harvest endeavoured to supplement the role of conventional media in rural India and, in
the process, forge relationships and loyalty with rural consumers. Operation Harvest also involved
conducting of product awareness programmes on vans.
Cinema van operations
These are typically funded by the Redistribution Stockists. Cinema Van Operations have films and
audio cassettes with song and dance sequences from popular films, also comprising advertisements
of HLL products.
Single Distribution Channel
For rural India, HLL has established a single distribution channel by consolidating categories. In a
significant move, with long-term benefits, HLL has mounted an initiative, Project Streamline, to
further increase its rural reach with the help of rural sub-stockists. It has already appointed 6000 such
sub-stockists. As a result, the distribution network directly covers about 50,000 villages, reaching
about 250 million consumers.
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Project Streamline
Project Streamline was conceptualised to significantly enhance our control on the rural supply chainthrough a network of rural sub-stockists, who are based in these very villages. As part of the project,
higher quality servicing, in terms of frequency, credit and full-line availability, would be provided to
rural trade. Thereby, giving us a substantial competitive edge over the next decade.
The principle of Project Streamline is to leverage our scale and organisational synergy to increase
reach in rural markets. The pivot of Streamline is the Rural Distributor (RD), who has15-20 rural sub-
stockists attached to him. Each of these sub-stockists is located in a rural market. The sub-stockist
then performs the role of driving distribution in neighbouring villages using unconventional means of
transport such as tractor, bullock cart, et al.
From 1998, the project has been rolled out in select states of the country where the terrain or poor
stage of market development typically makes any distribution system unviable. The Streamline
system has extended direct HLL reach in these markets to about 37% of Indias rural population from
25% in 1995. Most important, the number of HLL brands and SKUs stocked by village retailers has
gone up significantly. Having done that, the project now aims to expand our coverage to 50% of rural
population by 2003.
Project Shakti
Distribution will acquire a further edge with Project Shakti, HLLs partnership with Self Help Groups
of rural women. The project, started in 2001, already covers over 5000 villages in 52 districts of
Andhra Pradesh, Karnataka Madhya Pradesh and Gujarat, and is being progressively extended. The
vision is to reach over 100,000 villages, thereby touching about 100 million consumers. The SHGshave chosen to adopt distribution of HLLs products as a business venture, armed with training from
HLL and support from government agencies concerned and NGOs. A typical Shakti entrepreneur
conducts business of around Rs.15000 per month, which gives her an income in excess of Rs.1000
per month on a sustainable basis. As most of these women are from below the poverty line, and live
in extremely small villages (less than 2000 population), this earning is very significant, and is almost
double of their past household income. For HLL, the project is bringing new villages under direct
distribution coverage. Plans are being drawn up to cover more states, and provide products/services
in agriculture, health, insurance and education. This will both catalyse holistic rural development and
also help the SHGs generate even more income. This model creates a symbiotic partnership between
HLL and its consumers, some of whom will also draw on the company for their livelihood, and helpsbuild a self-sustaining virtuous cycle of growth.
Project Bharat
The first and largest rural home-to-home operation to have ever been mounted by any company,
sought to address many of these issues. The operation was conducted in high-potential districts of the
country. The exercise was started by our Personal Products Division in 1998, and covered 13 million
households by the end of 1999.
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Rural Marketing in India: Retailing Through Microfinance Institutions
In the course of the operation, company vans visited villages across the country and distributed
sample packs comprising a low-unit-price pack each of shampoo, talcum powder, toothpaste and skin
cream priced at Rs. 15. The distribution was supported by explanation of product usage and a video
show, which was interspersed with product communication. Thus we generated awareness of its
product categories and the availability of affordable packs.
Consumers were also made aware of the superior benefits of using our products vis--vis their
current habits, and the affordability of the pack sizes on offer. The project, thus, successfully
addressed issues of awareness, attitudes and habits. Hopefully, as consumers in rural areas get
exposed to such value-added, value-for-money alternatives, they will continue to buy into the
categories. The project saw a 100% increase in penetration, usership and top-of-mind awareness in
the districts targetted.
However, sampling once is not adequate to convert non-users. So Personal Products rolled out afollow-up programme, the Integrated Rural Promotion Van (IRPV), to once more target villages with
a population of over 2,000.
Influencing affordability
Project Streamline focused on extending distribution, and Project Bharats influence was restricted to
raising penetration and awareness levels. On the anvil, is a new rural programme, which will reach
villages with a population below 2000 and influence income as well.
This path-breaking venture aims to facilitate the doubling of our share of the rural consumers wallet
in three years. The model is unique in that it influences all the variables that influence growth. This
model triples physical reach, doubles communication reach, creates a platform for influencing attitudechanges and raising incomes.
Our rural growth engine raises incomes of rural families by channel intervention through rural Self-Help
Groups (SHG), which operate like direct-to-home distributors. The model consists of groups of (1520)
villagers below the poverty line (Rs.750 per month) taking micro-credit from banks, and using that to buy
our products, which they will then directly sell to consumers. In the process, generating employment and
incomes for themselves, and increasing the reach of our products.
We are tying up with various Non-Governmental Organisations, United Nations Development
Programme (UNDP), and voluntary organisations to propagate health and hygiene messages. The
goal is to reach 2,35,000 villages up from the current 85,000; 75% of the population up from 43%
today; and a message reach of 65% up from the current TV reach of 33%. In the process we aim to
increase access, influence attitudes, create a channel to raise awareness of its brands and catalyse
affluence in rural India.
Enhancing awareness
Mass media reaches only 57% of the rural population. Generating awareness, then, means utilising
targeted, unconventional media including ambient media. We have been utilising events such as fairs
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and festivals, haats, et al, as occasions for brand communication. Cinema vans, shop-fronts, walls and
wells are other media vehicles that we have utilised to heighten brand and pack visibility.
Overcoming attitudes and habits
Creating distributive reach is not sufficient to tap the rural markets. Market development can be a
difficult task because in rural India, both consumption and penetration is low. For instance, only three
out of 10 people in rural areas use toothpaste or talcum powder, or shampoo and skin care products,
and only six use washing powders.
Even in categories with high penetration, such as soaps, consumption is once per five bathing
occasions.
Compiled by the author from Distribution Network, http://www.hul.co.in/HLL_Flash/knowus/
bs_distr ibutionnet.h tml#rura l_marke ts and Rural Marketing, http: //www.hul.co.in/HLL_Flash/knowus/bs_ruralmark.html
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