Sun, Sep 18, 2011 page11

• Companies forge lean business models to tap rural India

  Retail companies are building low-cost distribution networks, using the nation’s famously frugal style of innovation to tap into a rural market of 700 million

  • By Lindee Prickitt / Reuters
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  Carrying two worn bags full of toothbrushes and toothpaste, Raj Verma rides his battered bicycle around villages in India’s northern state of Uttar Pradesh, leaving fresh supplies of Colgate products at the small shops he visits.

  For centuries, Indians cleaned their teeth with a piece of bark from the Neem tree, known for its antiseptic properties. While most urban Indians have long used toothpaste, many of the 700 million rural Indians still brush with a Neem twig or their fingers. While that represents an obvious opportunity for toothpaste brands, the marketing and distribution methods to reach those remote customers are not so clear.

  Enter blue-sky thinking Indian style. India has pioneered the science of breaking up complex products or business models into their most basic forms and then rebuilding them in the most economic manner possible to tap the bottom of a market.

  

  Salesman Raj Verma poses with sachets of Colgate products inside a shop in the village of Hargaon, Uttar Pradesh, India, on Aug. 26.

  Photo: Reuters

  They call it frugal engineering.

  The term was coined by Carlos Ghosn, the chief executive of Renault and Nissan, to describe the automotive engineering that went into Tata Motors’ Nano, a small car that retails for just US$2,000 in India.

  Tata itself sometimes refers to its low-cost innovations as “Gandhian engineering” in honor of India’s independence leader Mahatma Gandhi, a renowned proponent of self-sufficiency

  Over the past few years, India has gained a reputation for creating a wide range of products sturdy enough to handle its demanding environment, easy enough for a wide range of people to use — and most importantly, affordable — from solar-powered ATM bank machines to a detergent requiring little water.

  However, getting these mean, lean products to consumers is not as easy as distributing them in the developed world.

  Anil Gupta should know. He started the Honey Bee Network to support India’s grassroots innovators and is an adviser to the National Innovation Council. He can rattle off a list of fantastic bricolage inventions, from an amphibious bicycle to a washing-cum-exercise-machine that had no chance in the market.

  “Innovators are not necessarily good entrepreneurs,” he said.

  This is where big corporations have the advantage. Domestic and multinational companies based in India are taking that frugally motivated mindset and applying it to their entire business models.

  SACHET MARKETING

  One of the earliest and most simple business process innovations was started by a south Indian health and beauty company, Velvette, in the 1980s. Keen to reach Indians who aspired to use shampoo, but could not afford to buy a bottle of it, Velvette began putting small quantities, enough for one or two washes, into plastic sachets.

  The idea spread. Multinationals such as Unilever and Procter & Gamble, which distributes Colgate products, adopted it. Now in small shops throughout India you can find streams of sachets dangling from crowded shelves and filled with anything from detergent and cough syrup to potato chips and mobile phone minutes.

  “The aspiration for these products was there, but consumer ‘money in the pocket’ to afford a large cash outlay was not there. So success at the lower cash outlay in these sachets,” said Geetu Verma, executive director of innovation with Pepsico India, which sells small packets of its sports drink powder.

  Sachets worked in markets where people were familiar with the products. However, 10 years ago when Hindustan Unilever Ltd (HUL) wanted to reach people in “media blackout zones” where its commercials were not seen and its products unknown, it had to think of an entirely new marketing method.

  Who better to promote its personal and home hygiene products than women looking to increase their household income?

  “This is a great way to talk to consumers in those areas,” said K. Adarsh, HUL’s head of customer marketing.

  In a project called Shakti Amma, which means “empowered woman” and started in 2002, HUL tapped an existing network of women’s micro-financing groups, in which women get loans to buy something that can help them earn an income. In this case, the usual cow or weaving loom was replaced with 20,000 rupees (US$423) worth of HUL shampoos and detergents.

  “Shakti entrepreneurs go from home to home talking about relevant brand benefits — like hygiene and healthcare — of our products,” Adarsh said.

  They sell products not only to households but also to small village shops and kiosks — often the front room of a family home — becoming a marketing and distribution tool in one go. Today 45,000 shakti ammas push HUL products in India.

  Last year, the company decided to diversify the network and include husbands and sons in the distribution process.

  Like Colgate’s Raj Verma, who rides his trusty bicycle around Sitapur district, a shakti maan — empowered man — rides from village to village. They cover much more ground than the women, who do not like to travel outside their villages on their own. That has added an additional 23,000 rural shakti distributors, helping HUL triple their rural reach last year.

  The program is now being used in Bangladesh and Sri Lanka.

  Pradeep Kashyap, founder and CEO of MART, a rural market consultancy company, helped HUL create Project Shakti. He has worked with many multinationals, including Colgate and Dupont, which are keen to tap India’s growing middle-income families. If companies want to succeed in an emerging market, they must link up with India’s vast social networks to reach remote customers, he said.

  “In a country like India, or any developing economy, the physical infrastructure is weak, but the social infrastructure is very strong,” Kashyap said. “Unlike in the West, where the physical infrastructure is very good — the roads, the electricity — the social infrastructure doesn’t need to be strong. So we have to leverage on our social infrastructure.”

  For many companies, doing business in India means being the first to set up new distribution networks that developed countries take for granted.

  General Electric (GE) has 4,000 employees at its research and design facility in Bangalore, many of them products originally designed in the West and being re-engineered for new uses in the India market, for example, a lightweight ECG machine that fits in the backpack of a traveling doctor.

  GE Healthcare has also sold 45 PET-CT scanners, each costing about US$1.5 million, and nine cyclotrons at US$2.5 million each, and expects the market for nuclear medicine procedures to grow at a rate of 15 percent to 20 percent a year from 10 percent now.

  “When you look at adversity, the mother of that is opportunity,” said V Raja, GE Healthcare CEO. “When you [have] that mindset, invariably you’ll find a way for your product to reach your customer.”

  WALKING ON SUNSHINE

  Harish Hande took the sachet marketing model and applied it to sunshine.

  After getting an engineering doctorate from the University of Massachusetts, he set up a company in the mid-1990s that sells small solar panels to India’s vast rural poor, most of whom had little hope of getting on the congested power grid.

  The panels only provided enough electricity to light four lamps for four hours a day and each unit cost around 8000 rupees — a lot to ask from customers who typically make 3000 rupees a month.

  For his idea to work, Hande had to become part solar evangelist and part financial broker, as he pounded the pavements to find banks willing to provide long-term financing to people with no bank accounts, no credit history and, sometimes, no fixed abode.

  It took four-and-a-half years to get a system in place. His company SELCO now reaches half a million people and provides electricity to 120,000 households.

  “SELCO was created to destroy three myths: The poor cannot afford technology, the poor cannot maintain technology and you can’t run a commercial venture while trying to meet social objectives,” Hande, who won this year’s Magsaysay award — Asia’s equivalent of the Nobel Prize — for his work, said in his solar-lit Bangalore office.

  “I believe in the democratization of energy. The poor shouldn’t have to depend on power plants and politicians,” he said.
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