Accenture India Rural Report

7/28/2019 Accenture India Rural Report

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Masters o Rural Markets: ProtablySelling to Indias Rural Consumers


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The size o the prize in Indias rural hinterlands is growing

bigger than many businesses initially thought. More

companies are expanding their base in Indias rural markets

than at any other time in historyand or good reason.

For one thing, the business environment is improving,

thanks to better inrastructure and the growing number oconsumers who are earning more and snapping up products

and services that support their aspirations. The confuence

o these orces is changing the rules o the game.

As the rural market opportunity becomes more attractive,

companies are experimenting with dierent go-to-

market modelswith varied degrees o success. Despite

improvements in Indias rural business environment, many

companies are still struggling to generate sustained,

protable growth in these markets. A key challenge is how

to establish eective sales and distribution networks in rural

areas. Companies that master this challenge will likely set the

growth benchmarks or their industries or years to come.

Clearly, just being there is no longer enough to

succeed with Indias rural consumers. More than ever,

companies now need transormational strategies

to master these markets. As always, such strategies

will hinge on deep customer and market insight. But

the unprecedented speed o change in rural markets

also demands unprecedented agility. As competition

intensies, companies will have to devise compelling

value propositions that not only meet rural consumersneeds but also drive robust revenue growth and prots.

While many companies remain unsure about the possibility

o achieving scale and prots in these markets, a ew

leading companies, whom we call Rural Masters, are

showing the way orward. Rural Masters are taking a

more ocused approach to compete in these markets.

They have been successul in overcoming the challenges

by building mutually benecial relationships with rural

communities and channel partners and making additional

moves that go beyond traditional selling approaches.

ForewordTable o ContentsForeword 3

Executive Summary 6

The New Rural Market Reality 10

Indias Rural Markets: More Promising Than Ever 12

Barriers to Prot and Scale 16

About the Research 18

Lessons rom the Masters 19

Mastering Rural Customer Reach 22

Mastering Rural Customer Acquisition 34

Mastering Rural Customer Retention 44

Three Enablers to Successul Rural Strategies 50

An Ongoing Journey 53

Sanjay DawarManaging Director,Management Consulting, India

For the rivals that Rural Masters have let behind, its even

more critical to reignite growth now. These companies

will need to adapt to a new kind o market environment,

recruit and oster high-perorming sales team and

nd new ways to engage with channel partners .

Whether a company is planning to enter Indias rural

markets or trying to expand its e xisting business there,

success will require a well thought out approach, a

long-term vision and innovative tactics or maximizing

revenues and minimizing costs. Companies will also

need to target the right consumer segments and adopt

novel approaches to reach them, acquire them and

retain them. Exceptional leadership supportvision and

a commitment to making the necessary investments

to grow the rural businesswill also prove critical.

Collaboration will play a central role as well. To expand

their reach while optimizing resources, companies will

have to pursue non-traditional partnerships, even with

competitors, and work with local organizations as channel

partners to capture scale opportunities early on.

Swit action will also be important. Early entrants that can

secure a dierentiated position or themselves stand to gain

a signicant advantage over competitors that wait. Ater

all, competitive pressures will only intensiy in the years to

come. By embracing resh ways to reach, acquire and retain

Indias rural consumers, companies can tap into these marketsin ways that protect their margins and grow their revenue

thereby accelerating their pursuit o high perormance.

This is the time or business es to make bold moves in

Indiaand to widen the distance between themselves

and their competitors. Rural Masters experiences,

described in this report, oer valuable lessons or

those companies that are ready to take the leap.

32 Masters o Rural Markets: Proftably Selling to Indias Rural Consumers


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OverviewIndias rural markets offer tremendous opportunity for businesses

executives rated high cost-to-serve as the biggestchallenge that they face inselling and distributing inrural markets

increase in monthly per capitaexpenditure in rural marketsduring 2009 and 2012, surpassingurban consumption growth by twopercentage points

executives believe thatprofits can be higher in

rural markets as comparedto urban markets

Th tog kg

tw rural masTery

d business sucess

Rural Urban

executives believe thatcollaborative channels will become a dominant

force in the future. However, very few organizations are actually pursuing thestrategy. In fact, only 4 percent say their organizations are collaborating withnon-competing companies to penetrate rural markets.

Reach

sTeP-1 sTeP-2 sTeP-3

Companies will need to master three steps to achieve profitable and sustainable growth in ruralmarkets reaching, acquiring and retaining customers

A b appac e a mie

Fc make epai

Ceae aiabe cae

relationships

Adap gaiaia ce ad

secure leadership buy-inCreate a winning talent managementstrategy

Use technology to create advantage

Ceae ad eevace g

an ecosystem of stakeholders Defie iqe vae ppii

for rural customers Egage e ig e f ifece

Devie w-c mde f afe-

sales support Ac cme eaiip

trust Ive i cmmiy devepme

acquiRe

enableRs

Retain

19.2%

46%

75%

53%

Rural

2009-2012

Urban

executives identify selling anddistribution efficiency as thekey to success in rural markets

59%

9 90 1 2 3 4 5 6 7 8

Source: World Bank estimates

32.8m

25.2m

38.9m 37.1m

8.3m

25.1m809.6m762.3m 852.9m

665.3m

30.2m

Rural Voyagers

Low market share andprofitability; Proficientinnovation in multiple areas (eg.products, business model etc)

Rural

Innovation Index

Rural Performance Index

High

New Entrants

Low market share andprofitability; limited rural-focused innovations

Rural Masters

High market share andprofitability; Proficientinnovation in multiple areas (eg.products, business model etc)

Rural Performers

High market share andprofitability; limited rural-focused innovations

High

LowLow

9.5m

MExICo

BrAzIl

russIA

south KorEA

ChInAinDia


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Executive Summary

In todays volatile business

environment, Indias rural marketsrepresent an opportunity no

company can aord to ignore.

Since 2000, per-capita Gross

Domestic Product (GDP) has

grown aster in Indias ruralareas than in its urban centers:

6.2 percent CAGR versus 4.7

percent. Rural incomes are

growing, and consumers are

buying discretionary goods and

liestyle products, including

mobile phones, television setsand two wheelers. Between

2009 and 2012, spending in

rural India reached US$69

billion, signicantly higher

than the US$55 billion spentby urban populations.

Companies are experimenting

with various go-to-market models

to garner their share o thisgrowth. But the results have been

mixed. To understand whyand

what to do about itAccenture

conducted an extensive research

study to discover how companiesare responding to Indias rural

market opportunities and what

selling and distribution-related

challenges they are encountering.

The study included in-depthinterviews with more than 40

business leaders, 20 industry

experts and academicians and

a quantitative survey o 70

businesses operating in rural

Indian markets. Our research

revealed that an ecient salesand distribution model is the

most critical actor or successul

rural expansion in India: nearly 60

percent o our survey respondents

ranked it as the top imperative.

Our research ndings suggest

that the challenges experienced

by companies can be classied

into three major categories reaching, acquiring and

retaining Indias rural customers.

Accenture research and client

For many businesses, Indias rural markets hold the key to uture growth.

Companies that recognize this enormous opportunity are stepping up eorts to

gain a strong oothold in these markets. Yet the high costs required to serve rural

consumers make it dicult or companies to establish a protable presence at scale.

Still, executives shouldnt be deterred by these challenges. Accenture research

reveals that making real prots in Indias rural markets is possible, even in

the short term. The key? Companies must build and maintain ecient sales

and distribution networks tailored to rural Indias unique characteristics.

This report explains how companies can rapidly generate prots and achieve

scale by reaching, acquiring and retaining rural consumers in India.

Rural Performers are protable

entities that have established a

strong rural ootprint by using

conventional approaches or by

emulating Rural Masters. Theyoten lack an innovative streak.

Rural Voyagers have adopted

disruptive approaches to

serve Indias rural markets.For example, they create

unique products and services,

customize pricing or packaging,

or develop new channels to

reach the last mile. However,they have yet to make prots.

New Entrants are companies

that have recently made orays

in rural markets. Conservative

in nature, many o these

enterprises have limitedoperations and have not

generated the prot needed

to create economies o scale.

Mastering RuralCustomer Reach

When it comes to reaching

Indias rural customers, thebiggest obstacles are inadequate

distribution networks, partners

with limited capabilities, long

payment cycles and weak

marketing channels. Not

surprisingly, respondents to

our survey cited high cost to

serve the rural markets astheir number-one challenge:

50 percent listed it as one o

the top three challenges they

ace. When asked what drives

the higher costs, more than 60percent reported higher logistics

costs in rural areas. More

than 40 percent o companies

considered recruiting and

selecting channel partners anadditional critical challenge they

ace in reaching rural customers.

experience indicate that how

companies respond to thesechallenges dierentiates them

in the rural marketplace.

We also analyzed companies

rural market perormance,using criteria including the

contribution o rural markets

to the enterprises top and

bottom lines and the level o

innovation characterizing a

companys sales and distribution

model. Drawing on theseevaluations, we classied

companies into our categories:

Rural Masters are protable

companies that have secureda signicant rural market

share by ocusing on execution

excellence, implementing

novel strategies to serve

rural consumers and drawingon a deep understanding o

consumers cultures and needs.

6 7Masters o Rural Markets: Proftably Selling to Indias Rural Consumers


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Rural Masters apply the

ollowing practices toovercome these hurdles:

Take a robust approach to

reach the last mile: Rural

Masters use a multi-pronged

approach to reach ruralconsumers, one that allows

deeper penetration and helps

overcome the diculty o

nding channel partners with

the appropriate capabilitiesand reach. While some

companies have used only

one channel model, such as

hub and spoke, others have

adopted hybrid models to

compete and grow. Extendingconventional urban models

to rural areas is still the most

widely used option. Some Rural

Masters that entered rural

markets early have adopted

the village entrepreneur(eet-on-street) model

to overcome distribution-

related inrastructure

challenges. Others have added

layers to their distributionapproach to bridge the gap

between traditional urban

partners and dispersed rural

customers. Still others are

leveraging e-commerce and

alternate channel partners

to gain ast, eective accessto rural consumers.

Focus on market expansion:

Rural Masters apply a laser-

like ocus to their expansioneorts. For example,

they use detailed market

scanning and segmentation

to understand segment-

specic nuances and prioritizethe best opportunities.

Some use technologies

such as GIS mapping to

build a comprehensive,

multidimensional pictureo target segments. These

companies seek to break even

and generate prots as soon

as possible while, at the same

time, articulating the potential

value o each target segment.Adopting a variable cost model

at the outset gives them the

fexibility to change course

easily i their current approach

does not yield desired results.

Create sustainable channel

relationships: As rural markets

grow, more players enter

the ray, which drives up the

demand or capable channelpartners. However, ew

potential partners have the

needed scale and capabilities.

Moreover, as demand grows,

so does the risk o partner

attrition. Rural Masters realizethat upgrading channel-

partner skills is central to

successul implementation

o their sales strategies. The

most successul companies inrural India create sustainable

channel partner relationships

and ensure that their partners

remain motivated. They also

nd non-transactional touch

points to anchor channel

relationships, such as buildingamilial bonds with their

partners to strengthen trust.

Mastering RuralCustomer Acquisition

Rural consumers have

diverse, specialized needs and

preerences. To acquire thesecustomers, businesses must

understand the cultural, economic

and demographic dimensions that

Define a unique value

proposition for rural

customers: Successul

companies continuously renew

their commitment to and

strengthen their capabilities

orknowing rural customers

and delivering experiencestailored to their needs, values

and preerences. To gain

market share, such businesses

position their brands to

target specic consumersegments. Rural Masters invest

heavily in the development

o capabilities such as

customer analytics to gain

insights into rural consumers

and their latent needs.

Engage the right set of

influencers: Since most

brands have a relatively

short history in rural India,

word o mouth plays a muchstronger role in acquiring rural

customers than it does in

urban markets. Rural Masters

engage individuals with high

standing in rural communitiesas infuencers to reinorce key

strategic messages. To connect

with the right infuencers,

businesses identiy and rank

key stakeholders according to

how infuential and supportive

they can be. By identiyingand engaging the right

infuencers, companies shape

rural customers perceptions

o their business and oerings

and build up a repository olocal market knowledge. Smart

use o infuencers becomes a

powerul means or boosting

brand image and customer

satisaction while reducingcustomer acquisition costs.

Mastering RuralCustomer Retention

Although companies are

ocusing heavily on rural

consumer reach and acquisition,

bolstering customer retention

eorts has gained importanceas competitors deepen their

market penetration. Providing

reliable and consistent ater-

sales service and building trust

with local communities remainmajor obstacles. Rural Masters

surmount these challenges by

applying several potent practices:

Devise low-cost models

for after-sales support:

Ater-sales support is a key

ingredient or customer

retention. It provides customer

eedback and generates market

intelligence on competitors and

channel partner perormance.In addition, ater-sales support

strengthens a companys rural

bonds and commitments,

which increases customer

loyalty across all stages o theproduct liecycle. Successul

companies build a dedicated

low-cost ater-sales support

inrastructure. To do so, they

use local resources who provide

no rills service or leverage

technology to avoid the costso delivering that service.

Anchor customer relationships

on trust: Rural Masters build

trust with local communities.Although approaches to trust-

building vary across companies

and industries, building

trusting relationships is part

o eective organizationsethos. Some companies

dene them. Organizations oten

make the mistake o treating ruralconsumers as a homogeneous

market and oer them the same

value proposition they oer

to urban markets. These value

propositions usually ocus on

a products unctional benetsand pay little attention to how

the product meets the unique

needs and wants o specic rural

customer segments. Given the

strong social abric in rural areasand the pivotal role that abric

plays in infuencing purchase

decisions, companies must

integrate into it. Only then can

they successully promote their

products and establish credibility.Rural Masters take specic

steps to achieve these aims:

Create trust and relevance

through an ecosystem of

stakeholders: Rural Mastersengage with a wide set o

stakeholders to prove that

their business is a orce or

widely shared good. Since

each stakeholder in theecosystem infuences and

drives customer behavior, a

holistic approach creates a

virtuous circle. Companies

that take this approach are

perceived as builders o

symbiotic relationships thatocus on consumers daily

needs rather than simply

on corporate prots. This

ecosystem approach also

increases the awareness ocompanies and enables them to

tap latent demand. In addition,

it positions companies to touch

customers at many more and

earlier points in the buyingprocess, oten at a lower cost.

use customer eedback to

demonstrate their ocus onconsumers needs, which can

help them win customers trust.

Invest in community

development: Rural Masters

align their long-term interestswith development o local

communities to gain their trust

and loyalty. This alignment

builds synergistic relationships

based on shared goals andaspirations. The most eective

organizations build a strong

business ecosystem by

integrating local populations

into their value chains as

partners with a vestedinterest in the companys

survival. Oten overlooked,

this approach can ensure

sustainability o the business.

The unique challenges andcircumstances dening Indias

rural markets will continue to

evolve. Thus, in the coming

years, companies will adopt

yet additional approaches toreaching, acquiring and retaining

Indias rural consumers. They

will need innovative models

to harness this opportunity in

ways that protect their margins

while growing revenue in

the ace o constant change.Speed will be important, as

will savvy ormulation and

execution o strategic plans.



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The New Rural Market RealityCan Indias rural consumers be a

source o top- and bottom-line

growth or your organization? I

your company is still grappling

with this question and unsureabout rural markets, think again.3

Your business may be missing

its next big opportunity. In this

research study, Accenture ound

that rural markets account or asignicant portion o revenues

and prots or many companies.

Accenture conducted a research

study to discover how businesses

across sectors are responding to

rural market growth opportunities

and overcoming the sales and

distribution-related challenges.

The study included in-depth

interviews with more than 40business leaders and 20 industry

experts and academicians, as

well as a quantitative survey

o 70 businesses operating in

rural markets. These marketsaccount or more than 20

percent o the total revenues

or more than 65 percent o the

companies we surveyed (see

Figure 1). Our research revealed

that an ecient sales and

Figure 1. Rural markets contribution to total revenues

Rural markets account or more than 20 percent o the total revenues or more than 65 percent o thecompanies we surveyed.

Currently what percentage of the total revenue comes from the rural markets?

Figure 2. Selling and distribution efficiency is key to success in rural markets

The majority o our survey respondents rated selling and distribution eciency as the top imperative or

protable and sustainable growth in rural markets.

In your opinion, what are the top three imperatives for profitable and sustainable growth in rural markets?

10%

12%

15%

26%

26%

31%

34%

40%

40%

59%

Dedicated rural organization

Upfront investment in setting salesand distribution infrastructure

Engaging local people as critical partof the business model

Product localization and innovation

Pricing

Channel performance and productivity

Salesforce excellence

Create product awareness /marketing campaigns

Customer service

Selling and distribution efficiency

Source: Accenture survey


distribution model is the most

critical actor or successul rural

expansion: nearly 60 percent o

the survey respondents ranked

it as the top imperative (seeFigure 2). Our research clearly

demonstrates that companies

that bring the rural consumer

to the center o their sales and

distribution strategy and alignit with rural market realities

will be well positioned or

growth in the long term.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0-20% 20-40% 40-60% 60-80% 80-100%



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7.29% 7.50%

13.20%

19.20%

13.98%

11.79%

13.90%

17.25%

1987-94 1993-05 2004-10 2009-12

Rural Urban

The rural economy has r apidly

transormed in the last

decade and is now being led

by manuacturing. Indeed,

agriculture accounts or only

about one-ourth o rural GDPcompared to hal a decade

ago4(see Figure 3). About 55

percent o manuacturing GDP is

rural; nearly 75 percent o new

actories built in the last decadewere in rural areas, and rural

actories account or 70 percent

o all new manuacturing jobs.5

Industrial development in rural

India has increased household

purchasing power and incomestability. Rural India accounts

or about 50 percent o Indias

GDP and nearly 70 percent o

Indias population. This enormous

opportunity has been clear or

a decade or more. However,only in recent years have these

markets lived up to their promise.

Per capita rural GDP has also

experienced strong improvement

over the past ew years. Since

2000, it has grown aster than

per capita urban GDP: 6.2 percent

compound annual growth rate(CAGR) versus 4.7 percent.6

Between 2009 and 2012, rural

consumption per person grew

at 19 percent per annum, two

percentage points higher than itsurban counterpart7(see Figure 4).

In incremental terms, spending in

rural India during these two years

was US$69 billion, signicantly

higher than the US$55 billion spent

by urban populations.8 As incomesrise, rural consumption shits

rom necessities to discretionary

goods and liestyle products,

including mobile phones, television

sets and two-wheelers. Nearly

42 percent o rural householdsowned a television in 2009-2010,

up rom 26 percent ve years

earlier. Similarly, 14 percent o rural

Indias Rural Markets: More Promising Than Ever Figure 3. The rural GDP mix is changingOnly one ourth o rural GDP is now generated rom agriculture.

Composition of GDP in Rural Markets

0%

Mar-00 Mar-03 Mar-06

Agriculture Industry Services

Mar-09 Mar-12

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Source: Government o India

Figure 4. Rural consumption growth is outpacing urban consumption

The percentage increase in monthly per capita expenditure in rural markets surpassed its urban counterparts

during 2009 and 2012, indicating increased consumption in rural markets.

Percentage increase in monthly per capita expenditureRural and Urban

Source: NSSO

households had a two-wheeler in

2009-2010, twice the penetration

during 2004-2005.9 About one

in every two rural households

has a mobile phone today, even

in Indias poorest states suchas Bihar and Orissa.10 Rural

consumers have been trading up,

and their consumption basket

is beginning to mirror that o

the urban consumer. Premiumproducts are replacing entry-level

versions, and commodities are

giving way to branded products.

Nielsen estimates that the ast-

moving consumer goods market

in rural India will hit US$100billion by 2025, up rom US$12

billion currently.11 Moreover,

the governments eorts to

improve the eciency o welare

programs with cash transers will

urther boost rural consumption;it plans to deposit US$570

billion in the accounts o 100

million poor amilies by 2014.12



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While companies have realized

that rural markets oersignicant growth opportunity, a

large proportion have remained

unsure o the protability.

However, our interactions with

company executives revealed

that many have not only startedearning prots but have also

done so relatively quickly. In

act, there is growing optimism

about the protability o these

markets, with almost 50 percento our respondents believing

that margins in rural markets

Figure 5. Growing confidence in rural markets potentialAbout two thirds o our respondents plan to rapidly accelerate their rural market expansion.

Which statement best describes your companys rural markets strategy?

could be higher than urban

markets. About two thirds o ourrespondents stated that they plan

to rapidly accelerate their rural

market expansion (see Figure 5).

The economic, demographic

and cultural drivers that areshaping Indias rural market

call or innovative strategies

and capabilities. Companies are

experimenting with dierent

sales and distribution models (see

Figure 6)to position themselves

or the long term. But the results

have been mixed, and companies

ace numerous barriers toecient sales and distribution.

Although many companies

are still unsure about how to

scale their rural operations,

they remain optimistic about

the opportunity. To translatethat optimism into success,

companies will need to join

orces with various stakeholders

across the rural value chain

to create an environment thatosters business expansion.

67%

29%

4%

We plan to rapidly accelerateour rural market expansion

We plan to continue our ruralexpansion at its current rate

We plan to slow down/reduce therate of our rural expansion


Figure 6. Emerging sales and distribution models

Diverse sales and distribution models are enabling companies to tap into Indias rural markets, though each

model has its own advantages and disadvantages.

Ruralprofitability

Pros

Cons

Extending ExistingDistribution Network

by adding touch points

Easy to Execute No fresh recruitment

of distribution partiesrequired

Less time to take off

the ground

Introduces flexibilityof options for

channel structure Allows opportunity to

aggregate demand &

stock wide variety fordisplay & dispatch

Less dependency onexisting network

Brings element oftrust & localrelevance

Becomes an extendedbrand-ambassador

Gives deepest reachpossible

Creates a strongerfoundation in a wordof mouth sensitive

rural setting Can work as a long

term option

Less investmentrequired; fixed costis shared

Ideal for seeding inthe product in the

rural markets

Additional investment

required from existing

network

Incumbent issues

with distribution

remain

Incremental &

transformational

approach

Requires higherinvestment

More time needed toget productive

Can pose potentialchannel conflict

Needs carefulmonitoring & support.

Else risk to companybrand & operations

Needs high level ofmicro management

Managing large scaleoperations is a

challenge Talent availability is

a bottleneck

Focus gets diluted Need to align with

company goalsacross partners

Not a long termoption

Hub and SpokeModel

Environmental/Influencer model

Feet on Street orVillage Entrepreneur

Model

Using Collaborations/Piggybacking onother networks

ExistingDealerNetwork

ExistingDealerOutlets



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15%

18%

31%

32%

38%

43%

53%

Driving loyalty and engagement

Attracting and retaining salesforce

in rural areas

Identifying and engaging the influencers

Creating after-sales network and providingconsistent and reliable service in rural areas

Sales force competency in rural areas

Recruiting and selecting channel partners

High cost-to-serve

among channel partners

Figure 7. High cost-to-serve is the biggest challenge in reaching rural customers

More than hal o our survey respondents rated high cost-to-serve as the biggest challenge that they ace

in selling and distributing in rural markets.

What do you see as the biggest challenges that your organization currently faces in selling and distributing

n rural markets?


Rural customers can also be

skeptical about businesses and

their products. Given the strong

social abric in rural areas

and the pivotal role it plays ininfuencing purchase decisions,

companies must nd new ways

to promote their products

and establish credibility.

Companies must also contend

with the seasonality o ruralmarket demand and consumer

dependence on credit. Most rural

incomes depend on agricultural

cycles, and demand or goods and

services fuctuates accordingly.Seasonality also osters

dependency on credit, as incomes

fuctuate along with seasonal

cropping patterns. Retailers, in

turn, seek credit rom businesses,placing additional demands on

established nancial models

and working capital cycles.

Retaining RuralCustomers

With increasing rural

competition and high costs-to-serve, customer retention is

emerging as a major challenge.

High customer acquisition

costs make it imperative

or companies to increase

customer retention in order to

scale operations protably.

To boost retention, companies

must provide satisying

experiences across the

customer liecycle and generatepositive word o mouth.

However, providing reliable and

consistent ater-sales service

and optimizing the costs o

a high-quality experienceremain major obstacles. The

wide geographic dispersion o

a small number o customers

drives high sales-service

costs, and many businesses

cannot provide a dedicated

ater-sales service network.

Today, companies are leveraging

data analytics to orecast

product demand to assess

the attractiveness o a given

market. However, rural markets

have limited data on consumer

demographics, behaviors,preerences and perceptions,

and these limitations thwart

rational sales planning.

Moreover, poor connectivity

prevents companies romeasily acquiring real-time and

reliable sales data. That makes

it dicult or them to monitor

and measure key perormance

indicators including the numbercustomers lost or gained.

Barriers to Prot and ScaleThe growth opportunities

in Indias rural markets are

signicant. To capitalize on

them, however, businesses must

overcome signicant sales anddistribution barriers. There are

vast dierences between rural

and urban markets, including

inrastructure, business and

social structure, market sizeand consumer behaviorto

name just a ew. Judging rom

our interactions with C-suite

executives, the challenges

experienced by companies can

be classied into three majorcategoriesreaching, acquiring

and retaining rural customers.

Reaching RuralCustomers

Rural markets are geographically

dispersed and lack adequate

physical and social inrastructure.

As a re sult, the distribution ogoods and services to and rom

villages is extremely dicult

and costly. Not surprisingly,

respondents to our survey

cited high cost-to-serve the

rural markets as the number-

one challenge: more than 50percent listed it as one o the

top three challenges they ace

(see Figure 7). When asked about

the relative investment required

to sell in rural versus urbanmarkets, 52 percent reported

that the required monies or

rural markets was higher. What

drives the higher investment?

More than 60 percent reportedhigher logistics costs.12

Given the decits in rural

market inrastructure and lack

o established supply chain

networks, identiying and

acquiring the right channelpartners is critical. More than 40

percent o the companies in our

survey consider recruiting and

selecting channel partners

a critical challenge (see Figure 7).

Companies seek partners that

can understand their objectives

and connect with target

customers in rural markets.

However, businesses oten workwith channel partners that have

limited capabilities, skill sets and

inrastructure. Partners lack

o operational scale oten puts

their eectiveness in question.

Operating in rural marketsdemands innovative channel

management solutions beyond

traditional or urban approaches.

To identiy the best partners,companies should closely

scrutinize the strategic t and

alignment o their shortlist.

To overcome the challenge

o scale, or example, many

businesses have tried developing

collaborative distribution models,only to nd them unsustainable.

As executives we interviewed

pointed out, channel partners

oten pull out once they

become well established, adevelopment that increases the

likelihood o channel conficts.

Acquiring RuralCustomers

Todays rural consumers are

better connected and moreaware o products and services

than many businesses realize.

To acquire these consumers,

businesses need to develop

compelling value propositions.

As rural consumers become

more demanding, companies

must meet those demands

with skilled sales people. These

proessionals should understandrural customers needs and know

how to appeal to their aspirations

and motivations. However, nding

qualied sales sta is a major

hurdle in rural markets38

percent o survey respondentsidentied sales orce competency

as a key challenge (see Figure 7).

The sales skills required or rural

markets dier markedly romthose needed in urban areas.

Interpersonal skills and the ability

to operate in complex, closely

knit communities, where purchase

decisions are based heavily on

personal bonds and mutual trust,

are hallmarks o successul salespeople. Since urban sales people

are usually unwilling to move into

rural areas, companies are orced

to hire this unique talent locally.

Local talent, however, otenlacks the sales orientation and

attitude needed to succeed. In

addition, the attrition rate in rural

markets is huge. Large attrition

rates drive up recruitment andtraining costs while draining

overall sales orce productivity.



10/29

This report marks a milestone

in the understanding o how

to do business in rural India.

In 2010, Accenture published

Masters o Rural Markets:The Hallmarks o High

Perormance in India. That

report probed rural market

opportunities as new revenue

streams or businesses. Thisresearch study delves deeply

into sales and distribution

and provides a ramework or

serving Indias rural markets

protably and sustainably.

The research methodology

draws on ve major

research components:

Accenture interviewed 40

C-level executives across 9industries in Indiaautomotive,

banking and insurance, cement,

chemicals, consumer durables,

ast-moving consumer

goods (FMCG), industrial

equipment, pharmaceuticals

and telecommunication (see

Figure 8). The businessessurveyed had annual revenues

above US$200 million. The

in-depth interviews explored

the go-to-market strategies

these companies used topenetrate rural markets and

the sales and distribution

challenges they aced.

In addition, to urther exploreselling and distribution models,we conducted a quantitative

survey o 70 companies

across the same sectors. Each

company had an established

rural presence. The businesses

surveyed had annual revenuesabove US$100 million. All

respondents held positions o

infuence over their companies

sales and distribution vertical

in India. We also interviewed

more than 20 industry

experts and academicians

with signicant experiencein the eld o rural markets.

To get a rst-hand sense o

the executional challenges

aced by companies, wealso conducted rural

site visits. These visits

provided a practical view

o rural operations to

complete the picture oselling in rural markets.

Finally, we also conducted

extensive secondary

research into the rural sales

and distribution strategies

and channels o morethan 100 companies.

About the Research

Figure 8: Industry classification of survey respondents

Accentures research and

experience with clients have

demonstrated that success in

Indias rural markets hinges on

the perormance o companies ontwo key measures:

Rural Perormance Indexthe

degree to which rural marketsare strategically important to

a companys growth agenda,

dened by the contribution o

rural markets to the enterprises

Lessons rom the Masters

Figure 9. The rural performance matrix

Depending on the degree to which rural markets are strategically important to a companys growth agenda

and the level o innovation characterizing the business, companies can be viewed as Rural Masters,

Rural Perormers, Rural Voyagers or New Entrants.

High

Rural Voyagers

New Entrants

Rural Masters

Rural Performers

High

Low

Low Rural Performance Index

Ru

ralInnovationI

ndex

top and bottom lines. For any

rural business initiative toqualiy as being successul,

it must pass the litmus

test o being incremental,

protable, material, sustainable

as well as scalable.

Rural Innovation Index

the level o innovationin a companys product,

packaging, pricing, channels

and operating models.

With these two measures

in mind, we have classied

companies into our categories

o success (see Figure 9): Rural

Masters, Rural Perormers, RuralVoyagers and New Entrants.

Source: Accenture research and analysis

Banking21%

FMCG18%

ConsumerDurables16%

Automotive12%

Pharmaceuticals10%

Insurance9%

Chemicals6%

Cement4%

Telecommunications3%

Other1%



11/29

Rural Masters

Rural masters are protable

companies that have a signicant

rural market share. They excel at

execution, and they apply rigor to

governance and control to make

sure their strategies translateinto required actions. They have

developed novel strategies to

serve rural consumers and draw

on an intimate understanding o

consumers cultures and needsto enter rural markets. They

have well-conceived expansion

strategies support them with

signicant capital and resources.

The individual components o

their operating model are simple,it is the discovery and collective

synchronization o dierent

elements that dierentiates

Rural Masters rom their peers.

Rural Perormers

Rural Perormers are protable

entities that have established

a strong rural ootprint by

using conventional approaches

or by emulating the success

o Rural Masters. RuralPerormers, however, oten lack

an innovative streak. They tend

to ocus on ex isting product

portolios and try to mitigate

risk through aggressive productmarketing to strengthen their

position. These companies have

been successul in the past.

But in the uture, they may

struggle in a changing and

more competitive landscape.

Rural Voyagers

Rural Voyagers have adopted

disruptive approaches to serve

Indias rural markets. For example,

they create unique products

and services, customize pricing

or packaging, or develop newchannels to reach the last mile.

However, they have yet to make

prots. Though Rural Voyagers

oten understand rural consumers

better than their competitors do,they usually take a more cautious

approach toward expansion.

Furthermore, they learn rom

their initial orays (such as pilots

conducted in a ew states) to

determine their next investmentstrategies and tactics. A large

number o companies all into this

quadrant, and they still ace many

challenges. In some cases, Rural

Figure 10. Three steps for mastering sales and distribution in rural markets

Accentures ramework oers insights into how companies can achieve mastery across the ull rural customer

liecyclereaching, acquiring and retaining customers.

Adaptorganizationalstructure andsecure leadershipbuy-in

Create awinning talentmanagementstrategy

Use technologyto create anadvantage

Enablers

Rural sales and distribution

model oriented towards

driving sustainability and

profitability

Reach A robust approach

to the last mile Focus on market

expansion Create sustainable

channelrelationships

Acquire Create trust and

relevance throughan ecosystem ofstakeholders

Define unique

value propositionfor rural customers

Engage the rightset of influencers

Retain Devise low-cost

models forafter-sales support

Anchor customerrelationships ontrust

Invest incommunitydevelopment

Voyagers can seek government

help to subsidize their products on

a large scale. However, they mustalso invest in channel partners and

engage with community infuencers

to achieve acceptance among

rural consumers and succeed.

New EntrantsNew Entrants are companies that

have recently orayed in rural

markets. These companies have

adopted a wait and see attitude.Conservative in nature, many o

these companies have limited

operations and have not generated

the prot needed to create

economies o scale. Though thesecompanies can learn rom the

experience o Rural Masters, they

ace high barriers to entry. These

companies will need to make extra

eorts to create a dierentiated

position or themselves inthe rural marketplace.

To succeed in rural markets,

companies must master the

art o reaching, acquiring and

retaining rural customers.

Rural Masters excel at all threeelements by building a deep

understanding o rural consumers

and translating these insights

into new approaches across their

sales, distribution, marketing andcustomer service unctions. In

the sections that ollow, we look

at how these companies have

achieved the needed mastery.

Our ramework oers insightsinto how companies can achieve

mastery across the ull rural

customer liecycle (see Figure 10).



12/29

According to our research,

the biggest challenges acing

companies are inadequate

distribution networks, partners

with limited capabilities, longpayment cycles and weak

marketing channels. Nearly 60

percent o respondents said their

companies needed to improve

channel strategy and coverage.Fity-three percent struggle

with sales orce management

and channel perormance.

Some 40 percent ace issues

with technology enablement

o sales and distributionprocesses (see Figure 11).

In the ace o these obstacles,

how do companies successully

reach rural customer segments?

They take a robust approachto the last mile, ocus

on market expansion and

create sustainable channel

relationships (see Figure 12).

A robust approachto the last mile

Our research suggests

that Rural Masters use a

multipronged approach toreach ragmented markets.

A multiple channel strategy

allows deeper penetration and

helps companies overcome the

diculty o nding channelpartners with the appropriate

capabilities and reach.

ITC, or example, uses our

distribution approachesto reach the last mile

traditional distributor vans

to serve customers directly;

Mastering Rural Customer Reach

subdistributors in dened

geographies to provide intensive

distribution ocus; direct reach

through two and threewheelers

to seed activities in villages withhigh market potential. Finally,

ITC leverages its well-known

parallel sales and marketing

platorm known as e-Choupal

and Choupal Sagars orconsumer activation activities.

Some Rural Masters that entered

rural markets early have adopted

the village entrepreneur or

the eet-on-street model. Thisapproach has enabled them to

overcome some distribution-

related inrastructure challenges.

Some Consumer goods companies

use emale rural entrepreneurs as

their distributors; pharmaceuticaland automotive companies are

increasingly combining micro-

distribution with sales and

promotion support to reach

small, ragmented markets.

Leading companies have also

added layers to their distribution

approach to bridge the gap

between traditional, urban

partners and dispersed rural

customers. The additional layeris oten driven by channel

partners or in some cases by

the companys dierentiated

margin structure. For instance,

Hero Motors added authorizedrepresentative dealers (ARDs)

to its existing hub-and-spoke

network. With these smaller

dealerships, locals can buy bikes

and have them serviced. ARDsare appointed by the dealers.

The new layer helped increase

Heros reach to 20 percent o

Indias six lakhs villages with

more than 5,000 touch points.

Similarly, Maruti has recruited

more than 7,000 locals to sell itscars in Indias rural areas. Called

resident dealer sales executives

(RDSEs), they are the backbone

o the rural drive. Well versed

in local cultural nuances anddialects, these executives have

good networking skills and can

nd sales opportunities. Similar

to census workers, they also

have nancial proles o every

villager, including land ownership.Such exhaustive inormation

helps them target potential

customers across the country.

Companies are also adopting

channels that are mostly used inurban markets. E-commerce is a

prime example. According to the

eBay India Census, one out o every

10 purchases, and one out o every

20 sales, are rom rural India, withalmost 1,270 rural hubs transacting

online.13 In the uture, the online

channel can become a game

changer or companies trying to

access rural markets. It can provide

a cost-eective means to extend a

companys reach exponentially byovercoming geographic barriers.

In addition, companies

are leveraging alternate

channel partners to provideast and eective access.

Alternate channel partners

bring established local-level

relationships, and oten have

the reach and ability to succeedin rural markets. Tata Global

Beverages rural initiative, Gaon

Chalo, is a case in point.

Figure 11. Channel strategy and coverage are top priorities

More than hal o our survey re spondents consider channel strategy and coverage as their top priority over the

next two to three years to address s ales and distribution challenges.

What are the top priorities for your company over the next 2-3 years to address sales and

distribution-related issues?


Figure 12. Reaching rural customers

Rural Masters, Rural Perormers and Rural Voyagers use distinct approaches to reach rural markets.

Rural Masters Rural Performers Rural Voyagers

Distributionstructure

Channel partnerengagement

Rural profitability

Optimal mix of classical huband-spoke and innovative

distribution model

Conventional distributionmodel

Holistic channelmanagement programs toimprove engagement and

productivity

Profitable operations

Investment in long-standingchannel partnerships

Adoption of new channelsto reach the last mile

Innovative reward andrecognition programs toengage channel partners

Model not scalable at times;struggle to achieve

profitabilityProfitable operations

Operating scaleSignificant penetration Large-scale penetration

Limited penetration;

operations not yet scaled

Source: Accenture research and analysis

4%

19%

34%

35%

37%

40%

53%

59%

Channel conflict management

Shaping right behaviors and outcomes across

sales team and channel partners

Physical network and design

Sales operation and planning

Channel partner relationship management

Technology enablement of sales

and distribution processes

Managing salesforce and channel performance

Channel strategy and coverage



13/29

4%

4%

6%

9%

10%

19%

21%

51%

Collaboration with non-competing companies

Organized Wholesale

Village Entrepreneur

Eco system approach

Distribution channel till point of aggregation

Hub and organized multi brand spokes

Authorized representative of Dealers (ARD)

Conventional distribution model or its variation

Launched in June 2006, Gaon

Chalo aims to market tea in ruralareas while also improving the

livelihoods o rural citizens. It

is a sel-employment scheme

or women in villages. Under

this scheme, more than 70,000

sales personnel go door-to-door,selling their products. Gaon

Chalo was initially prototyped in

a ew districts o Uttar Pradesh

and was then piloted in several

other districts in the state. Ithas since been extended to

eight more states. The models

advantages include limited

fuctuations in sales due to direct

access to rural retailers, a cost-

eective brand building platormand fexibility to address the

complexities o rural markets.14

Our survey also revealed that

companies have not been able to

successully leverage the channelnetworks o other competing or

non-competing players. A s much

as 75 percent o respondents

believe that collaborative

channels will become a dominantorce in the uture (see Figure 14).

However, very ew organizations

are actually pursuing the strategy.In act, only 4 percent say their

organizations are collaborating

with non-competing

companies to penetrate rural

markets (see Figure 13).

As pointed out above, the

executives we interviewed report

that partners tend to pull out o

a collaboration once they become

well established. We have oundthat successul collaboration

between organizations stems

rom clearly dened roles and

responsibilities. Succinctly

dening who gives what and

who gets what is crucial: oneo the players needs to take the

lead and anchor the initiative

by prioritizing the interests o

the collaboration over their

own interests. Dening these

roles is especially important inrural markets because o the

dierences between the partners

maturity, their ability to handle

complexity and channel partners

lack o experience in dealing withsophisticated organizations.

Focus on marketexpansion

Since most companies are still

in the early stages o rural

market development, they are

experimenting with dierent

channel options. While somehave used only one channel,

such as hub and spokes, others

have adopted hybrid models to

compete and grow. Extending

conventional urban models torural areas is still the most widely

used option (see Figure 13).

To achieve success in rural

markets, companies need to

prioritize the clusters o villagesthey plan to target. Since a ew

big clusters centered in our or

ve big states may have the

same market potential as a large

number o villages dispersed

across the country, prioritizingcan help drive expansion eorts

as cost eectively as possible.

To prioritize, companies should

conduct a detailed market

scanning and segmentationeort to understand important

Figure 13. Conventional distribution models are still the most prevalent

More than hal o our survey respondents use a conventional distribution model (Distributor-Stockist-Retailer)

or a variation o that model to penetrate Indias rural markets.

Which of the following best describes your current distribution model for rural markets?

Source: Accenture Survey

Figure 14. Collaborative channels will dominate

About three ourths o our survey r espondents agree that collaborative channels will dominate in the uture

as a way or companies to reach rural markets.

Do you think that collaborative channels to reach rural markets will become a dominant method in the future?

Source: Accenture Survey

Yes

75%

No

22%

Not Specified

3%



14/29

segment-specic nuances and

spot the best opportunities.Focusing on clusters will also

help companies to optimize

supply chains, distribution

channels, sales orce

deployment and marketing/

communication strategies.

In ocusing their eorts,

companies need to walk away

rom high-level helicopter

plans and adopt a more granularapproach. The goal should be

to break even and generate

prots as soon as possible

while, at the same time, building

a strong business case that

articulates the potential valueo each target segment.

For example, when Maruti

initiated its rural oray in 2007,

it identied many small clusters

or potential car sales, includingturmeric armers in Tiruchengode

in Tamil Nadu and apple growers

in Himachal Pradesh. Today, these

clusters generate consistent

sales. According to companydata, many o these customer

groups account or monthly sales

o 35-50 vehicles, which double

during the harvest season.

Adopting a targeted approach

also helps companies exploitscale and network eects

to achieve aster and more

protable growth. For instance,

Vodaone got o the beaten

track by deciding not to ollowthe conventional route o a

linear expansion along highways.

Instead, the company ocused

on villagers communities o

intereststhe milieus theyrequent to satisy their social

and economic needs. Vodaone

covered locations ater location

by rst identiying the dierentcommunities o interest and then

using technologies such as GIS

mapping and population data to

go deeper into the hinterlands.15

Use o technologies such asGIS mapping can provide

complete, multidimensional

pictures o target segments.

They complement demographic,

value and behavioral variableswith buyer attitudes and needs.

This integrated view will be

especially useul or Rural

Voyagers and New Entrants.

These companies should

identiy the most attractivesegments and design value

propositions and experiences

to attract customers in them.

Concentrating resources on

certain clusters also helpscompanies quickly change course

at minimal cost i they dont get

the hoped-or results. In rural

markets, this is critical, given

the inormation decit and therapid evolution o customers.

Our study ound that Rural

Masters adopt an iterative, test-

and-learn approach toward

rural market expansion. They

test dierent combinations o

channel, message, requency,pricing and assortment. Dabur,

or example, used GIS tools to

analyze market penetration and

identiy gaps. It then integrated

economic indexes with GIS mapdata to prioritize its coverage

plan. Each month, the distribution

network received a resh cluster

o new targets and route

planning sotware optimizedwork across geographies

(see Dabur case study).

Creating sustainablechannel relationships

As competition stiens in rural

markets and the number o

players vying or a share o the

pie increases, the right set-up o

channel relationships becomeseven more important. With the

high demand or capable channel

partnersand the dearth o

those with requisite scale and

capabilitiescompanies ace ahigh risk o partner attrition.

Savvy engagement with channel

partners can help retain them

and keep them motivated.

All this requires signicant

investments o time, nancial

resources and management

bandwidth. Above all,companies must demonstrate

a commitment to building

mutually benecial relationships

with channel partners. For

example, Coca Colas training

arm, Coca Cola University,

launched the Parivartanprogram, which trains women

retailers in rural markets.

Women are taught to manage

shops, stock, customers,

nancials and merchandising.The program lasts 10 days,

and participants receive a

certicate rom the company

and insurance o US$1,882

or accidental death orpremature disability.16 Coca

Cola also invests in cooling

inrastructure or rural retailers.

It has deployed low-cost solar-powered coolers that have

driven a ve-old increase in

sales or those retailers.17

While Rural Masters develop

innovative products and

services, channel partners areoten incapable o handling

advanced selling and promotion

approaches. Rural Masters

realize that upgrading channel-

partner skills is oten central tosuccessul implementation o

their sales strategies. In act,

in our survey, 59 percent o

executives say they invest in

building channel e ectiveness.

Another key success actoris to avoid making xed

investments in the early stages,

and preer a variable cost

model. This allows companies

the fexibility to change course

easily in case any approach

does not yield desired results.



15/29

15%

19%

22%

29%

31%

40%

43%

47%

Providing financial support to upgrade channel partners

Encouraging the channel partners by rewarding themat the local panchayat/community meetings

Identifying the business priorities of the independentdistributor and managing their expectations

Setting ground rules and disciplinesfor your relationships with channels

Helping your channel teams to attract and retain customers

Running specific programmes to improvethe channel performance and productivity

Monetary rewards and incentives

Rewarding the channel partners with recognition awardsfrom the top management of the company

For instance, Mahindra

tractors, the worlds largesttractor company, launched its

Samriddhi initiative in 2007

to transorm channel partners

rom mere tractor dealers to

real partners or armers. The

company changed dealershipsinto Samriddhi Centers. With

an initial investment o around

US$7,500 rom the dealers,

Mahindra upgraded dealership

inrastructure to provide a hosto services and inormation

to armers. Samriddhi Centers

sell and maintain tractors and

equipment. They also provide

armers with inormation

on weather, crops, pests,agricultural market locations

and prices. In addition, they

provide soil and irrigation water

testing acilities, and run arm

productivity demonstrations.

These oerings attract armers tothe dealerships and increase the

chances that they will become

loyal customers. Through 155

Samriddhi Centers, Mahindra

has helped more than 150,000armers and aims to increase that

number to 10 million by 2020.18

Leading companies may also train

channel partners to deliver the

intended customer experience.

Such training is critical or RuralVoyagers and New Entrants,

which oten use alternate channel

partners. Godrej, or example,

is using the India Post network

to sell its rural innovationChotukool in the states o

Maharashtra, Tamil Nadu and

Gujarat. The company realized that

while post oce employees were

ecient in order processing andcollection, they needed better sales

skills. The company trained their

eet-on-street sales people and

sent them to rural post oces

to train employees in how to sellChottukool. To date, they have

trained more than 7,500 post

oce employees in three states.

While most companies ocus on

issues directly related to theirbusiness, some have gone beyond

business issues to build loyalty

and lasting bonds. A leading

pharmaceutical company, or

instance, provides its stockistswith advice on tax planning and

working capital management.

The company also supplies

inormation on education and

career options or the stockists

children. For sustained successand smooth execution o channel

strategy, companies need to

ocus on more than distributors

and retailers. They should

engage the channel on every

level. To illustrate, managersat A leading pharmaceutical

company made an eort to talk

with stockist boys who were

treated as untouchables in the

supply chain but who play animportant role in the companys

operations. The stockists

appreciated the attention and

demonstration o appreciation

and respect, and the resulting

boost to morale added 10

percent to the sales numbers.

Businesses have also developed

techniques to nd non-

transactional touch points to

anchor channel relationships.In our survey, 47 percent

o respondents present

recognition awards rom senior

management (see Figure 15). For

rural dwellers, initiatives thatput them in a good light and

improve their social standing

increase their motivation.

Figure 15. Top managements recognition of channel partners helps

Around hal o our survey respondents consider rewarding and recognizing their channel partners the most

eective way to engage them.

Which of the following are most effective in engaging channel partners?


Some Rural Masters build amilial

bonds with their partners tostrengthen trust. For example,

Amul developed a two-day

orientation program, called

Amul Yatra, through which

channel partners are invited to

the companys headquarters atAnand, Gujarat. Partners gain

exposure to Amuls network

o cooperative institutions and

visit the companys various

plants. They deepen theirunderstanding o Amuls business

model. And they see that by

partnering with Amul, they

can meet their own business

objectives while also contributing

to armers well-being. Theprogram instills condence

in partners by demonstrating

the companys strengths while

establishing a personal bond.



16/29

Dabur is the worlds largest

Ayurveda and natural healthcare

company. With annual revenues

in excess o US$1 billion and

market capitalization o US$4billion, it is Indias ourth largest

ast-moving consumer goods

enterprise. Daburs oerings are

very popular in rural markets.

Products such as Chyawanprash,Amla Hair Oil and Hajmola

Digestives were developed

based on insights the company

gleaned about rural consumers.

Sales in rural regions areparticularly important to Dabur.

In act, about 47 percent o its

sales in terms o consumption

comes rom rural markets with

populations smaller than 50,0 00.

Although the company ranksthird among rural players, only

31 percent o its rural sales

come through direct distributor

networks. Dabur needed to

increase its direct reach to boostrural market revenue and build

distribution or higher margin

categories including ruit juice,

oral care and home care.

To expand its reach, Dabur

launched Project Double in 2010.The projects goals were to double

rural market revenue and increase

penetration o non-passive

distributed categories. The initiative

targeted villages with more than3,000 inhabitants, a market no

other FMCG company was reaching

directly. To begin, Dabur ocused on

high-potential districts o 10 ocus

states, including Uttar Pradesh andMaharashtra, which contributed 72

percent o rural FMCG potential.

Dabur: Deploying Technology To Extend Reach

Barriers to Scale

Inadequate distribution

structure: Daburs organization

and distribution structure orurban markets was inadequate or

rural distribution. The company

was structured into three broad

verticalshome and personal

care, healthcare and oodswith a dedicated sales team

or each in urban markets. For

rural distribution, the structure

would dilute economies o

scale, since multiple salespeople

rom the company would beapproaching the same rural

outlet. Reaching the local level

through local operators rather

than service providers rom

outside was another challenge.

Rural trade ecosystems wereso locally specic that a local

distributor was necessary,

even though their use in large

numbers would be costly.

Pressure to generate incremental

revenues: Indias rural landscape

is dispersed, and economic

potential diers signicantly

across that landscape. Southern

Maharashtra is quite prosperous,

or example. From historicalsales, however, Dabur knew that

some districts in that state would

never deliver the expected return

on investment. A one-size-ts-

all approach or a state wouldnever work. The company had to

be selective about areas within

each state. Dabur also had to

generate incremental revenue

through rural outlets, where itwas already a strong player. The

company had to increase village-

level consumption to boost

outlet sales beyond what current

eorts were achieving without

Project Double. Dabur also had

to recruit employees willing to

work and travel in remote areas.

Limited demand for high-

margin categories: Another

hurdle the company aced

was the need to successullymarket high-margin categories

to justiy the additional cost o

a direct rural sales channel.

Strategies or Success

Prioritizing markets through

GIS technologies: Project Double

was divided into two phases.

Phase 1 was launched in UP

and Maharashtra to validatethe sustainability o the idea. In

Phase 2, Dabur ocused on the

remaining eight states it had

targeted and used lessons rom

Phase 1 to guide eorts. Theinitiative began by prioritizing

287 districts. Using a GIS tool,

the team could select districts

based on characteristics such

as presence o a bank, per-

capita income and population.

Each month, the distributionnetwork received a resh cluster

o new targets, and route-

planning so tware optimized

work across geographies.

Modifying distribution structure

to improve reach: To structure

its distribution and avoid

multiple company contacts at

a single outlet, Dabur decidedto use one umbrella or all its

categories and developed a

two-layer distribution structure.

Super-stockists operated rom

a key town in a district and aeeder sub-stockiest covered

smaller areas. Super-stockists

received inventory directly rom

Dabur and did not carry out

any local distribution. Local

distribution was done by sub-stockists who reached villages

with populations up to 3,000.

To avoid parallel distribution,

super-stockists were allowed to

supply sub-stockists only throughthe use o company-provided

transaction sotware. In larger

towns, stockists served retail

outlets. A rural district manager

oversaw the system, managing

all three categories and stock.

Recruiting local sales

representatives and offering

unique career paths: To acilitate

direct contact with the markets

at the ront end and generateincremental sales, Dabur recruited

a large number o rural sales

representatives (RSRs) on third-

party payrolls. These executives

cover villages in a 60-mile radiusrom their headquarters location

and are responsible or taking

orders and ensuring ulllment by

stockists. Dabur created separate

career paths or RSRs to keep

them motivated and provided

them with guidance and training.

Using technology to great

advantage: To monitor its

huge work orces, Dabur uses

mobile app technology. RSRsare supplied with an inexpensive

tablet that tracks activity on

a daily basis. The variable pay

structure is dependent on RSRs

giving updates. The tablets alsoprovide inormation on van

routes, work schedules and order

status. The apps also oer access

to sales history and inventory

at the sub-stockist level.

Incubating demand: To generate

sales or categories with less

penetration, Dabur needed to

increase village demand. Ater

conducting customer insight

research, the company discoveredthat rural customers wanted

quality-value messages that

stress unctionality. The messages

needed to address benets, solve

issues and, most important,involve people. Symbols, colors

and logos were the most common

orm o brand identication.

Dabur piloted rural customer

connection programs across

haats and melas to provide

consumers with the opportunityto experience Dabur products

rst hand. The company also

turned to opinion leaders, such as

healthcare workers, to generate

awareness and increase thepenetration in categories such

as Chywanprash and baby oil. In

addition, Dabur oered mobile

health camps that provided

medical examinations and advice.

Impact

Within a year and a hal, Project

Double has reached 24,000 othe targeted 33,000 villages with

populations o more than 3,000

in the top 10 states. In a mature

state such as Maharashtra,

the program has garnered 100

percent coverage in villageswith more than 3,000 residents

and has made inroads into

villages with less than 3,000 in

high-potential districts. In the

current year, the rural businessor Maharashtra is growing at

a rate more than 50 percent

higher than urban markets and

has been outperorming urban

markets or three consecutive

years. Expanding coverage

in villages with 3,000-plusresidents has driven ast-paced

growth. Rural growth indexed

to urban growth was 135 versus

100. Planned sales revenue has

more than doubled, and grossmargins have improved through a

signicantly better product mix.



17/29

Tata Motors: Rapid Scale Up O Rural Commercial VehicleBusiness Through A Predominantly Variable Cost Model

In 2010, Tata Motors Limited

(TML), Indias largest automobile

company, identied the need totarget rural markets aggressively,

to accelerate sales growth, as

well as maintain its leadership

position in the commercial

vehicles segment. With over 70%o Indian population residing in

rural markets, they are clearly

the battleground o uture

or TML as well as most other

marketing companies in India.

The timing was right. Investments

by Government o India, in

creating rural inrastructure

and employment, leading

to rise in rural incomes and

consumption, made rural marketsan attractive opportunity or

TML. To eectively tap this

emerging segment, TML launched

Project Neev(literally means

oundation in Sanskrit), withan eye on gaining a rst-mover

advantage in these markets.

Barriers to Scale

Meaningful Access to RuralMarkets: While TML Small

Commercial Vehicle (SCV)

portolio was seen as an ideal

t or rural markets with their

attractive price points andemployment generation potential,

the companys dealer network,

which was pre-dominantly urban

and semi-urban in nature (located

typically in towns/ habitationswith population o 100,000+),

was seen as a key bottleneck or

growth in these rural markets.

Limited understanding of

rural customer: Lack o direct

access also meant, there werelimited structured attempts to

understand, dene and educate

target customer segments in rural

geographies, on either the value

proposition or business potentialo investing in an SCV. From a

customer point o view, lack o

dealer proximity and absence o

trusted advisors meant, they could

never really explore the option o

evaluating an SCV as a means olivelihood/ business opportunity.

Cost of access: Given wide

dispersion o rural populace and

the high cost o accessing these

geographies, dealer coveragewas historically limited to

towns/ habitations where the

dealer had presence and at best

about 50 kms around them.

Financing concerns: NBFCs and

Banks too had been wary o

nancing commercial vehicles

in these geographies, on

account o poor availability o

relevant documentation, high

cost o r each and collectionsrelated challenges.

Strategies or Success

All the above actors, which

historically made rural markets

an unprotable segment to tap,

necessitated development o an

innovative approach or TMLsrural go-to-market strategy,

rather than just modiying

the existing urban model.

The key objective being, to

penetrate rural markets ast

and at the same time makethe venture viable by keeping

costs low or TML as well as its

dealers. The solution ocused

on the ollowing areas:

Improved understanding of the

rural customer: TML conducted

ace-to-ace interviews with

more than 2,000 existing

rural SCV users to gain a

better understanding o theirneeds, preerences and buying

behavior. Armed with insights

rom these conversations, the

project team identied three

key target customer segments:

Underemployed and

unemployed youth aged

between age group 21

and 30, who saw running

an SCV as a viable meanso sel-employment

Large agricultural amilies,

who could invest in an

SCV, as a second source

o income or the amily

Shopkeepers, small businesses

and schools that could use

these vehicles or captive and

third-party transport o goods,

students or people within a1050 kilometer radius.

Access to remote rural

locations: Dealer reach into

rural habitations, was extendedthrough two indirect channels.

A Feet-on-Street network

was built through local level

engagement with government

& non-government bodiesinvolved in rural development.

This helped provide access to

rural talent pool, they were

christened Tata Gram Mitras

(TGMs) and acted as trusted

advisors to rural customersThey were provided extensive

training, to work with TML

as an extension o the dealer

sales team, on a commission

basis to generate leads romtheir respective tehsils and

talukas. This channel was

complemented with an outlet

network o corporate partners

with established rural reach.

This served as the secondmajor channel eeding the

TML direct dealer network

and were manned by Tata

Kisan Mitras (TKMs).

Building these two orms oindirect channels, to complement

the direct dealer channel helped

establish micro-presence or TML

at sub-district (tehsil/ taluka)

level in an accelerated timerame.

Rural demand activation:

The manpower in the indirect

channels was trained to

deliver a customized sales

pitch or each target customer

segment. Demand activationtypically ocused on using

the sel-employment plank,

and positioning TMLs SCV

portolio as an alternate means

o livelihood or rural youth.

Cost of rural reach:

Compensation or above indirect

channels were structured to

ensure xed costs or TML& dealers were limited to a

minimum and a larger part o

the cost o the channel was

unded through vehicle sales

driven incentives. This in turn,ensured rural sales generated

incremental protability right

rom inception and were not seen

as just long term investments.

Rural vehicle finance: To ensureavailability o vehicle nance

at the rural level, the project

team established relationships

with district-level banks, NBFCs,

national lenders and governmentagencies. At the same time, TMLs

in-house nance arm introduced

new schemes which accelerated

the nance approval process.

Rural organization and

technology: To eectively mentor,

train and manage the above rural

network and its requirements,

TML dealerships appointed a

District Rural Manager (DRM)

or each district. TML investedin appointing a Rural Business

Coordinator (RBC) and Territory

Sales Manager to nurture the rural

network components. Sales and

CRM technology systems too werealigned within TML to capture and

support the rural sales processes.

Over time, with development

o demand at local level and

condence o business viability,

dealer branches are beingopened to sustain the entire

model or the long term.

Impact

Speed to rural market: The

results have been signicant and

ast. Building and leveraging a

network o rural youth and ex istingnetwork o rural corporates

provided quick access to rural

markets. Currently deployed in

six states, the rural business has

seen addition o over 20 percent

to TMLs SCV vehicle volumes. This

is now being rolled out nationallyand has an incremental annual

potential o over 70,000 vehicles

and US$500 million in revenue.

Furthering social agenda:

while the primary purpose othe program was to look at

rural markets as a protable

business proposition, leveraging

rural youth as sales agents and

creation o rural entrepreneurshipopportunities through vehicle

ownership as well as cascading

impact on the rural economy

through demand or service,

mechanics, uel have helped

urther the social agenda as well.

Project Neevhas contributed

immensely to urthering the long

term strategy o TML. While the

most signicant benet has been

the creation o a rst moveradvantage or its Commercial

Vehicles in rural benets,

other benets include more

competitive channel partners

with an extended networkand access to a large talent

pool or uture employment

within TML and its dealers.

TGM in discussion with potential customers

Outlet with POS (Point-o-sale) visibility and TKM



18/29

The traditional view o a rural

consumer segment is changing.

Todays rural consumers are

more diverse, with specialized

needs and preerences.Businesses seeking to attract

them must know the cultural,

economic and demographic

dimensions that dene these

buyers. Given market dataconstraints and the seasonality

o demand, understanding

and satisying these changing

expectations requires greater

ocus, precision and consistency.

Truly knowing and respondingto rural customers needs is the

hallmark o a Rural Master. To

excel on this ront, companies

need to create trust and

relevance through an ecosystem

o stakeholders, dene a uniquevalue proposition or rural

customers and engage the r ight

set o infuencers (see figure 16).

Create trust andrelevance throughan ecosystem ostakeholders

Indias rural consumersare increasingly aware o

products and services, and

they expect businesses to

demonstrate how businesses

are creating value or them.I businesses all short, rural

consumers will view the social

bargain as compromised. In

this respect, rural markets

are vastly dierent romurban ones, and they demand

dierent marketing and

promotion strategies.

Mastering Rural Customer Acquisition

To achieve success in rural

markets, companies should

engage a wide set o stakeholders

to prove that their business is

a orce or widely shared good.Companies must be perceived as

builders o symbiotic relationships

that ocus on consumers

daily needs rather than simply

on the corporate prots.

At the most basic level,

organizations should create

an integrated network o

stakeholders across the

entire value chain. Since eachstakeholder in the ecosystem

infuences and drives customer

behavior in the desired direction,

this holistic approach generally

creates a virtuous circle. A

successul ecosystem willassimilate infuencers and

decision makers across

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