Itc Final Prakash

8/6/2019 Itc Final Prakash

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EXECUTIVE SUMMARY

Most marketers realize that India is on the cusp of momentous change.

The economy is vibrant, incomes are rising; and the habits, preferences, and the attitudes

are changing rapidly. But nowhere is this more evident than in rural India. There is, thus,

an emerging need to build expertise in rural marketing.

There are three challenges that a rural marketer must overcome. The first

of these is the challenge of reach- markets in rural India are small and scattered, making

them inaccessible, unviable, or both. Ensuring that your brand is available is just the start.

The next challenge is to ensure that consumers are aware of and wants your brand. large

part of rural India remain media-dark, and low literacy rates and the poor infrastructure

are a limiting factor.

Economic and technological progress is making it easier to communicate

with a rural audience. The challenge is to communicate the right massage – to engage

with and understand rural consumers, their shopping and consumption behavior, and to

develop communication that connects with them. The ITC e-choupal is a large scale

programme in which it plays role of communicator, distributor, etc. The third and by far

the biggest challenge in rural marketing is that of influence. Across product categories,

rural penetration and awareness remain low.

I believe there is an urgent need for sharing experiences and insight from the world of

rural marketing.

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Introduction To Rural Market

GONE ARE the days when a rural consumer went to a nearby city to buy

branded products and services. Time was when only a select household consumed

branded goods, be it toothpaste or soap. There were days when big companies flocked to

rural markets to establish their brands. Today, rural markets are critical for every

marketer - be it for a branded shampoo or an automobile.

To open a business daily or business magazine today, you will read about

some company or other announcing its intention to `go rural'. Is going rural that

simple? A number of today's marketers who believe that consumers in rural India are less

demanding and easily satisfied are in for a rude shock. It is high time these marketersrealize that an indiscriminate marketing strategy, a replication of that used for the urban

customer, will not work with his rural counterpart. The latter have a different set of

priorities, which necessitates a different approach, both in terms of developing

appropriate products to suit them and using appropriate communication strategies, which

they will comprehend better.

There is a debate in some quarters that the rural market is mature enough

to understand communication developed for urban markets, especially in the case of

FMCGs. This is partly true, if the communication is such that it makes the product

promise in a simple and easy-to-understand style.

It is also true that the section of rural society, which is exposed to urban

lifestyles because of employment, is beginning to appreciate and understand all types of

communication aimed at it. But they are in small numbers and the vast majority of rural

folks, even today, cannot understand clever communication. What to communicate and

how to communicate to the rural audience is a subject which must be understood clearly

before any attempt to develop a communication package aimed at them is undertaken.

“Real India lies in Rural India” , ‘India is a land of ‘villages’, ‘Rural

economy is the backbone of the Indian economy’, ‘India lies in its villages’, etc, are the

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perpetual and common slogans. India is predominantly an Agricultural Economy and the

rural markets hold immense potentials for any company to expand.

Thus the next word after “expanding sales” today is “targeting the rural

markets”. Also, intensified competitions in the urban-markets have resulted in increase

in costs but not higher market share and profits. This has resulted in change of focus by a

host of organizations. Thus, rural bazaars are becoming more important than urban

markets and many organizations have realized that in a host of product classes the

winners of tomorrow are going to be those who focus on rural India. Industrial giants and

other savvy small to medium firms are awakening to the potential of India’s jackpot rural

market of nearly 733 million consumers, more than twice the population of the USA. It

has thus become very necessary to study the rural markets because this market, which is

mostly underestimated, is drastically changing.

Meaning of Rural

• Any habitation with a population density of less than 400 sq. km., where at least

75% of the male population is engaged in agriculture and where there exists no

municipality or board (Census 2001).

• The rural and semi urban area is defined as all other cities other than the 7 Metros

(LG India).

• Locations having shops or commercial establishments with up to 10,000 people

are treated as rural (Sahara, ITC, HUL)

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Background of Rural Marketing

It was in the late 1960s and 1970s that rural marketing became a topic

of general discussion. The Green Revolution and the consequent pockets of rural

prosperity that appeared on its wake awakened many manufacturers to the new

purchasing power. The NCAER’s Market Information Survey of Households (MISH)

shows that the 1980’s saw a rapid improvement in the distribution of income in the rural

as compared with urban India. In 1989-90, the number of households with income over

Rs. 25,000/- per annum as 9 million (around 50 million people), and above Rs. 12,500

per annum was 35 million households (around 160 million people).

However, aggressive Rural Marketing is not a recent activity. With the

Green Revolution, companies like Siemens with a package of products for water drilling

marketers of fertilizers, pesticides, seeds, bicycles, etc., were followed by manufacturers

of motorcycles, and many others who took their products to the rural consumers.

Earlier, consumers who were illiterate or unable to read English created

symbols to identify their favorite products-Red Soap for Lifebuoy, Palm tree for Dalda,

etc. Manufacturers now began to deliberately build symbols and colors into their products

to enable identification of their brands.

Nineties was a phase when the advocates of rural marketing convinced

corporate India that villages were big, this decade is differentiating between companies

that can unlock the potential of the rural market and those that cannot.

Today rural population is 7, 41,660,293, while that of urban India is

285,354,954 (Census of India 2001). There is a 241 million strong working population,

spread across 6.38 lakh villages in the rural hinterlands. The rural population has been

dependent primarily on agriculture as their main source of income. However, after 50

years of independence, and the advent of industrialization, the agriculturally skewed

income of rural India is steadily normalizing. Horticulture and fishery are also fast

becoming income-generating activities in rural India.

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Meaning of rural marketing

According to the National Commission on Agriculture: “ rural marketing

is a process which start with a decision to produce a saleable farm commodity and it

involves all the aspects of market structure or system, both functional and institutional,

based on technical and economic considerations and includes pre and post harvest

operations, assembling grading, storage, transportation and distribution.”

‘Rural marketing is a process of developing, pricing, promoting, distributing

rural specific goods and services leading to exchanges between urban and rural markets,

which satisfies consumer demand and also achieves organizational objectives’. Rural

marketing involves a two way marketing process, however, the prevailing flow of goods

and services from rural to rural areas cannot be undervalued. The process should be able

to straddle the attitudinal and socio-economic disparity between the urban and rural

customers.

URBAN TO RURAL (U 2 R)

A major part of rural marketing falls into this category. It includes the

transactions of urban marketers who sell their goods and services in rural areas. Thefollowing are some of the important items, which are sold in rural areas and

manufactured in urban areas: pesticides, fertilizers, seeds, FMCG products, tractors,

bicycles, consumer durables, etc.

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URBAN RURAL

RURAL URBAN

RURAL RURAL



RURAL TO URBAN (R 2 U)

Transactions in this category basically fall under agricultural marketing where a

rural producer seeks to sell his produce in an urban market. An agent or a middleman

plays a crucial role in the marketing process. The following are some of the important

items sold from the rural to urban areas: seeds, fruits and vegetables, milk and related

products, forest produce, spices, etc.

RURAL TO RURAL (R 2 R)

This includes the activities that take place between two villages in close

proximity to each other. The transactions relate to the areas of expertise the particular

village has. The items in this category include: agricultural tools, handicrafts and bullock carts, dress materials, etc.

The rural marketing matrix

MARKET

PRODUCTION

Brandedconsumables and

durables(Organized)

Farm and non -farmgoods and services

(Unorganized sector)

R U

RAL

XHandicrafts,

Handlooms, textiles(Semi- organized)

URBA N

URBAN RURAL

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Rural Market Environment

► Untapped Potential

Rural markets offer a great potential for marketing branded goods and

services for two reasons:

→ The large number of consumers. A pointer to this is the larger volume

of sales of certain products in rural areas as compared to the sales of the

same products in urban areas.

→ Largely untapped markets. The penetration levels for many products are

low in rural areas.

► Market Size and Penetration

The estimated size of India’s rural market stated as the percentage of

world population is 12.2 percent. This means 12.2 percent of the world’s consumers live

in rural India. In numbers, this works out to about 120 million households. In India, the

rural households form about 72 percent of the total households. This is a huge market by

world standards.

Rural consumers own only 52 percent of available consumer durables,

even though they form 72 percent of the total households in India. On an average, rural

household own three consumer durables as compared to seven consumer durables owned

by an average urban household (NCAER, 1998). The gap clearly indicates the untapped

potential among the large number of rural households.

► Increasing Income and Purchasing Power

The agricultural development programs of the government have helped to

increase income in the agricultural sector. These in turn have created greater purchasing

power in rural markets. Households in the lower income group have reduced while there

is a strong growth in the number of households in upper middle and higher income

households.

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► Accessibility of Markets

The attraction of a market depends not only on its potential but also on its

accessibility. A market that cannot be exploited is a case of “sour grapes”. Development

of infrastructural facilities and marketing institutions has increased the accessibility of

these markets.

The road network has facilitated a systemized product distribution system to

villages. In the past, companies relied on a ‘trickle down’ of stocks to the buyer in

interior villages that resulted from the active participation of channel members. In this

system, the village retailer made fortnightly purchase visits to a bigger retailer in the

nearest tehsil (sub-division of a district) level town. The large retailer in the tehsil town

procures goods from district headquarters. The district headquarters were therefore the

terminal point of the company distribution channel.

Today, an increasing number of companies are supplying village markets

directly. Increasing direct contacts to villages helps product promotion and availability of

the product in the village shop. Marketers of durable goods use direct contacts as a means

to promote and attract rural consumers to dealer points in large feeder villages or towns.

Feeder villages or towns are locations from where a large number of interior villages get

their products. Delivery-cum-promotion vans traversing 8 to 10 villages a day and

covering haats or mandis, is the widely used method of direct control in rural areas.

► Competition in Urban Markets

Intensified competition in urban markets increases costs and reduces

market share. The rural markets are therefore increasingly attractive in relation to urban

markets. The automobile market brings this out clearly. Rajdoot motorcycles, Bajaj

scooters or Ambassador Cars find ready acceptance in rural markets as compared to

urban markets where there is a proliferation of brands.

► Consumer Behavior Changes

Increased literacy and greater awareness in rural markets create new

demands and discriminating buyers. This is observed more in the younger generation. In

villages today, this segment of buyers consumes a large variety of products, both durables

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and non-durables. There is a visible increase in the consumption and use of a variety of

products, which is easily observed. The younger generations appears to seek variety and

are more discriminating buyers. The young adult in a village likes to sport a fashionable

watch. The preferred brand of toilet soap for the youth is not necessarily Lifebuoy, the

brand preferred by the elders.

► Risk reduction:

During recession in urban markets, the rural markets help to reduce risk.

Companies selling to both urban and rural markets better withstand fluctuations in

demand. The situation faced by the colour television industry in 2001 is an example.

While the growth in the market for colour televisions in urban India was a low 5 per cent,

the growth in the rural markets was 16 per cent as compared to 10 per cent in 2000. The

factors that affected the urban economy—the stock market crash or the threat of war—

did not affect the rural markets. The positive growth in demand for colour televisions in

rural markets was due to good monsoon rains and increased income levels in the rural

areas. The demand for certain products in rural areas is steady unlike in urban areas,

which exhibit cyclical demand. An example is the case of cement where the demand

comes in spurts, depending on a major project or business cycle. In rural areas, the

demand for cement is stable as houses in villages are not completed in one go; there is periodic addition or expansion as the family gets bigger or as the farming surplus

increases.

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Rural Customer Profile

The rural customer shows distinctive characteristics, which makes him

different from the urban buyers.

► Education Profile:

Nearly 45% of the rural Indians are literate (men 59%, women 31%). The

rural customer has much lesser education than his/her urban counterpart. Generally, the

maximum education that one sees among rural areas is still primary school or high school

level. Though rural literacy programmes have made significant headway, we are still

confronted with a customer who is illiterate. This comes in the way of the marketer using

print media and handbills to promote the product. Visual displays and phonetics become

important in promoting the product in the rural areas. Demonstration on product usage

and even on how to use it becomes integral to the marketer’s promotion strategy. Among

the rural population Kerala tops with 77%. However the literacy rate is much lower in

Bihar and Rajasthan.

► Low income levels:

Ann analysis of the rural income pattern reveals that nearly 60% of the

rural is from agriculture. Though rural incomes have grown manifold in the last onedecade, still an average rural consumer has a much lower income than his or her urban

counterpart. Still a large part of his income goes to provide the basic necessities, leaving

smaller income to be spent on other consumer goods. This makes the rural consumer

more price sensitive than the urban consumer. Marketers have evolved various strategies

to lower the final prices. One such strategy is designing special products for rural

customer and the other is even reducing the size of the product. Another aspect of this

low income is that an average rural customer buys a single unit of the product and not in

bulk.

► Occupation:

Typically, in the rural area one finds that the principal occupation is farming,

trading, crafts, and other odd jobs like plumbing, electric works, etc. One also finds

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primary health workers and teachers in the rural areas. Since farming, animal husbandry

and poultry farming are the principal occupations we find that even here we have

different types of farmers. The basis for differentiation is obviously their size and

ownership of land. We have their consumption patterns differ mainly because of their

income levels. For example, a large or a big farmer will have almost everything that an

urban consumer will have. He is an affluent farmer and represents the highest end of the

rural income continuum.

► Reference Groups:

Typically in rural area, the reference groups are the primary health workers,

doctors, teachers and the Panchayat members. One may even observe that the village trader

or the grocery shop owner, commonly called the “Baniya” or the “Mahajan”, may also be an

important influencer in the rural customers’ decision-making. This is because the trader

extends credit to the farmers. Today, another person is also considered as a change agent

and that is the rural bank’s officer or manager. A marketer needs to be aware of these

influences that can effect a change in the rural customers’ consumption patterns.

► Media Habits:

A rural customer is fond of music and folklore. In a state like Maharashtra

the rural theatre called “Tamasha” has held sway with the people. Likewise,

“Nautanki” in which the artists are a part of the audience entertains the rural Uttar

Pradesh. Today, television and radio are important forms of media, which hold the

attention of rural folks, so is the video. Radio Programmes reach almost 95% of the

Indian population, while television programmes is now as high as 85%.

As we mentioned earlier because of a low education level print media does

not have that much of an impact as the audio and the audiovisual media does.

► Brand loyalist:

Rural customers sense a patronizing attitudes and even formidable barriers to

protect themselves. It is not easy to introduce new products for them. They are bigger brand

loyalist then their urban counterparts.

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► Importance of customs:

Basic cultural values have not yet faded in rural India. Buying decisions

are still made by the eldest male member in the rural family whereas even children

influence buying decisions in urban areas. Further, buying decisions are highly

influenced by social customs, traditions and beliefs in the rural markets. Many rural

purchases require collective social sanction, unheard off in urban areas.

The rural attitude towards consumption has been traditionally based on

the values of restrain and self-denial. But the high exposure to T.V advertising in recent

years where brands are working relentlessly to loosen this restraint by communicating

escape/release and self-confidence messages is having its effect, particularly on the

youth. But Caste and family are still paramount in rural life.

But we should bear in mind that with more and more marketers eyeing for

a piece of the rural cake, the awareness of the rural consumer is on the rise. He is moving

towards branded purchases and is becoming more and more demanding in his purchase

decisions.

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The Problem Areas in Rural Marketing

Where the rural market does offer a vast untapped potential, it should also

be recognized that it is not that easy to operate in rural market because of several

attendant problems. Rural marketing is thus a time consuming affair and requires

considerable investments in terms of evolving appropriate strategies with a view to tackle

the problems.

Underdeveloped People and Underdeveloped Markets:

The number of people below poverty line has not decreased in any appreciable

manner. Thus underdeveloped people and consequently underdeveloped market by and

large characterize the rural markets. Vast majorities of the rural people are tradition

bound, fatalistic and believe in old customs, traditions, habits, taboos and practices. There

are some districts in Punjab, Haryana and western Uttar Pradesh where a rural consumer

is somewhat comparable to his counterpart.

Vastness and uneven spread:

The number of villages in India is more than 6 lacs. Again, the villages are not

uniform in size. Nearly 50% of the villages have a population of less than 500 persons

which account for 20% of the rural population. This type of distribution of population

warrants appropriate strategies to decide the extend of coverage of rural market.

Lack of Proper Physical Communication Facilities:

Nearly fifty percent of the villages in the country do not have all weather

roads. Physical communication of these villages is highly expensive. Even today most

villages in the eastern parts of the country are inaccessible during the monsoon.Moreover, 3, 00,000 villages in the country have no access to telephones. Local telecom

companies are working with the Department of Telecommunications (DOT) to provide

service in rural areas at local costs which could be a costly affair considering the

underdeveloped infrastructure.

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Low Growth Rate:

The slowdown in the economy is of serious concern to everyone in

Government, industry and every other sector of the economy. Our GDP growth target for

the Tenth Plan is 7.7%, rising to 8.1% in the subsequent one. Today we are at a 6% level,which is itself below the current Plan. Even more worrying is the fact that our growth rate

has been trending down for the last 3 years. The sectoral components of this slowdown

are very telling. Agricultural growth has dropped to 0.9% from an average of 3.9% in the

1980's and 3.3% in the 90's. Industrial growth too has slowed to below 6% from 6.6% in

the last decade. We believe there is an urgent need to lift overall GDP growth sustainable

by addressing a central issue - the slowdown in rural incomes.

Low per Capita Income:

Even though about 33-35% of gross domestic product is generated in the

rural areas it is shared by 74% of the population. Hence the per capita incomes are low

compared to the urban areas. High costs in finance is a stumbling block while higher

purchase is unheard of, the small town culture works against financing of products. The

sprawling unorganized market offers prices that the organized industry finds difficult to

match. Many existing product lines continue to be too expensive or irrelevant.

Many languages and dialects:

The number of languages and dialects vary widely from state to state,

region to region and probably from district to district. Messages have to deliver in local

languages and dialects. Even though the number of recognized languages is only 16, the

dialects are estimated to be around 850.

Different way of thinking:

There is a vast difference in the lifestyles of the people. The rural customer

usually has 2 or 3 brands to choose from whereas the urban one has many more choices.

The rural customer has fairly simple thinking as compared to his urban counterpart. Life

in rural areas is still governed by customs and traditions and people do not easily adopt

new practices.

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Low levels of literacy:

Literacy rate is low in rural areas as compared to urban areas. This again

leads to problem of communication. Print medium becomes ineffective and to an extend

irrelevant in rural areas since its reach is poor.

Transportation problem:

Many rural areas are not connected by rail transport. Around 68% of the

rural roads have been poorly surfaced, and many are totally destroyed or severely

damaged by the monsoon and remain unserviceable leaving interior villages isolated.

Though it would be desirable to connect all villages by all-weather roads, use of bullock

carts is inevitable for many years.

Distribution and Warehousing problem:

Rural markets typically signify complex logistical challenges that directly

translate into high distribution cost. Coupled with relatively slower growth of incremental

demand and lack of adequate institutional mechanism for retail operations, margins are

squeezed to the utmost. Infrastructure also poses a major problem when a marketer thinks

of targeting the rural markets. Business firms find it difficult to get suitable godowns in

many parts of rural India.

Market organization and staff

The size of the market organization and staff is very important, to have an

effective control. Comparatively, catering to rural market will involve large marketing

organization and staff. Most of the manufacturers cannot effort huge investments in terms

of personnel and also keep an effective control on it.

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Exploring the available media

A number of factors affect media effectiveness. These include:

1] Audience profile: Upmarket rural audiences are exposed to mass media. A large

section of the rural upmarket audience can be reached by television alone

2] Media preferences: It has been recognised that the effectiveness of media depends

largely on the audience. As observed earlier, consumers in the higher income category

have access to mass media and are more receptive to it. Traditional media are likely to be

more effective with the average rural audience that is less cosmopolitan and have a lower

income. In a study on communication of health information to rural people, the mediachannels were ranked on effectiveness. Interpersonal communication was ranked most

effective followed by television/VCR, print and then radio

3] Channel and programmes viewed: It has been observed that the rural viewer does

not switch channels. Brand loyalty to a programme is fairly high. This is influenced by

the presence of large number of black and white televisions and lower-priced color

televisions that have limited channels.

4] Audience behavior: Audience behavior is examined for important media like

television, radio and newspaper as their behavior influences media decisions.

For seeking a long term presence in rural market a company has to

squarely encounter the constrains and find a way of communicating effectively with rural

target audience. In rural context the firm has to choose a combination of formal and non-

formal media.

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The Promotion media may be classified broadly into 3 categories:

Mass Media Local Media Personalized Media

Radio Haats, Melas, Fairs Direct Communication

Cinema Wall Paintings, Hoardings Direct mail

Press Demonstration & sampling Sales Persons

TV Leaflets Researchers

Video Vans

Folk Media

Animal Parade

Transit Media

► MASS MEDIA

A medium is called mass media when it reaches millions people. A rural

market is difficult to reach. Their exposure to mass media is very less. Further a

universalized communication, which comes through mass media, would become

ineffective when it comes to rural audience since they are heterogeneous – varying from

region to region. Let we examine the utility of mass media.

→ Radio

It is a well established medium in rural areas a big expansion in broad

casting facilities has taken place in the country over the years. There has been expansion

in availability of Radio sets. Irrespective of the literacy levels of the people, topography

and geographical location of the area of residence, the radio reaches rural people easily. It

continues to be the principal source of information by habit and choice for many rural

people.

→ Cinema

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It is useful medium in rural context. Most of the Indian villages have one or

more cinema house 29% of rural people do see cinema as a matter of regular life style

and habit. Short features films with disguised advertisement massage, direct

advertisement films and documentaries that combine knowledge and advertisement can

be employed for rural communication. The cinema is the theatres attract good number of

people and provide an opportunity to disseminate product information by way of short

one or two reel advertising films. These films are exhibited just before the start of the

movie and during interval time.

→ Press/Print media

Newspapers, magazines and other publications have both reach and access

problems in rural areas. Very few households subscribe to magazines and newspapers.Literacy levels are also low. Thus press is now becoming popular among the educated

families in rural areas

→ Television

TV has the potential to become the primary medium for rural

communication, with the increase in coverage and the increase in TV owners studies

reveal that as much as 77% of village in India receive TV transmission and 27% of all

rural people actually watch TV. Ogilvy Rural dismisses the talk of huge TV audiences in

rural India. TV exposure would just about touch 100 million people, of which only 30-40

million would really get impacted.

► LOCAL MEDIA

Though mass media is powerful it does not work as effectively as the local media.

→ Haats & Melas

It is the countries oldest tradition and holds the key to solving the problems. It

is called the weekly mobile supermarkets of rural India.

Facts & Figures: -

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1) Over 47,000 haats and 25,000 melas are held annually.

2) The average daily sale at a Haat is about Rs.2.25 Lakhs

3) Annual sales at melas amount to Rs.3, 500 Crores.

4) Over half the shoppers at haats have shopping lists.

5) More than 10,000 melas draw visitors from all over India.

6) Nearly half the outlets at melas are for manufactured goods.

7) Haats is a better opportunity for promotion after brand building has been done at

Mela.

8) Melas are organized after harvest season, so the villager has enough money,

which he will be ready to spend.

9) Demonstration at Haat is essential to convert customers at haats since their

attitude is far more utilitarian than that of visitors to a fair.

→ Wall Paintings

Wall Paintings are an effective and economical medium for advertising in

rural areas. They are silent unlike traditional theatre .A speech or film comes to an end,

but wall painting stays as long as the weather allows it to.

Retailer normally welcomes paintings of their shops, walls, and name

boards. Since it makes the shop look cleaner and better. To get one's wall painted withthe product messages is seemed as a status symbol.

The message should be simple, direct and clear. It should be peaked up

during the festival and post harvest season. To derive maximum mileage their usage

needs to be planned meticulously.

→ Demonstration and sampling

Marketers find it effective to give demonstrations of their products as these

educate the buyer. Some demonstrations provide or allow trial usage of the product, thus

building brand knowledge and preference.

→ Folk Theatre

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→ Mobile Displays

Dabur used this novel way of communication. It selected a cluster of 300

villages in Banda district and sent in 3 bowling alleys. The bowling pins represented the

various germs that Chawanprash protects against.

→ Hoardings

They are of 2 types – stationary and mobile. Large sized hoardings placed at

strategic locations have a huge impact.

► PERSONALIZED MEDIA

→ Direct Contact

Direct contact is a face-to-face relationship with people individually and

with groups such as the Panchayats and other village groups. Such contact helps in

arousing the villager's interest in their own problem and motivating them towards self-

development.

→ Direct mail

Direct mailing involves sending out single pieces of mail – letters, flyers

and foldouts—to a specific and targeted audience. In general, direct -mail marketers hope

to sell a product or service, collect or qualify leads for the sales force, communicate

interesting news, or reward loyal customers with a gift. Its advantages are audience

selectivity, Flexibility, No advertising competition within the same medium,

personalization, Allows early testing and measuring of results.

→ Direct communication:

Direct contact is a face- to-face relation with people individually and with

groups such as panchayats and village groups. Such contact helps in arousing the

village’s interest in their own problem and motivating them towards self- development.

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• Promotion and communication: To communicate with existing or prospective

customers living in media – dark areas (Bihar, Orissa, Chatishgarh, Jarkhand,

etc.).

• Poor infrastructure: Only 50% of villages are connected by a pucca road and

less than 50% of village homes have electricity.

• Uneconomical market size: As villages have very small populations, it is not

profitable for marketers to approach each and every village.

• Consumer profile: Rural consumers have very diverse socio- economic profiles.

Their needs and preferences very greatly and they are not readily willing to buy

offerings designed for urban consumers.

Importance of Information and Communication Technology (ICT) in

rural distribution:

ICT assists all elements of the value chain in bringing about a more efficient exchange of

goods and services. For example:

• It enables marketers to access wider areas more effectively, thereby leading to

better economies of scale.

• It enables retailers and other intermediaries to exchange relevant information with

suppliers speedily, thereby minimizing stockholding costs and wastage in

distribution and avoiding stock-outs for particular brand or product.

• It enables consumer to gather sufficient information in order to arrive at an

optimum choice.

IT allows information to be integrated, packaged and shared in

customized way in accordance with the needs, ability and convenience of rural consumer.

For example, thee- governance service extended by the Andhra Pradesh government

incorporates information in the five languages most commonly used by the residents of

the state. ICT has enabled rural consumer to easily gather, compare and share information

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about brands and products. ICT gives marketers the mechanism to collect and analyse

more complete information on individual customer purchasing patterns and preference.

For example, ITC’s e-Choupal records all the transactions that can be complied in the

name of customer to understand the consumption patterns and brand patronage behavior

of customers.

Retailers and intermediaries in rural areas have used ICT to their

advantage in particular and to enhance the overall efficiency of the value of chain in

general. Today, retailers prefer to place order or gather information from distributors or

wholesalers directly over the telephone rather then having to visit them personally in the

nearby town(s), or to send them a postcard order, or wait for their visit endlessly. This

has smoothened the supply chain and reduced investment in stocks. Such benefits help

retailers to in a comprehensive length and breadth of merchandise and extend quality

service to their end customers.

Therefore, to meet the infrastructural challenges in rural markets,

marketers are building their distribution channels around the ICT medium. The ‘any

time- any where ’advantage of e-marketing leads to efficient price discovery and offers

economy of transaction for trading and a more transparent and competitive setting. This

attracts many rural developmental agencies and markets to deploy websites for the

marketing of agri and non- agri products. Finally, many corporates have experienced how

ITC has increased bottom-up participation in the processes and how it can expand the

reach and accessibility of a company’s offerings. In shorts, ICT has direct implication in

enhancing the Affordability, Awareness, Acceptability and Accessibility of offerings and

service in rural markets.

24



Benefits of IT driven business strategy:

1. Ease of access.

2. Up- to- date content.

3. Layout, design, consistent themes.

4. Ease navigation.

5. Higher interactivity.

6. Access trough multiple media.

7. Higher use of non-textual information.

8. Multiple languages.

9. Lower transaction cost.

25



Interesting Observations

India's rural market is characterized by its vast spread –

► Over 6, 38,365 villages with a total population exceeding 733 million.

→ 145,098 villages have population less than 200

→ 1,70,475 have population between 200 and 500

→ 3, 50,000 villages have population between 500 and 2000.

→ 60,000 villages have population between 2000 and 5000.

► A total of 13,113 villages have population over 5,000. Of these 9,988

villages or 76% are in seven states - Uttar Pradesh, Bihar, West Bengal,

Maharashtra, Andhra Pradesh, Kerala and Tamil Nadu.

► Kerala is characterized by large villages; 1,259 out of the total of 1,384

have population over 5,000. While the average population in Kerala is

15,475 per village, for rest of the country the figure is 954.

► Overall literacy rate (7 years and above) in rural India is 45%: literacy

among men is 59% and among women is 31%.

► There are a total of 3,697,527 shops (retail outlets) in the rural sector,

leading to an average of 5.85 shops per village. Number of shops per

village is lowest, around 1.5 - in Himachal Pradesh, Arunachal Pradesh

and Meghalaya. On the other extreme, Kerala has the largest number of

shops - 192 per village. In Punjab, West Bengal, Goa, Gujarat, Andhra

Pradesh, Tamil Nadu and Pondicherry there are 7 or more shops per

village. Data on rural consumer buying behaviour indicates that the rural

retailer influences 35% of purchase occasions.

► In India, there are 50,000 Haats catering to villages having population

over 2000 people. Haats operate once a week or more often in a total of

41,888 villages. 45% of the villages with haats are in the east, 27% in

north, 20% in west and 8% in south. At the national level, Uttar Pradesh

26



and Bihar have the maximum number of haats, i.e., 25% and 18%

respectively. In Uttar Pradesh, Bihar, West Bengal and Maharashtra,

villages holding haats form 10% of total villages in the respective states.

The data indicates that with establishment of (permanent) shops, haats are

moving out.85% of rural population prefer buying at Haats.

► At an all India level, pucca roads connect 209,360 villages or 33% of total

villages. This proportion is maximum at 57% in south zone and minimum

at 20% in east zone. Pucca roads connect almost all villages in Punjab,

Kerala and Pondicherry.

► There are only 7,271 villages with railway stations. This forms 1.2% of

total villages. Kerala is the best state in this regard with 8% of villages

having a railway station.

► 5% of the total villages have a bank within the village. As on 31st March

1995, the bank deposits and advances in the rural banks were Rs. 481.19

billion and Rs. 242.78 billion, respectively. This works out to - per capita

deposits and advances figures of Rs.773 and Rs.390, respectively.

► In Rural India, there are a total of 79,448 doctors. This implies that there

are 12.76 doctors per hundred thousand of rural population.

→ The distribution of number of doctors over the zones is seen to be

30% each in north, east and west and only 10% in south.

► There are a total of 15,039 hospitals in Rural India. This works out to 2.4

hospitals per 100 villages.

► In India there are 1, 34,582 PACS (Primary Agricultural Credit Co-

operative Society).

27



Emergence of organized retailing

An overwhelming proportion of the Rs. 400,000crore Indian retail

market is unorganized. In fast, only a mere Rs. 20,000crore segment of the market is

organized. The presence of the organized retail formate is limited to metro cities only. In

terns of physical size, 96 % of the 5million –plus outlets are smaller than 500 square feet

in area. India’s per capita retailing space of about 2 square feet (16 square feet in United

States) is the lowest in the world (KSA Technopak (I) Pvt. Ltd., the India operation of the

US-based Kurt Salmon Associates). The organized retail industry will grow to Rs.

160,000crore by 2005. Given the size and diversity—geographical, cultural and socio-

economic—of India, there is no role model for Indian retailers to follow or adapt in their

attempts to expand into rural markets. Urban centres already have a well- defined retail

network and international retail models are adopted after relevant contextual changes

have been incorporated. In rural India, haats, mobile trader and village shops form the

traditional retail network. In such conditions, marketers are trying to experiment with

new models such as Self- Help Groups by HUL and ITC’s Choupal Sagar to serve end

consumers in rural markets.

Post liberalization, a few corporates have taken initiatives to set up

organized retail formats in rural. ITC was the first to take such an initiative and launched

the country’s first rural mall in Madhya Pradesh, signaling the arrival of organized

retailing in rural India. The mall, christened choupal sagar, offers a diverse product range,

including soaps, detergents, toothpastes, televisions, DVDs, sewing machines, grinders,

etc. ,in an attempt to provide farmers a one-stop destination for all their needs.

Drivers of the organized retail format

The factors that are expected to drive the growth of the organized retail format are:

28



• Economies of scale:

The large organized store attracts people from wide catchment areas. These formats

deal in multiple products categories, with impressive brand variants designed to draw

variety- seeking consumers.

• Quality service :

Franchised or company- owned stores incorporate service such as returns and

adjustments and of delivery and assistance in making purchase decisions.

• Increased brand consciousness:

With the emergency of increased brand awareness among rural consumers (80%of all

packaged FMCGs sold in rural markets are branded), they want to shop from reliable

stores. Thus, company- owned or franchised outlets enjoy high patronage in respect

of not only high-involvement goods (such as agri-inputs and durables) but also

FMCGs.

• Fighting fakes:

To fight the manners of fakes in rural areas, companies prefer to sell their offerings

from organized retail formats. Philips uses ITC’s e-Choupal to sell their lighting tubes

in rural India.

29



ITC COMPANY PROFILE:

The 'Imperial Tobacco Company of India Limited' was incorporated on

August 24, 1910 in Kolkata, India by British American Tobacco (BAT). The name of the

company was changed to I.T.C (Indian Tobacco Company) Limited in 1974 and later

'ITC Limited' (the dots were removed) on September 18, 2001.

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

capitalization of over US $ 13 billion and a turnover of US $ 3.5 billion. Rated among the

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

Companies by Business World, ITC ranks third in pre-tax profit among India's private

sector corporations.

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

Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery,

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

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

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

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

Apparel and Greeting Cards.

30



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

perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source

of inspiration "a commitment beyond the market". In his own words: "ITC believes that

its aspiration to create enduring value for the nation provides the motive force to sustain

growing shareholder value. ITC practices this philosophy by not only driving each of its

businesses towards international competitiveness but by also consciously contributing to

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

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

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

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

management and acknowledged service skills in hoteliering. Over time, the strategicforays into new businesses are expected to garner a significant share of these emerging

high-growth markets in India.

“ITC wants to create a high-quality low-cost fulfillment channel for

rural India. The e-Choupal was the first step in the last mile towards complete

backward integration. But it's also the first mile on a new information highway

around which multiple suppliers and buyers can converge. It is transformational in

its implications and can make a huge contribution towards rural well-being."

-Y.C.Deveshwar,Chairman,ITC.

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

products. ITC is one of the country's biggest foreign exchange earners (US $ 2.4 billion

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

significantly enhance its competitiveness by empowering Indian farmers through the

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

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

create for ITC a huge rural distribution infrastructure, significantly enhancing the

Company's marketing reach.

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

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

continuously endeavors to enhance its wealth generating capabilities in a globalizing

environment to consistently reward more than 4,67,000 shareholders, fulfill the

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

the company is expressively captured in its corporate positioning statement: "Enduring

Value. For the nation, For the Shareholder."

Company Objectives and Resource Competencies:

Marketers should evaluate the segment opportunity with reference to their

short-term and long-term objectives, if a company’s objective is to achieve long-term

sustainable sales volume by expanding its consumer base, then it has to go rural instead

of expecting consumer to come to urban market to purchase products and services. This

is demonstrated by ITC, which is reaching rural homes with their products.

At the same time, the company should also examine its resources and

capability of servicing rural markets. It should take a calculated risk by conducting a

small pilot project, which will provide an opportunity to evaluate the target segment

behavior towards the product or service being offered. Smart marketer in rural like ITC

initiated e-choupal pilots have been transformed into mega rural marketing models.

ITC’s Vision:

Sustain ITC's position as one of India's most valuable corporations through world class

performance, creating growing value for the Indian economy and the Company’s

stakeholders.

ITC’s Mission:

To enhance the wealth generating capability of the enterprise in a globalizing

environment, delivering superior and sustainable stakeholder value

ITC’s Philosophy:

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ITC's stationery brands Paper Kraft & Classmate are the most widely

distributed brands across India. Paperkraft is targeted at working executives and college

goers. The Classmate range consists of notebooks, long books, drawing, etc. ITC's

Greeting & Gifting products include Expressions greeting cards and gifting products.

Agarbattis:

ITC has launched Mangaldeep Agarbattis across a wide range of

fragrances like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Durbar, Tarangini,

Anushri.

Hotels:

The 484-room ITC Hotel Maurya Sheraton & Towers at New Delhi is

not only amongst the leading business hotel in the country and the 386-room ITC Hotel

Grand Maratha Sheraton & Towers. Fabulous Indian meal at the Bukhara.

Safety matches:

These matches are available in unique designs and with innovative value

added features. ITC's brands like iKno, Mangal Deep, VaxLit and Delite.

Others:

ITC's International Business Division (IBD) is the country's second largest

exporter of agri-products. ITC exports Feed Ingredients (Soyameal), Foodgrains (Rice,

Wheat, and Pulses), Coffee & Spices, Edible Nuts, Marine Products, and Processed

Fruits. And the e-Choupal model of ITC.

34



The 4 A’s of marketing: A re-look from the rural perspective

The choice of strategy depends on the organizations ability to meet the

consumers’ needs effectively. This requires delivering value to the consumers by

developing suitable products at a price they are willing to pay and at a place where they

can conveniently purchase the products.

The basic marketing- mix tools remain the same both in rural and urban

markets, but it is the challenges of the 4 A’s that compel the marketer to revisit the

marketing tools when he ventures into rural markets.

4 Ps ( Tools) 4 As ( Challenges)

Product Acceptability

Price Affordability

Place Availability

Promotion Awareness

Availability:

The first challenge is to ensure the availability of the product or the

service. India’s 638,000 villages are spread over 3.3 million square k.m; 742 million

Indians may live in rural areas but finding them is not easy. However, given the poor

state of roads, it is an even greater challenge to send products to far- flung villages on a

regular basis. Any serious FMCG marketer must strive to reach at least 20,000 villages

with a population of more than 5,000 in the first stage and try to enhance coverage to

another 87,000 villages in the 2,000 -5,000 population marketers must trade off the

distribution cost with incremental market penetration. Over the years, India’s largest

FMCG company, HLL, a subsidiary of Unilever, has a built a strong distribution system

35



that helps its brands reach the interiors of the rural market. To service remote villages,

stockiest use auto-rickshaws, bullock carts and even boats in the backwaters of Kerala.

ITC, which considers rural India as a future growth driver, has evolved a hub-and-spoke

distribution model (e-Choupal) to reach villages. To ensure full loads, the company depot

supplies, twice a week, large distributors who act as a hubs. These distributors appoint

and supply, once a week, smaller distributors in adjoining areas.

Affordability:

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

low disposable incomes, products need to be affordable to rural consumers, most of

whom are daily wage earners. Some companies have addressed the affordability problem

by introducing small unit packs.

Acceptability:

The third challenge is to gain acceptability for the product or service. There

for, there is a need to offer products that suit the rural market. The product and service of

ITC is accepted by the rural customer’s are for example: e-Choupal and tobacco products

of the company.

Awareness:

With large parts of rural India inaccessible to conventional advertising

media—only 41% of rural household have access to television—building awareness is

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

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

family is the key unit of identity. However, the rural consumer’s preferences and

activities differ from those of his urban counter part. Outings for the former are confined

to visiting local fairs and festivals and television viewing is confined to the state-owned

channel Doordarshan. The consumption of branded product is treated as a special treat or

indulgence. By starting e-Chaupal and Choupal sagar ITC have been able to address these

challenges successfully, are reaping benefits in rural markets.

36



Product Life Cycle [PLC]:

A product passes through the 4 stages in its life cycle: Introduction,

Growth, Maturity, and Decline. In most cases (with the exception of agri products), the

product is developed for the urban market and is later pushed into the rural market. Only

in recent years have companies started customizing their products for rural markets.

It has been observed that the PLC of a product in the rural market is often

longer than it is in the urban market. All stages— of Introduction, Growth, Maturity,

and Decline—last for longer periods in rural markets due to the multiple challenges

involved in the distribution, communication and adoption of the product.

The strategies during the different stages of PLC remain similar in both

rural and urban markets, but the length of each stage depends on consumer acceptance,

innovativeness, price proposition and the nature of the product.

The pioneers in rural market such as HUL, Eveready, and ITC, having

achieved high penetration with products at the maturity stage, are now extending their

brands. Companies like ITC are also creating new market systems (e-Choupal) to bypass

the age-old mandi system to purchase agri commodities from farmers directly.

Initially e-choupal came up, as an experimental business model as such

model had not been implemented before in India by anyone. So it was imperative that

company itself created knowledge about the rural market and tried various things. The

implementation is characterized by ‘rational experimentation’, internally called ‘Roll

Out, Fix It and Scale Up’. Such an approach was adopted because many lessons can be

learnt only by implementation, since there are no precedents and textbooks. As envisaged

the platform allowed scalability and distributed operation.

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It had rolled out e-choupal in different states like Madhya Pradesh, Andhra

Pradesh, Karnataka and Uttar Pradesh and in different commodities like soyabean, wheat,

coffee, aquaculture etc. ITC firstly launches e-choupal at the pilot stage in a state, these

amounts to 50 to 100 e-choupals. If pilot stage is successful, company aims for critical

mass scale 300 e-choupals. Saturation stage consists of more than 1500 e-choupals. The

e-choupalsfor various commodities are in different stage of operation as shown in table.

Stages in product life cycle stages:

Commodity Stage

Soyabean Saturation stage

Coffee & aquaculture Pilot stage

Wheat Critical mass stage

38



SWOT Analysis ITC

ITC is one of India's biggest and best-known private sector companies. In

fact it is one of the World's most high profile consumer operations. Its businesses and

brands are focused almost entirely on the Indian markets, and despite being most well-

known for its tobacco brands such as Gold Flake, the business is now diversifying into

new FMCG (Fast Moving Consumer Goods) brands in a number of market sectors -

including cigarettes, hotels, paper, agriculture, packaged foods and confectionary,

branded apparel, personal care, greetings cards, Information Technology, safety matches,

incense sticks and stationery.

Strengths Weaknesses

Leading market position

Portfolio of strong brands

E-Choupal initiative

Over dependence on the Indian market

Heavy dependence on cigarettes business

Opportunities Threats

Choupal Sagar

Growing readymade garments market in

India

Booming hospitality industry in India

Retail revolution in India

Growing health consciousness

Growing tax rate Increasing competition

Strengths:

ITC leveraged it traditional businesses to develop new brands for new segments. For

example, ITC used its experience of transporting and distributing tobacco products to

remote and distant parts of India to the advantage of its FMCG products. ITC master

39



chefs from its hotel chain are often asked to develop new food concepts for its FMCG

business.

ITC is a diversified company trading in a number of business sectors including cigarettes,

hotels, paper, agriculture, packaged foods and confectionary, branded apparel, personal

care, greetings cards, Information Technology, safety matches, incense sticks and

stationery.

Launched in 2000, ITC's e-Choupal is largest initiative among all internet based

interventions in rural India. Its services reach out to over 3.5 million farmers in over

31,000 villages through 5,200 kiosks across six states

Weaknesses

The company's original business was traded in tobacco. ITC stands for Imperial Tobacco

Company of India Limited. It is interesting that a business that is now so involved in

branding continues to use its original name, despite the negative connection of tobacco

with poor health and premature death.

To fund its cash guzzling FMCG start-up, the company is still dependant upon its tobacco

revenues. Cigarettes account for 47 per cent of the company's turnover, and that in itself

is responsible for 80% of its profits. So there is an argument that ITC's move into FMCG

(Fast Moving Consumer Goods) is being subsidized by its tobacco operations. Its Gold

Flake tobacco brand is the largest FMCG brand in India - and this single brand alone

holds 70% of the tobacco market.

Opportunities

Core brands such as Aashirvaad, Mint-o, and Bingo! And Sun Feast (and others) can be

developed using strategies of market development, product development and marketing

penetration.

ITC is moving into new and emerging sectors including Information Technology,

supporting business solutions.

40



e-Choupal is a community of practice that links rural Indian farmers using the Internet.

This is an original and well thought of initiative that could be used in other sectors in

many other parts of the world. It is also an ambitious project that has a goal of reaching

10 million farmers in 100,000 villages.

ITC leverages e-Choupal in a novel way. The company researched the tastes of

consumers in the North, West and East of India of atta (a popular type of wheat flour),

then used the network to source and create the raw materials from farmers and then blend

them for consumers under purposeful brand names such as Aashirvaad Select in the

Northern market, Aashirvaad MP Chakki in the Western market and Aashirvaad in the

Eastern market. This concept is tremendously difficult for competitors to emulate.

Chairman Yogi Deveshwar's strategic vision is to turn his Indian conglomerate into the

country's premier FMCG business.

Per capita consumption of personal care products in India is the lowest in the world

offering an opportunity for ITC's soaps, shampoos and fragrances under their Wills

brand.

The success of e-Choupal initiative has helped ITC to make further in-roads into the rural

distribution with the concept of Choupal Sagar, a rural mall catering to various needs of

rural India. ITC is already operating seven such malls.

Threats

The obvious threat is from competition, both domestic and international. The laws of

economics dictate that if competitors see that there is a solid profit to be made in an

emerging consumer society that ultimately new products and services will be made

available. Western companies will see India as an exciting opportunity for themselves to

find new market segments for their own offerings.

ITC's opportunities are likely to be opportunities for other companies as well. Therefore

the dynamic of competition will alter in the medium-term. Then ITC will need to decide

whether being a diversified conglomerate is the most competitive strategic formation for

a secure future.

41



Marketing strategies:

Product strategy:

The following are the product strategies for the rural market and rural consumers:

1) Small unit packaging: This method has been tested by products like shampoos,

pickles, biscuits, Vicks cough drops in single tablets, tooth paste, etc. Small

packaging stands a good chance of acceptance in rural markets. The advantage is that price is low and the rural consumers can easily afford it.

2) New product design: Keeping in view the rural life style, the manufacturer and

the marketing men can think in terms of new product designs.

3) Sturdy products: Sturdiness of product is an important factor for rural

consumers. The rural consumers believe that heavier the item, higher the power and

durability.

4) Utility oriented products: The rural consumers are more concerned with the

utility of the product and its appearance.

5) Brand name: For identification, the rural consumers do give their own brand

name to the name of an item. A brand name or a logo is very important for a rural

consumer for it can be easily remember. Many a times rural consumers ask for peeli

tikki or neeli tikki in case of conventional and detergent washing soap.

Rural Packaging strategies:

Packaging has a significant role in product offerings in rural markets as it is

associated with affordability, ability to recognize (visibility, readability), convenience of

usage and product appeal. Packaging at the primary level involves protecting the product;

at the secondary level it adds to the aesthetics and sales appeal of the product.

42



Marketers need to consider the following factors in packaging:

• Packaging material

• Pack size and convenience

• Packaging aesthetics

For example: ITC uses plastic material for packaging. The advantages of

plastic material are that it is waterproof, provides effective barriers to vapors, is sunlight

resistant and is lightweight .The majority of FMCG products (shampoos, tea,

confectionaries, detergents, etc.) and agri-inputs(fertilizers, pesticides) now use plastic

for packaging.

The social and cultural differences in rural markets demand packaging

variations for products. The significance of colors differs from region to region. This is

seen in the case of ITC, which sales its Gold flake brand with a yellow cover in the south,

where this color is associated with prosperity and purity. In the north, the package color

is golden, as in this region yellow is often associated with jaundice and ill-health.

Branding strategy:

Brand is the name, term, sign, symbol, design or a combination of them, which helps to

identify seller’s products and differentiate them from those of competitors. The primary

purpose of branding is creating an identity of the product. The brand name for the rural

market should be such that it is instantly understood and recognized by the rural

consumer. The rural consumers are unfamiliar with English and absurd brand names. The

process of rural branding involves:

1) Brand name development

2) Creating an identity

3) Enhancing recognition

4) Building a band image

5) Countering spurious products ( look a likes, spell-a likes, duplicates)

43



Pricing Strategies:

Rural markets require huge efforts and resources devoted to all elements

of the marketing mix and in many cases companies also need to invest in market

development. In order to tap rural markets, marketers have to allocate sufficient resources

for packaging, number of SKUs and promotion and communication strategies suitable for

these markets.

The pricing objectives are:

• Profit maximization in the long run

• Minimum returns on sales turnover

• Deeper penetration of the market

• Keeping up with the competition

• Increasing sales volume and market shares

In case of ITC, to extend distribution, a sub- stockiest may be required in

the small town in addition to the existing channel. This would entail an additional margin,

increasing the company’s channel costs. To counter this added expense, some companies

are experimenting with more direct distribution models such as e-Choupal, mobile

traders, haats and self -help groups. Such models not only minimize the number of

intermediaries and their roles, but also help in extending the reach in rural markets.

Captive-product pricing is setting a price for products that must be used

along with the main product, such as blades for razor and film for a camera. The product

characteristics rather than the type of market drive this strategy. In case of services this

44



strategy is called two part pricing, where there is a fixed fee and variable usage rate. A

few marketers have devised pricing strategies where they initially reduced or abolished

fixed fees to rope in customers in the rural markets and later on charge prices in

accordance with usage rates. ITC’s e-choupal has kept no charges for extending Net

facilities to rural consumers, but charges high rates for other transactions.

Distribution Strategy:

Generating consumer awareness about goods and services pays

dividends only when, simultaneously steps are taken to ensure constant availability of the

advertise products in the market. In rural India in particular, availability determines

volume and market shares, because the consumer usually purchases whatever is available

at the outlet, influenced largely by the retailer’s advice and recommendation.

There are no standard or magic solutions to rural distribution. challenges

to reach the small and scattered rural market places needs to be addressed by marketers

by adopting out-of- the- box thinking and discovering innovative solutions. There for one

need to under stand the key challenges to rural distribution first and then design the

solutions which can effectively address them.

With the spread of consumers across various population categories,

marketers face the problem of accessing these markets.

Population in village Number of villages Percentage of villages/

percentage of population

Less than 200 96,855 15.7/1.2

200—500 1,36,454 21.4/5.9501—1,000 1,56,737 24.6/14.5

1,001—2,000 1,40,751 22.0/25.9

2,001—5,000 87,206 13.7/37.5

5,001—10,000 20,363 3.2/15.0

45





Mobile traders have a deep reach since they target small villages

(<2,000 population) to avoid competition from shops in bigger villages.

Companies such as HUL, ITC, Godfrey Philips are exploring ways to

organize this highly fragmented sales force and set up monitoring mechanisms through

stockiest and maintaining proper data bases. If mobile traders can be made to sell genuine

brands, it would be important to improve their image and credibility by providing them

branded bicycles, caps, T-shirts, badges and even company uniforms.

ITC has promoted his product through the melas and Haats. Some

products of the company had been given to co-operative societies to help in distribution.

Products like agarbattis, safety matches, and cigarettes.

Communication Strategy:

Advertising goes hand in hand with economic growth. With economic liberalization an

increasing rural prosperity, marketers are keen to inform villagers about the benefits of

buying and consuming their products and services.

There are many challenges to communication in rural. Low literacy level; poor media

reach and exposure and vast, heterogeneous and diversely spread rural audiencescharacterized by variations in language, culture and life style—all these factors pose

multiple challenges to marketers looking to take their massages to the largely media- dark

or media-grey areas, of rural markets.

Developing effective communication involves the following steps:

1) Proper profiling of the target audience is required-

* Who uses the brand?

* Who buys the brand and Why?

* Who decides which brand is to be bought?

2) Determining the communication objectives

Once the target market/ audience and its characteristics have been identify,

the marketer and the communicator must decide on the desired audience response. The

47





2. Launch of a Non-durable Brand

3. Communication for an Existing Non-durable Brand

4. Launch of a New Durable

5. Launch of a Durable Brand

6. Communication for an Existing Durable Brand

Launch of Cigarettes: The ITC Story

In 1910, when Imperial Tobacco introduced cigarette in India, cigarette

smoking was almost unknown as people smoked the native chillums, hookahs and bidis.For the early marketers waiting to convert the Indian rural market, selling was merely a

question of gifting away thousands of cigarettes. The sales pitch was obviously aimed at

familiarising people with the unknown. A salesman’s acumen was judged by the number

of sticks he distributed. According to records, dispensing 50,000 to 100,000 cigarettes a

month was considered to be a respectable number. The modus operandi was to hire a

horse-drawn carriage from the nearest bazaar and cover it with gaily decorated placards

advertising cigarettes. The vehicle travelled from district to district, with the district

salesman and a section salesman sitting in full regalia showering cigarettes like so much

confetti. While doing so, they would declaim the benefits of smoking. The more obvious

venues—village melas—were singled out where a curious crowd would collect.

Sometimes lucky dips and cigarette stalls were set up, with the more enterprising

salesmen even organizing lantern processions to popularise their brands. At these places,

large groups would gather, most of whom had never seen a cigarette, let alone smoked

one. The salesman would then demonstrate how to hold a cigarette in one’s mouth, how

to light it and how to smoke it.

These efforts at selling were backed by immature efforts at advertising. The

publicity was mostly concentrated on such devices as posters, displays and promotional

extravaganzas.

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ITC E-CHOUPAL

Meaning of Choupal:

In Hindi choupal means a village place where people gather, gossip, smoke

hookah, discuss or interact with each other. There may be a Sanchalak or leader who

heads the proceedings. It is a favorite spot for villagers to pass their time and is a

convenient place to conduct interviews.

Meaning of e–Choupal:

When a choupal is equipped with a computer & internet connectivity it is

called an e-choupal. Since power is a cause for concern in rural areas it involves backing

the computer with solar power.

The concept:

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ITC developed its e-choupal strategy as a way of communicating directly

with farmers and of by passing the inefficiencies arising out of the agents’ intermediation,

their by achieving “virtual vertical integration.”

The model is centered on a network of e-choupals, information centersequipped with a computer connected to the internet, located in rural farming villages. A

local farmer, acting as sanchalak (coordinator), runs the village e-choupal; the computer

is usually located in the sanchalak’s home. ITC also incorporates a local commission

agent, known as the samyojak( collaborator) into the system as the provider of logistical

support.

The costs:-

Each e-chopal costs rupees 2 lakh to set up and about rupees 5,000 per year

to maintain. It costs the farmers nothing to use the system, but the host farmers

(sanchalak) incurres some operating costs: he is obligated by a public oath to serve the

entire community. The sanchalak benefits from increased prestige within the village and

commission is paid to him for all e-choupal transactions.

“Hinglish”:

ITC has worked hard to create interfaces in the farmers’ native language,

Hindi. They also have provided software that has made it possible to type Hindi

characters using a standard English keyboard. The preferred language for writing e-mail

and other electronic communication however is “Hinglish,” Or Hindi typed with English

characters. The reason for this is that combining vowels and consonants to create Hindi

letters is a very cumbersome affair on a keyboard. It sometimes takes three keystrokes to

render one letter. Many sanchalaks agree that this is the only aspect of computer usage

they have not been able to master.

ITC’s e-Choupal:

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The project e-Choupal is ITC’s unique click & mortar initiative. E-Choupal is

an ITC platform for carrying out trade at a number of locations. The e-Choupal redefines

choupal, which as mentioned earlier, is the Hindi word for village square where elders

meet to discuss matters of importance. The all-important letter in the word is "e". It

stands for a computer with an Internet connection for farmers to gather around and

interact not just among themselves but with people anywhere in the country and even

beyond.

It begins with ITC installing a computer with solar-charged batteries for

power and a VSAT (Very Small Aperture Terminal) Internet connection in selected

villages in the house of one of their key links called the Sanchalak. The computer's

functioning is freed from the notorious power and telecom facilities at the village level.

e-Choupal delivers real-time information and customized knowledge to improve the

farmer's decision-making ability, thereby better aligning farm output to market demands;

securing better quality, productivity and improved price discovery. ITC accumulates

information regarding:

• Weather,

• Modern farming practices

• And higher market prices etc.

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From sources like the Meteorological Department; Agro-universities, mandis (regional

markets) etc., and upload all information on to the e-Choupal web site.

This helps the farmers to gather Information regarding weather and scientific

farming helps farmers to select the right crop and improve the productivity of their farms.Availability of market information helps farmers to become market oriented.

They know what price ITC is quoting and the price prevalent in the local

market, thereby helping better price realization for farmers. If the farmer decides to sell to

ITC, the Sanchalak works as the aggregator of the small farmer’s produce to sell them to

ITC. The Sanchalak also aggregates the farmers’ input purchase orders for various items

like seeds, pesticides and places them directly with the suppliers through the internet and

thus facilitates the supply of high quality farm inputs as well as the purchase of farm

produce at the farmers’ doorstep with the help of intermediaries.

All information is customized according to the local farmer’s requirements

and provided in the local language through computer set up by ITC in the Sanchalak’s

house. Thus the e-choupal model helps aggregate demand in the nature of a virtual

producers' co-operative, in the process facilitating access to higher quality farm inputs at

lower costs for the farmer. The e-Choupal initiative also creates a direct marketing

channel, eliminating wasteful intermediation and multiple handling, thus reducing

transaction costs and making logistics efficient. The e-Choupal project is already

benefiting over 3.5 million farmers.

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

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

weak infrastructure and the involvement of numerous intermediaries, among others.

‘e-Choupal’ also unshackles the potential of Indian farmer who has been

trapped in a vicious cycle of low risk taking ability - low investment - low productivity -

weak market orientation - low value addition - low margin - low risk taking ability. This

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

natural resources.

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

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

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

productivity.

The Model in Action:

The Value Chain - Farm to Factory Gate:

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

Choupal’ leverages Information Technology to virtually cluster all the value chain

participants, delivering the same benefits as vertical integration does in mature

agricultural economies like the USA.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

to the ‘mandi’ system for price discovery, ‘e-Choupal’ eliminates wasteful intermediation

and multiple handling. Thereby it significantly reduces transaction costs.

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

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

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

While the farmers benefit through enhanced farm productivity and higher

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

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

value.

The Status of Execution:

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

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

to over 4 million farmers growing a range of crops - soyabean, coffee, wheat, rice, pulses,

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shrimp - in over 40,000 villages through 6500 kiosks across ten states (Madhya Pradesh,

Haryana, Uttarakhand, Karnataka, Andhra Pradesh, Uttar Pradesh, Rajasthan,

Maharashtra, Kerela and Tamil Nadu).

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

are primarily of infrastructural inadequacies, including power supply, telecom

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

internet users in remote and inaccessible areas of rural India.

Several alternative and innovative solutions – some of them expensive – are being

deployed to overcome these challenges e.g. Power back-up through batteries charged by

Solar panels, upgrading BSNL exchanges with RNS kits, installation of VSAT

equipment, Mobile Choupals, local caching of static content on website to stream in the

dynamic content more efficiently, 24x7 helpdesk etc.

Going forward, the roadmap includes plans to integrate bulk storage,

handling & transportation facilities to improve logistics efficiencies.

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As India’s ‘kissan’ Company, ITC has taken care to involve farmers in

the designing and management of the entire ‘e-Choupal’ initiative. The active

participation of farmers in this rural initiative has created a sense of ownership in the

project among the farmers. . They see the ‘e-Choupal’ as the new age cooperative for all

practical purposes.

This enthusiastic response from farmers has encouraged ITC to plan for the

extension of the ‘e-Choupal’ initiative to 11 other states across India over the next few

years. On the anvil are plans to channelise services related to micro-credit, insurance,

health and education through the same ‘e-Choupal’ infrastructure.

Itc Operate’s The E-Choupal Through: -

‘THE SANYOJAK’

The Sanyojak is the main link between ITC and the Sanchalaks. Each

Sanyojak acts as a co-coordinator for an e-Choupal hub which consists of around 50 odd

e-Choupals. He is either a former ‘Mandi’ dealer or a local ITC product dealer. The

Sanyojak earns a certain commission on every e-Choupal deal.

‘THE SANCHALAK’

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The Sanchalak is a lead farmer, who acts as the interface between the

computer and the acts as the interface between the computer and the farmer. He operates

the computer on behalf of ITC, but exclusively for farmers. The Sanchalak also known as

the ‘Pratinidhi’ is the most important link between the Sanyojak and the farmers.

Sanchalaks are required to take a public oath of serving their community without

discrimination and sign a social contract to spend a part of the income they earn from e-

Choupal on community welfare.

As stated earlier, all the information to be uploaded on the e-choupal site is

customized according to the local farmer’s requirements and provided in the local

language through the computer set up by ITC in the Sanchalak’s house. The Sanchalak

accesses this information and facilitates its dissemination to the farmers.

These Sanchalaks are considered to be the most important link in the whole

chain as it is the sanchalak who interacts with the farmers. Within 2-3 years of

implementing e-Choupal, these Sanchalaks have earned a certain status. They have

become agents of change as the farmers now consult the Sanchalak for all critical

decisions.

Marketing strategies for e- Choupal:

As stated earlier, to a large extent, it is the Sanchalak’s influence on the

farmers that can turn the sales in ITC’s favor or the opposite way. Hence one of the most

important things ITC needed to consider before entering the market was the strategy they

needed to use to promote their project.

ITC realized the importance of the role the Sanchalak can play in helping

their project become successful.

This is clear from their whole idea of appointing one of the farmers/ villagers

as the Sanchalak. They knew very well that if they appointed some outsider as the

Sanchalak, the farmers may have not taken to the project in the same way due to the

presence of an outsider. But, appointing someone from the village would only re-

emphasize the fact that e-Choupal was here only by the farmers and also only, for the

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farmers. Also, even the smallest of farmers would be comfortable in speaking to the

Sanchalak rather than some outsider.

Once, ITC developed this strategy to assure the farmers, they had to develop

a strategy to ensure that the Sanchalaks would convince the farmers to sell their produceto ITC and also buy ITC products. Hence, for every quintal of produce sold to ITC

through an e-choupal, the Sanchalak, get Rs. 5. Also, in 2003-2004; ITC had distributed

Rs. 3 crore as commission.

Besides this, every Sanchalak also gets a commission for every product

bought by the farmers from ITC. Also, the farmers who sell their produce to ITC are

required to follow a certain, minimum quality standard. When the quality of their produce

exceeds this required minimum specification, then, they are given a certain discount on

any product they would like to buy from the ITC Company.

Hence the ITC Company has implemented various steps which are mutually

beneficial to both, the company and the farmers.

But ultimately, it is upto the Sanchalak who can maximize his profits as well

as the farmer’s. But while doing this he has to retain the trust of his villagers as he

becomes responsible for all the transactions which take place with ITC.

Thus ITC has developed a very good system, where they provide the farmers

with every possible facility and service, but at the same time; the farmer is free to sell his

produce to whomever he wants.

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The Impact of e-choupal:

A major impact of the e-Choupal system comes from bridging the

information and service gap of rural India. Agricultural research centers (such as the

Indian Council for Agricultural Research), universities, and other agencies in India have

developed several practices and technologies to improve productivity and crop quality.

The impediment to implementation has been affordable, large-scale dissemination of this

knowledge. The e-Choupal system leverages technology that can reach a wide audience

literally at the click of a mouse. The constant presence of sanchalaks, who themselves are

farmers who apply these techniques, ensures that the practices actually make their way

from the Web site to the field. Some areas about which information and services are

provided by the e-Choupal Web site and e-commerce system Include:

• Weather information:

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This is a very popular section on the Web site because it provides

localized weather information at the district level. Other public sources generally provide

only aggregated state level weather information. e-Choupal’s weather information is

intelligently coupled with advice on the activities in the agricultural lifecycle. One farmer

observed that prior to e-Choupal; unreliable weather information would result in

prematurely planted seeds that would be washed out by early rains. The availability of

accurate rain information has cut losses due to weather by more than half.

• Agricultural Best Practices :

Scientific practices organized by crop type are available on the Website.

Additional questions are answered through FAQs and access to experts who respond to

emails from the villages.

• Customized Quality Solutions :

After sale of a crop is completed, ITC performs laboratory testing of the

sample collected. Based on these results, farmers are given customized feedback on how

they can improve crop quality and yield.

• Intelligent Product Deployment :

Inputs such as fertilizers and pesticides are not generic in their application.The optimal application is relative to the soil and crop. Determining these parameters

requires services such as soil testing. Past providers brought inputs but not the

information and services required to make them effective. ITC’s “full-service” approach

corrects this by coupling the input sale to the information on the Web site and services

such as soil testing.

A second major area of impact stems from the ability of the e-Choupal

system to open a window on the world and thus impact the future of the villages in which

they operate. Computers are bringing the same resources to villages as they brought to

urban India, and their impact is no less dramatic. This, coupled with higher incomes and

changes in farmers’ attitudes, is causing several shifts in the social fabric of village life.

• Some benefits from villages include:

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1) Children are using computers for schoolwork and games. A particularly poignant story

is that of Khasrod, where 2,000 local students used the local e-Choupal to print their

grade sheets, saving them days of waiting and travel time. Youngsters in the village use

computers to research the latest movies, cell-phone models, and cricket news.

2) Sanchalaks use the Internet to chat extensively among themselves about the status of

operations and agriculture in their villages.

3) Villagers access global resources to learn about agriculture in other parts of the world

and are taking action to compete in the world outside, not merely in the local mandi.

• Reduce cost of transaction:

It has reduced the cost of procurement and the cost of transit and the material handling

cost as shown in table

Conventional transaction vs e-choupal costs

Cost element Conventional market e-Choupal

Trolley Freight to Mandi 100 Nil

Filling & Weighing Labor 70 Nil

Labor Khadi Karai 50 Nil

Handling Loss 50 Nil

Sub Total 270 Nil

Processor Incurs

Commission to Agent 100 50

Cost of Gunny Bags 75 Nil

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Labor (Stitching &Loading)

35 Nil

Labor at Factory

(Unloading)

35 35

Freight to Factory 250 100

Transit Losses 10 Nil

Sub Total 505 185

Grand Total 775 185

As % of Beans Value 8% 2%

Procurement of farm produces by:

It has created three platforms, which are providing direct access to the

farmers for selling their produce and also for procuring their requirement. These portals

are as following.

1) www.soyachoupal.com:

Traditionally the farmers sold the Soya produce to small traders known as

Kacha Adat, who in return sold to big trader known as Pakka Adat. Then the brokers

interacted with these big traders enabling them to sell their produce to big companies.

Because of such large number of intermediaries between the buying company and the

producing farmers the procurement cost for 1 tonne of soya was as high as Rs. 700/tones

plus the losses incurred in the transit and the taxes.

Company created this platform to purchase Soya produce directly from the

farmers without any intermediary. Internet kiosks not only provide information with

respect to best farming practices, but also the prevailing price for the crop in different

mandis ,thus, enabling the farmers to make an informed decision.

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http://www.soyachoupal.com/




For every tonne of produce of Soya sold to ITC from e-choupal, sanchalak

gets 0.5% as commission. During 2003 to 2004, ITC distributed about Rs. 3 crores to

sanchalaks as commission.

2) www.plantersnet.com:

For coffee growers in the state of Karnataka, ITC established a website

www.plantersnet.com in December 2000. Since then it has set up 75 kiosks to cover 6000

coffee growers in 125 villages by the end of 2004. It is providing information on range of

issues relating to coffee trading business for the benefit of the farmers so that they are

able to earn better by being better informed about the national and global markets as the

market prices for coffee tend to be very volatile.

As the role played by the dealer was very significant as an intermediary

and they were doing this very efficiently, ITC positioned its website as a source of

knowledge with respect to the inputs and outputs. It also provided a platform to the

different stake holders who could come together and network amongst themselves. It tied

up with ABN AMRO, one of the world’s largest future players, to provide updates on

critical information like the raw to clean coffee conversion rates and coffee futures onregular basis.

It placed the infrastructure of computers and peripherals in places like clubs

and co operatives of small planters and with agents from where the coffee planters could

access the information.

ITC developed e-trading platform and this facility has brightened the

export prospectus for coffee from India by providing information on scientific cropping

and market information .it is providing the knowledge international prices of coffee from

commodity exchanges like CSCE in New York and LIFFE in London and it also provides

the prices at international auctions.

3) www.aquachaupal.com:

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http://www.plantersnet.com/


http://www.aquachoupal.com/






For the benefit of aqua farmers who were in a high risk, high return business

of producing shrimp products that are highly perishable, ITC launched

www.aquachoupal.com in Andhra Pradesh in February 2001.It is currently operating 55

kiosks covering 10,000 shrimp farmers in more than 300 villages.

It enables farmers to deal with threats posed by undetected virus, soil

contamination and abnormal level of salinity, which could destroy the entire shrimp crop.

This information raises the productivity level of farmers manifold.

Winners and Losers:

Not everyone has benefited from the introduction of e-Choupals. Indeed, lost income and

jobs is directly connected to the overall increase in efficiency in the e-Choupal system.

Some of the players in the mandi system have suffered loss of revenue. They include:

• Commission agents. Despite ITC’s best efforts to maintain mandi volumes and

compensate commission agents for lost income, there is little doubt that on the whole

they have lower incomes as a result of the introduction of e-Choupals.

• Mandi laborers. The workers in the mandi who weighed and bagged produce have

been severely impacted by the drop in volume. In the Sonkach mandi, for example, some

28 tulavatis and 300 laborers have been affected. ITC’s long-term vision is to employ

many of these people in the hubs in much the same functions as they perform in the

mandi.

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• Bazaars near the mandi. When farmers sold produce in the mandi, they would also

make a variety of purchases at local bazaars. This revenue has now been diverted to

shops near the ITC hubs. This, however, can be considered a diversion of revenue rather

than elimination.

• Some mandi operations. ITC still pays mandi tax for all the crops procured through e-

Choupals but it now pays the tax to the mandi nearest to the procurement center. As a

result, taxes are being diverted from several mandis to the few mandis near procurement

hubs. The result of this is that regional mandis have lost taxes that contribute to

maintaining their infrastructure.

• Competing processors. Even before the advent of the e-Choupal, the soya crushing

industry suffered from severe overcapacity (half of all capacity was excess). The

efficiency pressures imposed by e-Choupal have spurred industry consolidation.

E-Choupal at a Glance:

• States covered: 10

• Villages covered: 40,000

• Number e-Choupal installations: 6500

• Empowered e-farmers: 4 million

Agenda for the Next Decade:

• States to be covered: 15

• Villages to be covered: 1, 00,000

• E-Choupals to be installed: 20,000

• Farmers to be e-empowered: 10 million

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CHOUPAL SAGAR

ITC’s Choupal Sagar was the first mall in India, with an impressive

7,000 square feet area. It offers a self-service facility with attractive merchandise

displayed on open shelves (lining the neat aisles). It stocks almost everything, from

toothpaste to televisions, hair oils to motorcycles, mixer-grinder to water pumps, shirts to

fertilizers. Most of the brands that Choupal sagar sells are national brands, such as

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Marico, LG, Philips and Eveready and shirts from ITC’s apparel business, bikes from

TVC and tractors from Eicher. The mall is located near the stock points of ITC’s e-

Choupal, making it an integrated model. To offset the huge investments made in the

distribution network, ITC has partnered with other companies interested in serving the

rural market. This has not only widened their product offerings, but has also spread out

the overhead costs. Choupal Sagar cannot be shoehorned into any of the retailing

categories we are familiar with. At 7,000 square feet, it is too small to be a mall. And

while it has opted for self service, stocking its merchandise on shelves lining the neat

aisles, it stocks a breadth of products no supermarket can.

"ITC realized that the farmers had just got money, that they would spend

it anyway, and that they had an empty vehicle with which they could lug the stuff back."

Chaupal Sagar is one of the first organized retail forays into the hinterland.

One of the first Chaupal Sagars was soft-launched in a small village in Madhya Pradesh,

40 km. from Bhopal. The company had promised to open 1,000 rural malls in India and

this is one of the first. It is located just next to the ITC warehouse where the farmers

bring in their produce to sell to ITC. The whole idea behind this is that the farmer will be

tempted to go visit the Chaupal Sagar once he has money in his hands and also, his

money will be spent in a wise manner.

ITC is doing with this warehouse is similar to what it did with its kiosks. In

the first phase, having wired up the hinterland, it began using the network to enable a

two-way flow of products and services to the rural economy. Working through the

sanchalaks, ITC first pushed its own products, like salt, into the hinterland, and then

invited others like Parachute and Philips to ride on this distribution chain. Today, it plans

to similarly create revenue streams around its warehouses.

Functioning in accordance with a hub-and-spoke model, a Choupal

Sagar is a rural shopping mall where farmers can sell their commodities and can buy

almost everything including cosmetics, garments, electronics, appliances and even

tractors. Further, the Choupal Sagar offers telemedicine facilities for which the company

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has tied up with various reputed medical groups. Walk into the building and the first

thing you notice is the high ceiling. That is because the building is actually a sprawling

warehouse for storing the farm produce that ITC buys through its e-chaupals. The mall

has come up in one part of this warehouse.

The Chaupal Sagar has opted for self service, stocking its merchandise

on shelves lining the neat aisles, it stocks a breadth of products no supermarket can. ITC

has tied up with. It is a very sharply thought-out rural store.

One of the main reasons why ITC started on this foray is with the hope of

capturing the rural folks' out-of-village shopping. The warehouse is one part of its

strategy, obviously. But the farmers will come here only after every harvest. To ensure

that they keep coming to Choupal Sagar even at other times, the company is offering a

slew of other goodies. Another building is coming up next to the main warehouse. When

completed, it will house a bank, a cafeteria, apart from an insurance office and a learning

centre. ITC has tied up with agro-institutes to offer farmer training programmes. Then,

plots of land have been earmarked to display large agricultural machinery like threshers.

Other parcels of land have been earmarked for pesticide and fertilizer companies for

demonstrating their products. A petrol pump is coming up as well.

ITC is tentatively planning to open another 4-6 malls this year and not more than

that, as it is waiting to see how well the malls do. If these malls are picked up well by the

rural Indians, not only will ITC prosper, but even the rural areas will prosper. Already,

with the advent of e-Choupal, many of the rural areas are prospering; thus increasing the

buying capacity, which will thus encourage new entrepreneurs to focus on rural India as

well.

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Companies using e- choupal network in rural market:

Challenges and Corresponding strategies:

These newly set up organized retail stores for the rural market, either owned or

franchised by the large corporates are going through learning phase. They are grappling

with high costs, low revenue and channel conflicts with existing dealers and credibility

issues. But experiments in domain of organized retail for rural world are in advance stage

faces some obvious threats, which are outline below.

Challenge:

The major threats that these stores have is the availability of credit for the rural consumer

at the kirana store, which might not be available at these organized rural super markets.Most of the rural consumers do not pay at the end of the month but after the harvest (after

three or four months).

• Strategy:

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In case of ITC there is a strategy in the place, it makes immediate payment to farmers

who sell their produce at the mall and thus farmer has a ready cash to make bulk

purchases for the few months at one go. Along with that there is attraction for him to

bring his family and children in form of amenities like cafeteria and games. Presence of

the family members that too with cash creates a right situation for marketers to target

rural audience for selling their products and services.

Developing tie-ups with banks and insurance companies and making

their presence under the same roof as enablers for the purchase in case of non availability

of cash with the farmers.

Challenge:

Loyalty of rural consumer with the retailer is higher than the brand loyalty. It would be a

challenge for the operators of the stores to get the customer away from the traditional

retailer who has been serving the needs of the family for year’s altogether.

• Strategy:

Provision of value added advisory services could be of great advantage to bring in new

consumers to these retail outlets for the first time. Then the experience of providing

quality products can take over from there to build a long-term relationship with the rural

consumers.

Challenge:

On one hand seasonality of the demand is tied with the harvest and festivals and on the

other, daily wage earners get only small dues on daily basis( that to for maximum 20 days

a month during ff season), this poses another challenge. This is further aggravated by the

fact that there is a lack of organized institutional mechanism to lend money on credit to

these farmers with undependable and irregular income streams.

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• Strategy:

Appropriate merchandising and integrating solutions as a package that can meet the needs

for all types of consumers can be a good strategy to serve the needs of the relatively poor

people to some extent.

Challenge:

During the monsoons good numbers of village are cut of from neighboring villages and

towns. These block the movement of people and goods for significant time and thus

would create financial burden for these big stores with very less sales in those days.

• Strategy:

Organizations can start by opening retail outlets in the regions or states, which have

relatively better connectivity and are less likely to face the transportation problems during

the rainy season.

ITC’s Social Responsibility Initiative in Rural Areas:

Corporate and social responsibility is an integral part of ITC’s philosophy,

and ITC is widely recognized as dedicated to the cause of nation building. Chairman Y.

C. Deveshwar calls this source of inspiration “A commitment beyond the market.”

ITC has taken a good number of social initiatives in rural areas around its

plants, which are helping both the population of adjoining areas and the organization it

self as a by- product. These developmental efforts are providing meaningful employment

opportunities in the village it self. They are also increasing over all income and

productivity of the people influenced by them.

1) Sunehra Kal (Better Tomorrow):

ITC has started comprehensive natural recourses management initiative

called “Sunehra Kal” in the vicinity of choupals. Sunehra Kal is a social forestry

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are giving 8-9 times more productivity than the traditional seedlings and increasing the

incomes of farmer’s substantially.

The sales proceeds received by the sanghas rotated for further development and

sustaining rural activity thus creating a pool of resources for the co-operative help of the

members and taking them out of the clutches of traditional exploitative designs and

moneylenders.

Such like development approach needs to be followed by the leading players in the

corporate world to enhance the purchasing power of people at the Bottom of the Pyramid.

This programme has shown that this help need not be philanthropic activity but can be an

integral part of the business model of an organization. Both, organization and targeted

population have been equally benefited by this approach.

FUTURE

Access and availability are equally important as the manta for success in

rural is “Jo dikhta hai, wohi bikta hai.”

In the coming years, companies will not fight for share of the limited rural

pie. They will join hands with government to increase the size of the pie by crating

economic activity in our villages through micro enterprises and mainstream these efforts

by linking them with the larger industry. The efforts of these public-private partnerships,

which have already began, will create much-needed affluence, resulting in greater

purchasing power in our villages and lead to greater demand for corporate products.

As the rural market develops in the next few years, more qualitative

studies will be needed to understand the rural consumer, his life style, aspirations and

75



motivations. Research agencies will also have to develop relevant rural segmentation

models.

Last, but not the least, with the fast improving rural infrastructure and

higher exposure to city life the sharp divide between urban and rural will get blurred in

the coming years, as has already happened in Kerala and Panjab. This will lead to rural

people looking up to urbanites and imitating their lifestyle. But this process has only just

begun.

Thus looking at the challenges and the opportunities which rural markets

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

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

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

is called for, so they can successfully impress on the 230 million rural consumers spread

over approximately six hundred thousand villages in rural India.

The next big marketing revolution could happen in the rural sector. When

it happens, marketers should have already studied the lay of the land and thought of the

strategies and tactics for victory. “The time to prepare for Tomorrow is Today.”

CONCLUSION

"To be successful in the rural market, remember- there is no unity in

diversity, but act local while thinking global."

ITC’s e-Choupal proved to be a boon for rural marketers. With advent of

the ITC-driven value chain and organized retailing, it seems that marketers are in a

position to expand their market reach and also adopt cost-effective strategy to achieve the

desire results.

ITC has been successful in making the farmer feel the sense of ownership

and enthuse him to generate additional revenue by eliminating middleman. The success

of e-Choupal has given new lessons to the corporates in the India and abroad. The gains

from the novel initiative are manifold to ITC, the farmers and other companies.

76



The e-Choupal model shows that a large corporation can combine a social

mission and an ambitious commercial venture; that it can play a major role in

rationalizing markets and increasing the efficiency of an agricultural system, and do so in

ways that benefit farmers and rural communities as well as company shareholders. ITC’s

example also shows the key role of information technology used by local farmers to bring

about transparency, to increase access to information, and to catalyze rural

transformation, while enabling efficiencies and low cost distribution that make the system

profitable and sustainable.

Critical factors in the apparent success of the venture are ITC’s extensive

knowledge of agriculture, the effort ITC has made to retain many aspects of the existing

production system, including retaining the integral importance of local partners, the

company’s commitment to transparency, and the respect and fairness with which both

farmers and local partners are treated.

Thus looking at the challenges and the opportunities which rural markets

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

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

ANNEXURES

Interview:

“Be serious; commit resources like human, money and time for rural

success”

S. Shivakumar is the chief executive of ITC’s Agri business and also looks aster

the highly successful rural initiative e-choupal which has made to many case studies both

in India and abroad. Edited excerpts from an e-mail interview with him:

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1) How do you look at rural market?

It’s a high potential market, yet under-leveraged and relatively unexplored. I

think rural region has opportunity beyond just ‘Agri Inputs’ and ‘Cheap products’. But,

there are unique challenges posed by inadequate infrastructure. Also, growth in rural

markets during Phase-I was driven by mere “reach”. In Phase-II, deeper consumer

engagement is being driven by innovation in products, packaging and communication.

2) Please share your rural success story and the secrets of it.

Besides the traditionally successful rural marketing approach of ITC driven by

innovations in distribution of company’s cigarette brands, the new success story is the

ITC e-choupal initiative. ITC e-choupal design is based on a synergistic business model

that raises rural incomes, while sourcing agri raw material cost effectively. It serves as a

platform for rural marketing, relying on new consumers’ insights: unique needs, social

norms, habits it also helps us in understanding the gaps in the current product & channel

alternatives.

3) How does e-choupal help drive synergy for the ITC businesses?

ITC e-choupal synergizes the backend supply chain needs and the frontend

consumer engagement needs in rural India as a cost-effective and differentiated backend

supply chain through direct farm level sourcing of agri raw material for ITC’s branded

foods business. E-choupal works as a low-cost supply chain by eliminating non-value

adding intermediation. As a consumer engagement point for ITC products, e-choupal

captures consumer insights through direct consumer interaction (sampling, trials, and

feedback on buying & consumption behavior).

78





Articles:

The Hindu Business Line May 16,2005

ITC wins `Golden Peacock' award

ITC Kolkata, May 16

Ltd has won the `Golden Peacock Global Award for Corporate Social Responsibility

(CSR) in Emerging Economies for 2005.' The award was presented to the company in

80



London recently by Dr Ola Ullsten, former Prime Minister of Sweden, who also headed

the jury.

According to an official release by the company, the award has been received for two of

its initiatives that are impactfully transforming lives and landscapes in rural India - ITC's

e-Choupal and social and farm forestry.

The award for CSR, according to the release, aims to stimulate organisations to rapidly

accelerate the pace of stakeholder-oriented improvement processes, with the prime

objective of encouraging competitiveness in corporate governance and corporate social

responsibility.

ITC's e-Choupal empowers 3.5 million farmers by enabling them to readily access crop-

specific, customised and comprehensive information in their native village habitat and

language. Vernacular Web sites relating to each agricultural crop that the company deals

in provide ready and real time information to even marginal farmers on the prevailing

Indian and international prices and price trends for their crop, expert knowledge on best

farming practices, and micro level weather forecast.

The Hindu Business Line May 20, 2004

e-Choupal bags inaugural ‘World Business Award’

May 20, 2004

ITC Ltd’s Internet-based rural project, ‘e-Choupal’, has won the inaugural ‘World

Business Award’ instituted in support of the United Nation’s Millennium Development

Goals, says an official release by the company here on Wednesday.

Announced in Paris on Monday, the worldwide business award recognizes the

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significant role business can play in the implementation of UN’s targets for reducing

global poverty by 2015.The award will be presented to ITC at the ICC (International

Chamber of Commerce) World Congress on June 8, in Marrakesh, Morocco.

Selected from 64 nominations in 27 countries, the ‘e-Choupal’ project has been specially

recognised for making “significant contribution to society by deploying innovative and

productive skills of a business enterprise and striving to address the challenge of

development through a core business activity.”

Commenting on the award, Mr. S Sivakumar, Chief Executive of ITC’s agri-businesses,

said, “the e-choupal project has demonstrated that it is possible to closely dovetail the

objective of business enterprises to create shareholder value with the subordinate goal of

creating value for the larger society.” Describing the project as the single largest IT-

based intervention by a corporate entity in rural India, Mr. Sivakumar said e-Choupal

has enabled the Indian farmer to readily access crop-specific real time information and

customised knowledge in his own native language.

Pointing out that the choupal network helps aggregate demand in the nature of a virtual

producers’ cooperative and in the process facilitating the farmer’s access higher quality

farm inputs at lower costs, he said it also creates a direct marketing chain, eliminating

wasteful intermediation and multiple handling, thereby reducing transaction costs.

Data table :

Number of Villages in India (in 1991 and 2001 Censuses)

Number of Villages in 1991*

Number of Villages in 2001 Census#

01 JAMMU & KASHMIR 6,705(1991)* 6,652 (2001)#02 HIMACHAL PRADESH 19,388(1991)* 19,831(2001)#

03 PUNJAB 12,795(1991)* 12,729(2001)#

04 CHANDIGARH 25(1991)* 24 (2001)#

05 UTTARANCHAL 16,623(1991)* 16,805(2001)#

06 HARYANA 6,988(1991)* 6,955 (2001)#

07 DELHI 209(1991)* 165(2001)#

08 RAJASTHAN 39,810(1991)* 41,353(2001)#

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09 UTTAR PRADESH 107,327(1991)* 107,440(2001)#

10 BIHAR 45,077(1991)* 45,113 (2001)#

11 SIKKIM 453(1991)* 452 (2001)#

12 ARUNACHAL PRADESH 3,649(1991)* 4,065(2001)#

13 NAGALAND 1,225(1991)* 1,315(2001)#

14 MANIPUR 2,212(1991)* 2,391 (2001)#15 MIZORAM 785(1991)* 817 (2001)#

16 TRIPURA 856(1991)* 870 (2001)#

17 MEGHALAYA 5,629(1991)* 6,023 (2001)#

18 ASSAM 25,590(1991)* 26,247 (2001)#

19 WEST BENGAL 40,889(1991)* 40,783 (2001)#

20 JHARKHAND 32,620(1991)* 32,615 (2001)#

21 ORISSA 51,057(1991)* 51,352 (2001)#

22 CHHATISGARH 20,378(1991)* 20,308 (2001)#

23 MADHYA PRADESH 55,842(1991)* 55,392(2001)#

24 GUJARAT 18,509(1991)* 18,544 (2001)#

25 DAMAN & DIU 24(1991)* 23(2001)#

26 DADRA & NAGAR HAVELI 71(1991)* 70 (2001)#

27 MAHARASHTRA 43,025(1991)* 43,722(2001)#

28 ANDHRA PRADESH 28,000(1991)* 28,123(2001)#

29 KARNATAKA 29,193(1991)* 29,483(2001)#

30 GOA 369(1991)* 359(2001)#

31 LAKSHADWEEP 23(1991)* 24 (2001)#

32 KERALA 1,384(1991)* 1,364(2001)#

33 TAMIL NADU 16,780(1991)* 16,317(2001)#

34 PONDICHERRY 264(1991)* 92 (2001)#

35 ANDAMAN & NICOBAR ISLANDS 547(1991)* 547(2001)#

INDIA 634,321(1991)* 638,365(2001)#

BIBLIOGRAPHY

BOOKS:

The Rural Marketing Book –

- Pradeep Kashyap

- Siddhartha Raut

Rural Marketing (concepts and practices)

- Balram Dogra

- Karminder Ghuman

83



Rural Marketing -Targeting the Non-urban Consumer

- Sanal Kumar Velayudhan

MAGAZINE: Pitch - June 2009

WEB SEARCH:

www.soyachoupal.com

www.itcportal.com

www.echoupal.com

NEWSPAPER:

The Hindu Business Line


http://www.itcportal.com/

http://www.echoupal.com/


http://www.itcportal.com/

http://www.echoupal.com/

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