Reaching The BOP In India Version X

Reaching the Bottom of the Pyramid A case study of Double Fortified Salt in India

Dirk-Jan ter Horst Rijksuniversiteit Groningen

Amersfoort, June 2007

Amersfoort, June 2007

Author: Dirk-Jan ter Horst First Supervisor: Prof. dr. L. Karsten Second Supervisor: Dr. C.H.M. Lutz Company Supervisor: R.W.J. Diederen

Rijksuniversiteit Groningen Faculty of Management and Organization International Business and Small Business & Entrepreneurship

Reaching the Bottom of the Pyramid A case study of Double Fortified Salt in India

“I would be hard-hearted enough to let the sick die if you can tell me how to prevent others from falling sick”

- Mahatma Gandhi

All rights reserved No part of this report may be reproduced and/or published in any form or by any means, without permission in writing from the holder of the copyrights Copyrights © 2007 The copyrights of the published report are owned exclusively by Dirk-Jan ter Horst and Akzo Nobel Salt Specialties in Amersfoort, The Netherlands

Reaching the Bottom of the Pyramid: a case study of Double Fortified Salt in India

i

Preface_______________________________________________ The report that is presented here is the result of a research conducted for Akzo Nobel Salt Specialties

and is in the scope of the final phase of my International Business and Small Business &

Entrepreneurship Studies at the Faculty of Management & Organization of the University of

Groningen.

In October 2006 I grabbed the opportunity to develop a business plan aimed at a developing country

for Akzo Nobel’s salt business. A recently developed concept, developed by C.K. Prahalad, which link

up perfectly with the assignment I was given, inspired me to also make a small but significant

contribution to scientific progress besides providing help to the Management Team of Akzo Nobel Salt

Specialties. When I started the topic Business model development for the Bottom of the Pyramid

sounded interesting, but my interest has grown during the nine months I have worked on thesis. I truly

believe that multinational companies can play an important role in changing the world in a positive way

by including the underserved into business.

I am incredibly thankful that Akzo Nobel enabled me to experience working for Akzo Nobel in The

Netherlands and India. The Management Team has given me a wonderful feeling of trust by granting

me the resources and total responsibility for completing the project the way I felt was best. In order to

gain a good understanding of the Indian retail salt market I went to India in January and returned in

March. Experiencing life for two months in this incredible country was something that I would not have

missed for any amount of money. During my internship I also experienced great-scale reorganization

on the department I have worked for, whereby many of the employees I directly worked with

experienced uncertainty for some time and have been declared supernumerary. Hence, the last nine

months have been a valuable experience.

The completion of this thesis was made possible through the support and cooperation of many

individuals. Thanks to my advisors from the university, Prof.dr. Luchien Karsten and Dr. Clemens Lutz,

and Raoul Diederen, Cees Schut, and Justus the Jong from Akzo Nobel, who provided guidance and

encouragement through what seemed to be a never-ending process. Thanks also to Deepak Pandhi,

who has helped me a lot during my stay in India. I would also like to thank professor Arunachalam

from Madras University, and Nelson Pichathapmi, for helping me to find students that have helped me

gathering data. I am also very thankful to all the others who rendered assistance to the completion of

this research.

Last but not least I would like to thank everybody that is closer to me and that have put up with me

during my writning process. Thanks for all the trust and comforting words in the last months!

Amersfoort, June 2007 Dirk-Jan ter Horst


ii

Management summary__________________________________ This research has been executed for the sBU Salt Specialties of Akzo Nobel. Together with sBU

Chelates ANSS has developed two concepts to fortify salt with iodine and iron simultaneously and with

iodine and selenium to prevent people from health diseases of IDD, IDA, and HIV/AIDS. Since

prevalence of these health problems are highest in developing countries and ANSS does not have

experience yet in serving the Bottom of the Pyramid (BOP) I was asked to conduct a study on how

these people can be reached in an economical sustainable way and fits Akzo Nobel’s CSR policy. The

Indian government has shown concern in the health problems of IDD and IDA and they have actively

called out for help to solve these problems. For this reason and due to the fact that Unilever’s Indian

subsidiary HUL has shown interest in Akzo Nobel’s DFS concept a market analysis of the Indian

market and the development of a business model had the highest priority when this research initiated.

The objective of the research is formulated as follows:

To advice Akzo Nobel Salt Specialties on the business model that should be used on the Indian retail

market for the DFS(Fe) and DFS(Se) products, so that this is commercial sustainable and fits Akzo

Nobel’s Corporate Social Responsibility policy.

Meeting this objective means that the Indian retail salt market had to be mapped and consequently an

advice had to be given on the appropriate business model for ANSS and on how to deal with the

implications of that particular business model. Developing an appropriate business model for Akzo

Nobel required combining the ideal business model from a theoretical point of view with the market

opportunities and Akzo Nobel’s own strengths and CSR policy.

Hence, first an ideal business model has been developed according to theory. C.K. Prahalad, one of

the founders of one the most influential business concepts in recent years, argues that multinational

companies must revolutionize how they do business in developing countries, and take the lead in

alleviating poverty by treating the poor (BOP) as consumers. Because there is much untapped

purchasing power at the BOP, MNCs can make significant profits by selling to them, which can also

bring prosperity to the poor. Since developing business models that suit people who can afford less

than people from developed countries companies are required to create capacity to consume for the

BOP and think out of the box, which can result in opening new doors to serve the affluent with

innovations primarily aimed at the BOP. Aneel Karnani responded by stating that the only way to

alleviate poverty is to raise real income of the poor. Therefore it is necessary to view the poor primarily

as producers. Combining local production and consumption could be an option although this could be

done in various ways. However it all depends on the opportunities the market offers. Given the variety

among BOP populations and the opportunities that arise in the market, there is no one ultimate

business model that fits all. Notwithstanding which business model will be chosen it is of paramount

importance to minimize the costs of running the business model and that various (fringe) stakeholders,

which are not that much present in developed markets, are required to be involved. By collaborating


iii

with local parties that are trusted by the BOP consumers MNCs with scale and financial power can

leverage their knowledge and co-create a business model that perfectly suits the needs of these

consumers. Three business models with regard to serving the BOP have emerged which are called as

follows: 1. Collective accountability, 2. Scaleable embedded distribution, and 3. Livelihood partnership.

Although there is no one best solution these business models provide a good understanding of how

business can be structured at the BOP.

After designing an ideal business model Akzo Nobel’s CSR policy has been scrutinized and checked if

it aligns with the theories of CSR and BOP, which certainly is the case. Thereupon the Indian salt

market has been mapped. This can be divided into a market structure analysis and a consumer

behaviour analysis. The former has mainly been done by interviewing various stakeholders1,

combined with over 50 shop visits as well as analyzing secondary data. The latter has mainly been

done by conducting a quota sampling survey2 and interviewing consumers and focused on

consumption habits as well as buying and decision making patterns.

Summarizing it may be stated that the Indian branded salt market holds tremendous potential to grow

since 65 percent of the market consists of non-branded salt, and offers many possibilities to get a

share of the pie. During the last five years the market for branded salt is growing at a pace of 11-25

percent per year. This high growth rate combined with the high margins available in the value chain is

the main reason why many companies want to enter the market. Due to the fact that Gujarat, Tamil

Nadu, and Rajasthan produce nearly all salt that is consumed throughout the country, transportation

costs account for x percent of total costs. For this reason logistics becomes a crucial competitive factor

and some major companies have decided to source salt from more than one location in the country.

Currently four national players dominate the retail salt market with five brands, which is saturated with

more than x local brands. Since a few years most major companies realize that rural India, with a

population of over x million who mainly eat unbranded salt, is a huge opportunity. Consequently

companies like HUL have developed a business model that solely focuses on the poor. Other ways of

reaching the poor is getting the government involved by means of Public Distribution System or

targeted systems such as ICDS or Midday Meal schemes.

Currently the market is on the threshold of a ‘boom’ of iron fortified salt, commensurable to the

iodization boom of two decades ago. This is why it is now the moment supreme for Akzo Nobel to

decide to jump into the market with its technology and convince central and state governments of Akzo

Nobel’s concept keeping in mind that this is a sensitive subject. The fact that HUL is going to launch

DFS at a premium price offers possibilities in terms of even higher margins and definitely contributes

to endorse the assumption of an upcoming DFS market in India.

Despite the good prospects the Indian salt market is a tough terrain. The challenge is to be able to

reach the people with consistent quality, being competitive with marketing spends, and building brands

in a price sensitive market. It is also crucial to have grip on the supply chain.

1 59 interviews with respondents which could be part of the following categories: experts, technology developers, salt manufacturers/brand owners, government, NGO’s, intermediaries 2 1555 respondents from 4 different states across India. The respondents came from rural as well as urban parts of India


iv

The consumer analysis provided insight into various consumer segments. Basically a divide can be

made between middle and upper class and the BOP. The middle and upper class consumers, who

mainly live in cities, account for approximately 25% of the total Indian population. The low income

segment population, of which education levels generally are lower than the higher segment, mainly

lives in rural and urban slum areas. Generally people from the Southern states are more traditional.

This also is true for people from rural areas. In general the sample provided the following insights:

� On average people eat x kilograms per person per year, which is approximately x grams

per person per day. This per day consumption regularly is constant, regardless of income

or regional differences

� Income level correlates negatively with branded salt consumption. Also rural citizens

(which are usually poor) consume less than their urban counterparts. The main reason

why a large share of the rural population and poorer sections of society prefer non-

branded non-refined is an age old habit coupled with the price factor.

� The majority of the rural consumers prefer powder salt over crystal salt. However, the

difference in preference for powder salt over crystal salt is less clear than in urban India.

In the South crystal the popularity of crystal salt is higher than in the North

� There is a positive correlation between iodized salt consumption and awareness of its

existence

� Regional dietary preferences relate to the way people use their salt

� After purchasing salt in 1kg plastic packs Indians put the salt in a jar to prevent from

moisture, and throw away the plastic

� Purity, Taste, Free Flow Ability, Price, Health, and Uniformity are considered as the most

important factors regarding salt. Of these evaluators taste is the decisive factor for most

Indians with regard to salt, regardless of place of residence or income level

� Low income people are price sensitive. However, the majority of the people including the

poor seems to be willing to pay INR x per kg DFS

� Television is the most important medium for deciding which brand to buy. Poor people

consider a salesperson’s advice as more important than more affluent people

� Indians usually buy their salt in a small shop

The opportunities that emerge after gaining insight in the consumer and the salt industry have been

combined with the theoretical framework and the strengths of ANSS. The sBU has nearly always

focused on top segments in developed countries and built up name as supplier of semi manufactured

products and technology. On the other hand, ANSS does not have experience in doing business in

India, which means that a distribution network has not yet been built up. Despite being a free flowing,

homogeneous, stable and cost effective solution with an acceptable appearance, the iron DFS

concept has not yet been approved as food grade by the Indian government and no efficacy study has

been carried out until now.


v

Akzo Nobel must decide on the position it wants to occupy in the value chain in combination with the

business model that has to be chosen. Since the country is so heterogeneous one business model

simply does not fit all. Keeping in mind the price sensitivity of the BOP consumers, the price level a

substantial fraction of the BOP is willing to pay, the costs for DFS and the costs for keeping the

distribution models, either the traditional market model or the BOP model, running, it must be

concluded that double fortified salt currently cannot reach the majority of the poor unsubsidized.

However, because high corruption rates amongst public officers do not fit Akzo Nobel’s business

policy, reaching the poor through DFS is not doable.

In short ANSS’s core competencies lie in strong product development, production, and quality

assurance. It needs to build up a network of partners that are able to create demand, ensure

distribution, credibly tackle the educational components of the business, and have the knowledge to

market products in India3. Thus Akzo Nobel must bring expertise in production and/or become a

supplier of premix. This can be done by either selling the premix to one of the big national brands or

entering the market with a new brand working together with one or more partners. The former option

is recommended because it is easiest, requires minimal resources and could bring substantial profits.

Considering which business model should be used is irrelevant in this case, because ANSS only

becomes a supplier of premix. The second option could also become reality.

Since profitability rates in the value chain are mainly for the brand holder, AN has a strong name as

producer of salt in Europe, and the market offers space for entrants because of high growth rates, AN

must enter the market with a brand in combination with one or several partner(s). Targeting the urban

middle and upper class holds the potential to sell a large amount of DFS at prices comparable to the

current top brands. These x million people can be reached best through the traditional distribution

system with CFA’s, distributors, and retailers. In these segments anaemia rates are still quite

substantial, although lower than in the BOP. Selling smaller sized packages that urban 2nd and 3rd tier

BOP consumers can afford, leads to increased product awareness and consumer trial. PDS is

probably the only manner to reach the 4th tier BOP with DFS. However, because high corruption rates

amongst public officers do not fit Akzo Nobel’s business policy, it is advised against doing that.

Considering ANSS’s current organizational and financial status a BOP model, which needs resources

to set up a sales force, makes this option hardly possible.

No matter which option ANSS chooses the premix must be produced in Holland, because the marginal

effect of transport and import duties on the incremental costs of DFS in India do not countervail higher

imitation risk and the availability of machinery in Hengelo. The premix can be mixed with locally

produced salt of large scale producers from Gujarat and Tamil Nadu. Referring to the market entrance

option Akzo Nobel’s should use its expertise in production by helping its partner with quality control

and/or processing of DFS. Thereupon distribution needs to taken care of by a partner that has built up

a strong distribution network.

3 Another criteria to partners is that they are reliable and that corporate business policies do not contradict


vi

Creating a market for DFS and building a brand requires collaborating with various partners and using

mass media, distributing samples and penetration techniques such as putting schemes. Figure 8.2

shows the partners Akzo Nobel should work with in the value chain.

Selling from and to the BOP! Though it might be concluded that the BOP model is not feasible yet, a business model has been

elaborated as well that goes beyond Prahalad’s concept of the BOP, because it also includes

producing from the BOP. Akzo Nobel could tie up with small scale producers, who are being

unexposed to the global scenario, lack the knowledge and technology and thus stand to get exploited

by middlemen. This can be organized in a sort of cooperative in which the small scale producers get

equity, so that the participants benefit from their membership and interests are aligned. Opposite from

conventional cooperatives, this cooperation must not be run democratically, but operations, ownership

and management must be separated. Akzo Nobel can participate in this business cooperative by e.g.

taking equity in the company, invest in equipment and/or provide guidance to produce good quality

salt. Also Akzo Nobel could set up a refinement and mixing facility. By doing this Akzo Nobel keeps

control over this decentralized production approach. All the salt produced can be transported to this

hub, then it can be refined and fortified, and thereupon enter the market. At this point distribution

comes into play. The Shakti model of HUL proves to be successful in reaching the otherwise

unreachable BOP. Therefore this model could follow the production model. However, salt cannot be

sold in isolation. Thus Akzo Nobel should find partners to build an assortment of products that its micro

entrepreneurs can distribute. Setting up such a distribution model requires partnering with NGO’s,

governments and perhaps micro finance institutes and other private organizations. This combined

model has the advantage that awareness of double fortified salt increases more quickly than in the

distribution model alone. Moreover, collaboration with SSI entrepreneurs gives appreciation from the

government, which will be helpful in future initiatives.

If ANSS decides to participate in the B2B market the impact on the current organization is low, but the

effect on the elimination of IDD and IDA in India might be substantial. The option of participating in the

market as a brand holder will have a bigger influence on both the organization and society. After five

years approximately 14 million people will benefit from the salt provided by ANSS. Moreover, Akzo

Nobel Salt Specialties will create direct and indirect jobs in the target country, pay tax, and do

Technology Development

Production of premix

Distribution End consumer

Marketing Production of DFS

Product developed in

collaboration with AN Chelates and

Micronutrient Inititative

Refinement of raw salt and

mixing premix with local producers

Akzo Nobel’s partner with an

established distribution

network takes care of

distribution

UNICEF, WHO, WFP, NIN, MI, governments and

numerous NGOs educate communities about needs for

healthy diet

Figure 8.2: Partnerships throughout the value chain


vii

business in an ethical way. By doing business in an ethical way Akzo Nobel co-creates a standard

together with other organizations applying the same standards. This will have an enormous effect on

the way Indian companies do business in the long run.

Second, the implementation will have an effect on Akzo Nobel itself. Second, the implementation will

have an effect on Akzo Nobel itself. Currently it is not known where this project will be accommodated,

whether it stays at ANSS, it goes to Chelates, or perhaps to the Innovation Unit. Until then it is

impossible to assess what will happen with the personnel that currently work on this project. However,

setting up business in India is challenging. Thus, for employees of Akzo Nobel this project could offer

great opportunities. Consequently the organization structure becomes more complex as well as

communication between employees in different countries. Moreover, Akzo Nobel needs to build

capabilities to work with organizations with whom they have not been involved with, such as the

governments, NGOs, and GOs. This requires mental mapping.

Recommendations

Since the commercial potential is high as mentioned above, Akzo Nobel should not be deterred too

easily, because of the many actions that have to be taken in order to enter the market. Rather, the

DFS project should not blow over! Due to a lack of resources and perforce prioritization on short term

revenue generating projects, it is hard for ANSS to keep the project alive alone. Consequently, for the

sake of the project it is recommended to accommodate it in sBU Chelates or try to get it financed by

the Corporate Innovation Unit. Besides deciding where to accommodate the project, the project can

only be continued if the government is convinced that the Akzo Nobel concept must be approved. This

requires amongst others conducting an efficacy study in India. Since this is crucial for success in India

and an efficacy trial with DFS combined with acceptance and field stability tests take approximately 18

months, this must be started as soon as possible. Convincing the Indian government cannot be done

without showing you face. The other market parties can also influence the government in its decision

on setting a DFS standard. Therefore Akzo Nobel must position its DFS concept in key meetings or

seminars with various stakeholders. It is of paramount importance to make flyers or brochures of the

DFS concept as well.

In the meantime funds are needed for technical support, for experimenting with lower grade salt,

because this makes our product more interesting to the major players. If the premix can be mixed up

properly with lower grade salt, Akzo Nobel can provide major players a competitive advantage,

because then it might be possible for them to focus on the 4th tier BOP As was mentioned in chapter 7

in India salt is added during the cooking process. The impact of the DFS in this condition will have to

be evaluated thoroughly. Also other marketing aspects need to be considered, such as identifying

business partners and funding agencies, and a thorough segmentation study needs to be conducted

in order to identify in which state Akzo Nobel should start doing business. If Akzo Nobel is convinced

that they want to start up a business in India they should also focus a study on the production side.

How high are investment costs, where should the premix be mixed with local salt, and what role

should be granted to Akzo Nobel in this production process.


viii

Table of Contents_______________________________________

Preface…………………………………………………………………………………………………………….i Management Summary…………………………………………………………………………………...……ii Table of Contents……………………………………….………………………...………………………….viii List of Figures………………………….………………………...…………………………………………...xiii List of Tables………………………….………………………...…………………………………………….xiv

List of Acronyms and Abbreviations………………………………………………………………………xv Chapter 1 Introduction_____________________________________________1 1.1: Situation………………………….………………………...……………………………………………….1

1.1.1 Social problem………………………………………………………………………………………..1 1.1.1.1 Iodine Deficiency Disorder…………………………………………………………………………………………...1

1.1.1.2 Iron Disorder Anaemia………………………………………………………………………………………………..2

1.1.1.3 Selenium Deficiency……………………………………………………………………………………………….…2

1.1.2 Company Profile……………………………………………………………………………………..2 1.1.2.1 Akzo Nobel Salt Specialties………………………………………………………………………………………….3

1.1.2.2 Chelates………………………………………………………………………………………………………………..4

1.1.2.3 Never focused on BOP……………………………………………………………………………………………….4

1.1.3 DFS Project…………………………………………………………………………………………..4 1.1.3.1 Project as a whole…………………………………………………………………………………………………….5

1.1.3.2 Stakeholders…………………………………………………….. …………………………………………………...6

1.2 Trigger …………………………………………………………………………………………...................6

Chapter 2 Research design_________________________________________8 2.1 Problem statement…………………………………………………………………………………….…...8

2.1.1 Research objective…………………………………………………………………………………10

2.1.2 Research questions………………………………………………………………………………..10

2.1.3 Definitions…………………………………………………………………………………………...11

2.1.4 Conditions…………………………………………………………………………………………...11

2.1.5 Conceptual framework……………………………………………………………………………..12

2.2 Methodology……………………………………………………………………………………………….13 2.2.1 Research approach………………………………………………………………………………...13

2.2.2 Scope of research………………………………………………………………………………….14

2.2.3 Research methods………………………………………………………………………………....16 2.2.3.1 Preparation phase…………………………………………………………………………………………………...16

2.2.3.2 Field study phase…………………………………………………………………………………………………....17

2.2.3.3 Analyzing phase……………………………………………………………………………………………………..19

2.2.4 Data quality……..…………………………………………………………………………………..20 2.2.4.1 Secondary data analysis……………………………………………………………………………………..……..20

2.2.4.2 Semi structured interviews………………………………………………………………………………………….21

2.2.4.3 Survey…………………………………………………………………………………………………….……….….22

2.2.4.4 Observations……………………………………………………………………………………..…………………..22


ix

2.3 Relevance…………………………………………………………………………………………….…….23 2.3.1 Practical relevance…………………………………………………………………………..……..23

2.3.2 Theoretical relevance………………………………………………………….…………………..23

Chapter 3 Theoretical Framework______________________________24 3.1 Bottom of the Pyramid…………………………………………………………………………………...24

3.2 Corporate Social Responsibility and its relation to the BOP……………………………………..27 3.3 Customer Relationship Management……………………………………………………………...….30 3.4 Ideal Business Model………………………………………………………………………...................30

Chapter 4 Hypotheses_____________________________________________34

Chapter 5 CSR Policy Akzo Nobel __________________________________35

Chapter 6 Market structure _______________________________________37 6.1 Background………………………………………………………………………………………………..37

6.1.1 India on macro level………………………………………………………………………….…….37

6.1.2 History in salt….………………………………………………………………………………….…38

6.2 Market demand and competition………………………………………………………………………39 6.2.1 Industry size and growth…………………………………………………………………….…….39

6.2.2 Alternative DFS options……………………………………………………………………………40 6.2.2.1 Cost comparison of DFS options in India………………………………………………………………………...42

6.2.3 Competitive forces………………………………………………………………………………….42 6.2.3.1 Industry competitors ………………………………………………………………………………………………..42

6.2.3.2 Suppliers.………..........................................................................................................................................44

6.2.3.3 Buyers..........................................................................................................................................................44

6.2.3.4 Potential entrants……………………………………………………………………………………………………44

6.2.3.5 Potential substitutes…………………………………………………………………………………………………44 6.3 Salt production and transportation……………………………………………………………………45

6.3.1 Production regions…………………………………………………………………………………45

6.3.2 Quality and iodization………………………………………………………………………………46

6.3.3 Transportation…………………………………………………………………………...………….47

6.4 Marketing channels………………………………………………………………………………………48 6.4.1 Conventional market driven distribution channels………………………………………….......48

6.4.2 Public distribution channels…………………………………………………………………….…49 6.4.2.1 PDS…………………………………………………………………………………………………………...………49

6.4.2.2 ICDS…………………………………………………………………………………………………………..………50

6.4.2.3 Mid-day meal scheme…………………………………………………………………………………………...…50

6.4.3 BOP distribution channels…………………………………………………………………………50

6.5 Salt varieties and pricing…………………………………………………………………………….….52

6.6 Cost analysis………………………………………………………………………………………………54


x

6.7 Market influencers and legislation……………………………………………………………….……57 6.8 Market trends………………………………………………………………………………………………58

6.9 Key success factors, opportunities and threats……………………………………………………59 6.10 Learnings…………………………………………………………………………………………………62 6.11 Conclusions salt industry…………………………………………………………………..…………63

Chapter 7 Consumer behaviour_____________________________________65 7.1 The Indian population……………………………………………………………………………………65

7.1.1 The upper and middle class segment……………………………………………………………66

7.1.2 The BOP segment………………………………………………………………………………….66

7.2 Consumption behaviour…………………………………………………………………………………67

7.2.1 Usage frequencies…………………………………………………………………………………67

7.2.2 Cooking and consumption habits…………………………………………………………………69

7.3 Buying and decision making process………………………………………………………………...69 7.4 The Indian Consumer…………………………………………………………………………………….73

Chapter 8 Feasible Business Model Akzo Nobel_______________________74 8.1 Company strengths and weaknesses…………………………………………………………………74 8.2 Elements of business model……………………………………………………………………………74 8.3 Options……………………………………………………………………………………………………..75

8.4 The appropriate business model………………………………………………………………………79 8.4.1 Segmentation and targeting……………………………………………………………………….80

8.4.2 Strategy……………………………………………………………………………………………...80

8.4.3 Direct or indirect?..................................................................................................................82

8.4.4 Production and sourcing…………………………………………………………………………..82

8.4.5 Distribution…………………………………………………………………………………………..83

8.4.6 Marketing……………………………………………………………………………………………83

8.4.7 Concretization of CSR policy……………………………………………………………………...85

8.4.8 Conclusion business model……………………………………………………………………….85

8.5 BOP model not feasible yet……………………………………………………………………………..86 8.6 Financial forecast…………………………………………………………………………………………88 8.7 Replicability………………………………………………………………………………………………..89 8.8 Market entry mode………………………………………………………………………………………..89

Chapter 9 Impact of implementation of Business Model on organization___91

Chapter 10 Conclusion and Recommendations___________________92 10.1 The opportunity……………………………………………………………………………….…………92

10.2 How to respond to the opportunity?..........................................................................................92 10.3 Requirements…………………………………………………………………………………………….93


xi

10.4 Recommended actions and studies…………………………………………………………………93 10.5 Recommendations BOP option……………………………………………………………………….94

Review…………………………………………………………………………………………………………..95 Bibliography…………………………………………………………………………………………………....96 Appendices……………………………………………………………………………………………………..99

Appendix I The interviewees: an overview……………………………………………………99

Appendix II Overview of the various phases in the DFS project…………………………...103

Appendix III Data India………………………………………………………………………….104

Appendix IV Overview distribution channel salt market……………………………………...105

Appendix V Questionnaire and In-depth interview schemes……………………………….106

Appendix VI Advertisement NIN concept………………………………………………….…..110

Appendix VII Incremental costs for DFS with the DFS standard 1,000 ppm iron………….111

Appendix VIII Market share and positioning national brands…………………………………112

Appendix IX Cost calculations DFS premix incl. freight costs………………………………113

Appendix X DFS Project Timeline…….……………………………………………………….114

Appendix XI Percentage Prevalence of Anaemia in Children and women per state……..115

Appendix XII Salt specifications required by law………………………………………………116


xii

List of Figures _________________________________________ Figure 1.1 IDD Problem Pyramid…………………………………………………………………………1

Figure 1.2 Organizational structure of Akzo Nobel……………………………………………………..3

Figure 1.3 DFS project stages…………………………………………………………………..………..5

Figure 1.4 Various stakeholders………………………………………………………………………….6

Figure 2.1 Mission, vision, goal and objective…………………………………………………………..8

Figure 2.2 Research structure…………………………………………………………………………..12

Figure 2.3 Process of business idea generation………………………………………….…………..14

Figure 2.4 Map of India………………………………………………..…………………………………15

Figure 2.5 Numbers of respondents per state………………………………………………….……..18

Figure 2.6 Distribution of respondents by area of residence………….………………..……………19

Figure 2.7 Distribution of respondents by income level………………………………………………19

Figure 3.1 The World Economic Pyramid……………………………………………………….……..24

Figure 3.2 Traditional and BOP Growth Patterns……………………………………………………..25

Figure 3.3 Interconnectedness as driver of co-creating value for society and corporate sector…26

Figure 3.4 The Great Leap Downward: Driving innovation from the BOP………………………….26

Figure 3.5 The Sustainable Value Framework………………………………………………………..29

Figure 3.6 Differences between developed market and BOP market business models………….31

Figure 3.7 Three emerging business models……………………………………………..…………..32

Figure 5.1 Balancing People, Planet and Profit……………………………………..…….…………..35

Figure 5.2 Perceived advantages of CSR……………………………………………………………..36

Figure 6.1 Gandhi on the Salt March…………………………………………………………………..38

Figure 6.2 Indian salt market classification…………………………………………………………….40

Figure 6.3 Porter’s five forces model…………………………………………………………………...42

Figure 6.4 Market shares in India……………………………………………………………………….42

Figure 6.5 Salt production in India……………………………………………………………………...45

Figure 6.6 Conventional market-driven branded salt channel…………………………………….…48

Figure 6.7 Edible salt varieties in India…………………………………………….…………………..52

Figure 6.8 Tata salt cost split-up in INR / ton……………………………………………..…….…..…54

Figure 6.9 Conventional market-driven branded salt channel + margins……….………………….55

Figure 7.1 Decisive purchase factors in different areas of living …………………………………...70

Figure 7.2 Decisive purchase factors related to income level………………………………..…….71

Figure 8.1 Double Fortified Salt Value Chain………………………………………………..………..75

Figure 8.2 Partnerships throughout the value chain………………………………………………….86

Figure 8.3 The market entry mode decision…………………………………………………………..90


xiii

List of Tables__________________________________________ Table 2.1 Potential for DFS in various countries in Asia and Africa……………………………..…15

Table 2.2 Numbers of respondents per category……………………………………..……………..18

Table 6.1 Ease of doing Business in India according to the World Bank……………….…………38

Table 6.2 Domestic supply of iodized and vacuum / refined iodized salt…………………….……40

Table 6.3 Incremental costs for DFS providing 0.4 mg/day absorbed iron…………………..……42

Table 6.4 Regional differences in iodized salt production……………………………………….….47

Table 6.5 Direct-to-Consumer channel margins…………………………………………………..…51

Table 6.6 Retail prices of salt in India………………………………………………………….….…..53

Table 6.7 Margins of major brand holders……………………………………………………..……..56

Table 7.1 Branded salt consumption related to area of living…………….……………...…………67

Table 7.2 Branded salt consumption related to income level…………………………………….…67

Table 7.3 Area * kind of salt Cross tabulation………………………………..………………………68

Table 7.4 Iodized salt awareness * iodized salt consumption Cross tabulation……….…………69

Table 7.5 Perception of price per kg of salt people consume related to income level……..……71

Table 7.6 Maximum price people are willing to pay for DFS related to family income……..……72

Table 7.7 Reasons for shop choice related to income level……………………………………...…72

Table 7.8 Most important sources of information with regard to purchasing salt of various income

groups…………………………………………………………………………………………73

Table 8.1 Positioning options…………………………………………………………………………..76

Table 8.2 Option evaluation scheme…………………………………………………………………..77

Table 8.3 Akzo Nobel’s profitability for supplying premix to HUL………………………………..…89


xiv

List of Acronyms and Abbreviations_______________________ 3 P’s People, Planet, Profit AIDS Acquired Immune Deficiency Syndrome AN Akzo Nobel ANSS Akzo Nobel Salt Specialties B24B Business to the four Billion underserved B2B Business to Business BOP Bottom of the Pyramid BU Business Unit CAGR Compound Annual Growth Rate CEO Chief Executive Officer CFA Clearing and Forwarding Agent CIF Cost, Insurance and Freight (INCOTERM) CRM Customer Relationship Management CSMCRI Central Salt and Marine Chemicals Research Institute CSR Corporate Social Responsibility DCF Discounted Cash Flow DFS Double Fortified Salt DFS(Fe) Salt for human consumption fortified with both iodine and iron DFS(Se) Salt for human consumption fortified with both iodine and selenium EOI economic value added on EVA invested capital EUR Euro EVA Economic Value Added FAC Freight Adjusted Compound Fe Ferrum FeSO4.7H20 Ferrous sulphate FMCG Fast Moving Consumer Goods GDP Gross Domestic Product GO Governmental Organization HIV Human Immunodeficiency Virus HPMC Hydroxypropyl Methylcellulose HSL Hindustan Salt Limited HUL Hindustan Lever, the Indian subsidiary of Unilever ICDS Integrated Child Development Services ICFAI Institute of Chartered Financial Analysts of India ICMR Indian Council Medical Research ICRW International Center for Research on Women IDA Iron Deficiency Anemia IDD Iodine Deficiency Disorder IHMP Institute of Health Management Pachod INR Indian Rupee IQ Intelligence Quotient ISMA Indian Salt Manufacturers Association IT Information Technology IU Innovation Unit Kg Kilogram MD Managing Director MFS Multi Fortified Salt Mg milligram MI Micronutrient Inititatve MNC Multinational Company MRP Maximum Retail Price MT Management Team MTPA Metric Tons Per Annum NaCl Natrium Chloride (salt) NACO National AIDS Control Organization NaFeEDTA Sodium iron ethylenediaminetetraacetic acid, the iron compound used in AN’s NGO Non Governmental Organization NIDDCP National Iodine Deficiency Disorders Control Programme


xv

NIN National Institute for Nutrition PDS Public Distribution System Ph.d Doctor of Philosophy PPM Parts Per Million PPP Purchasing Power Parity R&D Research & Development RBV Relative bio-availability sBU sub Business Unit SCO Salt Commissioner’s Office SE Shakti Entrepreneur SHG Self Help Group SHMP Sodium Hexametaphosphate SSI Small Scale Industry THC Terminal Handling Charges TiO2 Titanium Dioxide TNSC Tamil Nadu Salt Corporation TOP Top of the Pyramid UK United Kingdom UN United Nations UNESCO United Nations Educational, Scientific and Cultural Organization UNICEF United Nations Children's Fund US$ United States dollar USA United States of America USAID United States Agency for International Development USI Universal Salt Iodization WCD Women & Child Development WFP World Food Program WHO World Health Organization


1

1% - 10%Cretinism

5% - 30% Some brain damage

30% - 70%Loss of energy due to hypothyroidism

Figure 1.1: IDD Problem Pyramid

Chapter 1 Introduction______________________________ This chapter provides an introduction to the research enabling you to get a clear understanding of the

current situation and the necessity of this investigation. First, the current situation will be described.

This will be done by the discussion of several social problems, followed by a profile of Akzo Nobel

profile and of the sBU Salt Specialties in particular. Thereafter the DFS project will be described briefly

as well as the involved stakeholders. At last the actual reasons of the research will be discussed.

1.1 Situation

1.1.1 Social problems To stay healthy and function well one needs to get down certain kinds of vitamins and minerals like

e.g. iodine, iron, vitamin A and zinc. This group of vitamins and minerals is collectively known as

micronutrients. Since over 2 billion people suffer from ‘hidden hunger’, the lack of these micronutrients

represents a major threat to the health and development of populations all over the world, particularly

children and pregnant women in low-income countries.1 Major nutritional deficiencies are iodine

deficiency and iron

deficiency.2

Iodine is an essential

element for human survival. It

is needed for growth and

development, even before

birth. Important as it is, only

very small quantities are

needed to prevent deficiency.

However, according to

Unicef, 740 million people

suffer from iodine deficiency

and it is most acute in

developing countries. Severe IDD affects more than 200 million children in developing countries, of

which over 70 million live in India.3 Iodine deficiency is the world’s leading cause of impaired cognitive

development and brain damage, with its most devastating impact on the brain of the developing fetus.

Mental retardation, a lower IQ by 10-15 points4, spontaneous abortions, stillbirth, speech defects,

deafness and goiter, which is often the only visible manifestation concerning IDD, could be the case

for children born to iodine-deficient mothers5. x % of India lives in rural areas and some of the places

1 WHO, NRC Next 16/10/2006 2 Unicef, The Micronutrient Inititiative: Vitamin & Mineral Deficiency Magazine 2006 3 www.iccidd.org 4 UNICEF, ICCIDD: figure 1.1 is adapted from the website of ICCIDD 5 www.unicef.org/nutrition/23964_iodine.html

1.1.1.1 Iodine deficiency disorder (IDD)


2

where iodine deficiency is greatest are in the most remote parts of the country, where roads and

transport are poor and retail distribution channels are almost non-existent6.

1.1.1.2 Iron deficiency anaemia (IDA)

In developing countries every second pregnant woman and about x% of preschool children are

estimated to be anaemic (WHO). This means that over 2 billion people suffer from iron deficiency. One

cause of IDA is insufficient dietary intake of iron; others are blood loss during menstruation and

parasitic infections. According to Massachusetts Institute prevalence of anaemia in India in children

under 5 years and women under 50 years is respectively x% and x%7. The Institute of Health

Management, Pachod (IHMP) and International Center for Research on Women (ICRW) state that 60-

x% of Indian adolescent girls are anaemic, which is the highest prevalence in the world.

Common visible signs of iron deficiency include paleness of the skin, tongue and inside lips. IDA can

also lead to maternal deaths, reduced work productivity and impaired physical and cognitive

development. Anaemia contributes to x% of all maternal deaths8.

1.1.1.3 Selenium deficiency

Selenium deficiency affects more than 1 billion people across the globe9. Selenium is an important

mineral and antioxidant which has several functions in the human body. As an antioxidant, selenium is

crucial in protecting healthy cells against damaging ones. In other words, selenium is needed for the

proper functioning of the immune system. Several studies show that selenium deficiency increases

among others the risk of certain types of cancer, progression of severe viral diseases like HIV/AIDS

and death. In addition it could intensify conditions associated with high levels of oxidative stress,

including asthma, diabetes, arthritis and muscular dystrophy. Baum found that HIV-infected adults with

selenium deficiency were nearly 20 times more likely to die from HIV-related causes than those with

adequate levels.10 Worldwide around 39 million people are infected with the HIV/AIDS virus. There is

disagreement over how many people are currently living with HIV in India. UNAIDS estimates that

there were 5.7 million people in India living with HIV by the end of 2005, suggesting that India has a

higher number of people living with HIV than any other country in the world11. On the other hand,

NACO has established an estimate of 5.2 million people, which indicates that there are less infected

people in India than in South Africa.12 Either way, it is clear that the number affected by the epidemic is

huge.

1.1.2 Company Profile Akzo Nobel is a Global Fortune 500 company, employing 42,800 people across 80 companies in the

world, headquartered in the Netherlands. Consolidated revenues for 2006 of the Chemicals and

Coatings groups combined totaled EUR 10 billion. Akzo Nobel is one of the world’s major suppliers of

6 http://www.censusindia.net/results/rudist.html 7 Massachusetts Institute review, 2004 8 WHO 9 Lyons et al, 2003 10 Baum, 1997 11 UNAIDS, 2006 Report on the global AIDS epidemic 12 NACO (April 2006, HIV/AIDS epidemiological Surveillance & Estimation report for the year 2005)


3

all kinds of salts, for a variety of applications. The concern can be divided into two groups, namely

Chemicals and Coatings as you can see in figure 1.2.

The Group Chemicals used to consist of six Business Units (BU’s), under which the BU Salt. In

February 2005 the BU Salt was subdivided into Bulk and Specialties. The bulk section was placed

under Base Chemicals and Specialties was placed on the divestment list. After having been on the

divestment list for fifteen months, Salt Specialties returned as a sBU under Functional Chemicals.

The organizational structure above shows that both Salt Specialties and Chelates are part of the BU

Functional Chemicals. Chelates is the sBU that produces Ferrazone®, the iron compound that is one

of the sources for the DFS(Fe) product (see paragraph 1.1.3.1). Within the BU Functional Chemicals

the sBU’s work autonomously and are responsible for their own profits.

1.1.2.1 Akzo Nobel Salt Specialties

Akzo Nobel Salt Specialties is headquartered in Amersfoort (the Netherlands) and has experience in

the salt business since 1918. Around 300 people are employed in this Sub Business Unit (sBU),

divided over locations in Amersfoort (Netherlands), Hengelo (Netherlands), Dordrecht (Netherlands),

Mariager (Denmark), Göteborg (Sweden), Hamburg (Germany) and Bruxelles (Belgium). Akzo Nobel

Salt Specialties is known for its high quality products such as Jozo®, Nezo®, KNZ®, Sanal® and

Broxo®. Partly due to the history of supplementing iodine to salt from the 1920’s to combat iodine

deficiency, Akzo Nobel Salt has built up a good reputation in the field. As a consequence the

perception on the Akzo Nobel Salt brands is valued as high quality. In its market approach Salt

Specialties distinguishes between six market segments: Retail, Food, Pharma, Agriculture, Water

Treatment and Industrial. In the Retail segment Salt Specialties holds strong positions in the Benelux,

Scandinavia, UK, Germany and the Gulf Cooperation Council.13 Salt Specialties mainly targets high

end consumers in the various market segments.

13 Intranet Akzo Nobel Functional Chemicals

Board of Management

Coatings Chemicals Service Business

Base Chemicals Functional Chemicals

Technology Management / R&D

Chelates

Salt Specialties

Salt Bulk

CSR BOP Task Force

Export & BD

Polymer Chemicals Pulp & Paper Chemicals Surfactants

Figure 1.2 Organizational structure of Akzo Nobel


4

After having been on the divestment list new goals were set for the sBU. The negative EOI, EVA on

Invested Capital or economic value created in relation to invested capital, of five per cent must be

brought back to zero within nine months and grow another 5 per cent in the coming three years. Since

the saturated home markets are declining in volume recently Salt Specialties is looking for new

business opportunities in emerging markets.

The aim for the Export and Business Development Department of the sBU Salt Specialties is to double

its revenue within three years. The intention is to build structural attractive businesses in Asia and

Africa.

1.1.2.2 Chelates

Chelates is the sBU that produces and supplies NaFeEDTA, brand name Ferrazone®, the iron source

for the DFS(Fe) product. Chelates is responsible for the production and supply of Ferrazone® for the

DFS(Fe) product. The sales amount of Ferrazone® is x MT per annum with an average selling price of

€ x,- per kg meaning a revenue of x per annum. Ferrazone® is highly dependent on Craft, their main

buyer, which accounts for over x% of total sales.

Chelates is currently looking for channels to enter the Indian retail market. Since Ferrazone® can be

linked to different carriers such as salt and wheat flower Salt Specialties is not the only possibility.

Besides this, and the fact that Chelates’ share in the premix value is approximately x times compared

to Salt Specialties’ share, illustrates the relation between both BU’s, the valuation of the project, and

the possibilities for conflicting interests. Chelates is working on the registration of Ferrazone® as a food

ingredient, which will not be approved before summer 2007 at the earliest.

1.1.2.3 Never focused on BOP

As mentioned before Akzo Nobel normally focuses on high-end segments in almost all businesses.

The markets Akzo Nobel is doing business in are mainly developed countries. The top x% of the world

accounts for x% of all Akzo Nobel’s total revenue. However, on corporate level there have been some

initiatives where Akzo Nobel focused on low segments. Actually the BOP concept, which will be

elaborated in chapter 3, has been introduced several times at Akzo Nobel in vain. For this reason the

BOP concept is an emotionally charged subject. Until now the Board has not been convinced. The first

time it has been introduced purely as a business opportunity. The second time it was tried from an

anthropological perspective14. Within the Group Chemicals there has not been one initiative so far.

Now Akzo Nobel Salt Specialties wants to change this with one of its current projects, the DFS project.

The aim is to build a profitable and sustainable consumer salt position in several developing countries’

high and low segments.

1.1.3 DFS Project The health problems mentioned in paragraph 1.1.1 are at the heart diet problems. Three

micronutrients: iodine, iron and selenium are inadequately present in diets of many people. Since even

the poorest consume salt, it is globally recognized as the best vehicle for supplementing diets with e.g.

iodine and iron. With DFS one can provide iron and iodine in small quantities on a daily basis since

14 The second time the initiators gave the concept formerly known as BOP a different label: emerging strategy for the low income customer


5

salt is an ingredient that is used in all foods daily and in consumed by all in the family. One of Akzo

Nobel’s goals is to launch new “sustainable growth” projects. Therefore Akzo Nobel accepted the

challenge to fight the problem of micronutrient malnutrition and started investing in R&D. Since 2003

Akzo Nobel Salt has worked on the development of DFS, in cooperation with sBU Chelates, and in

consultation with the Micronutrient Initiative (MI). One of the major challenges was to cope with the

chemical incompatibility between iodine and iron, resulting in loss of iodine. The other was to obtain

DFS that provides the iron required and that is acceptable and affordable for the consumer and

business wise viable. Akzo Nobel developed a technology that could tackle the social problems

mentioned above by adding iron and iodine to salt. In this report this product is called Double

Fortification Salt Ferrazone® or DFS(Fe). Another product Akzo Nobel is developing is called Double

Fortification Salt Selenium or DFS(Se), because it adds iodine and selenium to salt. A three year

intervention study on salt fortified with selenium in China revealed that the supplementation of

selenium reduces viruses like hepatitis that could lead to primary liver cancer significantly. It appears

that death rates from viruses and associated heart diseases like keshans can be greatly reduced by

dietary selenium intake and would be similarly effective in slowing the progress if AIDS deaths.15

Now that these products have been developed we face two major challenges. Firstly, we must find a

way to persuade people to switch to DFS even if it costs more than salt only fortified with iodine and

even more difficult raw unfortified salt. Secondly we must find a way to reach the people who need it,

which are for a major part people at the economical bottom of the pyramid, in an economical

sustainable way.

1.1.3.1 Project as a whole

The project can be divided into three parts, which are interrelated. Although the model below shows

that these phases happen in succession, it should be clear that this is an iterative process.

The R&D department develops Management defines and designs The business model is

a DFS product and an up scaling a business concept that responds implemented into business

technology. Efficacy and to business circumstances. structure and business processes.

efficiency tests as well as field trials Beforehand market analysis must be

will be performed conducted. Relationships with local

partners must be developed

Figure 1.3 DFS project stages

The business model to be designed is primarily aimed at India, but the project does not end after

implementing it in India. As mentioned above the aim of Salt Specialties is to build structural attractive

businesses in Asia and Africa. Therefore one must see India as a trial within a larger project. For both

products, DFS(Fe) and DFS(Se), Akzo Nobel still is in the technology development phase. However,

with regard to the tests that have been performed for both products DFS(Fe) is approximately one

year ahead of DFS(Se). Efficacy tests as well as effectiveness tests have not been carried out yet.

Efficacy defines the extent of the beneficial effect of a certain intervention under ideal conditions,

15 ISIS, 2004: Institute of Science in Society Press Release of July 20th 2004 “Selenium conquers AIDS”


Design Business Model

Implement Business model


6

whereas effectiveness tests measure the effect of the intervention when deployed in the field, so

influenced by behavioral factors. Since last year Akzo Nobel is exploring co-operation on marketing

and sales on DFS products with potential (local) partners such as Unilever. This research is the start

of the business model design phase. In Appendix II you can find a more detailed model that gives an

overview on the different phases and the related decisions that have to be taken.

1.1.3.2 Stakeholders

A wide variety of people and institutions benefit from working on a societal problem such as the health

problems mentioned above. These people and institutions coexist, complement each other, and are

interrelated and interdependent. On the picture below one can see all different stakeholders. It should

be clear that the Akzo Nobel component consists of Salt Specialties, Chelates and other stakeholders

within the company. Each constituent has a role to play within the system.

It should be clear that the importance of various components in the systems might change over time

and is different in various developing countries.16 For instance, in the slums of Mumbai there are

extralegal salt sellers and they coexist with global firms like HUL and Tata.

1.2 Trigger

There is an immediate concern confirmed by the Indian government to solve this problem. Because of

this several organizations are raring to enter the Indian market. Unilever’s Indian subsidiary HUL

already entered the salt market with iodized salt in 1996, so they have already built up a distribution

network. HUL is highly interested to put a certain DFS on the market and they have contacted Akzo

Nobel Chelates for it. Since Akzo Nobel is not the only organization that has developed a technology 16 Prahalad, 2006: p.65

Manufac-

turers of salt

Extralegal

NGO enterprises

Distributors

Wholesalers

Super

Markets & grocery stores

Cooperatives

BOP

Consumers

Small and Medium

enterprises

MNC’s

NGO’s

Akzo Nobel

National and

local governments

of India

Iron, Iodide &

Selenium Deficiency in

India

Figure 1.4 Various stakeholders


7

the race against the clock has begun. The active call from the Indian government and HUL are the

main reasons why a market analysis and the development of a business model have the highest

priority. Besides designing a business model for developing countries and the BOP in particular is

highly important, considering the goal of building structural commercially attractive businesses in Asia

and Africa within three years. Finding new markets at the BOP demands a different perspective from

what Akzo Nobel is used to and the experience gained from this is extremely important in further

extension of markets to be served.


8

Chapter 2 Research design___________________________

After reading chapter 1 you gained an insight into the context of the DFS project. What is the main

problem of this study and how will this be solved are the central questions to be answered in this

chapter. Paragraph 2.1 discusses the problem statement, followed by the methodology used (§ 2.2),

and the relevance of the study (§ 2.3). The last paragraph of this chapter (§ 2.4) outlines the structure

of the remainder of the report.

2.1 Problem statement This paragraph tries to clarify which problem will be ‘solved’ during the research. In this study a

problem means the discrepancy between the current and ideal situation. The introduction chapter has

provided you with a first insight into the problem. Now the problem will be addressed in more detail

and placed in perspective. Moreover, the relationship between the company’s objective and the

research objective will be shown. Understanding the objective of this research necessitates thinking

beyond today's tactical need. For this reason a distinction has been made between Mission, Vision,

Goal, and Objective Figure 2.1 shows how these concepts are related.

This figure indicates that the factor time is the key variable when it comes to determining the difference

between the various concepts. However, the underlying factor that explains the differences between

the concepts is measurability. Hence, one could also refer to the distinction of official and operational

goals in this respect. These official goals are sometimes formed in a mission statement, which states

the overriding purpose the organization strives for. It reflects the position the company wishes to take

in the world. In other words, the organization’s mission defines the identity of the organization in highly

general terms, which are not objectively measurable17. Official goals are used to communicate the

company’s purpose to all stakeholder groups, both internal and external, and to guide employees in

their behaviours to align with the strategic intent of the firm as well as its values and norms. In this

respect we can speak of the legitimizing function of official goals like the mission and vision

statements. The distinction between mission and vision is not quite clear in literature, and sometimes

the terms are sometimes used alternately. According to De Wit and Meyer a mission defines the 17 Paul, J.C.L., Gils van, M.R., Karsten, L., Offenbeek van, M.A.G. and J. de Vries, (1999):, p. 203

ObjectiveShort-Term Aim Vision

Long-Term Aim

GoalMedium-Term Aim

Current state

Future state

Future state

Mission(Ongoing principles)

Future state

Time

Figure 2.1: Mission, vision, goal and objective


9

purpose and principles of the company, and the vision states what the company will look like if it

achieves the plan18.

Operational goals, on the other hand, are rendered into measurable terms. They should be

measurable so that the company can monitor its progress and make corrections when needed. Once

the firm has specified its goals it must devise a strategic plan to reach those goals. This strategic plan

can also be referred to as a firm’s objective19. In order to devise such a plan it is essential to get a

clear picture of the current situation, including opportunities and threats in the external environment of

the firm. This objective could be subdivided into several sub objectives. In general it can be said that

the closer a goal is set to the current situation the more objective and thus better measurable the goal

is. Although it seems that goals and objectives are derivatives of the mission and vision, influencing

happens from both sides.

The mission of Akzo Nobel is to strive to be the first choice of customers, shareholders, and

employees, and to be a respected member of society. To accomplish this Akzo Nobel wants to

conduct all its activities in a socially responsible manner20. This means finding the right balance

between People, Planet, and Profit and is part of Akzo Nobel’s CSR policy. Socially responsible

business development has a key role to play in the company’s global activities. This will be elaborated

in chapter 5. For a diversified conglomerate like Akzo Nobel the transformation of a corporate mission

into missions, visions and goals on a BU level is a quite complex process. On a BU level ANSS wants

to use the power of a multinational corporation to do something good for the entire local society in the

broadest sense. Akzo Nobel’s corporate vision regarding the health problems discussed earlier is to

become one of the major contributors to the elimination of nutritional deficiencies throughout the world.

This implies for ANSS that they want to become a major global player with its DFS products, so that

ANSS can help improve the health of human beings which in turn means that Akzo Nobel needs to

build up BOP skills. In this respect ANSS believes that ‘adopting’ a country is the best way, because

then you can eliminate the entire health problem where you are focusing on. The translation of the

vision into goals is the next step in the strategy planning process21. Striving for this vision requires

amongst others a decision on where to start. Since most of the key nutrients are lacking in adequate

quantities in the diets of a majority of the people in developing countries, this developing world is the

focus of ANSS. India has been chosen as the appropriate country to start the pilot.

ANSS’s goal is to build up sustainable business in India in the retail salt market, especially in the BOP.

The exact quantifiable targets that need to be met in favor to build a sustainable business in India are

not yet known. This is the main reason that this study was initiated and shows how the overall purpose

of this study and the company’s objective are related. Although the objective of the study is not

quantifiable it definitely matches the company’s objective which is developing a business model to sell

the DFS products.

18 Wit de, B. and R. Meyer, (2004): p. 593 19 Wit de, B. and R. Meyer, (2004): p. 594 20 Akzo Nobel Annual Yearbook 2006 21 http://www.netmba.com/strategy/process


10

2.1.1 Research objective The objective of this research is as follows:

To advice Akzo Nobel Salt Specialties on the business model that should be used on the Indian retail

market for the DFS(Fe) and DFS(Se) products, so that this is commercial sustainable and fits Akzo

Nobel’s Corporate Social Responsibility policy.

This objective can be divided into three deliverables, namely:

1. To provide Akzo Nobel with an overview of the retail salt market in India

1.1 Mapping the structure of the market

1.2 Consumer behaviour analysis

2. To advice Akzo Nobel on which business model to use

3. To advice Akzo Nobel on how to deal with the implications of the business model that should

be used

2.1.2 Research questions This objective has been made operational by formulating the following questions:

1. Which business model should Akzo Nobel use for the DFS(Fe) en DFS(Se) products on the

Indian retail salt market, so that this is commercial sustainable, and fits the Corporate Social

Responsibility policy of the organization?

2. How should Akzo Nobel deal with the implications of putting this business model into practice?

To be able to answer these questions, a number of subquestions have been formulated. The answers

to these questions will ultimately lead to the answer of the main research questions. The following

subquestions are relevant for this thesis:

1. How does the ideal business model for the BOP look like regarding the BOP theory?

2. What does Akzo Nobel’s Corporate Social Responsibility policy mean?

3. How does the Indian distribution channel for salt look like, which parties are involved, with

which products, how are these parties related, and how does this develop?

4. Which other factors, like legislation, play a role in developing a business model?

5. How do Indian consumers behave regarding salt and how does this affect the decision on

which business model to choose?

6. Which business model is most appropriate for Akzo Nobel?

7. What is the impact of implementing the business model on the organization and society, and

how should Akzo Nobel deal with this?


11

2.1.3 Definitions Business model:

A description of the value a company offers to one or several segments of customers and of the

architecture of the firm and its network of partners for creating, marketing, and delivering this value

and relationship capital, to generate profitable and sustainable revenue streams22.

Corporate Social Responsibility:

A continuing commitment by business to behave ethically and contribute to economic development

while improving the quality of life of the workforce and their families as well as of the local community

and society at large23.

DFS(Fe):

Salt for human consumption fortified with both iodine and iron.

DFS(Se):

Salt for human consumption fortified with both iodine and selenium.

BOP:

BOP stands for Bottom of the Pyramid. This Bottom of the Pyramid means all people with an income

lower than $1500 per annum. Throughout the world over 4 billion people live below this poverty line.

Distribution channel:

A channel of distribution comprises a set of institutions which perform all of the activities utilised to

move a product and its title from production to the end-consumer24.

2.1.4 Conditions Several requirements applied to this research which will be enumerated below:

� This study must be delivered within eight months after the beginning of it and obtaining

information in India was limited to two months � I had to conduct the research independently, because of the limited time of my Dutch

colleagues. Akzo Nobel Salt Specialties is not present in India yet, which meant that I had to

conduct the field study by myself � There were limited financial resources available

� The study must meet the requirements imposed by the university, which means amongst

others that it must have scientific depth

22 Osterwalder, A., Y. Pigneur, and C.L. Tucci (2005) 23 World Business Council for Sustainable Development 24 Coughlan, A.T., Anderson, E., Stern, L.W., and A.I. El-Ansary, (2006): p. xix


12

2.1.5 Conceptual model The conceptual model shown below is at the basis of the (sub)questions stated earlier, and is used to

structure the research. This model shows that this study consists of a theoretical and a practical part.

In order to design a business model for the BOP that is feasible for Akzo Nobel I have tried to link

theoretical concepts to the opportunity the Indian retail salt market offers so that it is in accordance

with Akzo Nobel’s current CSR policy. The upper left box contains various concepts that form the

theoretical framework of this thesis. It shows that the goal is to develop an ideal business model in

theory by linking the CSR concept to the BOP concept. Thereupon Customer Relationship

Management (CRM) must be given a place within the BOP concept. This is why an arrow points from

the CRM box to the BOP box. The ultimate aim in is to work towards an ideal business model for the

BOP from a theoretical perspective. As shown in this box, the theoretical framework will be discussed

in chapter 3. Thereafter, the formulated hypotheses will be presented in chapter 4.

In addition to the theoretical part internal as well as external analyses have been carried out. Internal

means that Akzo Nobel’s CSR policy has been scrutinized and checked if it is aligned with the theories

of CSR and BOP (chapter 5). This Internal analysis box is situated in the upper middle part of the

model. The upper right box concerns the field study, which has been carried out to provide Akzo Nobel

Theoretical Framework Internal analysis External analysis

CSR

BOP

CRM

Ideal Business

Model

People

Profit Planet

Akzo Nobel’s CSR Policy Overview Indian Retail Salt Market

Market structure

Consumer behaviour

Conclusions & Recommendations

Impact of implementation on

organization and society

Feasible Business Model Akzo Nobel

Ch. 5

Ch. 8

Ch. 6

Ch.10

Ch. 9

Ch. 3

Ch. 7

Figure 2.2: Research structure

Hypotheses Ch. 4


13

with an overview of the retail salt market in India. This market research can be divided into a market

structure analysis and consumer analysis, which will be stressed in chapter 6 and 7 respectively.

Developing the appropriate business model for Akzo Nobel necessitates combining these three parts.

The funnel reveals that the business model that should be applied will have an impact on both the

organization as the (local) society. Recommendations on how to cope with these implications will be

elaborated in the Conclusions & Recommendations part.

2.2 Methodology This paragraph addresses the scope of this study as well as the research approach and methods that

are used during this study. After reading this section you will be able to judge the reliability of the

results presented in this report.

2.2.1 Research approach

Both an inductive and deductive approach are used during this research. Hypotheses were formed by

findings in primary and secondary data as well as theories. The hypotheses, whether formulated

based on findings or theories, are tested deductively. The advantage of this approach is that

unconstrained observations and other findings lead to insights that could have been left out if only a

deductive approach was used. Besides solving the research problem this inductive approach could

also lead to theory development. Deductively formed hypotheses on the other hand could give an

extra dimension on the problem from the theoretical perspective. By using both approaches the

downside of deduction, constraining the analysis because of prejudice, is overcome. Hence, the

approach chosen forms the best of both worlds!

Figure 2.2 has showed that CRM must play a role in developing a business model. This means that

the end consumer plays a crucial role in the market research that has been conducted. The influence

of the end consumer has its effect on both the starting point of the study, and the way the research is

conducted. Target costing forms the starting point for the development of a business model and this

has an effect on the way the study is conducted. It is of paramount importance to understand the

willingness of the people to pay a certain amount of money for a package of salt in order to

understand if a business model is sustainable or not. Moreover, understanding market prices for

different segments helps to realize the feasibility of reaching the BOP.

The study is performed from the perspective of the end consumer. It was essential to start the analysis

from the end consumer and work the way back to the producer. Mapping the distribution channel

started for example by asking people where they buy their salt25. Model 2.426 shows exactly how

important the end consumer is regarding this project in general and this research in particular.

The very first thing people must do to generate business ideas is to try to understand the consumer

and its behaviour. Subsequently this understanding must be translated into insights, which in turn can

be transformed into new business concepts or products.

25 See Appendix 5: Questionnaire 26 Adopted from a presentation from Branddoctors (www.branddoctors.nl)


14

Giving the end consumer a central place in the development of a business model implies that the

company adapts itself to the market position envisioned. This is also referred to as the outside-in

perspective27.

Basically this study consists of three overlapping phases: preparation phase, field study phase, and

analyzing phase. Notwithstanding the general approach some methods are more appropriate to use in

one phase than another. This will be discussed in paragraph 2.2.3.

2.2.2 Scope of the research To be effective, scientific and practical studies have to limit their scope and depth. Scope and depth

must be determined in consultation by the researcher and the principal(s). This decision must be a

response to both to the boundaries of the inquiry itself and to the purpose and expertise of its

principals.

Since the ultimate purpose of this study is twofold, namely graduation from university and developing a

business model for Akzo Nobel Salt Specialties, there are two principals involved in this project. Both,

Akzo Nobel and the University of Groningen have presented me their own requirements regarding this

research. The flexibility of both principals has helped me aligning the goals with its requirements. The

conditions named in paragraph 2.1.4 were leading in delineating the research. Due to the limited time

available28 and the scientific depth this report needs to contain, I have made some deliberate

decisions on the scope of the research. The choice of focussing on India, for example, has been given

careful thought. Akzo Nobel’s former idea was to let me do market research and build a business

model for seven countries in Africa and India. In this case it would not have been possible to match the

requisite of scientific depth and the timeframe in which the project had to be delivered.

The choice for India instead of an African country was made as a result of a preliminary research on

the magnitude of the IDD and IDA problems and availability of local salt fit for DFS. Table 2.1 shows

the following potential29.

27 De Wit, B. and R. Meyer (2004), p. 249 28 See the timeline of the project in Appendix X 29 Information MI (2004); HUL states that over 60% women and children are iron deficient: www.hll.com

Consumer understanding

Consumer insights

Business ideas

Understand how a consumer thinks, behaves and makes decisions and choices

Transform these insights to new concepts, competitive advantage and profitability

Translate this understanding to insights

Figure 2.3: Process of business idea generation


15

Country Anemia prevalence in children < 5 (%)

Anemia prevalence in non-pregnant women 15-49 yrs (%)

Annual requirements of edible salt (tons)

Households consuming iodized salt (%)

% of market reached by DFS quality and Medium quality salt

Asia Bangladesh X X X X xChina X x x X XIndia30 X X X X XIndonesia X X X X XMyanmar X X X X XNepal X X X X XPakistan X X X X X Africa Kenya X X X X XMozambique X X X X XNamibia. X X X X XNigeria X X X X XSouth Africa X X X X X

Besides the high anaemia prevalence in India, the active call from the Indian government for DFS and

from Unilever’s Indian subsidiary was one of the reasons to select India. The Indian government

considers production and supply as an

important strategy in the fight against the

effects of IDD and IDA. Moreover, the

DFS(Se) technology which primarily

aimed on Africa, was not as far developed

as the DFS(Fe) technology.

The time limit for gathering data in India

forced me to limit the number of Indian

states I could conduct the research in.

Appendix III31 contains the documents

used for the decision to carry out the

research in Tamil Nadu, Maharasthra,

Gujarat, Rajasthan, Delhi, and Uttar

Pradesh.

By choosing these regions I was definitely

capable of providing Akzo Nobel with a

good insight on the Indian salt market. This has several reasons: in the first place because these

states are geographically dispersed which brings enormous cultural differences and varieties in diets.

Secondly, because both rural and metropoles were covered. Thirdly, not only states located near the

sea were covered, but also a land locked state, which is of major importance because landlocked

30 Appendix IX shows the prevalence of anaemia in children, women and men per state 31 Appendix III is an Excel file and is attached in the digital version of this report

Figure 2.4: Map of India

Table 2.1: Potential for DFS in various countries in Asia and Africa


16

states are probably most difficult to serve taking logistics into account. Fourthly, two major producing

states were covered which account for x% of total Indian salt production32.

Fifthly, these states are poles apart with regard to GDP per capita. Lastly, these states were covered

because of the high population size and density rate in all states. This last point is of importance,

because the salt business is a volume game33, and if Akzo Nobel wants to start business in one state

it must be able to sell volumes. The North-eastern part of India was left out of the research because of

amongst others terrorism, relatively low anaemia rates, and low density of population.

Next to a geographical scope, a focus on the retail salt market is introduced. The retail salt market

deals with human consumption and focuses on usage at home. This implies that catering falls out of

the scope of this research. Because the aim of this project is to develop a business model suitable for

the BOP, both conventional channel members and non-conventional ones like NGO’s, governments,

and local entrepreneurs are inside the scope of the research. Basically, all actors that could play a role

in the distribution channel for the retail salt market fall in the scope of the research. Next to mapping

the distribution channels, consumer behaviour must be analyzed. Consumers are all people that use

salt for human consumption in India, so this is basically everyone.

Defining the degree of scientific depth is practically impossible. The only requirement from the point of

view of the University is that the research must reach a high-quality scientific standard. It is up to the

supervisors to judge that. In this respect it is essential to focus on theoretical concepts that cover

various aspects of business, but which are not too broad, so that you can add something to science. In

this study BOP concept stands at the basis. Although many other fields of study, like innovation,

ecology, and social science could be related to this concept, this is undesirable regarding the

research, because of the earlier mentioned scientific depth.

Besides scientific depth, the supervisors from the university judge the methodological responsibility,

theoretical as well as practical relevance, research structure, and the line of reasoning.

2.2.3 Research methods This study depends on secondary data and primary data, whereas secondary data is data that has

been compiled and published earlier, and primary data is information that I have collected myself.

Notwithstanding the limited time and resources I have tried to gather data as exhaustive as possible

both qualitative, and quantitative. This boils down to 59 interviews, 1555 questionnaires, more than 50

wholesaler and retail shop visits, and the usage of information sources such as reports from branch

organizations, consultancy firms, and organizations like WHO, Unicef, Akzo Nobel, and the

government, statistical databanks, newspapers, books, internet, intranet, magazines, and innumerable

observations. By using a combination of methods I have hopefully come closest to reality. The

paragraphs below will shed light on the various techniques used in the different phases.

2.2.3.1 Preparation phase

As mentioned before a distinction can be made between the consecutive phases. During the

preparation phase it was of paramount importance to get to know the business and, build up

32 See appendix III 33 See interviews S.K. Desai, S. Sundaresan


17

theoretical baggage, and build up a network. Consequently a guided tour of the factory, reading

books, articles, reports on the health problems and the salt business was the method mainly used. I

have also attended seminars from the development banks, and the export club Fenedex. This was

required to get more substantive knowledge on the one hand and building up a network on the other

hand. In this phase I have also interviewed 18 people; 11 interviews were personal, and 7 were done

by phone. After these three months I was able to understand exactly what information was needed to

bring this assignment to a favourable conclusion.

2.2.3.2 Field study phase In the beginning of January I went to India for a field study trip that lasted two months. The aim of the

field study trip was twofold, as mentioned earlier: mapping the structure of the salt market, and

conducting consumer behaviour analysis. Mapping the structure of the market necessitates thinking of

all actors that (could) play a role in the salt market. In order to gather the necessary observations, the

project draws on semi structured interviews with experts and external stakeholders across different

regions to achieve these goals

This technique was used to collect qualitative data on various subjects necessary for solving the

research question. The strength of in-depth interviews is that it is a very simple, efficient and practical

way of getting data that can’t easily be observed. Moreover, the respondents discuss issues that they

think is important without pre-determination of the researcher. Apparently I have prepared some

questions, but the interviewee determines the topics he wants to discuss in detail. This allowed me to

pick up information on complex issues that had either not occurred to me or of which I had no prior

knowledge. I have tried to interview people assuming that they do not have any knowledge about the

subject, so that the risk of unreliable answers is minimized34. By comparing the things said in the

various interviews I have tried to maximize reliability. The so-called laddering technique35 was used to

elicit consumer’s preferences towards salt and its provided service. This meant that the probes were

oriented towards why-questions. It was necessary to understand the point of view of all respondents in

order to gain a complete picture of the entire Indian salt market.

Appendix IV gives an overview of a salt market’s traditional distribution channel and its actors. This

overview served as a guideline for the interviews, both for the questions I would like to ask as well as

checking the amount of interviews per level stayed in the right proportion. Basically, respondents could

be part of one of the following categories: experts, technology developers, salt manufacturers/brand

owners, government, NGO’s, intermediaries, and consumers. Experts are all respondents that are not

part of the value chain, including Akzo Nobel employees. Except for Akzo Nobel employees, DSM,

CSMCRI, NBSO, Triple Value, Cygnus, Rabo, Fenedex, EVD, Indian Embassy, Friesland Foods,

Development Banks, Salt Associations are called experts in this study. Table 2.2 shows the number of

people interviewed per category.

34 Bodegom, van, R., (2006) 35 Corbridge, C., Rugg, G., Major, N., Shadbolt, N. R. and A. Burton (1994)


18

RespondentsExperts 31Technology developers 1Salt manufacturers / Brand owners 14Government 5NGO's 8Intermediaries 50End-consumers 1555

A survey was the method that was primarily used to gain understanding in the cooking and

consumption habits, and the decision making and buying process of end consumers. Together with

students from Madras University I have developed the questionnaire that was appropriate for the

Indian context36. Since very little people speak English in rural India I was compelled to work with local

people to help me to hand out the questionnaires. In four different regions I have worked with

approximately 40 local Master’s and Ph.d. students. These students translated the questionnaires into

the local language and filled out the correct answers on the English questionnaire sheet.

The quantitative data collected is meant to say something about the Indian population. Understanding

the buying process as well as the consumption habits asks for a focus on people that are involved in

these processes. Since (young) adults are making decisions regarding daily expenses, the target

group is “Indian citizens older than 18 years”. Quota sampling is the method used in this part of the

research, which means that in all regions I have aimed to interview a certain amount of people from

urban, semi-urban, rural, and slum areas that are older than 17 years. In these areas respondents

were randomly chosen. Figures 2.6, 2.7, and 2.8 show the distribution of the respondents in with

regard to state, area of residence, and income level.

392

125

501 532

50

100

200

300

400

500

600

Tamil Nadu

Maharashtra

Uttar Pradesh

Delhi

Other

36 See Appendix V

Table 2.2: Numbers of respondents per category

Figure 2.5: Numbers of respondents per state

n = 1555


19

36%

27%

17%

20%

UrbanSemi-urbanRuralSlum

Family income per month in INR

38%

48%

10% 3%1%

< 4,0004,000 - 15,00015,001 - 30,00030,001 - 50,000> 50,000

Obtaining qualitative data next to quantitative data is at least as important when it comes to

understanding people. Therefore I have asked the students who have worked with me to go ‘beyond

the questionnaire’, which means that they had to ask certain extra questions that are not in the

questionnaire that might be interesting to know for Akzo Nobel. In other words, we have tried to talk

about certain subjects in more detail and depth for clarification. In order to help the students with this

in-depth research I have drawn up an in-depth interview scheme37. The students also asked people,

who didn’t fill out a questionnaire, questions that were closely related to the topic, for instance how

people view foreign companies and brands. In villages and cities we have observed people’s lifestyles

and asked questions about that. Besides interviewing and distributing questionnaires I have also

gathered information by means of reading reports, newspapers, and observing. One observation

approach I have used was going to supermarkets to observe people’s buying behaviour regarding salt.

2.2.3.3 Analyzing phase

As with all data, analysis and interpretation are required to bring order and understanding. In order to

judge the attractiveness of the market I have performed various methods for analysis. Obviously

different techniques have been used for the analysis of the quantitative and qualitative data. Since

qualititative data are more affected by interpretations, these data must be treated more carefully and

other techniques must be used.

Irrespective of the kind of data, whether qualitative or quantitative, I have checked all data on

similarities and deviations, to make a proper judgement on the statements in the various reports and

the results of the questionnaire.

With regard of the qualititative data I have categorized the information, so that I was able to identify

patterns, ideas, concepts, and behaviour. Thereafter I have summarized all these patterns. The Minto

Pyramid Principle Concept38 has served as guide in this categorization process. Once again, the main

dividing regarding the field research is channel analysis and consumer analysis. This implies that

subcategories were formed within these categories.

The questionnaire results were analyzed in a completely different way. Except for the last one all

questions are closed in the questionnaire. However, afterwards I have categorized the answers on

question 5039, so that it was also possible to analyze these using quantitative methods. With the help

of SPSS, a statistical analysis program, analysis was carried out on the quantitative data providing 37 The questionnaire used for this report can be found in Appendix V 38 Barbara Minto 39 See Appendix V

n = 1554 Figure 2.6: Distribution of respondents by area of residence

Figure 2.7: Distribution of respondents by income level

n = 1555


20

insight into frequencies, means, variations, and correlation coefficients. The aim of this statistical

analysis was to confirm or reject the formulated hypotheses, which will be discussed in chapter 4.

Since we are interested in information about the entire population, we have conducted reliability tests

on the sample results. These reliability tests provide for an indication to what degree the sample is

representative for the entire population. Depending on the variables a certain statistical significance or

p-level was chosen. In all analyses 99% confidence intervals have been included. This means that the

probability that a certain sample mean will fall within the margin of the mentioned values is 99%. In

other words, with a reliability of 99% we can say that the value for the entire population lies within the

margin of the sample result. Statsoft refers to this as sample representativeness40.

The choice of analysis test depends on the measurement scale of the variables and number of

segments. Since most variables are on a nominal or ordinal scale, correlation coefficients and

hypotheses apply to two or more segments were calculated by means of χ2-association tests, Mann-

Whitney-U tests, Kruskall-Wallis-tests, and Spearman’s correlation test41.

2.2.4 Data quality As with all studies, situational constraints have had an effect on the quality of the data in this study. In

spite of these constraints my aim was to maximize both validity, and reliability of the data. Validity

refers to getting results that accurately reflect the concept being measured. In other words validity

means that something is measured that it is supposed to measure. Reliability, as mentioned above, is

the extent to which the measurements of a test remain consistent over repeated tests of the same

subject under identical conditions42.

As a consequence of conducting this research on my own with limited resources, I was compelled to

make decisions on what, where, and when I wanted to collect and from whom. Since I have worked

solely, and not all people that I wanted to talk to speak English, I have decided to work together with

local people. Because of limited resources I have chosen to work together with local students. This

has had an effect on the reliability of the data, as will be explained later.

As mentioned earlier a distinction can be made between qualitative and quantitative data which can be

found in primary and secondary data. In fact all these different kinds of data were obtained by using

four research methods (secondary data analysis, semi structured interviews, survey, observation)

which all have their own limitations. Underneath the quality of the data will be described per method

and concluded with a pronouncement on the reliability and validity of the research as a whole.

2.2.4.1 Secondary data analysis

Regarding secondary data I have tried to maximize reliability by using many sources, and comparing

all sources with each other. Thereby I have tried to use the most recent reports, so that the chance of

information is outdated was minimized. I was aware of the fact that some sources have restrictions

from the reliability perspective, and that sources that confirm each other do not necessarily mean that

the statement is correct, because they could have used the same source. A limitation of secondary

40 www.statsoft.com 41 See Huizingh, E. (2003): p. 367 42 Baarda, D.B. and M.P.M. de Goede (2001): p. 195


21

data is that it mostly does not fit precisely to what the researcher wants to know. This is why the focus

of this research was on gathering primary data. The secondary data therefore served as a

supplement.

2.2.4.2 Semi structured interviews

With regard to primary data collection qualititative data was obtained for the consumer as well as the

market structure part by means of semi structured interviews. Both parts concern gaining insights,

which implies that validity and sample size are unimportant. The main weakness of qualitative

research methodologies is the perceptibly subjective nature of the research data generation, analysis

and interpretation43.

Notwithstanding is bias an issue in that probably played a role during this research. I have tried to be

as objective as possible by asking if I have interpreted the interviewee correctly. In some of the

interviews an Indian colleague joined me, which helped reducing bias, because we discussed the

interview afterwards. Also I have asked control questions to be sure that the answers given are

correct. This is especially important in an international context where the people involved have

different mother tongues. The interviews were mainly held in English. Although many people in India

speak English, they might interpret some things in another way than we, Europeans, do. The

interviews that were not held in English faced an extra difficulty. Together with some students I went to

50 small shops, wholesalers, and supermarkets to interview the salesmen and/or owner. I have

explained the student what I wanted to know and checked if he has understood me. Then he

interviewed the salesman and after he had come back and explained me his findings, we discussed if

we needed more or other information. In this case one speaks of a double interpretation gap. The

student interprets my words, and he asks the question that the interviewee interprets his way.

Giving socially desirable answers is a second point to take into consideration. Van Raaij argues that

research influences the opinion of the respondent. This is also known as the observer’s effect44.

People could change their behaviour when they know that they are involved in research. This effect

has played a role in all methods for obtaining primary data. The laddering technique used has actually

increased the observer’s effect, because why-questions stimulates that one constructs answers45.

The personal nature of the interviews makes it difficult to generalize. I have tried to set this off by

interviewing a lot of people of different angles.

Because it is very difficult to exactly repeat a focused interview, semi-structured interviews are not

considered to be very reliable. However, due to the large sample size and the fact that the topics that

need to be discussed are clear, it can be assumed that another research will deduce the same from it

in general. Although the researcher does not know if the interviewee is lying, the validity is quite high

because people are able to talk about something in depth without being directed strongly.

43 Oburai (2005): p.12 44 Bodegom, van, R., (2006) 45 Bodegom, van, R., (2006)


22

2.2.4.3 Survey

The sample size of individuals representing Indian inhabitants was large (n=1555) and well diversified,

which gives a quite good reflection of the Indian population. In some sub-groups, however, is the

sample not large enough to allow for extensive disaggregation of the data. For instance, the sample

size of people from rural areas in Maharashtra is not big enough (n=5) to make a proper generalization

to the rural population in Maharashtra.

Because random sampling was the type of selection used in the different regions, it can be expected

that the samples produced are reasonably representative of the population in these different sub-

groups. However, there were some refusals by selected individuals among these sub-groups and this

may serve to bias the sample in ways that are not readily evident.

Regarding the survey the double interpretation gap also is a key issue to tackle part to obtain reliable

and valid data. I have closely watched the students distribute the questionnaire. Especially the first

days I have spent much time on the problems they face and have checked if they ask the questions

correctly. Since there are many control questions formulated in the questionnaire we were able to

make sure that the respondents understand the questions asked.

2.2.4.4 Observations

In supermarkets I have observed people buying salt. I pretended to be a customer in order to be sure

that people behave the way they normally do. Moreover, I have checked in shops which brands and

types of salt are sold, and at what price. Also in restaurants I have observed consumption behaviours.

In order to obtain reliability I have observed many times on these issues. Observational research

findings are considered strong in validity because the researcher is able to collect a depth of

information about a particular behaviour.

Just as the other research techniques bias plays a role in observations as well. Working together with

all students has helped me making the observations as objective as possible.

Summarizing I believe that the data found during the research are both reliable and valid, because of

the sample size, the usage of multiple recent information sources (primary, secondary, qualititative,

quantitative), and research methods used. The fact that information was obtained from a diverse group

of people in different regions that give a good reflection on India made generalizations possible.

However, bias, misinterpretation, and the observer’s effect are factors that need to be considered

when determining reliability. Because of the language barrier I was forced to use interpreters, which

made the interpretation gap even wider. This (double) interpretation gap was closed by constantly

checking if I, the students, and the respondent interpretations were the same. Despite no one can be

100% sure that the respondents were lying the research is adequately valid, because respondents

were able to speak for themselves with little direction from the interviewer. The quantitative data

gathering could also be determined as quite valid, because interpreting the questions was possible in

merely one way, and in general the questions were formulated to find direct relations46. However,

since the research is designed for one-time data gathering, it precludes being able to draw any

conclusions about cause and effect relationships between the different characteristics.

46 Except for questions 10-17, 45-49 (Appendix VI) all questions allowed me to draw direct conclusions concerning consumption behaviour and buying and decision making process.


23

2.3 Relevance Since the aim is twofold, this research must be practically relevant and be an original contribution to

knowledge. This paragraph will briefly state why this study meets both aims.

2.3.1 Practical relevance In the first chapter I have explained the reason of this research in brief. It was described that

technological development of the product is one part of the project. The second part, making it

business wise viable, cannot be done without keeping contact with the external operating

environment. This is where this study is meant for. Akzo Nobel needs to understand the Indian salt

market in all its facets before the management team is able to decide whether they can or cannot

enter this market, and if so, how. Since the technological development has reached an advanced

stage, development of a business model is extremely urgent47. Next to mapping the Indian salt market

and developing a business model for it, this study is also meant to serve as a guideline for developing

BOP business models for other countries in the future. With adaptations the business model provided

in this study is replicable to other countries.

2.3.2 Theoretical relevance

The BOP concept will be scrutinized. This concept will be critically reflected and the practical

completion of this finds its effect in the case study carried out in India. The case study sheds extra light

on the strengths and limitations of the theoretical concept and the consequences it brings to applying

this theory to practice. Deducing hypotheses from theory and testing them could also bring value to

evaluate the concepts discussed. Sustainable business and the related BOP concept are themes that

stand at the beginning of becoming hype. Ever more consulting firms, prominent scientists, and

multinationals are focussing on the BOP, which implies that this theme is hot48. Therefore it is highly

relevant to contribute to this thematic field, so that scientists as well as businessmen can profit from

the insights gained during this research.

47 See Appendix II 48 a.o interviews André Veneman, Director CSR and HSE of Akzo Nobel, Erik van Dam, CEO Triple Value


24

Chapter 3 Theoretical background_____________________ This chapter provides the necessary foundations for a clear understanding of this report. Two

concepts, known as BOP and CSR, as well as their relation will be discussed. Thereupon the role of

CRM within this framework will be clarified. The combination of these three concepts will be

transformed to an ideal business model in theory.

3.1 Bottom of the Pyramid

C.K. Prahalad, one of the founders of one of the most influential business concepts in recent years,

argues that multinational companies must revolutionize how they do business in developing countries,

and take the lead in alleviating poverty by treating the poor as consumers. This argument that selling

to the poor can simultaneously be profitable and help eradicate poverty, is not shared by everyone.

Aneel Karnani believes this is at best a harmless illusion and potentially a dangerous delusion49.

Prahalad has tried to make multinational companies conscious of the huge opportunity the low-income

markets present. In an attempt to manage this he has likened the worldwide market to a four-tiered

pyramid, as the figure below shows50. The top tier consists of 75 to 100 million people earning more

than $20,000 per year. Most of these people live in the developed world. People in the second and

third tiers, which consist of approximately 1.75 billion people, are considered the rising middle class

that mostly live in developing countries. At the bottom of the pyramid, in tier 4, approximately four

million live mostly in developing countries, earning less than $1,500 per year. According to Prahalad

the BOP’s GDP in purchasing power parity terms is $12.5 trillion, which is larger than the GDP of

Japan, Germany, France, Italy combined. However, according to the World Bank the average

consumption of poor people is $1.25 per day and assuming that there are 2.7 billion poor people,

implies a BOP market size of $1.2 trillion at PPP. From the perspective of a MNC from a developed

country, profits will be repatriated at the financial exchange rates, not at PPP. In that case, the global

BOP market is less than 0.3 trillion, compared to an 11 trillion US economy, making it a difficult place

to look for a fortune51. Typically MNCs have focused on the top tier since it provided the highest

margins of returns. People at the BOP, however, have been ignored, because it is assumed that these

49 Karnani, A., (2006) 50 This figure is an adapted version from Prahalad, C.K. and S.L. Hart (2002). The original source is the U.N. World Development Report 51 Karnani, A., (2006)

Annual Per Capita Income Tiers Populations in Millions

$1,500 – $20,000

Less Than $1,500

More Than $20,000 75 – 100

1,500 – 1,750

4,000

1

2 & 3

4

* Based on purchasing power parity in US$ Figure 3.1: The World Economic Pyramid


25

people do not have any disposable income and so cannot afford most products. Additionally, MNCs

ignored tier 4 markets because they were considered a ‘disorganized sector’ where a lack of

infrastructure and development made effective marketing and distribution of products almost

impossible52. Until now non-governmental organizations (NGOs) and governmental organizations are

called upon to solve the problems pertaining to the poor and public health crises such as IDD and IDA.

Conversely, MNCs usually limit their involvement with the poor to charity. The fact that the four billion

people remain outside the global market system offers both a tremendous need and opportunity for

corporations to grow and to become a catalyst for a truly sustainable force of global development for

all on the planet53. The populations of the 80 percent underserved have the future. Their economies

are growing with eight to nine percent annually, instead of two to three percent in developed countries.

Moreover, their purchasing power is growing. Growth in these markets is generally also completely

different from growth companies are used of in developed markets. M.S. Banga, CEO of HUL

mentions that one of the biggest challenges for companies in the BOP is coping with the “I-curve”.

Because of the many interacting drivers of change and market growth that are simultaneously present

in BOP markets such as deregulation, involvement of the private sector, digitization, ubiquitous

connectivity and the attendant change in the aspirations of people, a young population, and access to

credit, the pattern of diffusion of new products and services between developed and BOP markets

completely differs as shown in figure 3.2.

The decrease of poverty depends highly on the growth of business, especially domestic small

businesses. MNCs can facilitate them to gain access to markets, credit and technology. Moreover,

MNCs can become a catalyst for development, because with their power they can effectively influence

local governments to invest e.g. infrastructure and education. Igor Ansoff, known for his growth

strategy matrix, shoots down the BOP proposition with his concept. He typifies penetrating the BOP as

unrelated diversification, which brings a high chance of failure. A company requires new capabilities to

serve new markets with new products54. Obviously, serving these people requires that products must

be affordable and that margins are low. For this reason markets must be large to reach the sales

volumes needed to become profitable. Prahalad exhorts MNCs to ‘co-create’ by merging the

investment capacity of large firms and the knowledge and commitment of NGOs, GOs and the BOP to

create value for the corporate sector as well as society. This obviously requires big adjustments in the

attitudes and practices of all organizations involved.

52 Prahalad, C.K. (2006), Prahalad, C.K. and S.L. Hart (2002), Prahalad, C.K. and A. Hammond (2002), Hart, S.L., (2005) 53 Hart, S.L., (2005): p. xxxi 54 Perlitz, M., (2004): p. 36

Traditional “S Curve” BOP “I Curve”

Figure 3.2: Traditional and BOP Growth Patterns


26

Besides many business academics such as Prahalad, Hart, and Hammond, Kofi Annan, former United

Nations Secretary General, also believes that profit oriented organizations can make the difference in

solving the world’s biggest problems as the following statement of his proves:

There are many positive ways for business to make a difference in the lives of the poor-not through

philanthropy, though that is also very important, but, through initiatives that, over time, will help to build

new markets.

For the corporate sector the BOP, which also means 2nd and 3rd tier people, can be a vast market to

generate profitable revenue as well as a source of innovation for products processes and business

models. If Joseph Schumpeter’s need for creative destruction assertion still holds, the BOP is the ideal

playground for this, because in the BOP firms compete against non-consumption and business models

forged in low-income markets can travel profitably to more places than can business models defined in

developed markets. Also, innovations for the BOP markets challenge established ways of thinking.

The theory of disruptive innovation suggests that existing

mainstream markets are the wrong place to look for major new

waves of growth55. In his book The Innovator’s Dilemma

Christensen explains that disruptive innovations are products

that are not as good as those that historically have been used

by customers at mainstream markets and that, therefore, can

take root only in less demanding applications among

nontraditional customers. If companies can take this Great Leap

Downward, as Hart puts it, they open new doors to serve the affluent with innovations primarily aimed

at the BOP56. It is generally agreed that reaching the BOP is definitely a tough task and requires well-

considered strategies. Christensen says that there are three ways to reach the BOP. First, companies

can make a complicated product affordable. Second, it can create low-end disruption through low-cost

products. Third, by executing new disruption by penetrating frontier markets where no corporation had

ventured before, companies can reach the BOP.

55 Hart, S.L., (2005): p. 117, Prahalad, C.K. (2000), Prahalad (2006): p. 27, Christensen, C.M. and M.E. Raynor, (2003): p. 103 56 Hart, S.L., (2005): p. 116. Figure 3.4 is adapted from p.116 of Hart’s Capitalism at the Crossroads

Economic development

and social transformation

NGOs, Civil society organizations,

Local governments

BOP consumers BOP entrepreneurs

Development and aid agencies

Private sector, including MNCs

Figure 3.3: Interconnectedness as driver of co-creating value for society and corporate sector

The bottom of the pyramid

Figure 3.4: The Great Leap Downward: Driving innovation from the BOP


27

Summarizing, C.K. Prahalad argues that there is much untapped purchasing power at the BOP.

Private companies can make significant profits by selling to the poor, which can bring prosperity to the

poor and thus eradicate poverty. Finally larger MNCs should play the leading role in this process of

selling to the poor. In a reaction to Prahalad’s BOP proposition, Aneel Karnani states that, the BOP

market is quite small and unlikely to be profitable, because of high distribution and marketing costs

due to geographically dispersion and cultural heterogeneity in combination with weak infrastructure.

The definition of poverty probably has an effect on the different views on the size of the market.

Opposite of Karnani Prahalad views a part of 2nd and 3rd tier people also as BOP consumers in his

proposition. In a reaction to Karnani’s critique he states that the focus of the book is on changing the

quality of life of 5 billion underserved. Besides, Karnani and Sen state that poverty cannot be defined

only in economic terms; it is about a much broader set of needs that permit well being. In his book

Prahalad cites that Annapurna salt is marketed at the BOP by HUL. However, at a premium price of

x% over regional producers, not too many people see it as a bargain. Furthermore Karnani, who

believes the BOP proposition is a mirage, states that the only way to alleviate poverty is to raise real

income of the poor. Therefore it is necessary to view the poor primarily as producers rather than

consumers. Prahalad, encounters that increasing disposable income can also be accomplished by

creating capacity to consume. This can be done in various ways, e.g. by providing credit, or import

pay-per-use thinking. According to Hernando de Soto the poor live in high cost micro-economic

systems due to inaccessibility to cheap capital, and because they are prisoners of local monopolies,

which could be changed by interference of the organized sector57. Another way to create capacity is to

offer smaller packages that are affordable to the poor. Karnani criticizes this single-serve revolution.

The only way to increase real affordability is to reduce the per unit price, he states. This can be done

by reducing costs by reducing quality, contrary to Prahalad’s statement to reduce price without

reducing quality. Prahalad believes that attracting more competition to the BOP will drive down product

prices, thus creating higher disposable incomes that could be used for other purchases. Contrary to

the BOP proposition, Karnani states that the goal is to reduce both cost and quality in such a way that

the cost-quality trade-off is acceptable to the poor consumers. Finally Karnani suggests MNCs to

approach the BOP cautiously, because of modest profit opportunities and, contrary to Prahalad’s view

BOP consumers, often make choices that are not in their self interest, which means that MNCs could

actually harm the BOP by serving them58. Prahalad foils this by arguing, that every individual including

the poor must be able to choose. Neither Prahalad nor Karnani offer much insight how to remedy

problems of corruption, which is one of the biggest problems in many developing countries. Corruption

hurts the poor both as consumers by distorting prices and as producers by discouraging investment.

3.2 Corporate Social Responsibility and its relation to the BOP The Corporate Social Responsibility movement has grown in recent years from a fringe activity by a

few local companies to a priority to most global companies. With expanding businesses all over the

world, multinationals are focused more than ever on sustainable entrepreneurship, also named

57 De Soto, H. (2003) 58 Karnani, A., (2006): the rich also often make choices not in their self interest, but the consequences are not as severe in their case


28

corporate social responsibility. The World Business Council for Sustainable Development defines

CSR as:

"Corporate social responsibility is the continuing commitment by business to behave ethically and

contribute to economic development while improving the quality of life of the workforce and their

families as well as of the local community and society at large"

Basically this means that CSR is about balancing the three P’s: People, Planet and Profit not just

within the boundaries of the own company, but in the entire value chain59. The current generation must

be able to meet its needs without compromising the ability of the future generations to meet its

needs60. The concept emphasizes ethical and social stance of companies regarding legal compliance,

prevention of corruption and impropriety, equal opportunity employment, protection of human rights,

labour health and safety, consumer protection, community contribution, and procurement standards61.

The CSR wave started in the late eighties. Companies that used to think environmental and social

issues were costly problems repositioned social and environmental issues as profit making

opportunities. This often results in the drive of companies to create win-win situations between societal

and corporate interests in order to guarantee global future needs. MNCs make a positive contribution

to local society by means of economical development and growth. Generally local economical growth

is stimulated by the direct and indirect employment they create and the wages they pay, the taxes they

pay, and the profits they make and partly pump back in the local organization62. Nowadays, many

companies seem to pay attention to CSR, resulting in voluntarily issuing Annual CSR Reports that

focus on the companies’ efforts on sustainable business activities, besides the regular Annual

Reports. However, still a lot of companies view CSR as compensating for the damage done by

conventional business strategies by means of philanthropy or charity. This belief makes some

companies use CSR as a window dressing tool. Others really prioritize CSR and incorporate it into

business strategy to build a competitive advantage. It is also still believed that CSR implies sacrificing

money and effort, otherwise companies lose credibility63. In order to be able to withstand societal

challenges for global sustainability, companies are required to perform financially. For this reason

Stuart Hart and Mark Milstein have developed a sustainable value framework that combines the two

dimensions normally used in the strategic field, to provide conceptual clarity of CSR and its practices.

The figure on the next page shows that CSR practices can be organized by orientation (internal versus

external) and time (present versus future)64.

59 Cramer, J., and R. Porte (2005) 60 Hart, S.L. (2005): p. 89 61 Kawamura, M., (2003) 62 Cramer, J., and R. Porte (2005) 63 Interview Lutz, October 20th 2006 64 Adapted from Hart, S., (2005): p. 65


29

The lower left quadrant contains all activities that have to do with resource efficiency meaning that

companies must try to squeeze more saleable product out of each kilogram of raw material it buys by

e.g. reducing waste. The lower right quadrant activities challenge companies to access voices beyond

their immediate operational control. Whereas pollution prevention focuses on internal operations,

product stewardship extends beyond organizational boundaries to include the entire product life cycle,

and necessitates interacting with all external parties in the supply chain and even outside the supply

chain such as the media or NGOs. The traditional CSR concept of charity and philanthropy belongs to

this group. The upper left quadrant emphasizes the development of emerging technologies that could

make today’s routines and processes obsolete. Innovations must focus on conserving resources:

eliminate, reduce, and recycle. This closely relates to William McDonough and Michael Braungart’s

cradle to cradle concept of ecologically intelligent design. In short, they argue that if designers employ

the intelligence of natural systems they can create products, industrial systems, buildings, even

regional plans that allow nature and commerce to fruitfully co-exist. This can be accomplished by

developing products for closed loop systems in which every ingredient is designed to be safe and

beneficial to either naturally biodegrade or restore the soil or provide high quality resources for

subsequent generations of products. These biological nutrients and technical nutrients allow

manufacturers to generate and recover value, rather than losing material assets when a product

moves out the warehouse door65. Finally, the upper right quadrant focuses on those who have been

underserved or even exploited by capitalism today. In other words this quadrant is primarily aimed at

serving the BOP. This makes serving the BOP a part of CSR, since it holds the potential to incubate

more sustainable ways of living for the world66. Obviously the various dimensions of CSR are

connected with each other and clearly relate to firm performance and value creation. If a company

decides to reorient its portfolio around inherently clean technologies aimed at the BOP it must broaden

the corporate bandwidth by engaging in dialogue with stakeholders that are not there in developed

countries. The new challenge of engaging in extensive interaction with external stakeholders,

regarding both current offerings and economically sound new solutions to social and environmental

problems for the future, requires dynamic CSR policies67.

65 McDonough, W. and M. Braungart (2002) 66 Hart, S.L., (2005) 67 Interview Karsten, March 22nd 2007

Sustainable Value

Tomorrow

External Internal

Today

Strategy: Clean Technology Develop the sustainable competencies of the future Corporate pay off: Innovation & Repositioning

Strategy: Pollution Prevention Minimize waste and emissions from operations Corporate pay off: Cost & Risk Reduction

Strategy:Sustainability Vision Create a shared road map for meeting unmet needs Corporate pay off: Growth & Trajectory

Strategy:Product Stewardship Integrate stakeholder views into business processes Corporate pay off: Reputation & Legitimacy

Drivers � Pollution � Consumption � Footprint

Drivers � Disruption � Clean Tech � Footprint

Drivers � Civil Society � Transparency � Connectivity

Drivers � Population � Poverty � Inequity

Figure 3.5: The Sustainable Value Framework


30

3.3 Customer Relationship Management On a strategic level managers ask themselves the question whether the company should adapt to the

environment or should it attempt to adapt the environment to itself. The point of view of the former,

which states that the market opportunities should be leading, is known as the outside-in perspective.

Identifying opportunities should be started by providing insight of various customer segments. In other

words, the customer is the central point. Once a company manager knows what makes the people

tick, a position can be identified within the market68. This perspective has its effect on how marketing

research should be conducted: the starting point must be the end-consumer and from there the market

structure can be mapped. Because of IT facilities customers become more in control, meaning that

they often know exactly what the market offers and they are going to try to find that product that they

want on their conditions. This is why finding out consumer’s preferences is that important. Besides

attracting consumers to buy your product, it is (perhaps even more) important to retain your customers

and building a relationship with them. This is where Customer Relationship Management steps in.

CRM is about creating an experience, personalizing the interaction with the individual customers in

ways directed by the customer, and thereby developing relationships. Staying in contact with

customers is simplified with the arrival of IT, but companies must be aware that relationships between

people are build by people69.

In a market that is characterized by extreme poverty, unstable governments, poor infrastructure and

health care, and poor education systems, building up a relationship with customers is completely

different than in the Western World. Nevertheless, gaining insights in consumer’s behaviour remains

the most important. Given the factors of the BOP mentioned above, companies that would like to enter

the BOP are required to learn about and define the wants and needs of these people and find out

which services it can provide that can improve their lives.

3.4 Ideal Business Model

A business model describes the value an organization offers to various customers and portrays the

capabilities and partners required for creating marketing and delivering this value and relationship

capital with the goal of generating profitable and sustainable revenue streams. Basically this means

that companies need to formulate a strategy for production and marketing, and determine which

partners are going to be involved to bring the product to the market. This results in a description of the

company’s offer, the company’s value to the target customer, the way to reach it customers, the

relationships the company builds (CRM), how the company makes money, which capabilities and

activities are required, and the cost of the business model70. Prahalad mentioned that one of the most

difficult and important questions with regard to serving the BOP is how these people can be reached.

Reaching concerns distribution of the actual product as well as communication. There is indeed no

univocal answer to this. Until now there have not been many companies that have succeeded in

making their products accessible to these people in a way that is culturally appropriate,

environmentally sustainable and profitable. Obviously, the fact that many of them live in rural areas in

68 Wit de, B. and R. Meyer, (2004): p. 250 69 Karsten, L. and M. Diepenmaat (2006) 70 Osterwalder, A., Pigneur, Y. and C.L. Tucci (2005)


31

developing countries, where infrastructure is weak or completely lacks, has contributed to this.

Traditional distribution systems mostly do not reach the BOP because of the high costs involved and

therefore innovation in distribution is as critical as product and process innovations71. Given the variety

among BOP populations and the opportunities that arise in the market, there is no one ultimate

business model that fits all. Obviously this also depends on the product offered and the industry the

company is in. Nevertheless, companies have to build business models that include strategies,

organizational structures, and management processes that suit the conditions at the BOP. Hart states

that the approach of companies that want to serve the BOP must be completely different from the

companies that develop business models for the developed world as shown in the figure on the next

page72.

Also it is certain that a company cannot reach the BOP population alone. Because of globalization the

power of governments has decreased, but NGO’s, civil groups’ and individual’s power has risen.

These actors, including the governments, are usually involved in providing aid to the BOP. Hence,

they understand the locals and enjoy the BOP’s trust. MNCs have the scale and financial power to

leverage that knowledge. For this reason it is essential to proactively seek out the voices from the

fringe, including people from the community the company wants to serve73, and co-develop an

appropriate business model. By collaborating with parties that are trusted consumer confidence can be

build up. Probably the business model will not be developed at once, but will evolve over time.

Anyhow, business models for the BOP must leverage local talent, create employment opportunities,

and build capacity in the local community74. During the last few years several companies have tried to

reach the BOP and three business model archetypes are emerging, as shown in figure 3.775. The most

successful ventures in the BOP were those that became embedded in the local community, maximized

the functionality of the product or service in terms that were important to local users76.

71 Prahalad (2006): p.43 72 Hart, S.L., (2005) 73 According to Beshouri mayors, barangay captains, but also school principals, teachers, religious leaders, and residents themselves are in the best position to help companies deal with the challenges of doing business in low-income areas 74 Hart, S.L., (2005) 75 Adapted from C.P. Beshouri (2006) 76 Hart, S.L., (2005): p. 190

“Developed” Market Business Model

– Rapid innovation

– Obsolescence

– Fine segmentation

– High margins

– Labor efficiency

– Mass media

– Top down

“BOP” Market Business Model

– Durability

– Consistency

– Coarse segmentation

– High volume

– Capital efficiency

– Direct selling

– Bottom up Figure 3.6: Differences between developed market and BOP market business models


32

Business model

Core issue addressed

Community based intervention

Relevant industries

Sample businesses

Collective accountability

Problems with collection, pilferage

Small groups monitor usage, promote compliance, provide social insurance

� Utilities e.g. water,

electricity, � Finance

� Manila Water

(Philippines) � ICICI (India)

Scalable embedded distribution

Traditional delivery too costly relative to purchase size, density of consumers

Low-cost, community-based distribution point employ key workers in low-income areas

� Fast Moving Consumer Goods � Telecom � Low-value consumers goods

� Indofood

(Indonesia) � Hindustan

Lever (India) � Kodak (Brazil)

Livelihood partnership

Brands lack positive equity; cultural divisions can separate interests of consumers and producers

Business offers additional services around core product/service that promote primary demand while providing training or cooperative business programs to community

� Telephony services � Utilities e.g. water, electricity � Agriculture

� Globe Telecom

(Philippines) � Manila Water

(Philippines) � ITC E-Choupal

(India)

This could mean that quality is inferior to the premium brands in the market, but acceptable to the

poor, and lower priced77.

The first business model, collective accountability, focuses on problems associated with either direct

lending or postpaid services. Since transactions in the BOP are often small compared to transactions

in the developed world, the former are relatively expensive. One way to solve this is by e.g. collective

billing. Manilla Water offered an option to collectively purchase water at a discount. Members of the

units that purchase collectively monitor payment and provide social insurance to one another. Micro

credit lending institutions also work using this approach.

The second, scaleable embedded distribution reduces costs and promotes a company’s reputation by

enlisting trusted community members to provide the distribution infrastructure for goods and services.

This model will be elaborated in chapter 6, because it is also used in low-value consumer goods

industries such as salt.

Companies using the third business model, livelihood partnership, surround a core product or service

with additional benefits. Companies provide low-cost, productivity enhancing assistance, rather than

treating the communities purely as a collection of consumers.

These three business models all require long-term community relationships and investments. Besides

choosing just one of these business models a combination of the three can also be an option. Akzo

Nobel could e.g. combine the three by offering bags for a village which they can pay collectively at a

discount, these bags can be distributed by people from these communities, and these distributors

could also provide people with training and education.

77 Nirma’s detergent was inferior to HUL’s Surf on every single characteristic measured. Despite all these factors, Nirma had outperformed Surf in the market

Figure 3.7: Three emerging business models


33

Affordability is at least as important as accessibility with regard to doing business at the BOP. Hence,

it is of paramount importance to minimize the costs of running the business model. Nirma, who is

known for its success in supplying detergents to the BOP, kept the company as lean as possible by

outsourcing all the administrative functions and contracting out the sales, accounting, and technical

production capabilities and distribution. Nirma’s success can party be explained by its extremely

simple distribution system compared to the multilayered systems of the MNCs in that industry. The

lesson that companies that want to do business in the BOP need to learn is that distribution models

are required to be simple and contain as few layers possible. Moreover, when low disposable incomes

limit the amount consumers can buy at one time, it becomes extremely important to deliver products

and services in affordable packages, such as single-use packages78.

McKinsey has developed a business model for Baan which is known as the Baan Web79. This model

has inspired me to think of a model that could prove successful for Akzo Nobel. Just like Baan Akzo

Nobel must set up a network of strategic partners. This network should help to sell and distribute the

product. Essential in this network is the mindset “less is more”. A significant result of this mechanism,

typical for this network, is: if the share of the brand holder in the Web decreases, the Web will

generate higher returns, and these higher returns will be significantly higher than would have been the

case without the Web. After a magical point of inflection, the value of the Web increases exponentially.

This partly explains the I-curve mentioned earlier. The scaleable embedded distribution model

perfectly fits this idea.

Karnani mentioned the importance of local production when serving the BOP. This can be organized in

various ways. Also for this element there is no one best option. It all depends on the opportunities the

environment offers. Many BOP producers work in the unorganized sector and the challenge is to

bundle the strengths of these local producers and help them deliver the desired quality. The ideal

situation is that the BOP can be transformed into producers, which helps them increase their monthly

income. Consequently they can afford to pay a little more for healthy products such as DFS. Because

the BOP is involved in the production, distribution and marketing (education), the local community

changes its food habits and is going to use DFS, which causes a decrease of IDD and IDA

prevalence.

78 C.P. Beshouri (2006) 79 Baan, J., (2005)


34

Chapter 4 Hypotheses_______________________________

In this section, hypotheses that are critical to test in order to develop a suitable business model within

the CSR framework will be developed. Developing a business model requires an understanding of the

market. Several assumptions about this market will be presented in this chapter in form of hypotheses.

These hypotheses are formulated as a result of the theory described in the previous chapter, and

interviews I have had with experts prior to my journey to India.

The objective of this study is to develop a business model for the Indian retail market that suits Akzo

Nobel’s CSR policy. In the previous chapter the relation between the CSR and serving the BOP has

been specified. In order to find out if doing business at the BOP could be something for Akzo Nobel it

should be tested if the BOP concept could be incorporated in Akzo Nobel’s current CSR policy. Hence,

hypothesis 1 is formulated as follows:

1. The theory of serving the BOP fits in the current CSR policy of Akzo Nobel

The market structure has been mapped and will be elaborated in chapter 6. Several existing

distribution models will pass in review. In chapter 7 the consumer analysis will be presented. As was

mentioned before the consumers are the most important when creating a business model. Hypotheses

concerning current business models, consumer’s preferences that affect the decision on the business

model, and possible partnerships have been formulated here.

2. If the distribution of DFS must go through a public distribution system, collaboration

with UNESCO and governments is required to make it effective

3. In Rural India less than 45% consumes branded salt

4. Contrary to Rural India powder salt is preferred over coarse salt in urban India

5. There is a positive correlation between iodized salt consumption and awareness of its

existence 6. Taste is the decisive factor for most Indians with regard to salt, irrespective of place of

residence or income level

7. Akzo Nobel can only sell DFS in large amounts if the sales price is lower than current

iodized salt prices

8. Most Indians buy salt in small shops, irrespective of place of residence or income level

9. TV is the most important medium for deciding which brand to buy

10. If DFS will be sold at market prices, than a direct distribution model is required in order

to serve the BOP 11. Akzo Nobel should only acquire or collaborate with parties that consider CSR of

paramount importance

In the following chapters these hypotheses will be falsified.


35

Chapter 5 Corporate Social Responsibility policy of Akzo Nobel Although a lot of companies claim that they do business in a socially responsible way there still is a lot

of scepticism. The growing need for environmental care and anxiety for cultural dominance has made

clear that the everlasting search for higher profits can reckon with more and more resistance.

Resistance reveals itself in growing groups of consumers that repudiate the behaviour of companies

that did not care for societal problems, and boycotting of their products. This is one of the reasons why

companies pay attention to CSR. Although a lot of companies use CSR as a way to manage

perceptions: ‘window dressing’ to veil the inside80, Akzo Nobel has tried to fit CSR into its corporate

strategy. For Akzo Nobel Corporate Social Responsibility is:

“a business approach to create long term shareholder value by embracing opportunities and managing

risks, deriving from economic, environmental and social developments” (AN Intranet CSR

Department).

Hans Wijers, CEO of Akzo Nobel, states that CSR is a fundamental value driver of the intangible

capital of a corporation and is about balancing short and long term interests and building trust among

stakeholders. This means that CSR concerns the core business of Akzo Nobel and is crucial to its

strategy and long-term success. Akzo Nobel tries to contribute to a sustainable society by finding the

right balance between People, Planet and Profit, as shown in figure 5.1. People involve achievements

in the social-ethical region: how does a company treat its employees and what are the social

accomplishments? Themes include human rights, corruption and child labour. Planet comprises the

environment, for example cleaner production processes and the development of sustainable

technology. Profit is not about the financial performance of a company, but rather economical issues,

like employment, and political involvement81.

In other words, Akzo Nobel focuses on the success of its customers, generating competitive returns

80 Ketelaar, E. and J. Reinhoudt (2006) 81 www.duurzaam-ondernemen.nl

SuccessFigure 5.1 Balancing People, Planet and Profit


36

Bottom of the Pyramid

Process and Product

innovations

Customer Loyalty (particularly with

public clients)

Premium Pricing (Image of CSR

belongs to brand)

Avoid regulation and litigation risk

Maintain license to operate

Reduce risk of media and NGO

campaigning

Risk

Efficiency New Markets

CSR and Competitive Advantage

Energy/waste efficiency savings

Increased motivation

Low Cost of Capital

Margin + Sales

for its shareholders, creating an attractive working environment and conducting its activities in a

socially responsible manner simultaneously. Making a valuable contribution to society means among

others that Akzo Nobel will always treat the environment the best possible way, create jobs, pay tax

and do business in an ethical way82. By conducting business in ways that produce social,

environmental, and economic benefits for the communities in which Akzo Nobel operates, the

company maintains a license to operate. Doing business ethically reflects the expectations of society.

When a company does not comply with these expectations, resistance of society may occur with all its

negative consequences. These contributions to a sustainable society bring competitive advantages

such as higher efficiency, lower risk, new markets, larger sales volumes and possible higher margins

at home markets due to improvement of image. This has been visualized in figure 1.3, which is an

adapted version of the model constructed by Maurizio Zollo, Peter Neergaard, Kai Hockerts, Jonas

Eder-Hansen and Rune Dalgaard83.

Some comments can be given on this model: although risk could be reduced it is not clear where new

risks emerge from. A company like Akzo Nobel should be aware of the risks of propagating CSR

projects, because it might be interpret the wrong way. Also, it is not clear if ethical investing is relevant

enough to impact cost of capital if focusing on CSR motivates staff. British Telecom has conducted

research to prove that this certainly is the case: 63 percent of the employees feel more proud to work

for a company that is engaged in CSR activities84.

It might have become clear that Akzo Nobel’s CSR policy is aligned with the theoretical CSR concept

to a large extent, which in turn harmonizes with the theory of the BOP. Health and poverty are major

problems in India. Akzo Nobel wants to make a contribution to the poor Indian population regarding

the health issues. The health objectives formulated by Akzo Nobel also fits the poverty objectives the

BOP concept sets. Concluding, hypothesis 1 “The theory of serving the BOP fits in the current

CSR policy of Akzo Nobel” is confirmed.

82 Akzo Nobel CSR Report 2006 83 On May 15 2006 a report on the RESPONSE Project was written for Akzo Nobel by Kai Hockerts, Jonas Eder-Hansen, Peter Neergaard, Rune Dalgaard of Copenhagen Business School and Maurizio Zollo of INSEAD in which this model was presented 84 Ketelaar, E. and J. Reinhoudt (2006)

Figure 5.2 Perceived advantages of CSR


37

Chapter 6 Indian salt market structure_____________ The outcome of the external analysis will be elaborated in the next two chapters. In this chapter the

market structure of the industry will be discussed in all its facets85, ranging from product assortment

and competition to legislation and distribution, and the change over time. The chapter starts with a

brief introduction on India and the salt industry’s history, and concludes with opportunities and threats.

6.1 Background

6.1.1 India on macro level Doing business in India is doing business in a country with 1.1 billion people, a growing confident and

consuming middle class and an average economic growth of x%. With a geographical size of

approximately 3.3 million square kilometers its size is about 88 times the size of Holland. This

amounts to a population density of around 366 persons per square kilometer, which implies that India

is among the most densely populated countries of the world. India is located in South Asia and is a

peninsula; with three sides open the seas –the Arabian Sea to the west, the Bay of Bengal to the east,

and the Indian Ocean to the south- with the Great Himalayas in the north borders. India consists of 29

states, all having their own State Government86. On a national level, India is constituted as a

Sovereign Socialist Secular Democratic Republic with a parliamentary system of government. Delhi is

the union capital, and each state has its own capital. Since 1991 India has been undertaking a

program of liberalization and economic reform, and at the same time the economy has been growing

at a high rate. The entrepreneurial spirit and high ambitions of many Indians has contributed to this. As

part of the reform program, and in line with prevailing economic thinking, India has been privatizing its

large, ungainly public sector. However, in spite of endeavours to making government policies

transparent and simple India still is one of the most bureaucratic and corrupt countries in the world87.

Apparently the level of corruption is not the same in all parts of the country. It relates to the economic

development of the state; less developed states in economic sense show a higher corruption level.

India is a country of contrasts: an ancient civilization, but a young nation; extremely wealthy people

live close to the extremely poor; huge differences between rural and urban communities; one country,

but many languages88; one law but several religions; Western versus more traditional lifestyles; the

caste system89. Next to dealing with these contradictions, the not very advanced infrastructure

throughout the country is a major challenge one faces when doing business in India90. Around 750

million people live in one of India’s x villages of which x% is small91 and remote. The fact that only x%

of the villages is accessible by road, and many of these roads are impassable in bad weather makes

85 The end consumer is excluded from the market structure in this chapter. This analysis will be discussed in chapter 7. 86 EVD website and country report December 2006 of The Economist Intelligence Unit Limited 2006 87 According to UNESCO and Transparency International India ranks 155 out of 180 countries on the UNESCO corruption list (BBC News from 4th of October 2006: http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/5405438.stm) 88 The Union Government recognizes 18 official languages with at least 600 dialects. Hindi is the most widely spoken, being the common mode of communication in the northern states. However, each of the southern states have their own language. The one unifying medium of communication in urban India is English. 89 These contradictions will be discussed in chapter 7 90 EVD: Business Guide India; Sporen uit het Oosten, Nederland 2, 16 december 2006, EIU (2006) 91 Populations of less than 2000


38

the challenge even bigger. The table below indicates that doing business in India is not that easy.

However, this does not mean that this counts for all states.

Ease of... 2006 rank 2005 rank Change in rank

Doing Business 134 138 +4

Starting a Business 88 102 +14

Dealing with Licenses 155 154 -1

Employing Workers 112 113 +1

Registering Property 110 108 -2

Getting Credit 65 96 +31

Protecting Investors 33 33 0

Paying Taxes 158 159 +1

Trading Across Borders 139 139 0

Enforcing Contracts 173 173 0

Closing a Business 133 128 -5

Due to the lack of highways and the high cost of flying more than x people travel by train per year. This

makes the infrastructure work at full capacity. Despite the many challenges that must be conquered it

is worth considering rising these because of the great potential India holds!

6.1.2 History in salt Salt has a long and influential role in world history. From the dawn of civilization, salt has been a key

factor in economic, religious, social and political development. In every part of the world, salt has been

the subject of superstition, folklore, and warfare, it has even been used as currency92.

Since 1857 India fell under the direct control

of the British Crown as a colony of the

British Empire. During British occupation,

salt manufacturing was regulated and

imported. x% of India’s government revenue

was derived from import tax of salt coming

from Great Britain. The British controlled the

salt industry until India reached its

independence in 1949. Mahatma Gandhi

then pushed for self-sufficiency in salt by

starting a Salt March, which India achieved

in the 1950s. This Salt Satyagraha, also known as the Salt March to Dandi, which started on the

March 12 1930 and lasted 26 days, symbolizes the independence of India. When he reached the

coastal saltpans, Gandhi picked up a lump of raw sea salt in his hand, proclaiming resistance not just

to Britain's ban on the private production of salt, but to its colonial reign. To the Indian masses, eating

the British salt was no longer acceptable, or necessary: everybody could now earn and own their own

salt. In 1955 salt is declared as an item of food under Essential Commodities Act, which gave the state

92 Kurlansky, M. (2003)

Table 6.1: Ease of doing Business in India according to the World Bank

Figure 6.1: Gandhi on the Salt March


39

governments authorization to fix the salt prices and its movement within their states. Now India is the

3rd largest producer of salt, behind the USA and China93.

Salt, which has always been a sensitive and political subject in India, has transformed from a

commodity product to a FMCG product with top business groups launching branded salt products with

heavy promotions and unique positioning94. Especially in urban India salt has lost its commodity

status. Till the early 1980s, most Indian households used either local brands of salt or unprocessed

salt that was sold loose. Then the Tatas decided to launch a national brand of iodized kitchen salt in

1983. In 1997 the central government banned the sale of non-iodized salt for edible purpose95. During

the 1990’s several companies entered the branded salt market and a real salt market war was started!

The ban on iodized salt had been lifted in the year 2000, because the Health Minister during that time

insisted on the consumer's right to choose and argued that access to non-iodized salt should not be

forbidden completely. Four years later, however, the Government of India has reinstated the ban on

the production and sale of non-iodized salt for human consumption, because the number of people

who use adequately iodized salt has fallen from x% to x% since the ban has been lifted96. The concept

of developing double fortified salt started in India in early 1990’s and resulted in India’s own NIN recipe

for DFS which will be described in paragraph 6.2.3.

6.2 Market demand and competition

6.2.1 Industry size and growth

As mentioned above, India is the third largest manufacturer of salt in the world after USA and China.

Total production of salt in India is x million tons per annum, of which x million is intended for domestic

human consumption97, x million tons has an industrial purpose, and x million is exported98. The rest is

reserve. The total edible salt market grows in line with the population growth which is around 1.8% per

year. This means that the edible salt market grows with approximately x tons per year.

The edible salt market in India can be broadly classified into the branded and unbranded sectors,

which are also sometimes referred to as organized and unorganized sectors. During the year 2006, x

million tons out of the earlier mentioned x million tons was iodized salt production (x%), the refined and

vacuum evaporated iodized salt is estimated at x million tons which is about x per cent of the entire

edible salt market99. In addition to Vacuum/Refined Iodized Salt, there are few branded salt in respect

of non-refined variety as well. Therefore the share of the branded product would be between x and x

per cent of the total market. This represents a value of INR x or US$ x100. As per the information

available with the Salt Department, the size of the salt market for the last 5 years is as follows:

93 Salt Institute: http://www.saltinstitute.org 94 ICFAI (2005) 95 This came to be known as the Universal Salt Iodization Act (USI) 96 http://www.unicef.org/infobycountry/india_27575.html 97 On a population of 1.1 billion this amounts to approximately x grams per person per day 98 x% of all exports is produced in Gujarat 99 Refinement is not only vacuum salt 100 Assumed that the average selling price of iodized salt is xrs per kg and the exchange rate is 41.00 (May 2nd 2007)


40

Year Total domestic supply of iodized salt (in million tons)

Supply of vacuum/refined iodized salt (in million tons)

2002 X X

2003 X X

2004 X X

2005 X X

2006 X X

It is a fact that there is a difference between branded salt market volumes and growth in various states

and also between rural and urban areas101. According to these numbers the CAGR of the branded salt

market during the last 5 years is x%102. Demand growth in industry salt is estimated to be x% per

annum103. Figure 6.3 gives an overview on the Indian salt market.

The figure above shows that the edible salt market offers great potential to grow; still x million tons of

salt are sold in the unbranded sector.

6.2.2 Alternative DFS options

Several technology holders have developed a concept that could be used for double fortification of

salt. Next to Akzo Nobel’s Ferrazone concept with NaFeEDTA as iron source, there are three other

organizations that hold one: National Institute of Nutrition (NIN), the Canadian based Micronutrient

Inititiative (MI), and Sundar Chemicals. Others like CSMCRI and Tata are still working on it.

Akzo Nobel has applied for a patent on the concept and processes which will be described below.

AN’s concept aims at providing x% of the daily iron requirement = x mg through DFS, produced by dry

mixing of an iron (and iodine) compound containing premix with (locally produced) salt. Considering

good iron absorption i.e. high relative bio-availability (RBV) of FeNaEDTA and above indicated

provision of x mg Fe per day through DFS, the iron content in DFS should be x ppm104. Besides the

iron compound the premix contains salt, an anti segregation agent, and an optional color masking

agent. This anti segregation agent, or edible oil, is not (yet) endorsed as food additive by the Indian

101 Branded salt consumption per capita is lower in U.P., M.P., and Southern India. In these states people give preference to crystal salt. In general the same is true of rural India. 102 D.S. Jhala of the Indian Salt Manufacturers Association, Tata Chemicals Ltd (http://www.tatachemicals.com/0_investors/downloads/presentation_feb28.pdf) 103 D.S. Jhala of the Indian Salt Manufacturers Association 104 For viability of Akzo Nobel’s concept it is crucial that the high RBV of Ferrazone is recognized and adopted in the relevant product standards.

Table 6.2: Domestic supply of iodized and vacuum / refined iodized salt

Figure 6.2: Indian salt market classification

Total x MT

Industrial x MT (x%)

Ediblex MT (x%)

Exportx MT (x%)

Reserve x MT (x%)

Branded x MT (x%)

Non-brandedxMT (x%)

National Brands x MT (x%)

Local brandsx MT (x%)


41

government. Despite a little discoloration the concept results in a homogeneous, stable and free

flowing DFS, with an acceptable appearance105. HUL believes the concept is inviting, but because of

the additives which are not approved yet, they do not dare to take the risk. HUL has tried wet mixing

using the AN concept, but this failed on plant scale. Now they have decided to make use of the dry

mixing method and launch it in July 2007, as will be elaborated in paragraph 6.5. Apparently dry

mixing with Ferrazone as iron compound is a second Akzo Nobel alternative. Akzo Nobel’s premix

concept is known for its flexibility which means that other iron compounds can be added as well such

as ferropyrophosphate. This is a third Akzo Nobel alternative.

NIN, an Indian research institute, identified common salt as a vehicle for iron fortification in 1972. Now

it has developed a formulation for double fortification of salt with iodine and iron. The stability of the

nutrients under laboratory conditions along with their bioavailability were found to be good but varying

with the quality of salt used106. After carrying out several efficacy studies Ankur launched DFS on a

commercial basis using their formulation for INR 16 per kg. They have also set up a joint venture with

Sundar Chemicals in which they sell small amounts of salt. Tata and HUL have worked with the NIN

formulation before, but they did not consider the concept acceptable from a stability point of view.

Appendix VI shows an advertisement in which NIN invites salt manufacturers to think about

collaboration with NIN.

Micronutrient Initiative (MI) has worked with the University of Toronto on developing premix for DFS for

dry mixing with locally produced salt since mid 1990’s. The premix is produced through agglomeration

and fluid bed encapsulation processes and is containing Fe-fumarate, SHMP, HPMC, TiO2 and soy

stearine. This encapsulation process causes instability and discoloration at high temperature, and

makes it the MI concept costly. Tata and HUL have also worked with MI, but cost effectiveness was

the main reason they have decided to stop the collaboration. Moreover the MI technology is not

suitable for crystal salt, which is the most commonly used form in Southern India, and a change in

color of food products has been reported when cooking with DFS salt based on MI recipe. Currently

they are conducting a study on DFS in Tamil Nadu in cooperation with TNSC in which x tons of DFS is

involved107 distributing through the midday meal scheme. Paragraph 6.3.2.3 will discuss this type of

distribution.

Sundar Chemicals has also developed a concept, but the technology used is undisclosed. They claim

that they currently sell this Multi Fortified Salt108 in the market in Tamil Nadu.

6.2.2.1 Cost comparison of DFS options in India

105 Storage stability tests for more than one year of dry mixed DFS products on basis of FeNaEDTA, both internally and externally, show no product deterioration such as color changes and iodine losses. 106 The NIN recipe contains FeSO4.7H20 and SHMP 107 See The Economist of Salt (2004), Roskill 108 Salt for human consumption that contains 6 nutrients: iodine, iron, vitamin A, Vitamin B12, folic acid, and zinc


42

The iron content is the determining factor for the incremental costs of DFS versus commonly iodated

salt. The overview below shows the indicative effect on the incremental costs for the different DFS

options109.

AN Premix with

Ferrazone

MI recipe AN Premix with FePP

India NIN Recipe

Composition premix NaFeEDTA TiO2,PEG, salt,

(KIO3)

Fe fumarate TiO2, SHMP,

HPMC, soy stearine

Fe pyrophosphate, PEG, salt, (KIO3)

FeSO4.7aq SHMP

Content Fe Compound (and Fe) in DFS, ppm

x) X X X

Indication costs premix, $/kg

X X X X

Indication incremental costs/ton salt, $/ton

X X X X

Mixing ratio premix salt

X X X X

The cost indications for Akzo Nobel premix are delivered in India, excl. margin on ex-works costs. The

costs of the MI premix are as produced and supplied in India.

6.2.3 Competitive forces An excellent model to use to analyze a particular environment of an industry before entering is Porter’s

five forces model shown below.

Since Akzo Nobel has not yet decided if, and where to

position on the market (both geographically and at

what point in the value chain), it is difficult to name

competitors. From the technology holder perspective

the organizations mentioned in the last paragraph are

the main competitors. If Akzo Nobel decides to enter

the market with their own salt brand, then other brand

holders are the main competitors. This paragraph

starts from the idea that brand holders will be Akzo Nobel’s potential competitors.

6.2.3.1 Industry competitors

A few national players dominate the salt market,

which is saturated with numerous local players110

producing (un)branded products of varying quality.

Currently, there are five major national brands:

Tata Salt (xMTPA), Annapurna (xMTPA) and

Captain Cook (x MTPA) of HUL, Shudh (x MTPA)

of Nirma and Aashirvaad (x MTPA) of ITC111.

Except for the Tata and Nirma brands, these brands belong to traders. This means that Tata and

109 See appendix VII for incremental costs for the DFS standard x ppm iron 110 There are approximately x local brands according to Werner Schultink of Unicef. Many local traders change their brand names often, because e.g. people have found out that the salt is not iodized, despite this is claimed on the package. 111 See Appendix VIII for detailed information on the national brands

Table 6.3: Incremental costs for DFS providing 0.4 mg/day absorbed iron

Figure 6.3: Porter’s five forces model

Figure 6.4: Market shares in India

Total branded salt market: 1.8m MTPA

25%

8%

11%4%2%

50%

Tata Nirma Annapurna

Captain Cook Aashirvaad Local brands


43

Nirma produce their own salt, and companies such as HUL and ITC have several suppliers of salt and

focus on building the brand. As mentioned before Tata was the first company to enter the salt market

in 1983. In 1991, DCW Home Products Ltd. launched its brand of salt under the name ‘Captain Cook’.

HUL entered the market in 1996 with its ‘Annapurna’ brand and acquired Captain Cook. Annapurna

was the first brand that was positioned primarily on the health benefits platform. In 1998 two brands,

Nutra Salt and Saffola, entered the market on the low sodium segment, priced at a significant premium

to normal salt. Nowadays Saffola, Marico Industries’ brand is the only one left in this niche. Another

FMCG major, Nirma, entered the market with its brand Nirma Shudh in 2000. From then several

companies, such as ITC, Cargill, Saboo and KAG have entered the market with varying success.

Tata has been the dominant player in the salt market for more than 20 years with a focus on 1-kg

package in the urban market. The brand is associated with trustworthiness, high quality, and purity.

With its slogan desh ka namak (the country’s salt) the company attempts to elevate the brand to the

status of national icon. In 2005 Tata added crystal salt called I-Shakti to its portfolio, of which they sell

approximately x tons per annum. They have a vacuum evaporation plant in Mithapur in which they

produce x tons of edible vacuum salt per annum112. Although Tata has the highest market share of all

brands in the country, this does not mean that this is the case throughout the country. Market share in

the North lies around x%, in the South this is less than x%. In South India its sales comes primarily

from Chennai. The company is structured and focused like a FMCG company, which means a division

between sales and distribution teams. Tata currently tries to crack the DFS technology and assures

that they will launch it within one year. Other sources do not believe this is going to happen113.

Nirma also is a major player in the salt market. The company introduced Nirma Shudh salt with severe

discounting and caused disruption and losses for Annapurna in the wholesale channel. In the past

Nirma has built up a trustworthy brand name in the rural areas as a detergent and toilet soap

company, and it seems that this name also works well in salt. This is why they are relatively strong in

rural areas. AN shares experiences with Nirma, because AN successfully built Nirma’s soda ash plant

in Gujarat in 2001.

Unilever’s Indian subsidiary HUL is another big player in the market with two brands. Different from

Tata and Nirma, HUL has contracted eight salt suppliers, who supply refined solar evaporated salt,

which HUL then commercializes. It is said that HUL has the best distribution network in the country.

Their products are available in every village in the country. Thanks to the different business models

they use simultaneously and the salt production in Tuticorin Annapurna is the dominant salt brand in

Southern India. This will be elaborated in the following paragraphs. With Annapurna HUL was the first

national brand to start with a crystal salt variant in the country, which primarily aims at rural India.

Captain Cook salt continues to be available as one of the HUL product range.

112 Salt actually turns out to be a by-product of the soda ash that Tata Chemicals produces. In 1983 Tata Chemicals needed fresh water for the boilers that produced soda ash. Fresh water was scarce, so the company set up a process to generate it by using seawater which resulted in salt as by-product. 113 Rajeeb and Anil Sinha, 2 ex-Tata Salt employees. Tata has also invited Deepak Pandhi and mentioned that they are still open to discuss our technology, which probably means that their technology is not satisfying yet


44

Summarizing, it may be said that rivalry is quite high. There are a few national brands trying to capture

market share from the other competitors by using differentiation114 and discounting strategies.

6.2.3.2 Suppliers

Since there are salt producers in abundance, which will be elaborated in paragraph 6.4, raw salt

suppliers do not have so much bargaining power compared to the brand holders. It also is not very

expensive to move from one supplier to another. Large suppliers of refined salt on the other hand are

limited, which makes their bargaining power substantial. Despite the few technology holders their

bargaining power is not that high, because they all are based on a dry mixing technology, which

makes switching costs irrelevant. Obviously performance, cost effectiveness, and flexibility are most

important when deciding on which technology to use. Before deciding to convert their iodized salt to

DFS use brand holders are very reluctant, because of the costs of switching machinery and the risk

involved. In case of HUL, this means that they have to adapt the machinery of all of its toll

manufacturers.

6.2.3.3 Buyers

Distributors and retailers represent the buyers in Porter’s five forces model. Different actors such as

Tata and HUL disagree on the power of these intermediaries. This is why they follow different

strategies regarding sales channels. Tata follows a consumer pull strategy, although HUL believes

more in retailer push. It is unclear whether Annapurna consumers truly appreciate the health message

embedded within the salt, or if most sales are a result of margin-driven shopkeepers who push

Annapurna over other brands. Buyer power increases when end consumers are sensitive to price. As

will be discussed in chapter 7 price sensitivity is relatively high in rural areas buyer power might be a

little higher than in urban areas. In general buyer power is little compared to the brand holders. The

paragraph dealing with margin analysis (6.6) will elucidate this.

6.2.3.4 Potential entrants

During the last decade many players entered the market, showing that it is relatively easy to enter.

Entrants give it a try because production capacity seems to be endless, the market is growing at

enormous pace, and customer loyalty towards existing brands is moderate. Moderate customer loyalty

is considered as a major opportunity for new entrants.

6.2.3.5 Potential substitutes

Because salt is the cheapest carrier of nutrient there is no threat of substitutes with a nutritional

purpose, such as fortified wheat flower or iron candy bars. However, the substitutes of refined fortified

salt come from within the salt market by means of lower grade salts or unrefined salt. This is one of

the reasons why prices cannot easily be raised. These different varieties will be discussed in

paragraph 6.5.

6.3 Salt production and transportation

114 Although there is relatively little differentiation between products. A lot of people state that salt is just salt.


45

Since 1996 salt production in India has grown at a constant rate of approximately x% per year115.

Private sector plays a dominant role contributing over x% of the salt production, while the public sector

contributes the rest. The cooperative sector contributes x%, and the small scale sector (less than 10

acres) nearly x%. The Indian salt industry has historically been concentrated among the small and

medium-sized manufacturers116, and it is only recently that larger corporations have started to take a

share of the market. The industry is very labour intensive, providing over x jobs directly. This is

changing rapidly, because new salt production capacities are largely based on mechanized

applications. These mechanized processes provide consistent quality of salt which is generally higher

than that of small scale producers. This is exactly where a tension lies. On the one hand does the

Indian government support large scale producers, because everybody needs healthy products, but on

the other hand the governments does not want to get rid of the small scale producers for whom it has

become harder and harder to eke out a living. This is a political, economical, and social problem.

Unlike other parts of the world, in the Indian salt market rock salt comprises only five percent because

India’s topography does not lend itself to salt mines. In India salt is produced through either solar or

vacuum evaporation. Most of the salt is obtained by salt farming, an evaporation process whereby

seawater is pumped and stored in man-made inland pans. The raw crystals are then machine-

processed into consumer-friendly fine salt, and iodized. The majority of this capacity is available for

third-party manufacturing of which only x% accounts to national brands117. Hence, adequate surplus

capacity is available for third-party sourcing of quality salt. The salt manufacturing season commences

with the closure of monsoon, mid-October and lasts till June. This paragraph discusses the production

regions (6.4.1), quality and iodization (6.4.2), and transport (6.4.3).

6.3.1 Production regions

As mentioned earlier ninety-six percent of all

salt produced in India comes from three

states, namely Gujarat, Tamil Nadu, and

Rajasthan as figure 6.5 shows118. The

government of India’s decision to attain self-

sufficiency during the early fifties gave

momentum to the salt industry in Gujarat,

and today has emerged as the leading salt

producing state in the country. India’s primary

source location for salt is Gandhidam in Gujarat. Major producing areas in Gujarat are Bharuch,

Bhavnagar, Jamnagar, Kutch, Patan, Rajkot, and Surendranagar. The primary location in Tamil Nadu

is Tuticorin. Most parts of Southern India are supplied from here due to high logistics costs. Gujarat is

the only salt producing state that uses both sea brine and sub-soil brine to produce salt. Needless to

say, the major source of salt production in the coastal areas is sea brine, and inland it is sub-soil. One

of the key reasons for the rapid development of the salt industry salt industry is the forward integration

115 http://www.saltinstitute.org 116 According to D.S. Jhala, president of ISMA and S. Sundaresan Salt Commissioner, there are around x salt producers in India. x% of the producers produce less than x MTPA 117 x tons of solar evaporated salt is used for national brands. Total refined solar evaporated salt equals 1 x 118 Annual Report (2005-2006), Salt Department, Government of India

Figure 6.5: Salt production in India

x Others

x Tamil Nadu

100 Total

x Maharashtra

x Andhra Pradesh

x Rajasthan

x Gujarat

Salt produced(% of total)

State

}x


46

of salt processing and manufacturing industries. The seasonal supply is also a key factor that has

encouraged industries to start their own production unit. This is one of the reasons why Tata

Chemicals and Nirma have set up soda ash plants, which produce x tons and x tons of vacuum salt as

by-product per annum respectively119. Nirma Shudh is the only salt in the country to be manufactured

in an entirely automated plant and is free from any manual handling, involved at any stage of

manufacturing. HUL, on the other hand, procures raw salt from large privately owned salt farms and

contracts third party refineries to take advantage of underutilization in the refining industry and to

minimize investment in manufacturing facilities. Obviously these refineries are located near salt farms

to minimize inbound transport.

It may be noted that there is virtually no entry barrier for salt production as there is always a surplus of

labourers who are ever willing to extend their production to fallow lands. Thus in any given year when

salt prices are expected to be good new salt producers emerge. This practice leads of course to

overproduction and consequently lower prices for salt120.

6.3.2 Quality and iodization For iodization of salt and to meet the needs of the industrial sector, emphasis is being laid on

manufacture of high purity salt. Upgrading raw salt quality to meet this requirement is done by

encouraging establishment of salt refineries. Currently the salt washing and refining capacity is x per

annum. Ninety percent of all salt produced in India 96%+ quality. The remaining x percent has an

assay of 98%+, which goes for industrial application. The quality of the salt depends from state to

state. In general quality of Gujarati salt is highest in the country followed by salt from Tamil Nadu (2nd),

and Rajasthan (3rd)121. However, some parts in Rajasthan have very high quality salt. The content of

the salt differs from place to place. In Gujarat salt contains relatively more impurities than Rajasthani

salt such as calcium and magnesium. Compared to Gujarati salt Rajasthani salt contains more

sodiumsulphate and alkali which could lead to stability problems122

With a view to ensuring universal access of iodized salt for the prevention and control of goiter and

other Iodine Deficiency Disorders (IDD) in the country, the Salt Department has been identified as the

nodal agency for creation of adequate salt iodization capacity, its distribution and quality monitoring at

production centers, under National Iodine Deficiency Disorders Control Programme (NIDDCP)123.

Iodine addition is mandatory by law in India with a minimum requirement of x ppm at trade level and

30ppm at factory level. The Salt Department has granted permission to more than x salt iodization

units with an annual installed capacity of x million tons, whereas only x million ton is produced. The

iodization process of salt applies to both refined and unrefined salt. Table 6.4 below points out that

there are regional differences in the amount of iodized salt produced.

119 According to Anil Sinha independent set-up of vacuum evaporated salt facility is not viable as compared to the solar evaporated process 120 Unicef report “Economics of Salt Trade in India”, December 2004 121 According to mr. Ponnuchamy, MD of Hindustan Salt Ltd., salt contains less than 90% NaCl in most places in Rajasthan. Mr. Anil Sinha, ex-Tata added that salt from Tamil Nadu is comparable to Gujarati salt after double refining, but that other sources are not acceptable as source for organized branded market salt specs. 122 Interview with dr. Gandhi from CSMCRI. Alkali comes from interview with Werner Schultink of Unicef 123 Appendix XII shows the specifications required by law, plus the specifications of Tata and Reliance Select salt


47

Gujarat Tamil Nadu Rajasthan Others Total Production of refined iodized salt (in 1000 tons)

X X X X X

Production of unrefined iodized salt (in 1000 tons)

X X X X x

The salt iodization technique in India varies from very raw method of mechanical mixing of Potassium

Iodate to sophisticated mixing in refining plants through drip method to simple spraying methods. The

wet iodization process is adopted mostly, which is conducive to salt that is not uniformly iodized.

Despite the high capacity quality control at most of the manufacturing centers is non-existent, because

quality control activities are additional costs. Moreover, adequately iodized salt is not demanded at any

level in the chain; channel members generally purchase salt at the lowest possible price with little

regard to the quality of iodization124. The iodine source used in India is mainly imported from Chile at

US$ x per kg.

6.3.3 Transportation

As three states comprise for more than ninety-five percent of total salt production they supply salt to

most parts of the country, resulting in an important role railways play in transportation of salt. On

average sixty percent of edible salt is transported by rail from production centers. The remaining

quantity is transported by road and shipment. The zonal scheme formulated by the Salt Department in

consultation with the Railways, State Government and salt manufacturers associations ensures

adequate supply of this essential commodity to all the states. Typically the zonal scheme, which is

linked to differential tariffs between road and railway transport, means that for distances up to x

kilometer the road movement is preferred while for distances greater than that rail movement is

cheaper125. Thus, the origination of salt reaching a particular destination depends generally on the

proximity to the salt producing centre. However, except for the direct costs of transportation, costs of

additional handling involved in rail transport such as loading and unloading need to be taken into

account. With all cost aspects large quantities of iodized salt are transported by rail due to quality

control by the Salt Commissioner’s staff, the high priority for iodized salt transportation126, covered

wagon bulk movement compared to trucks with limited quantity, environmental exposure, and because

salt transported by road is more prone to exposure to heat and moisture thus leading to loss of iodine

content. Even though a state has better road transportation infrastructure tends to show lesser

percentage of adequately iodized salt consumption. The main reason for this may be not enough or no

quality control and transitional loss of iodine.

124 Unicef report “Economics of Salt Trade in India”, December 2004 125 Indian Railways grants graded concessions in tariffs: x 126 Category B, second to Defence

Table 6.4: Regional differences in iodized salt production


48

6.4 Marketing channels There are many ways a product can pass through to eventually reach the end consumer. All these

different routes can be categorized into market-, public-, and BOP marketing channels. Besides the

actual transport of the product from one actor to the next, activities such as procurement, quality

control, marketing and sales are involved in the value chain as well127. In this paragraph the

downstream part of the value chain, the activities from salt producer to end consumer in the different

distribution channels categories will be described.

6.4.1 Conventional market-driven distribution channels Conventional market driven distribution channels are classic channels mostly used by the major

players in Western markets and developing countries, although there are minor differences between

the channels used by the various players128. This is the channel in which producers, CFAs,

distributors, wholesalers and retailers are involved in the process of making salt for use of

consumption, as you can see in figure 6.6129.

The figure above shows how the general indirect retail channel for salt looks like in India. Apparently

the salt industry is marked by the presence of a large number of intermediaries at every step from

procurement of inputs to sale of products. Sometimes the channel contains even more intermediaries,

when e.g. retailers sell to other retailers, which leads to dividing the margin to more channel members.

The ‘Branded Retail’ box contains both wholesalers and retailers. Retailers are mom-and pop stores,

supermarkets and hypermarkets. Due to the massive land area and cities widely spread out, the retail

market is fragmented and compromising of many small players. Known in India as Kiranas, mom-and-

pop stores account for the major share of food sales. The x local grocers all over the country make

India a country with one of the highest densities of retail outlets per capita in the world and lowest per

capita retail space, according to the Ministry of Commerce & Industry. They provide informal credit,

undertake home delivery, and provide sales in small quantities, to help daily wage earners or those

from lower income groups. The modern retail channels such as hypermarkets, supermarkets and

discounters are still unable to make a significant market in grocery retailers’ value. However, despite

the still low levels of organized trade, domestic supermarket chains are growing strongly at the

expense of traditional retailers, and the major domestic retailers have ambitious expansion plans130.

Because the major share of sales is still going through the Kiranas, it is extremely difficult for a

company such as Tata or HUL to reach them directly.

127 See chapter 3: Porter’s Value Chain 128 Unlike Annapurna, which is cleaned and packed prior to transport, Tata salt is transported to depots where the CFAs clean and pack it. Although Tata loses economies of scale with higher packaging costs, consumers benefit with a better looking product. 129 Also see Appendix IV 130 Euromonitor report “The market for Retailing in India”, July 2006

Salt Refinery

Branded Competition

Clearing and Forwarding

Agent Stockist

Branded Retail

Catering End Consumer

End Consumer

Distributor

Figure 6.6: Conventional market-driven branded salt channel


49

This is why the conventional marketing channel contains so many intermediaries. From the factory the

salt will be transported to a depot of the CFA. In case of Tata the CFA packs the salt in 1kg packets

(26 locations) and hands over the packed products to the stockists (approximately 120), which in turn

will hand over the products to the retailers. The distributor is the actor which stands between the CFA

and the stockist and is responsible for organizing that the CFAs send a certain amount of salt to the

various district level stockists, and the related financial transactions. The distributor pays directly to

Tata131. With the aim to strengthen relations with its channel partners Tata had recently organized

customized training programmes for its partners to help them manage business through insights into

marketing and strategy skills. These programmes are part of a long-term process by the company to

build and improve partnerships with its marketing and distribution partners, better teamwork between

manufacturer, marketer and channel partners, and leverage resources in a focused manner132. HUL,

on the other hand has people employed in retail shops to keep close contact by educating and selling

its products to the end consumer, and to keep HUL informed about e.g. offered prices by competitors.

In this manner HUL tightens bands with its channel members.

6.4.2 Public distribution channels Besides reaching end consumers through the free market, it is also possible to reach them through the

public distribution system. As mentioned before, India is a country of contradictions: it has the largest

safety net in the world with a combined worth of x per annum for the public food system133. Next to the

regular PDS there are several targeted public distribution systems in order to reach the poorest and

most vulnerable sections of society, such as ICDS and Midday Meal Schemes. A quantity of about x

tons of salt is distributed through the different public distribution channels. These will be discussed in

this section.

6.4.2.1 Public distribution channels

The PDS has been functioning for more than five decades and has been set up to address the issue

of food insecurity at the household level by supplying subsidized food. The predecessor of PDS, the

rationing system, was introduced by the British. It has emerged as the most significant instrument in

government policy to moderate open market prices and to ensure food security at assured prices. The

PDS operates through a large distribution network of around x Fair Price Shops. Under PDS the

central government is responsible for procurement and transportation of food grains. The state

governments are responsible for the identification of families living below the poverty line, the issue of

ration cards, and the distribution of food grains to the BOP through Fair Price Shops. The government

pays a price for the salt supplied by a manufacturer and subsidizes the salt to make it affordable to the

BOP consumers. In fact, the consumer would pay the supplier the difference between the market price

and the unit subsidy, and the supplier would collect the subsidy from the government134. In general this

means that several companies apply for a tender, and the government pays INR x or US$ xper kg on

131 Nirma and Surya Salt directly deal with distributors, without giving away margin to CFAs 132 Tata has problems with its distributors in Southern India: every six months they leave and Tata needs another one. This is because Tata gives relatively low margins to its channel members (This will be discussed in more dteil in paragraph 6.6. Tata’s salesmen explain distributors that they first require coverage and then they can make profits. Most distributors, after waiting for six months, decide to leave because they do not make profits by then. 133 Interview with Dominique Frankefort of World Food Program 134 Virmani, 2006, p. 17


50

average, and sells it for INR x or US$ x to end consumers. Depending on family income people qualify

for PDS. One is eligible for receiving essential, wheat sugar, cooking coal, kerosene oil, and salt135

through PDS if family income is less than INR x or $ x per month. Every five year it is determined what

colour ration card one gets. A white one is for the affluent, yellow for people with an average income,

and an orange one for the BOP. People with orange cards get discounts on several commodities.

Nevertheless PDS is considered ineffective in reaching the poor because of high storage losses and

the fact that a lot of BOP consumers sell the products they have obtained through PDS for higher

prices. By doing this, essential food fortified with essential nutrients, such as iodized salt, does not

reach the people who need it most. Despite it being ineffective still x tons of iodized salt is distributed

through PDS, meaning that x people are being reached.

6.4.2.2 Integrated Child Development Services

ICDS is a public distribution system targeted at children and mothers of children running the highest

risk of e.g. IDA. The Integrated Child Development Services (ICDS) scheme was introduced on an

experimental basis on 2nd October 1975 in 33 projects in the country. Currently, with its wide network,

it covers nearly x% of the country’s development blocks and x urban slum pockets.

6.4.2.3 Midday meal scheme

The national midday scheme was formally initiated in 1995, with the two-pronged aim of improving

nutritional levels and increasing school enrolment. The scheme provides one free meal to all schools

covered by the programme. The Indian scheme is by far the world’s largest school meal programme,

and the government claims to cover x children in more than x primary schools in the country. There

have been and continue to be problems in administration of such a large scheme. Issues of corruption

and inefficiency come up regularly136. For this reason hypothesis 2 “If the distribution of DFS must

go through a public distribution system, collaboration with UNESCO and governments is required to make it effective” must be confirmed. However, as mentioned earlier high storage losses

and reselling also have an effect on its effectiveness. TNSC and MI sell x tons of DFS per month in

Tamil Nadu providing benefit to xchildren through midday meals137. TNSC sells DFS to the state

government for INR x (US$ x) to Tamil Nadu State Government.

6.4.3 BOP distribution channels

For the very reason that the conventional business models do not reach rural India entirely138, HUL

initiated a direct-to-consumer sales channel named Shakti in addition to the indirect distribution

channel. Direct selling has proved a successful distribution method in India due to the large pool of

ready and willing distributors, especially among unemployed housewives139. Reaching rural India

refers to logistics as well as communication. One of the challenges with rural India is that the media

only reaches x% of the population. This is why brand awareness is very low. Furthermore this project

is set off to catalyze rural affluence and hence drive growth of the market. As elucidated in chapter 3,

135 In some states, e.g. Chhatisgarh, Gujarat, T.N., Rajasthan, and Sikkim, salt is one of the products available through PDS 136 Interview Chaman Kumar, Joint Secretary of Ministry of Human Resource Development, Department of WCD 137 Info MI 138 Poor infrastructure raises the costs of distribution 139 Euromonitor report “Retail in India”, July 2006


51

BOP business models need to provide access to affordable products, services and information as well

as increasing earning power. Utilizing underprivileged women Self Help Groups

(SHG) for entrepreneur development training to operate as a distributor or a rural direct-to-home sales

force, educating consumers on health and hygiene benefits of the company’s brands and nurturing

relationships to reinforce the company’s message satisfies both requirements. SHGs are voluntary

groups of approximately 15 local women who are engaged in collective saving for the purpose of

securing credit. When the money is collected banks give loans at far lower rates than local

moneylenders. This micro finance makes it possible for Shakti-entrepreneurs (SE) to set up a micro

enterprise or become a Shakti distributor and increase their monthly income. Each woman who

becomes a distributor invests INR x (US$ x – x) in

stock at the outset, usually borrowing from SHGs

or micro-finance banks. The SEs serve x to x

homes per month each, which yields one SE an

income of $x per month and generates annual

sales of roughly $xin villages that would otherwise

be uneconomic to serve140. Besides SEs and distributors, HUL also employs Shakti Pracharani or

communicators, who travel throughout the district to attend SHG meetings in order to test knowledge

of the SEs. In 2001 HUL started a pilot in Andhra Pradesh, where the SHG concept came up141.

Currently HUL employs a network of x SEs in fifteen states and aims at x SEs covering x and x

consumers by 2008.

Site selection requires building strong relations with local government departments such as Rural

Development and Women Empowerment in order to learn where SHGs exist and to obtain information

about optimal locations and dealers. Because Shakti’s long term success depends on dealer’s ability

to sell enough volume to earn substantial revenues, HUL is exploring referral relationships with non-

competitive partners selling complementary products including insurances and financial services.

Besides cost savings and growth in terms of volume and value, Shakti offers intangible benefits,

including increasing brand awareness, developing new channels and social impact in the BOP, and

recognition of taken CSR activities worldwide142. Even though the HUL initiative is a nice example of

how MNCs can reach the BOP, it is not the only viable model, as discussed in chapter 3.

140 Revenues on salt are just a small part of total revenues. Source: The McKinsey Quarterly (2006) “A grassroots approach to emerging-market consumers” 141 70% of all women in A.P. belong to a SHG 142 Prahalad (2006), interview Vijay Sharma, Head of HUL’s Shakti project

Sale From Dealer’s margin on MRP Dealer’s home store

X

Home to home X Group meetings X Village shopkeepers

x

Table 6.5: Direct-to-Consumer channel margins


52

6.5 Salt varieties and pricing The salt market in India can broadly be classified into raw crystal salt and powder salt, which could be

refined or unrefined143. Figure 6.7 shows how these categories relate.

No processing is done on crystal salts except iodization while powder salt is manufactured in various

qualities depending on the degree of refinement and processing done. A range of varieties of salt are

obtained depending upon composition of the raw material and processing done. At one end is a

variety which is obtained just by grinding crystal salt and at the other end is super-refined salt

produced through a vacuum evaporation process like Tata and Nirma. Between these two extremes

there are varieties which are produced through solar evaporation process, such as Annapurna,

Captain Cook, and Aashirvaad.

Crystal salt, which is very popular in Southern India and especially in rural areas, traditionally is

unbranded and sold loose. However, since two years Annapurna and Tata sell refined (less than

powder salt) iodized crystal salt in x and x packs144. Also for local brands there is a tendency to sell

more x packs of crystal salt instead of loose. The overall share of consumer packs in the market is

about x% which includes the refined and non-refined variety. The particle size of crystal salt varies

from 3 to 20 millimetre. The particle size of crystal salt consumed in Tamil Nadu is generally smaller

than in Uttar Pradesh. As the figure above indicates branded salt could in principle be crystal or

powder, unrefined or refined. However, the biggest share of branded salt is vacuum/refined and

iodized, as indicated in figure 6.2. Refinement can be done in different gradations. In general national

brands are refined and iodized, and local brands are unrefined and iodized to some degree.

Within the branded iodized and refined category some companies target mainstream markets and

some are focusing on niche markets like the health platform, such as Marico’s Saffola and Sundar’s

Health Salt. As mentioned earlier Saffola is a low sodium brand and Health Salt is a multi fortified salt

brand. The major brands, irrespective of the category they are in, suffer from the many imitation

brands that are available throughout the country145.

Obviously prices vary from category to category, ranging from INR x per kg to INR x per kg, depending

on category, used business model, and location. Mainstream branded refined salt generally costs

between INR x and INR x. Salt sold through PDS is subsidized and costs less than iodized salt in the

143 The percentage of sodium chloride in refined salt is as high as 99%. Raw salt has about 95% sodium chloride and 5% of other elements such as magnesium chloride, calcium chloride, magnesium carbonate and calcium carbonate. Crystal salt contains about 97% NaCl. 144 Particle size of Tata and Annapurna crystals is about 3mm 145 Brands such as Taja, Tota, Tato, Tazaa, Sasa, Ata, Captain Hook

Figure 6.7: Edible salt varieties in India


53

market place146. Prices of PDS sold salt vary from state to state. In metros salt is usually more

expensive than in villages, which differ approximately INR x per kg. Packaged salt is offered in

different volumes, varying from x grams to x packs. Indian law mandates that retail products must be

sold at maximum retail price (MRP), which is printed on the packaging. The table below shows MRP of

the different salt varieties and brands, and different package sizes.

Brand / Category Company Size Maximum Retail Price (INR)

Maximum Retail Price (US$)

Average Price / Price Range (INR)

Tata Salt Tata X X X X

Tata Salt Tata X X X X

Tata I-Shakti Tata X X X X

Tata I-Shakti Tata X X X X

Annapurna HUL X X X X



Annapurna Crystal HUL X X X X

Annapurna DFS147 HUL X X X X

Captain Cook HUL X X X X

Nirma Shudh Nirma X X X X

Aashirvaad ITC X X X X

Saffola Marico X X X X

Health Salt Sundar Chemicals

X X X X

Crystal salt N/A X X X X

Powder unbranded N/A X X X X

Local branded powder salt

N/A X X X X

Local branded powder salt

N/A X X X x

As might have been noticed Annapurna retails at the same unit price, regardless of the package size

purchased. Since 2002 the major brands have raised their prices from INR x to INR x nearing the

psychological barrier of INR x, which cannot be crossed unless extra value is added in accordance to

the national players.

It seems like Annapurna is going to be the first national brand launching DFS. Launching DFS at INR

15 indicates that HUL’s target group is definitely (urban) medium and upper class people.

Notwithstanding that different companies have argued about setting price for DFS, HUL’s price setting

definitely makes a signal.

Price elasticity of salt is definitely low, because salt is an essential item used in daily life and has little

substitutes. However, if prices between branded and unbranded salt differ too much people could

easily change. Price raising games played in the past has shown that small increases of price lead to

massive market share loss. This is why brand holders are very cautious regarding raising prices.

146 Prices in PDS ranges from INR 0.50 ($0,012) in Chhatisgarh to INR x in Andra Pradesh 147 HUL claims that they are going to launch DFS in July 2007 at x rupees per kg with a dry mixing method using 1000ppm of the iron compound. HUL wants to convert x% of current iodized salt sales into DFS sales within 5 years

Table 6.6: Retail prices of salt in India


54

6.6 Cost analysis xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

The distribution of costs described in this paragraph refers to companies that are already established

in the market. However, because the salt business is a volume game and new entrants need to build

up a distribution network and create brand awareness, costs of newcomers definitely show another

picture. Creating brand awareness and making the product available to the mass requires investments

in marketing and offering schemes. Due to the capital intensity of the market it is of paramount

importance to serve many people and sell high volumes.

6.7 Market influencers and legislation The Indian government is one of the most powerful influencers of the market, because it decides on

amongst others the varieties of salt that can be offered, the prices of freight for salt, the creation of the

market. In India salt is considered to be an essential commodity and falls under the list of central

subjects as per the Indian constitution. The Salt Cess Act of 1953 governs this industry and is

implemented through the Salt Commisioner’s Office (SCO). The SCO collects the cess or tax as per

the act and also looks after the production and distribution of the product.

Currently the government is framing National Policy on DFS and there are several committees, under

which the Indian Council Medical Research (ICMR) and the Planning Commission148, advising the

government on this subject. The Department for Women & Child Development (WCD) under Human

Resources Ministry is also actively participating. The facts that there are several committees working

on the formulation of the standard, and the time it takes before it is decided on the standard, shows

that salt is a very sensitive and political subject. Hence, the contents, science and cost of DFS will be

very crucial and no agency will recommend anything unless it is 100% sure and the facts behinds are

well established149, as there have been many controversies in the past. In January 2007 the

committees came up with a standard for DFS, which is actually a combination of the standard for iron

fortification and the standard for iodine fortification of salt. This standard tentatively concludes that the

required amount of iron in DFS is x ppm Fe in iron, which means that AN’s technology, that assumes

that x ppm Fe suffices regarding the absorption in the blood circulation, would miss the boat. Besides

not approving the amount of iron of Akzo Nobel’s technology, the food grade additives, such as edible

oil and titanium (whitener) Akzo Nobel and MI use in their technologies are not (yet) approved.

Moreover, Ferrazone®, the iron compound used in Akzo Nobel’s concept, has not been approved as

food fortificant in India yet.

Besides deciding on the technology standard, the government can also influence the market by

changing policies like a hike in fuel prices or transport freight hikes.

Other market influencers are parties such as UNICEF, MI, WFP, NGO’s, producers, traders, retailers,

consumers, but also prices of raw materials, the economy, and globalization. 148 ICMR is headed by Dr.M K Bhan of Department of Biotechnology (DBT), and the PC advises the Prime Minister on various issues of National Interest. Ms.Prema Ramchandran of Nutrition Foundation of India (NFI) is the Advisor Health 149 The advising committees refuse to consent to the studies conducted in other parts of the world. Even when WHO has approved a certain technology, which is the case for the AN technology, this does not mean that this accounts for India as well. Companies that want their technology to be approved, need to conduct field trials in India in which comprehensive stability, acceptability, bio availability, safety, sensitivity must be evaluated.


55

Together with the central and state governments, organizations such as UNICEF, WFP, MI and

several NGO’s can help create awareness of the health problems in the population. Health problem

awareness creation means creating a market for DFS. During the interviews it became clear that all

these parties stress the importance of creating a market and that this is one of their aims.

All conventional supply chain partners influence the market in their own way, depending on their

power, which is stressed in paragraph 6.2.3.

Obviously there are forces from outside the industry itself that could have an effect on the market,

such as the economy, raw material prices, and globalization. The world economy in general and the

Indian economy in particular could have a major impact on the salt industry. It was mentioned before

and will be elaborated in chapter 7, that more affluent people tend to eat more branded salt. Since the

Indian economy is growing at tremendous pace, this could influence the growth of the branded salt

market. The affluent also tend to be less price sensitive which could influence pricing strategies of the

current brand holders and possible newcomers. Globalization, on the one hand, reinforces health

awareness and acquaintance with international brands amongst consumers, but on the other hand

accessibility of small scale producers on the market decreases. Crashing of prices in the international

market will definitely have an effect on the prices in India. Rising prices of raw materials could affect

the market because it could be conducive to higher production and transport costs, leading to

advantages for regional producing companies.

6.8 Market trends

After 1983, when Tata Salt entered the market a lot has happened. As mentioned before a lot of

companies have since entered the salt industry. Despite all efforts of these brands to differentiate

differences between the players was getting cloudy. During the last decade the branded salt market

has grown at high pace in volume and value, and it would prove to be very helpful to all players if this

continues. This is the reason why national companies make efforts to enter rural India and expand the

urban branded salt market by offering innovative products that fit consumer’s changing needs. Besides

growing efforts to build brands by means of advertisement in order to steal market share helps

expanding the branded salt market as well. The increased health awareness is the major driver behind

the introduction of iodized salt, low sodium salt, and double fortified salt. The growing need for

variations amongst the affluent leads companies to think about introducing flavoured salt like Garlic

Salt or seasoning blends.

Rural India has been entered by changing distribution models like HUL, and anticipating product

requirements of the typical rural population. The rural population still prefers crystal salt, so companies

such as Tata and HUL have developed a bigger grain salt especially for them. In general rural people

are not as wealthy and therefore they cannot always afford to pay INR 9 at once. In order to increase

market penetration in rural India HUL and Tata offer salt in smaller packages to meet the affordability

requirement.

In the previous paragraph it was explained that the government is a major catalyst behind the market.

The current perception of the importance of fortifying food with nutrients such as iron is that it is highly


56

recommendable. Actually it is said that we are on the threshold of a ‘boom’ of iron fortified salt,

commensurable to the iodization boom of two decades ago. Both, government and players in the

market believe this is true. This is probably the most important trend that says something about the

potential of DFS.

Another trend is the accelerating maturity and commoditisation of grocery retailing150. Giant

international retailers such as Walmart and Carrefour announced plans to enter Indian Retailing by

2007. National giants such as Reliance and Big Bazaar have ambitious plans regarding opening new

branches throughout the country151.

The trends above concern changes in customer needs and anticipation to that by the major players.

From the production perspective, the salt industry changes as well. It is said that the salt industry is in

the midst of a transformation152. First, contemporary salt production changes to working with modern

scientific systems. Nirma, the first company with an entirely automated plant is an example of this.

Second the average quality of salt increases to international standards. Since companies such as Tata

have ambitions to enter foreign markets international standards become important. Third, ship loading

facilities are changing from miniscule ship loading capacity to large scale capacity.

6.9 Key success factors, opportunities and threats The market potential described in this chapter reveals that there certainly are opportunities. However,

it does not mean that grabbing an opportunity is easy. Which challenges do companies in this industry

face and which factors are critical to success?

First of all it is not easy to see the market as homogenous. Companies still struggle with different

preferences of people from the North, South, rural, urban, with a low socio-economic standard, or high

socio-economic standard. Which groups of people should the company target is the first question to

ask. Since freight costs contribute x% of the total cost base and India’s infrastructure is

underdeveloped, distribution and including supply chain issues are the companies’ greatest challenge,

especially at the BOP. Except for regular difficulties in logistics companies using the HUL’s BOP

model face extra difficulties: not only is it difficult for the dealers to leave their villages, but also it is a

logistic burden for Shakti Pracharani to make the arrangements. Because of the relatively large chunk

of total costs it is of paramount importance to optimize this freight component and to set up the right

distribution network. Practically all producing or trading companies are dependent on distributors,

because of the size of the country. Without a proper distribution network it is almost impossible to be

successful in this market, especially in rural India where proper infrastructure is sometimes missing

completely. The fact that selling salt is a volume game and that there are only three production states

in India, as mentioned earlier, makes this even clearer153.

In the case of DFS one major challenge is to create awareness and educate people. There still is no

market for DFS, because people don’t know that the majority suffers from anemia. They do not even

know what anemia is. Especially people with low socio-economic status, who are mostly from rural

150 Euromonitor report “The market for Retailing in India”, July 2006 151 According to Anil Sinha Reliance will have opened x stores across India before 2011 152 Film of the government on the salt industry (2006) 153 Oburai (2005: p. 21)


57

India, are hard to convince154 to change their habits, amongst others because of high illiteracy rates.

These people also lack resources to pay a premium price for salt. Consumers at the BOP are very

price sensitive, so implementing an optimal pricing strategy also is incredibly important to succeed.

Branding becomes increasingly important nowadays. With a growing number of players active on the

market it is invaluable to distinguish oneself from other brands. Salt, a low value item which is

perceived as all the same, is very hard to differentiate. Nevertheless the major players believe in

persistent branding.

At a political level it is most important to align the interests of the government, the industries and the

consumer groups to establish the laws of food fortification. This definitely holds for the standard on

DFS, since there still is resistance against iron fortification. This factor is definitely critical, because

without approval of our technology Akzo Nobel is not permitted to produce and sell salt in the country.

At technology development level it is important to tackle the problems with segregation and

discoloration.

In order to be successful in the market companies need to consider the above mentioned critical

success factors. However, these factors do not say anything about which opportunities in the market

can be grabbed and the risks involved.

Margins are high, especially in B2B. Because this fits Akzo Nobel’s strengths B2B forms an

opportunity suitable to the company. Collaboration with one of the major salt players could be

possible. However, tying up with companies like Walmart, or Carrefour also is a possibility to consider.

There are no foreign brands on the market yet. Due to globalization the Indian population gets into

touch with foreign brands, at least in urban India. As will be elaborated in chapter 7 the urban affluent

which are generally less traditional perceive international brands as high quality and status giving.

Being the first and only foreign brand might provide Akzo Nobel a competitive advantage.

Besides starting a business on its own Akzo Nobel can decide to collaborate with a partner. The

national brands have shown interest in DFS, but they did not crack the technology yet. This is why

collaboration with e.g. HUL, Tata or Nirma could generate tremendous value. Besides tying up with

these national giants it is also possible to sell the technology to one of them or other interested parties.

From a predominantly CSR point of view there is an opportunity in selling from and to the BOP by

working together with a sort of cooperative production system in which small scale producers are

organized in an organization named Sabras155.

If Akzo Nobel decides to grab the opportunity to start doing business in India they actually start doing

business on Tata’s own home market. Tata is expanding all over the world, recently to the Middle East

where they are competing aggressively against Akzo Nobel. Their future plans include entering the

European market. Therefore this ‘offense as defense’ scenario could prove to be a successful strategy

to force Tata to allocate increased resources to an intensified level of competition.

Furthermore, if Akzo Nobel decides to start up a business in India for the BOP that is in line with the

interests of the government Akzo Nobel increases its reputation to the Indian government.

154 Interview Malavika Kumar, Sundar Chemicals 155 The various business model opportunities and their potential will be elaborated, appraised and ranked in chapter 8


58

Moreover India could be a perfect strategic sourcing location for cheap high grade salt for export to

Asia and the Middle East. Since Akzo Nobel’s current production of iodized salt is approximately x

tons, doubling current production, even though for other markets, and relating economies of scale is

within reach.

Despite a handful of opportunities that the Indian salt market offers, several threats have been

identified. First and foremost government policy on DFS is a major threat. As mentioned above, if the

government sets the standard as has been advised, Akzo Nobel is sidelined. Also if Akzo Nobel’s

concept including the food grade additives will not be approved by the government Akzo Nobel can

stop considering of doing business in India. Competition between technology holders can also have an

effect on this issue. The standard tentatively set is based on the NIN technology. It is in their interest to

keep Akzo Nobel outside, so they might influence the government regarding this issue whenever

possible. Next to the standard government can also change policies regarding salt transportation costs

and priorities of salt transportation.

Another threat is that the market for DFS, which has not yet been created, will not grow as predicted.

Nirma and Tata were quite anxious about raising prices to cover the incremental costs of fortifying salt

with both iron and iodine. They believe that consumers do not want to pay more than INR x (US$ x) for

salt, which means that additional costs of DFS will constrain their margins. Obviously they prefer the

higher margins obtained with the ‘old’ product, so they will probably cross market creation plans.

However, since HUL is planning to launch DFS for INR x (US$ x), their opinion might change.

Furthermore salt is not the only carrier for iron fortification. For instance wheat flower can be fortified

with iron. Since the government recognizes the need of iron fortification of food, but has not yet

decided on the carrier, wheat flower fortification could also threaten the growth of the market for DFS.

Besides influencing the government competitive technology holders can also tie up with one or more

of the major players. It seems that MI does not have the potential to tie up with one of them, because

of the relatively high cost. Tata and HUL have both cooperated with NIN and decided to split up.

Finally the threats mentioned in paragraph 6.7, crashing of prices in the international market and rising

prices of raw materials, and the fact that doing business in India is very hard (paragraph 6.1) because

of red tape, and poor intellectual property rights compliance (many fake products) should be regarded

when assessing the size of the opportunities.

6.10 Learnings During the field trip in India businessmen and other experts provided me insights on what they have

learned while doing business in India. This paragraph will briefly summarize the key findings.

If you want to start up a business in India you need to have a long term orientation, be patient, and

show commitment and determination. Accept that things take time in India. Be aware that you

probably do not progress quickly if you stick to Western business principles! Every business model

has a point of inflection. Recognize this and move on, even if this takes a long time! Getting the right

business model takes many iterations and much time.


59

Secondly, you need to select reliable people and partners very carefully. One definitely requires Indian

people and at least one local legal advisor to adapt to the Indian context156. As mentioned before,

India is very bureaucratic. Everything is regulated. Laws are old and they hardly change, because

there is always a minority that blocks a law change. For foreigners it is extremely hard to get things

done the Indian way. Especially for BOP business models finding partners is difficult and time

consuming, because besides partnering with traditional stakeholders you have to engage fringe

stakeholders. Multi-sector partnerships strengthen these models. A company needs to build up

partnerships with NGO’s, tie up with government agencies and in the corporate sector and keep in

mind wishes of other stakeholders as well. Cargill did not involve all stakeholders, which lead to a

blockade of the harbour of Kandla of x salt farmers with the aim to stop Cargill’s plan to build a giant

salt plant in Gujarat which eventually succeeded157. Building partnerships with the government means

showing your face regularly. You should also be aware that in the HUL BOP model described earlier

entrepreneur income is the most important determinant of success. Since diversification increases

entrepreneur earnings it is impossible to set up such a business model for companies offering salt in

isolation.

A third lesson learned is that multiple-sided-education is crucial. This means that you should educate

partners and consumers, but they should also be able to educate you meaning that you should be

open to this. You have never experienced working in India with rural customers using BOP business

models, so the other parties involved in these issues can teach you about this. Recognizing and

rewarding early stage success is also very important regarding the usage of BOP business models.

Risk of drop-out is highest in the first six months, but drops sharply thereafter158. Working together with

NGO’s on a commercial basis requires training the NGO-partners how to do business. In fact changing

the NGO- mindset is needed! Also corporate partners and employees need to be trained continuously.

Indians have a different frame of reference meaning that it sometimes it is hard for them imagine what

Western people find important. Educating people on health issues is necessary in order to create a

market for DFS. Considering the education level of the average Indian and in particular the BOP

consumer, necessitates adaptation in the way you educate. Since a lot of people are illiterate it seems

best to educate in pictures.

Furthermore it is necessary that the government approves your plans. Without support of the

government doing business is really hard in a country in which the government has power and controls

nearly everything. Therefore Akzo Nobel should first convince the government, then convince the

people.

Launching and building brands is also very important. With increasing income levels, growing

importance of brands becomes visible. Therefore reach alone is not a sustainable competitive

advantage. Despite many different ways of building brands it is not easy. Cargill, for instance, spent

US$ x to launch Nature fresh in 2002. Now they have pulled out.

Also ongoing innovation is a key to success. Keep pulse on the market and innovate whenever

possible.

156 Akzo Nobel Chemicals have the right people in India. If ANSS decides to enter the Indian market they can definitely help 157 www.ddh.nl/duurzaam/landbouw/duisteremachten/zout.html 158 Interview Vijay Sharma, Head of Shakti, HUL


60

Specific to the salt industry Tata has taught me that serving the BOP is only possible if you produce at

several locations throughout the country, because of the high transportation costs. Keeping this in

mind Tata has the idea of producing at four places in India: Tuticorin in Tamil Nadu, Bhavnagar in

Gujarat, Tada Andhra Pradesh, and Sambalek in Rajasthan. The only reason that they have not done

this until now is because they have not cracked the technology yet. The fact that penetration of Tata in

South India is low clearly shows that logistics certainly is a hurdle.

Another specific salt industry related learning is that Indian climate combined with poor infrastructure

makes transportation of salt extremely vulnerable wastage. Excessive humidity or direct sunlight at

any stage of storage, transportation or sale necessitates could lead to heavy losses, so it is of

paramount importance to take measures such as storage in covered rooms with adequate ventilation,

using pet-poly material159

At last a frequently heard slogan must be kept in mind: Dare to dream, but be aware that your

expectations are not too high!

6.11 Conclusions salt industry

Summarizing it may be stated that the Indian branded salt market holds tremendous potential to grow

since x percent of the market consists of non-branded salt, and offers many possibilities to get a share

of the pie. During the last five years the market for branded salt is growing at a pace of x percent per

year. This high growth rate combined with the high margins available in the value chain is the main

reason why many companies want to enter the market. Due to the fact that Gujarat, Tamil Nadu, and

Rajasthan produce salt that is consumed throughout the country, transportation costs account for x

percent of total costs. For this reason logistics becomes a crucial competitive factor and some major

companies have decided to source salt from more than one location in the country. Currently four

national players dominate the retail salt market with five brands, which is saturated with more than x

local brands. Since a few years most major companies realize that rural India, with a population of

over x who mainly eat unbranded salt, is a huge opportunity. Consequently companies like HUL have

developed a business model that solely focuses on the poor. Other ways of reaching the poor is

getting the government involved by means of Public Distribution System or targeted systems such as

ICDS or Midday Meal schemes.

Currently the market is on the threshold of a ‘boom’ of iron fortified salt, commensurable to the

iodization boom of two decades ago. This is why it is now the moment supreme for Akzo Nobel to

decide to jump into the market with its technology and convince central and state governments of Akzo

Nobel’s concept keeping in mind that this is a sensitive subject. The fact that HUL is going to launch

DFS at a premium price offers possibilities in terms of even higher margins and definitely contributes

to endorse the assumption of an upcoming DFS market in India.

Despite the good prospects the Indian salt market is a tough terrain. The challenge is to be able to

reach the people with consistent quality, being competitive with marketing spends, and building brands

in a price sensitive market. It is also crucial to have grip on the supply chain.

159 Interview Anil Sinha from Reliance


61

Chapter 7 Consumer behaviour_______________________

As elaborated earlier the end consumer should form the starting point for an organization when it

thinks of penetrating a market. Unfortunately, gaining insight into various customer segments is not an

easy task, especially in a country as large and diverse as India. This chapter will provide an insight

into the consumption behaviours and buying and decision making processes of several segments.

Paragraph 7.1 gives an introduction of the Indian population and explains the segments that are

chosen to discuss. Consumption behaviours and buying and decision making processes will be

elaborated in paragraph 7.2 and 7.3 respectively. Finally a conclusion about the typical Indian salt

consumer will be given.

7.1 The Indian population

As mentioned in the previous chapter India is a huge country with a 1.1 billion large population full of

contradictions. Small advanced elite of modern lives is surrounded by hundreds of millions of who lead

an extremely primitive life. Irrespective of social status or income level, people are value driven: there

is an enormous drive for money amongst most. The majority of the Indians are farmer and still x% of

all Indians live in the countryside. However, cities attract a continuous flow of migrants from Rural

India in search of work. Like other Asian countries, rural generally means poor160. Indian society has

traditionally valued children as important in continuing family lines and for looking after their parents in

their old age. In rural India these ties are still very strong and, as a result, large families remain

common. With an annual population growth of 1.8% India will be the highest populated country by

2050. This growth will not be the same throughout the country. The population in the Northern states is

expected to grow by x% in the next two decades; while in the south growth is expected to be only

x%161. With a population size of over 1.1 billion or approximately x households very little of the country

is uninhabited. India is among the most densely populated countries of the world. In general the

education level of the population is low. Despite improvements still many Indians are illiterate,

especially in the poorer sections of society162. Moreover, the country has a relatively young population.

Close to x Indians are below the age of 20, which is more than x% of the population163.

Religion plays a major role in India society. x Hindus now account for more than x% or of India’s

population. India has more Muslims, approximately x (x%), than any other country in the world,

besides Indonesia. Due to religious reasons, many Indian consumers are vegetarian, which has an

impact on the types of product offered by manufacturers and foodservice operators. Besides having an

effect on food habits, religion determines the approach to life of many Indians. In general Indians

believe in Karma or destiny and reincarnation. Connected with this many Indians, and especially lower

160 According to National Council of Applied Economic Research (NCAER) per capita income in urban India is 2.05 times that of rural India 161 See Appendix III 162 According to Census India 2001 almost x% in the age group 7+ were illiterate. There is no recent information available 163 Euromonitor report “The market for Retailing in India”, July 2006


62

segment, have a fatalistic approach to life164. Some people regard this as the biggest hindrance for

companies that want to serve the BOP165.

Based upon the criteria one applies the population can be divided into many segments. Most common

distinctions between segment groups refer to buyer attributes such as income level, area of living, and

geographical location. Segmentation could also be done by distinguishing consumer groups on buying

attributes such as price, purpose and style, or by buyer behaviour, such as adoption, purchase

location and use166. In the remainder of this chapter segments based on buyer attributes will be

discussed. Division of several consumers groups by the various attributes is not unambiguous.

Segments grouped by income level partly overlap segments grouped by area of living or geographical

location. This makes defining the explanatory variable complicated. In general the country can be

divided into the upper and middle class segment, and the BOP segment. This is mainly based on

income level. Other dimensions are the distinction between people from the North and South and

between rural and urban. Generally people from the Southern states are more traditional. This also is

true for people from rural areas.

7.1.1 The upper and middle class segment The upper and middle class segment consists of people with above average incomes and mainly lives

in cities. Rapid urbanisation and steady economic growth have led to the rise of this segment, which is

currently estimated to be x and is growing at enormous pace. A big part of this group adopts Western

lifestyles. Contrary to the BOP, these people, who mainly belong to higher casts, are increasingly

aware of health issues and consider a healthy lifestyle important. Hence, growing health awareness

among these people has helped sales of healthier foods and drinks.

7.1.2 The BOP segment The remaining seventy-five percent of the population do not belong to the upper and middle class

segment, which is also sometimes referred to as the consuming class. This lower segment consists of

a serving class (e.g. the domestic help, drivers, peons, carpenters, electricians) and the people that

live below sustenance levels167. These people mainly live in rural and urban slum areas. Education

levels are generally lower as well as the literacy rates compared to the higher segment. Moreover,

social and cultural climates of the ‘modern’ upper and middle class segment differ from this segment.

Hence, conventional marketing and advertising tactics are usually considered ineffective. Extended

families remain the norm in this group, especially in rural areas. Due to among others poverty and

social vulnerability these people generally have poor health. Poverty is directly related to nutritional

status and health seeking behaviour. The poor in India have low nutritional status which makes them

vulnerable to many types of infections due to amongst others deficiency of iodine and iron. This affects

164 Fatalistic means that people think: this is my life. I must accept. It was destined to be this way and I cannot help it. 165 Amongst others Lino Camponovo, MD of Intervet India 166 A segmentation study has not been carried out. Segmentation on buyer attributes / demographics is easiest and are the most common amongst the Indian salt market participants according to De Wit and Meyer (2004) 167 According to mr. Kishore Biyani of the World Bank


63

their immune system168. Rural dwellers are also more likely not to have access to drinking water,

drainage, reliable electricity and public transport.

7.2 Consumption behaviour

This paragraph discusses the relationship of usage frequencies and amounts of several salt varieties

between the different segments. Also cooking and consumption habits will be discussed.

7.2.1 Usage frequencies On average people eat 4.8 kilograms per person per year, which is approximately x grams per person

per day. This per day consumption regularly is constant, regardless of income or regional differences.

As discussed in the previous chapter only x percent eats branded salt. Expected is that this ratio is

lower for the BOP consumers, especially in the rural areas. As the table below shows, maximum x

percent of Rural India consumes branded salt compared to at least x percent of their urban

counterparts169. It seems that income levels also correlate with branded salt consumption. However,

the biggest difference is between 4th tier BOP consumers and people who earn between US$ x and

US$ x per year, as shown in table 7.2. People from the south eat relatively more unbranded salt than

people from the other states170. The main reason why a large share of the rural population and poorer

sections of society prefer non-branded non-refined is an age old habit coupled with the price factor.

Based on the interviews hypothesis 3 “In Rural India less than 45% consumes branded salt” has

to be x. However, the results from the questionnaires state something different, although in the

Southern state Tamil Nadu this seems to be true. Clearly, this hypothesis should be differentiated from

state to state. Since the hypothesis concerns the entire rural population in India it must be x.

Although production of iodized salt for consumption is mandatory, people can also choose to buy non-

168 http://www.nacoonline.org/socialassessmentNACP.pdf, p. 25 169 The deviation of the expected branded salt consumption can partly be explained by the people who consume both powder and crystal salt. Of these people maximum 39% stated that they use non-branded salt. Of the people who only use crystal salt maximum x% stated that they use non-branded salt. The figure of table 7.1 in South India look completely different: at least 55.6% of the rural population in Tamil Nadu eats non-branded salt. In urban Tamil Nadu maximum x% eats non-branded salt 170 Distinguishing North from South is not really representative, because division of rural-urban populations in the sample varies widely. In the South x% of the sample comes from a rural area. In the other states the average is x%

Area of living

National Brand

Regional Brand

Non branded

Urban X X X Semi urban X X X Rural X X X Slum X X x

Income level in INR per month

National Brand

Regional Brand

Non branded

< 4,000 X X X 4,000 - 15,000 X X X 15,001 - 30,000 X X X 30,000 > X X x

Table 7.2: Branded salt consumption related to income level

Table 7.1: Branded salt consumption related to area of living


64

iodized salt. Crystal salt, which is mostly uniodized, is sold to maximum x% of the urban population,

whereas at least x% of the rural population consumes this kind of salt171. The difference between

North an South is most evident. In Tamil Nadu maximum x% just eat powder salt. This ranges from x%

in rural areas to x% in cities. This does not necessarily imply that the Southern (rural) population

prefers coarse salt over powder salt, because a lot of people also consume both powder and coarse

salt172. In the Northern states Delhi and Uttar Pradesh at least x% eat powder salt, ranging from x% in

rural areas and x% in the cities. Table 7.3 shows that in urban India powder

kind of salt coarse salt powder salt both Total

Count X X X X urban % within Area X X X X

Count X X X X semi-urban % within

Area X X X X

Count X X X X rural % within Area X X X X

Count X X X X

Area

slum % within Area X X X X

Count X X X X Total % within Area X X X x

Table 7.3: Area * kind of salt Cross tabulation salt is preferred over coarse salt. In Rural India maximum x% solely consumes coarse salt, whereas at

least x% solely consumes powder salt. If it is assumed that the preference of people that consume

both kinds of salt is normally distributed, it may be concluded that in Rural India powder salt is also

preferred over coarse albeit less clear than in urban India. Again, in the South this is reverse if the

same assumptions will be applied. In sum, hypothesis 4 “Contrary to Rural India powder salt is

preferred over coarse salt in urban India” must be x.

According to the National Family and Health Survey of 1998-1999 socio-economic status was the best

explanatory variable regarding iodized salt consumption. Probably this is because only the more

expensive grades of salt has been iodized. At that time x% of all people with a low socio-economic

status consumed non-iodized salt compared to only x% of the people with a high socio-economic

status173. According to the sample in 2007 this number has decreased to somewhere between x% and

x% for people with a low economic status. The sample size of the rich is simply too small to give an

accurate percentage. According to the sample, the percentage for people with an income higher than

INR x or US$ x per month, lies somewhere between x% and x%174. Table 7.4 shows that awareness

of iodized salt and iodized salt consumption have a positive correlation, albeit a weak one175. Hence,

171 Unless stated differently a confidence level of 99% with the associated confidence interval has been calculated, meaning that alpha (α) = 0.01 172 The Southern rural population that solely consumes coarse salt is estimated to be between x and x%. 173 Socio-economic status is determined by income level and caste level 174 The Unicef report “Vitamin & Mineral Deficiency, a global progress report”, 2006 states that if iodized and non-iodized salt are both available in the market place, and if the iodized salt is slightly more expensive, the poor will effectively be excluded (p.11) 175 Phi = .216, Cramer’s V = .216, and Contingency Coefficient = .211


65

hypothesis 5 “There is a positive correlation between iodized salt consumption and awareness

of its existence” may be x.

Iodized salt consumption

Yes No Total

Yes X X X

No X X X

Iodized salt awareness

Total X X x

Table 7.4: Iodized salt awareness * iodized salt consumption Cross tabulation Regarding the variety of salt people consume, it can be concluded that the segments described earlier

cannot account sufficiently. Thus, in this case regional differences combined with economic status

explain differences in salt consumption better.

7.2.2 Cooking and consumption habits

India’s diversity also extends to eating habits across each region and state. Wheat is the main cereal

in north India, while rice is preferred in the eastern and southern states. These differences in eating

habits continue today, especially in rural India. Urban Indians have become more pan-Indian in their

eating habits, because of exposure to other Indians with different eating habits. Urban mealtimes are

influenced by the working day – breakfast before setting off to work, lunch at school or in the office and

dinner at home. Rural homes may have two meals rather than three, with tea drunk at various times of

the day176. Dietary preferences relate to the way people use their salt. For instance, the preference of

crystal in the South is partly due to the gravy these people normally eat. The crystal salt grains are

bigger and heavier and consequently the salt that is put in this gravy is spread out evenly which gives

a better taste.

After purchasing salt in 1kg plastic packs Indians put the salt in a jar to prevent from moisture, and

throw away the plastic. Crystal salt, which is generally bought loose, will get crushed before cooking.

In India cooking is a women’s job. Normally salt is added during the cooking process and foods could

be steamed, boiled or deep fried, unlike the West where salt is added on table after cooking.

According to the survey between x% and x% of the population add salt during cooking. This ranges

from x% for the people with income lower than INR x per month to x% for people with an income

between INR x and INR x per month177. The impact on DFS in this condition will have to be evaluated

thoroughly.

7.3 Buying and decision making process The second part of the consumer analysis concerns the buying and decision making process. What is

regarded as most important when buying salt, what is the perception of iodized salt, where do people

buy their salt and why there, which information sources are regarded as important and which not and

who decides which brand will be bought? These questions will be answered.

176 Euromonitor report “The Market for Consumer Lifestyles in India”, June 2006 177 With a 99% confidence level the confidence interval for the poor who add salt during cooking is x, whereas between x and x of the people with an income between INR 4.000 and INR 15.000 add salt during cooking


66

First, the buying preferences will be scrutinized. Basically, there are six evaluators spontaneously

mentioned: Purity, Taste, Free Flow Ability, Price, Health, and Uniformity. With purity people mean

that it must be white178. Some people refer to taste as saltiness, which means that small quantities of

salt are required to get the right taste. With free flow ability it is meant that the salt should not stick to

the hands. The Indian climate can be very humid, and this makes it hard for producers to oblige to this

need. Price emerged as a strong parameter amongst the poor (local) users. Despite the growing

affluence of the middle class, price is very much the deciding factor in consumer purchasing habits179.

Consequently retailers use promotional packs, undercutting the Maximum Retail Price (MRP) to attract

price conscious consumers. Health and iodine were mentioned simultaneously relating to prevention

from goitre was mentioned across users. Very few linked mental development benefit with iodine. The

importance and consequences of iodine are known. Consequently, iodine in salt is considered

important to many people. However, it is not used in the actual evaluation practice. Among the poor

iodized salt is also perceived as high priced salt which is offered in 1kg polypacks compared to cheap

unrefined uniodized crystal salt which is sold in jute bags180. At last, uniformity means that the same

amount of salt is needed every time you use it181. All these factors could be evaluated by the

consumers themselves except for health. In general it is assumed that salt that comes in packages,

which is often branded is pure and good. The brand assures the quality, and therefore brand is the

variable that combines all these evaluators. The figures below show that the preferences of the

populations with different income levels and from different areas differ. Remarkable are the relatively

low importance of purity /colour and the high importance of taste in rural India. At a 99% confidence

level it may be said that maximum x% of the rural population in India finds colour the decisive factor,

whereas the range of the urban population lies between x% and x%182. In slum areas this number is

even higher; x% to x%. Remarkably figure 7.2 does not point out that health is significantly more

important for middle and upper class compared to the poor when it comes to buying salt. Colour

clearly is considered less important for the wealthy than for the poor. As expected the importance of

the factor price correlates negatively with income level. Maximum x% of the people with an income

that lies between INR 15,001 and 30,000 per month, and maximum x% of people with a higher income

than INR 30,000 per month consider price as the most important factor regarding buying salt. On the

178 A consumer told me that salt is an essential commodity. It is seen as healthy, just like milk. Therefore it must be pure white. For instance Tata did an acceptance study for DFS which was yellowish and found that just white is accepted. 179 Euromonitor report “Consumer lifestyles in India”, June 2006 180 According to Chaman Kumar, Joint Secretary of Ministry of Human Resource Development, Department of WCD 181 Some people said that the problem of Annapurna is that one month you need 1kg and the next 1.25kg for the same taste 182 A study on iron fortified salt distribution through ICDS in Chhatisgarh by ICCIDD and AIIMS in 2006 indicated that even though colour is not regarded as the most important factor, beneficiaries of the scheme found that the salt made their foods blackish in colour, which initially lead to hesitation in using it. However, after they have been convinced that this salt is beneficial to the health of their families they were using it freely and unhesitatingly.

Figure 7.1: Decisive purchase factors in different areas of living


67

basis of income there is no evidence that taste is not the most important factor for most Indians with

regard to purchasing salt. However, since people from slum areas consider colour as the decisive

factor hypothesis 6 “Taste is the decisive factor for most Indians with regard to salt, regardless

of place of residence or income level” must be x. Although price is not regarded as the

decisive factor amongst the majority of the poor, this segment is considered very price sensitive183.

According to Werner Schultink, president of Unicef India, the poor typically make trips to local markets

or shops with a certain amount of money to buy their daily food with the idea of spending a certain

amount on salt. People think in absolute prices. Companies can respond to this by offering packages

in varying sizes. The results from the survey reveal that the perception of the majority, even the

poorest, is that salt prices of the salt they purchase lies between INR 8 and INR 9.

It seems that the maximum price the majority of the people are willing to pay for DFS is INR x per kg.

As could have been expected there is a difference between people with higher and lower incomes with

regard to maximum prices they are willing to pay, as the table on the next page shows184. These

variables have been analyzed on correlation, which is found. The value of Phi concerning this

correlation is ,348 and Cramer’s V is ,174.

183 According to many experts such as K.K. Jand, VP of Nirma, S. Sundaresan, Salt Commissioner in India, Werner Schultink, President Unicef India, D.S. Jhala, President ISMA, and dr. Hegde, President of BAIF costs are the main problem for serving the BOP. Unicef conducted a study on DFS in Gujarat and Karnataka from 2001-2003. The salt in the study was good: color was good and the taste remained the same. People did not know that they were getting DFS. After using DFS for some time the people told that they really felt better. Women liked the salt. Afterwards Unicef told the people about the salt and discussed the results. Then they raised the price from INR x to INR x, which was the average market price of refined iodized salt during that time. Consequently these people stopped buying DFS, although they knew the importance of the salt. Changing habits is one of the most difficult things in the BOP. However, the results from the distributed questionnaire indicate something different: x% of the urban BOP consumers pay less than INR x per kg, whereas x% of the rural BOP consumers pay less than INR x per kg. In Southern India relatively more BOP consumers pay less than INR x: x%, and this is especially true for rural BOP consumers in the South: x% pay less than INR x per kg 184 Professor Van Raaij of the University of Tilburg that one needs to be very careful with interpreting data concerning intended purchasing behaviour. Future purchasing behaviour is not the same as real purchasing behaviour

Less than 5rs

Between 5 - 7rs

Between 8 - 9rs

10rs or more

< 4.000 X X X X

4.000 – 15.000 X X X X

15.001 – 30.000 X X X X

> 30.000 X X X X

Total X X X x

Figure 7.2: Decisive purchase factors related to income level

Table 7.5: Perception of price per kg of salt people consume related to income level


68

Although the results from the survey indicate that people are willing to pay more for the extra value of

DFS, it is not yet known how the population really reacts to the prices of DFS until it has been tested in

practice. INR 10 per kg is considered to be a psychological price point, which salt products can only

cross if extra value is added185. Nevertheless it can be assumed that if the sales price of DFS equals

current iodized salt prices, it can be sold in large amounts.

Hence, hypothesis 7 “Akzo Nobel can only sell DFS in large amounts if the sales price is lower

than current iodized salt prices” must be x.

Second, where do people buy their salt and why? In India most people go to a small shop close to

their home to purchase groceries, regardless of income level, area of living and state. However, this

group is relatively smaller in urban areas, because more people are able to go to a supermarket to

shop for groceries186. It is simply not possible for the majority of the rural population to go to a

supermarket, because there are none in the countryside. Between x% and x% of the Indian population

buy products from shop owners who bring groceries to people’s homes, irrespective of income level.

The majority of consumers have a strong loyalty to their local ‘Kiranas’, and the most important factor

is that it is close to their homes, as shown in table 7.5 below187.

Clearly, hypothesis 8 “Most Indians buy salt in small shops, irrespective of place of residence

or income level” may be x. 185 According to K.K. Jand, VP of Nirma 186 In urban areas between x% and x% go to a supermarket to shop for groceries and between x% and x% to a small shop. In rural India between x% and x% go to a supermarket and between x% and x% to a small shop 187 Near my home in India means something different than in Holland. If people have to go by bus to a shop which is more than 5km away it still is near their house

Monthly family income in INR

INR 5

INR &

INR 9

INR 11

INR 13 Other

< 4.000

X X X X X

X

4.000 – 15.000

X X X X X

X

15.001 – 30.000

X X X X X

X

> 30.000

X X X X X

X

Total

X X X X X

x

Area of living

Near my home

Low price

Wide selection

Other

Urban X X X X Semi-urban X X X X Rural X X X X Slum X X X X Total X X X x Table 7.7: Reasons for shop choice related to income level

Table 7.6: Maximum price people are willing to pay for DFS related to family income


69

Third, the information sources that Indians use regarding purchasing salt will be discussed. Television

is the most powerful medium in India. Doordarshan, the government owned terrestrial television

network, is the largest and has the potential to reach nearly x% of Indian homes. There is an

estimated x households with televisions, which means about x% of Indian households. In cities with a

x plus population, penetration is as high as x%, while in villages with less than 1,000 population, this

falls to x%188. Regarding the decision making process of purchasing salt television is the most

important source, followed by salesmen, friends and magazines. Some people mentioned that they

have started using a certain iodized salt brand, because it was recommended by their doctor. A

negative correlation between income level and the importance of a salesperson’s advice has emerged,

meaning that relatively more people with low incomes consider a salesmen’s advice most important

with regard to deciding which brand to buy compared to the middle and upper class, as table 7.6

indicates. Cleary hypothesis 9 “TV is the most important medium for deciding which brand to buy” may be x.

Income level in INR

1000 per month

TV

Internet

Friends

Magazines / newspapers

Salesman’s advice

Other

< 4 X X X X X X

4 – 15 X X X X X X

15 – 30 X X X X X X

> 30 X X X X X X

Total X X X X X x

Fourth, who is the decision maker in the process. Sometimes this is salesperson, because if someone

needs salt and he or she only has e.g. Tata in stock the person buys this brand. However, mostly the

consumer decides. At a 99% confidence level it is not possible to see any significant differences

between men and women as decision makers. However, with increased awareness through television

and advertising, teenagers are an important influence on family decision making in (urban) India189.

7.4 The Indian salt consumer As the previous paragraphs clearly show it is impossible to describe the typical Indian salt consumer.

People from different states, areas of living and with various income levels have different consumption

patterns, eat different kinds of salt, and value salt characteristics differently. However, all segments

have some things in common: they eat a lot of salt (x grams per day per person compared to x grams

per day in Europe) on a daily basis, taste is the most important factor with regard to salt, television is

the most important medium for deciding which brand to buy, they usually buy their salt in a small shop,

and creating awareness of a healthy product has a positive effect on the consumption of this product.

188 www.indiantelevision.com 189 Euromonitor report “Consumer lifestyles in India”, June 2006

Table 7.8: Most important sources of information with regard to purchasing salt of various income groups


70

Chapter 8 Feasible Business Model Akzo Nobel_________

This chapter will translate the information given in the previous chapters into a sustainable business

model that is feasible for Akzo Nobel, meaning that the theoretical framework will be combined with

both the opportunities the market offers and the strengths of Akzo Nobel. For this reason this chapter

commences with discussing Akzo Nobel’s strengths and weaknesses, followed by the elements the

business model should contain. Thereafter the business model options will be linked with the market

value chain positioning decision (8.3), and elaborated in the following paragraphs. Paragraph 8.6

discusses feasibility of the BOP model and how this should have been formed. This chapter concludes

with a financial forecast, a replicability assessment and a description of the appropriate market entry

mode.

8.1 Company strengths and weaknesses Choosing the right business model requires looking at your own strengths and weaknesses. A

company such as Akzo Nobel has nearly always focused on top segments in developed countries and

built up name as supplier of semi manufactured products and technology. Business-to-business

activities account for the largest part of the company’s sales and profits. Akzo Nobel Salt Specialties is

the global cost leader in the production of salt and is known for its high quality product brands Jozo®

and Nezo®, which are especially known in Europe and the Middle East. Moreover Akzo Nobel is

known for its expertise in micronutrients. Demand creation, marketing and distribution on the other

hand are not capabilities with what ANSS is very familiar, particularly not in developing countries.

Furthermore, ANSS does not have experience in doing business in India, which means that a

distribution network has not yet been built up.

Next to company strengths and weaknesses the Akzo Nobel DFS concept strengths and weaknesses

need to be considered. As was mentioned in paragraph 6.2.3 the iron absorption is x than standard

iron compound. It also is a free flowing, homogeneous, stable and cost effective solution with an

acceptable appearance. The current weakness is that the iron compound and the premix’ additives x.

8.2 Elements of business model

As elaborated in chapter 3 business models must be the result of the value proposition offered by the

company, which links the market opportunities to the company’s capabilities, and its organizational

and financial status. The market described in chapter 6 and 7 offers opportunities for Akzo Nobel to

respond to. The value proposition must clarify how it benefits the company as well as the community

and what the long term competitive advantage is. The solution (premix and/or DFS) that Akzo Nobel

wants to offer, DFS, has already been stressed, but needs to be specified and priced. Evident is that

the Indian market is not homogenous, but that various segments could be targeted in different ways.

This is why the business model should contain the segment(s) that Akzo Nobel wants to target and

describe the value it brings to these target group(s). Consequently the business model should

describe how the target group(s) will be reached. Furthermore it should describe the relations the

company builds with customers and partners, how the company makes money, what capabilities are

required and the costs of making the business model function.


71

8.3 Options

Before dealing with all the different options the market offers it is vital to understand the relationship

between the business models and the position Akzo Nobel wants to occupy in the value chain. Just as

all companies Akzo Nobel needs to align its competencies with market opportunities which will

hopefully result in the appropriate business model. Therefore it is crucial to understand the positions of

the strengths mentioned in paragraph 8.1 in the value chain shown below.

Figure 8.1 elucidates that the strengths of Akzo Nobel primarily lie in the upstream part of the value

chain. However, they do have experience in marketing of the Jozo and Nezo brands as well.

Positioning cannot be done properly without taking into account the different possibilities within the

positioning framework. In other words, positioning itself does not mean anything unless this has been

made concrete. If Akzo Nobel e.g. decides to produce DFS, this can be done in India or Europe, alone

or in collaboration with partners, centralized or decentralized and so on.

All the different positioning possibilities are in fact tantamount to a choice between starting on its own,

collaboration with one or more partners, and selling its technology. If Akzo Nobel decides not to enter

the market, but they do want to make profits somehow, it is forced to sell the technology. If they want

to control the whole value chain eventually, they need to start on their own. This does not mean that

the market entry mode should be to set up a subsidiary immediately. Paragraph 8.8 shows that this

can grow over time. Except for these two extremes, Akzo Nobel could find a suitable partner as well

that e.g. handles production, logistics or marketing. Different sources mentioned the importance of

joining hands with Indian parties, because of contacts they have, location of production, adaptation to

Indian standards, and because of splitting risk and investments190. This value chain positioning

obviously relates to the business model that should be chosen or developed, because it depends on

the different parties involved in all parts of the value chain. Apparently companies could decide to use

more than one business model at the time, because the market requires so. Perhaps you need a

different business model for the North, the South, the cities and the countryside.

Now the relationship between positioning in the value chain and business models is clear, the different

positioning options will be mentioned and related to the various market opportunities. As was

mentioned earlier this research has been conducted for the sBU Salt Specialties. Consequently all

options provided in the figure below it has been taken for granted that ANSS partakes somehow.

Because of the possibility of conflicting interests between Salt Specialties, Chelates and Akzo Nobel

Corporate, as mentioned in chapter 1, there could also be options that leave no room for ANSS, such

as the dry mixing method HUL is currently testing to facilitate the DFS launch in July 2007. For Akzo

Nobel Salt Specialties this is definitely not lucrative, because ANSS is not involved at all. However, if

this option becomes reality, HUL needs x of the required iron compound to at least stick to the current

standard minimum, which is from the perspectives of both Chelates and Akzo Nobel Corporate more

190 Fenedex, EVD, Salt Commissioner, Lino Camponovo (MD of Intervet India)





Figure 8.1: Double Fortified Salt Value Chain


72

interesting. Hence, they definitely do not want to change this. Actually it can be questioned why premix

is required at all if Ferrazone is available in the market. Companies can mix the iron compound with

salt themselves using a dry mix method, similar to HUL’s approach. Apparently companies that use

the dry mix method shall face the same problems Akzo Nobel faced when developing the concept,

such as segregation, discolouration, but they are probably able to solve this over time. If the

companies that are using the dry mix method cannot solve the problems they can still come back to

ANSS. Obviously the list shown in table 8.1 is not exhaustive.

Basically all options require deciding whether to do it alone or in collaboration with a partner, and

between producing in Holland or India. Producing in India can be done in different regions and in

different ways. These different positioning options will be linked to the market opportunities and

classified by means of various weighing factors, as shown in table 8.2 on the next page191.

The weighing factors chosen are meant for the MT of Akzo Nobel Salt Specialties. The business

opportunity is valued mostly by profitability, market potential, initial investment and risk and accounts

for almost x%. CSR and BOP learnings, on the other hand, are definitely considered less important. If

the BU was in a different phase192 it might have been possible that priorities were set differently and

that participating in the Indian market simply should have been to learn, and therefore tolerating lower

profitability. In the long run CSR commitment could increase reputation to the Indian government, and

BOP learnings could be useful for other parts in the world, resulting in opportunities that would

otherwise not have become available. From the CSR perspective it might be a good option to tie up

with local small scale producers. Akzo Nobel then needs to give them training and invest in equipment

in order to assure a certain quality level. Some of the factors require elucidation: initial investment is

investment in money (US dollars) required initially. Resources refer to people. Risk concerns the

probability that the company will not be able to generate sufficient cash flows to meet future operating

expenses. One of the biggest problems the evaluation model faces is that it compares different

opportunities in a way that is closely connected to the discounted cash flow approach. In chapter 3 it

was already explained that BOP models should not be evaluated relying exclusively on conventional

DCF logic, because the expected pay off time usually lies further in the future. For this reason the DCF

method tends to force a company to make an ‘all or nothing’ decision.

191 These weighing factors are awarded after consultation with Justus de Jong. Obviously weighing factors could be different for different actors: the MT of Salt Specialties values CSR or BOP learning lower than e.g. the CSR Department 192 ANSS is a roadmap business, meaning that the current first aim is to level up its EVA

Positioning options

1 Sell Technology

2 Produce premix in NL and export it, other company can mix it up with local salt and market it

3 Produce premix in NL and export it, mix it with locally produced salt and market it

4 Produce DFS in NL and export it, other company can market it under its name

5 Produce salt and premix in target country and sell it to other company

6 Produce DFS in target country (i.c.w. partner company) and market it

7 Produce DFS in NL and market it in target country

Table 8.1: Positioning options


73


74

The market opportunities represent the business models elaborated in chapter 6, namely the market

model, the public distribution model, and the BOP model in which the Sabras options represent an

extended BOP model193, HSL represents the PDS model, and the rest represents the market model.

However, collaborating with for instance HUL or selling premix to them could also mean that salt is

distributed through their BOP model. The three rows marked in red ‘sell technology’, and the ones that

state that DFS should be produced in Holland, are definitely the lowest valued options. Sell the

technology will be extremely difficult, because the application for the patent has been submitted, but

not yet approved. Moreover, the mixing technology is relatively easy to copy, which makes it not that

valuable. Both options stating that DFS should be produced in Holland fail to be sustainable, because

costs of transportation and import duties make these options simply too expensive as paragraph 6.6

clearly stated.

Now it is clear which options will not be considered any further, the company must decide to what

extent the company wants to get involved in the market. Obviously this decision depends on the

profitability potential, necessary resources, investment and risk. The company must balance the pros

and cons of participating in the market against each other. Since selling the technology is out of the

question three options remain: become a supplier of premix, become a supplier of DFS, and get

involved in the actual marketing of a brand, either alone or in collaboration with one or more partners.

Concentrating on B2B by means of supplying the premix to another company that markets it takes a

relatively low effort, and is quite profitable. In this option the company makes use of the partner’s

knowledge of the market. Disadvantages are that you do not share in the benefits of the enormous

growth in the market just like the market players, because margins are lower. Producing DFS locally

and than withdraw from business does not seem as a sound option, because investment compared to

profitability is extremely high. In this case the investment is over US$ x, because setting up a plant to

produce vacuum salt is costly. Marketing a brand could become a gold mine, but risks involved are

high. Moreover Akzo Nobel does not have experience in marketing products in India and has not yet

built up a distribution network. This is set off by a partner with experience and a strong distribution

network. But, how big is the chance that a company like HUL or Nirma would like to join hands with

Akzo Nobel to launch a new brand in the market? Probably the only way to collaborate with these

parties is by supplying premix and/or expertise in salt production or set up large scale collaboration by

e.g. offering more products than just DFS, such as low sodium salt and salt licks.

The next divide is introduced by the location where the premix will be produced. This could be done in

Holland or India. As discussed in paragraph 6.6 the effect of transport costs and import duties on the

incremental costs of DFS in India when premix is produced in Holland is equivalent to US$ x or INR x

per ton. The appraisal is: producing US$x per ton more expensive double fortified salt which can easily

be done in Holland because of available machinery, or install machinery in India and produce the

premix locally, risking imitation by local producers. If the company decides to produce the premix in

Holland all options still remain possible.

Obviously risk involved depends on the partners chosen and the commitment shown in terms of

investment. If Akzo Nobel decides to utilize the public distribution network by e.g. working together

with the public company Hindustan Salt (HSL) risks are high for other reasons than market risk. First

of all this specially set up programs aiming to reach everybody in a given target group may prove

193 This will be explained in paragraph 8.5


75

difficult to sustain when the initial enthusiasm wanes and when the problem itself is no longer

apparent. This can be reinforced by politicians changing functions rapidly. Even if a company has won

a tender, the government can discontinue at any time, resulting in a possible surplus of DFS produced.

Figure 8.3 shows that risk of working alone is very high, because the company has to invest a lot of

money by itself and a lot of human capital is required. Moreover, the company needs to set up a

complete distribution system and find its way in an environment that is yet unknown. The question

rises if Akzo Nobel is able to copy HUL’s business models, keeping in mind the position HUL holds in

India and the distribution network they have built up during the last decades. Collaboration on the

other hand, means sharing profits, but also investment. Besides, companies can utilize each other’s

strengths. Consequently, cooperation treaties could be completely different depending on the

partner(s). For these reasons, and due to the fact that a foreign Fortune 500 company enters the

Indian market alone induces resistance194, the options of marketing a brand alone is hardly doable.

Within these options it is possible to e.g. produce salt at various locations, but centralize fortification

and/or marketing or vice versa.

Besides the above mentioned options which are primarily aimed at collaborating with parties in the

retail salt business, other sectors might offer opportunities too. The army holds a strong position in the

country. It might be possible to let the army distribute healthy salt. Also companies such as

McDonalds, the coming retail giant Walmart, or DSM offer opportunities to collaborate with.

8.4 The appropriate business model In this section an answer will be given to the question which business model is the right one for Akzo

Nobel. As mentioned earlier the options discussed in the previous paragraph need to be linked to

Akzo Nobel’s competencies, the segments it wants to serve, and to the current financial and

organizational status. Since the country is so heterogeneous one business model simply does not fit

all. A business model for the BOP will obviously be completely different than for the TOP, because

most people with a lower income live in villages which are not yet reachable through traditional

business models such as the market model. Keeping in mind the price sensitivity of the BOP

consumers, the price level a substantial fraction of the BOP is willing to pay, the costs for DFS and the

costs for keeping the distribution models, either the traditional market model or the BOP model,

running, it must be concluded that double fortified salt currently cannot reach the majority of the poor

unsubsidized. This means that the only way to reach these people is by means of PDS. However,

because high corruption rates amongst public officers do not fit Akzo Nobel’s business policy, this is

not doable. Even if prices of DFS were substantially lower, at the BOP you face the problem of

competing with your own resources! The branded salt market is still growing at massive pace, and the

middle class is coming up. This offers opportunities for entering the TOP segment, either in the

secondary market or as a brand holder. Regarding the phase Akzo Nobel Salt Specialties is currently

in, getting involved in the B2B makes most sense, since it does not require substantial resources and

investments, but could generate considerable profits. Just choosing this option makes Akzo Nobel

completely dependent on the major players. Since HUL is currently mixing Ferrazone with their iodized

salt it is questionable whether they want to switch to the premix concept. Segregation is the only

reason why they can appeal to ANSS once again. The question about which business model to 194 See paragraph 6.10: Cargill’s attempt to build a production plant in Gujarat


76

choose is irrelevant if this option is chosen, because Akzo Nobel will only be involved in the market as

supplier of premix. The brand holders then decide whether they make use of their existing distribution

network or set up a new channel.

If ANSS decides not to only focus on becoming a premix supplier, but also a ‘real’ participant in the

market as brand holder, choosing an appropriate business model is relevant. The following

paragraphs will elaborate the business model that should be used.

8.4.1 Segmentation and targeting

In this paragraph the buyer attributes segmentation as discussed in chapter 7 will be used. Reaching

tier 4 rural based BOP consumers is simply not possible due to the additional costs of fortifying salt

with iron, the willingness of these consumers to pay more for added value and the high costs of

reaching these people. Urban BOP consumers on the other hand are also not likely to pay more than

current refined iodized salt prices, but reaching them through traditional distribution systems is

cheaper. Most middle class and upper class people live in (semi)urban India. These people are most

likely to be prepared to spend more money for added value than current refined iodized salt prices.

Besides division into income levels and area of living geographical location explains differences in

preferences. In the generally more traditional South, relatively more people eat non-branded crystal

salt. Apparently these people are more reluctant to change. Clearly, this has to be taken into account

when targeting various segments. From a business perspective it seems wisest to focus primarily on

urban middle and upper class and skim the market with a new double fortified product at a premium

price. These x people purchase enormous amounts of salt which the current five national brands are

unable to supply. On the other hand Akzo Nobel can focus on the 2nd and 3rd tier BOP consumers with

a product for which it charges less. Serving the middle and upper class is preferable to serving the

BOP for the time being, because it offers the highest potential to generate profit. In the survey was

found that the majority of 2nd and 3rd tier urban BOP consumers are willing to pay premium prices for

branded salt. Depending on the region and area of living a choice must be made on the kind of

product to be offered, e.g. refined or unrefined, powder or crystal salt. Whatever segment Akzo Nobel

wants to target, it seems rational that the company must apply a differentiated marketing strategy,

which means that after deciding the target segments the company develops distinct products or

services with separate marketing mix strategies aimed at the varying groups195.

8.4.2 Strategy

How firms should go about creating a competitive advantage over other players in the market that is

sustainable over a prolonged period of time is the central issue in strategy formation. Actually strategy

is about the policies and plans to achieve the objectives and goals the organization has set, which is

building up sustainable business in India in the retail salt market196. For this reason strategy relates to

all elements of the business model which means that the different elements, such as e.g. marketing

have a strategy that will be in line with the general strategy.

195 Homburg, C. and H. Krohmer (2003): p.433 196 Wit de, B. and R. Meyer (2004): p. 71, 231


77

If Akzo Nobel wants to become a major contributor to the elimination of nutritional deficiencies

throughout the world, it seems necessary to truly penetrate the market and focus on the mass.

Focusing on the mass requires adaptation to the local needs while making use of the strengths of a

multinational. As discussed in the previous paragraph preferences differ from segment to segment, so

the company must develop different strategies for the different segments it wants to serve. Adaptation

to local needs seems logical, but most MNCs still choose for replicating the strategy that have served

them well in developed countries to emerging economies without adaptation, which mostly results in

market skimming than true market penetration and development197. Focusing on the mass means that

an MNC must realize the potential of rural India, and adapt the marketing mix to make the global asset

more suited to local emerging market conditions. For Akzo Nobel this means that it might transfer its

established Nezo or Jozo brands into India, but change its packaging size or price points to enhance

its attraction to the Indian retailer and consumer.

Focusing on the mass requires a mass-marketing approach. The rationale of Akzo Nobel to participate

in the Indian market was to penetrate a large undeveloped market that holds great potential, because

profits can be realized through volume. This was opposite to Akzo Nobel’s paradigm in developed

countries where it keeps prices and margins high. Currently, most MNCs price their products for

emerging markets at such a high price level that only five percent of the population can afford them198.

Top salt brands, however, are priced at a level that is affordable to a far larger number of people.

Despite reaching a lot of people with current prices, rural BOP consumers are generally less willing to

pay these prices. This certainly results from varying preferences. Notwithstanding poor marketing

infrastructure such as distribution systems Akzo Nobel must try to focus on the mass.

Tata and HUL have a different vision on the importance of intermediaries and especially retailers in the

distribution channel, resulting in varying margins given to them. From the start HUL believed that

retailers influencing power is high and therefore they give away nearly x% of total margin to

intermediaries. After five years HUL wanted to lower margins to dealers, because volumes have gone

up. This resulted in a loss of market share. This experience shows us that setting the right margin from

the start is essential. Tata, on the other hand, faces problems with its distributors because of the low

margins it gives. This experience shows, that in spite of high brand value it is hard to manage given

away just x% of total margin. These both examples show that Akzo Nobel must set these margins

somewhere in between 30 and 50 percent. When deciding on the height of these margins Akzo Nobel

must take into account that a strong distribution network is prerequisite. This asks for finding a partner

that is strong in distribution.

Last but not least Akzo Nobel must start small, building a case. If the company shows that it really

helps eliminating the health problems mentioned in chapter 1 in one state, other states get attracted.

This snowball effect ensures selling high volumes eventually. Another advantage of starting small is

that the company can adapt its business model to regional preferences. Because of the size and

heterogeneity of India different business models are required for different parts and cities throughout

the country.

197 Arnold, D. (2003) 198 Arnold, D. (2003)


78

8.4.3 Direct or indirect? The BOP model used by HUL is a direct business model. This business model is only viable in areas

that the traditional distribution does not reach. Reaching rural BOP consumers at affordable prices in a

market driven system requires such a direct business model. However, for (semi) urban areas the

traditional market model is preferred over the BOP model because of lower costs. Thus hypothesis

10 “If DFS will be sold at market prices, than a direct distribution model is required in order to serve the BOP” must be x. On the other hand learning indirectly, via a local distributor is obviously

less effective and will contribute less to the company’s development as a global player. Obviously the

amount of links in the distribution channel varies between companies that are utilizing the market

model. Nirma and Surya Salt believe that the CFA Tata directly transfers the salt to takes too much

margin. Consequently they supply their distributors directly. Obviously the lesser links in the chain the

lower the loss of margin and the rates of corruption, but the higher coordination cost for the

manufacturer or brand holder199. Since Akzo Nobel Salt Specialties currently lack resources setting up

a direct distribution channel seems inappropriate, because they involve more managerial processes.

An even more decentralized business model could be to offer a completely different product such as

sprinkles that diminishes the amount of intermediaries needed. Herewith Akzo Nobel could respond to

the home fortification movement that is taking place in Indian households. The premix can be added

during cooking at home or at school. According to Justus de Jong this is practically not doable, due to

the small amounts (1:100 ratio) that must be added.

8.4.4 Production and sourcing In paragraph 8.3 it was already mentioned that Akzo Nobel should be a premix producer only. Possibly

processing of the salt produced and mixing it with the premix supplied could be added to just

supplying premix, depending on the production route the company chooses. This premix production

should preferably take place in Holland, because the effect of processing on incremental costs is

marginal and imitation risk is minimized. Moreover initial investment will be lower due to availability of

machinery. The end product must be produced closest to the end consumers, because of the high

transportation costs. This means that salt for the five Southern states should be produced in Tamil

Nadu, the Northern states must be provided by salt from Rajasthan and the West and East with

Gujarati salt. Since quality of salt in these states differs Akzo Nobel must investigate how important

uniform quality really is. For the BOP taste and price are decisive factors regarding buying salt. This

must be taken into account when choosing the production location for this segment. For the TOP

quality is the decisive factor. Serving this segment means that a good product must be the basis. If the

company can produce a homogenous good product, it can think of logistics and marketing. All big

players are based in Gujarat. From here it is cheapest to supply the majority of the metropoles and

urban population. For this reason Akzo Nobel should start sourcing from Gujarat primarily and expand

after some time to Tamil Nadu.

Besides deciding on the location of premix and DFS production, a choice must be made to what extent

Akzo Nobel wants to get involved in the production process. Akzo Nobel can purchase raw salt from

local manufacturers, refine it, and mix the premix with the refined salt. The company can also

199 Coughlan, A.T., Anderson, E., Stern, L.W., and A.I. El-Ansary, (2006): p.8


79

purchase refined salt, just like HUL. Opposite to trader HUL which has expertise in purchasing and

selling and not that much in producing ANSS primarily is a producer. Because there already is

sufficient capacity to produce refined salt and ANSS does not have many resources providing quality

control seems the most appropriate option for the company. The raw salt can be purchased from small

scale producers or big ones. Obviously purchasing from one or more of the x producers in Gujarat200 is

easiest. From a quality perspective this is also recommended. The 2nd and 3rd tier urban BOP

population can also be served from these production locations. Paragraph 8.6 will elaborate the option

which even better fits the BOP, but is currently a step too far ahead.

8.4.5 Distribution Distribution takes up a mammoth share in the salt industry, because salt is not a high-value product.

Therefore it is crucial for Akzo Nobel to have a grip on the supply chain where salt handling is

minimized. However, intensive distribution requires substantial sums of investment on a distribution

network since India’s retail distribution system is fragmented. Moreover salt is not a product that can

be sold in isolation, which makes building up an own distribution channel extraordinary expensive. As

mentioned earlier tying up with a partner with a strong distribution network is preferred. This could be a

FMCG partner that distributes many products through its channel, but also a big retail chain like

Walmart, Reliance, Big Bazaar, or large distributors. Because of hard conditions and multiple handling

wastage can be quite an important issue too. Therefore it is important to pack into 1kg packs closest

possible to the market. Copying Tata’s model with CFAs packing the salt seems the best option.

Distributors that also handle other national brands of salt are probably the most appropriate partners.

Because of quality testing rail transport would be preferred over road transport when possible

depending on price differences. Obviously short distance sales must be transported by truck.

8.4.6 Marketing The big five national brands increase sales volumes every year, because x people switch from

unbranded to branded salt every year due to increasing brand awareness and value for money

attitude by Indian consumers201. Increasing brand awareness ensues from the marketing efforts of

these major companies. In case of DFS demand as well as brand awareness need to be created.

Notwithstanding poor marketing infrastructure such as distribution systems Akzo Nobel must try to

focus on the mass because IDD and IDA are mass health problems and embracing a mass marketing

approach is consistent with its objective to build up sustainable business in large economically

undeveloped populations. Creating demand among x people that are not that nutritionally aware

requires heavy investment in market education. Obviously Akzo Nobel is not the only stakeholder that

benefits from creating health awareness. The Indian government, public health organizations such as

WHO, UNICEF, WFP, other technology holders, and numerous NGOs are also willing to help local

people realize that they could be affected by a lack of micronutrients in their diets. Teaming up with

these parties and/or local doctors who are known and respected by local communities will add

credibility to the education campaign. Convincing people with low hemoglobin levels that they are

200 Annual Report Salt Commissioner 2005-2006 201 According to Euromonitor’s “Retail in India” report Indians now face a barrage of advertising, and everybody wants to be seen as not buying the cheapest


80

going to perform better when they use more expensive DFS is really hard202. In people’s minds salt is

just salt! Some experts have said that this is the reason why you should explain people that they

should not compare it to (iodized) salt, but that it is a cheap carrier of nutrients. Dr. Isha Prasad

Bhagwat from UNICEF, on the other hand, states that you should talk in business sense, i.e. the taste

of DFS is good, and you are going to perform better from it.

Besides market creation it is evident that Akzo Nobel creates awareness for its own brand. Because

there will be no public endorsement of a particular brand, the company itself needs to invest, be it in

collaboration with partners. Akzo Nobel could use Nirma former strategy of hiring women to go into

retail shops and ask for its products in order to gain acceptance.

Creating a market for your product is one. Adapting the marketing mix so that it suits the local market

conditions and education level is something else. Without proper understanding the market it is

impossible to determine the right price, offer the right product, promote it in the most effective manner,

and the right distribution mode. The former three P’s will be discussed in this section. Because

developing the right marketing mix is of essential Akzo Nobel needs to control the market directly.

Participating in the market with an indirect distribution model therefore does not mean that marketing

should be outsourced. On the contrary, Akzo Nobel should control marketing activities by means of a

directly controlled marketing subsidiary, possibly in collaboration with a partner.

With regard to setting a price for DFS it is recommended to see what happens with HUL’s DFS sales if

they set the price at INR 15 per kilogram. Akzo Nobel should definitely price the product in a range

comparable to the current top brands. In the market there is consensus on a psychological boundary

of INR 10 per kilogram for refined iodized salt. Crossing this boundary is only possible if value is

added. Because DFS clearly adds value to iodized refined salt it is possible that INR x will be

accepted, but this is not clear yet.

The product offered must suit the preferences of the segments buying it. Since most urban middle and

upper class people eat powder salt, and believe that purity, taste, free flow ability and uniformity is

most important, the company must produce a product that gives satisfaction to the demand. Vacuum

evaporated salt scores best on uniformity and purity and scores similar to sea salt on the other two

requirements. For this reason vacuum salt is preferred203. Nevertheless, the first requisite is that the

company produces a high quality product and it is perceived this way. Proper packaging can

contribute to this high quality perception. The glossy laminated LDP package of Tata stands for

quality. Besides it looks good it is stronger, which is definitely an advantage considering the bad

conditions of the Indian infrastructure. A strategy of launching smaller packs allows less wealthy

townspeople to experiment with new products, leading to increased product awareness and consumer

trial.

Regarding promotion must advertise using mass media such as TV, radio, internet, newspapers, and

magazines. This must be complemented with putting schemes and sampling. Responding to Indian

curiosity by distributing free samples increases brand and product awareness. This could be combined

202 Several studies from Unicef, Sundar Chemicals, Tata and WFP show this. Tata’s study in 2004 revealed that it takes a long time to change people’s habits 203 Since only Tata and Nirma produce vacuum evaporated salt, collaboration with one of these two parties is preferred. However, the probability that one of these companies wants to collaborate with Akzo Nobel to enter the market with a new brand is scant


81

with advertisements in newspapers, by offering samples in combination with a newspaper204. Putting

schemes on retailers, such as buy 5 get 2 free, is considered crucial regarding penetration into the

market. This is the ultimate strategy for increasing sales volumes and creating brand awareness.

Moreover Akzo Nobel could show the people to what extent it is involved in CSR practices. A good

option could be donate a certain amount of money to a girl child education program for every package

sold.

As a final point, creating product and brand awareness requires building a network of partnerships with

governments, multilaterals, NGO’s, and other stakeholders that are trusted and recognized by the

potential customers. A local celebrity chef cook could be the perfect person to recommend the

product.

8.4.7 Concretization of CSR policy

The impact on society the DFS project intends to realize has a corporate socially responsible

character. First, it is intended to help eliminate the health problems of IDD and IDA. Furthermore, by

marketing a new brand jobs will be created directly in production and distribution. Third, the company

makes a valuable contribution to society by paying tax. Entering a new market offers employees scope

to develop their talents. Finally, profits will hopefully grow through this operation, which balances

People, Planet and Profit. Matching business principles of the companies involved in the entire supply

chain are very important with regard to making it work in the long run. Hence, Akzo Nobel must

deliberately choose its partners, so that it strengthens its CSR policy205. Clearly hypothesis 11 “Akzo

Nobel should only acquire or collaborate with parties that consider CSR of paramount importance” may be x.

8.4.8 Conclusion business model In short ANSS’s core competencies lie in strong product development, production, and quality

assurance. It needs to build up a network of partners that are able to create demand, ensure

distribution, credibly tackle the educational components of the business, and have the knowledge to

market products in India206. Thus Akzo Nobel must bring expertise in production and/or become a

supplier of premix. This can be done by either selling the premix to one of the big national brands or

entering the market with a new brand working together with one or more partners. The former option

is recommended because it is easiest, requires minimal resources and could bring substantial profits.

Considering which business model should be used is irrelevant in this case, because ANSS only

becomes a supplier of premix. The second option could also become reality.

Since profitability rates in the value chain are mainly for the brand holder, AN has a strong name as

producer of salt in Europe, and the market offers space for entrants because of high growth rates, AN

must enter the market with a brand in combination with one or several partner(s). Targeting the urban

middle and upper class holds the potential to sell a large amount of DFS at prices comparable to the

204 Retailers advised me to distribute samples myself, because otherwise retailers will try to sell it instead of giving the samples away for free 205 Interview Lino Camponovo, MD of Intervet India 206 Another criteria to partners is that they are reliable and that corporate business policies do not contradict


82

current top brands. These x people can be reached best through the traditional distribution system

with CFA’s, distributors, and retailers. In these segments anaemia rates are still quite substantial,

although lower than in the BOP. Selling smaller sized packages that urban 2nd and 3rd tier BOP

consumers can afford, leads to increased product awareness and consumer trial. PDS is probably the

only manner to reach the 4th tier BOP with DFS. However, because high corruption rates amongst

public officers do not fit Akzo Nobel’s business policy, it is advised against doing that. Considering

ANSS’s current organizational and financial status a BOP model, which needs resources to set up a

sales force, makes this option hardly possible.

No matter which option ANSS chooses the premix must be produced in Holland, because the marginal

effect of transport and import duties on the incremental costs of DFS in India do not countervail higher

imitation risk and the availability of machinery in Hengelo. The premix can be mixed with locally

produced salt of large scale producers from Gujarat and Tamil Nadu. Referring to the market entrance

option Akzo Nobel’s should use its expertise in production by helping its partner with quality control

and/or processing of DFS. Thereupon distribution needs to taken care of by a partner that has built up

a strong distribution network.

Creating a market for DFS and building a brand requires collaborating with various partners and using

mass media, distributing samples and penetration techniques such as putting schemes. Figure 8.2

shows the partners Akzo Nobel should work with in the value chain.

8.5 BOP model not feasible yet Though it might be concluded that the BOP model is not feasible yet, this paragraph discusses an

appropriate business model aimed at the BOP.

Besides generating business the DFS project was initiated with a social aim. In this project Akzo Nobel

tries to find a balance between the business and social aim. As mentioned earlier serving the price

sensitive 4th tier BOP is currently not possible unsubsidized. Nevertheless a business opportunity

might arise albeit still under the surface. In general higher IDD and IDA rates are found among the

BOP populations. Ironically, among the small scale salt producers these rates are highest. Because of

the size of the BOP and the improvements Akzo Nobel can induce regarding the health status of the

population, this forms a great opportunity from the CSR perspective. If income levels and brand

awareness raises in this group it might turn into a huge business opportunity as well. In this section a

business model will be outlined that goes beyond C.K. Prahalad’s BOP concept: Selling FROM and





Product developed in

collaboration with AN Chelates and

Micronutrient Inititative

Refinement of raw salt and

mixing premix with local producers

Akzo Nobel’s partner with an

established distribution

network takes care of

distribution

UNICEF, WHO, WFP, NIN, MI, governments and

numerous NGOs educate communities about needs for

healthy diet

Figure 8.2: Partnerships throughout the value chain


83

TO the BOP! In addition to the elaborated distribution micro enterprises HUL is known for, it is also

possible to set up micro production or service enterprises and a combination of these options.

There are currently over x (migrant) labourers working in salt production in India. Most of them are

working in the Small Scale Industry (SSI). Working conditions for these people are really bad; there

are no safety conditions207. The small scale producers, who are being unexposed to the global

scenario, lack the knowledge and technology and thus stand to get exploited by middlemen. The

challenge is to bring together the scattered resources and offer them as well as Akzo Nobel an

opportunity to set up a business and improve their lives by providing them access to markets,

eliminate middlemen, and increase profitability. By bringing in expertise, and financial power Akzo

Nobel must try to improve the quality208 of salt they produce and bundle the power of all parties

involved. This can be organized in a sort of cooperative in which the small scale producers get equity,

so that the participants benefit from their membership and interests are aligned. Even when raw salt is

available in the market this private cooperative model is preferred, because now Akzo Nobel can

assume full responsibility for the supply chain. Opposite from conventional cooperatives, this

cooperation must not be run democratically, but operations, ownership and management must be

separated. Management usually is an obstacle with regard to conventional cooperatives. Furthermore

cooperatives are vulnerable, because they can be overtaken by governments. Therefore setting up a

private entity is required. It is of paramount importance that the salt producers are motivated with a

business incentive so that they can build up something instead of offering help because they are

suffering.

In March 2007 a company named Sabras has started such an innovative initiative in which SAVE

Limited (the promoter company) holds x% equity and the small scale producers the remaining x%.

Akzo Nobel can participate in this initiative by e.g. taking equity in the company, invest in equipment

and/or provide guidance to produce good quality salt. Also Akzo Nobel could set up a refinement and

mixing facility. By doing this Akzo Nobel keeps control over this decentralized production approach. All

the salt produced can be transported to this hub, then it can be refined and fortified, and thereupon

enter the market. At this point distribution comes into play. The Shakti model of HUL proves to be

successful in reaching the otherwise unreachable BOP. Therefore this model could follow the

production model. However, salt cannot be sold in isolation. Thus Akzo Nobel should find partners to

build an assortment of products that its micro entrepreneurs can distribute. Obviously, easiest is to tie

up with a partner that distributes a large range of products, such as HUL, Nirma or Tata.

Setting up such a distribution model requires partnering with NGO’s, governments and perhaps micro

finance institutes and other private organizations. This combined model has the advantage that

awareness of double fortified salt increases more quickly than in the distribution model alone.

Moreover, collaboration with SSI entrepreneurs gives appreciation from the government, which will be

helpful in future initiatives.

Keeping coordination costs low, Akzo Nobel must look for these kinds of cooperatives that are running

small scale units. Since Sabras, which might be a good option, is located in Gujarat Akzo could start in

this state. As mentioned earlier transport costs influence the price of salt enormously. Therefore it is

207 Moreover, salt workers cannot be cremated after they have died, because the salt harms their skin so badly that it is not able to burn. Nevertheless cremation is a must for Hindus. 208 Tata thinks of working together with SSI as well. They believe that the quality problem was possible to overcome


84

extremely important, especially for the BOP consumers, that salt has been produced locally. Other

locations where such options can be taken are Tuticorin in Tamil Nadu, Tada in Andhra Pradesh, and

Sambalek in Rajasthan209.

Obviously starting up something new is real challenge, because you do not know if things are working

the way you have planned it. Most important regarding DFS production is to be sure that the premix

can be added to the quality of salt produced by these small scale producers from a technological point

of view. If this is not satisfying there is no chance of making this initiative succeed. Another point of

interest is that decentralized production might lead to sourcing problems, because the company needs

to deal with more stakeholders which all bring small amounts of salt to the refinement center.

Consequently there is more time needed between obtaining and processing210. Different from using

small scale entrepreneurs only for distribution is that you are not sure that you can pay their salary,

because it is uncertain if there is a market. It is crucial however, that you can pay their salary every

month. Much investment is needed to get everyone on speed. If a company starts to get involved in

reaching the BOP from the BOP, it is forced to deal with stakeholders that it has never done before. It

took HUL three to four years to gain the capabilities to collaborate with NGO’s. A last point of interest

is that the current Sabras model is constrained by management capacity. Former NGO people

participate in this organization and they generally have a typical NGO mindset which is opposite to a

business mindset211.

Obviously prices and product need to be adapted to the preferences of the BOP. This probably results

in crystal salt in smaller packages at affordable prices, just like the marketing mix for the urban BOP

described in paragraph 8.4.6. A lot of BOP consumers think in absolute prices, which makes smaller

packs more attractive. There could also be an option to produce a big bag of salt for a village. The

villagers can arrange together how much everyone gets. The loose salt has the advantage that it can

be purchased in variable quantities depending upon ones needs and capacity to spend.

Concluding, the cooperative model enterprise holds an important key in unlocking the vast and

scattered resources of rural India and transforming the face of the rural economy. It is currently not

possible to sell DFS to 4th tier BOP consumers unsubsidized. Until the moment it is viable Akzo Nobel

can charge extra from the rich with the TOP product and subsidize the salt aimed at the poor. Given

the current financial and organizational status of Akzo Nobel Salt Specialties this is as yet a step too

far ahead.

8.6 Financial forecast

Given the current situation of ANSS selling the premix is the best option from the perspective of

ANSS, because it requires minimal investment and resources and could bring substantial revenues for

both ANSS and Chelates, depending on what can be realized in the Indian market. If Akzo Nobel

chooses to sell its premix to one of the big brands and these companies are as ambitious as HUL in

209 Rajeeb Kumar Dash, ex-Tata Salt told me that Tata wants to start producing in these four locations once they have cracked the DFS technology. 210 Mr. Girish, Commercial Director of Friesland Foods told me that they faced similar problems when they needed to decide to enter the Indian market. 211 Amongst others Lino Camponovo, MD of Intervet India, told me that this is constraint must be taken seriously. You definitely should keep tight control and change this attitude.


85

converting iodized salt into DFS this means that after five year x of salt will be fortified with iron and

iodine simultaneously as you can see in table 8.3. This means that in 2012 approximately x tons of

premix is required. If the contribution margin for ANSS is for instance US$ x per ton profitability will be

around US$ x per annum. The only investments needed are efficacy study

costs of $x and patent costs as well as costs for keeping relationships warm212. At this moment it is

impossible to give a proper figure on profitability of the entering-the-market-with-a-brand-option. Figure

8.3, however, shows that profitability rates can be quite high depending sales volumes. Investments in

terms of money and people also are a bit higher than the former option.

8.7 Replicability Just as a financial forecast it is very difficult to predict if the business model that should be used in

India is replicable and transferable to other countries. The conventional market model will possibly be

easiest to implement in other countries where this market structure has been developed. Regarding

the “from the BOP to the BOP business model” it is hard to pronounce something meaningful.

Nevertheless, the knowledge gained in India can be rapidly transferred to other emerging markets, as

demonstrated by companies like Unilever and P&G.

8.8 Market entry mode The central managerial trade-off between the alternative modes of market entry is that between risk

and control. On the one hand low intensity modes like contracting with a distributor or agent minimizes

risk, because it does not require investment in sales offices, distribution facilities, personnel or

marketing. Tight control, on the other hand, by e.g. setting up a subsidiary or a joint venture requires

greater investment, thus high risk. According to Susan P. Douglas and C. Samuel Craig a companies

that are doing business in foreign markets follow a similar pattern through different phases, shown in

figure 8.3. Typically a company enters with a low commitment market entry, in which the MNC seeks

incremental sales with minimum investment. Actually the company is testing the market in the first

212 E.g. developing and printing brochures of DFS for public officers and other interested parties

Year Volumes DFS production in tons

Tons of premix required

Profitability in US$

1 X X X 2 X X X 3 X X X 4 X X X 5 X X x

Table 8.3: Akzo Nobel’s profitability for supplying premix to HUL


86

phase. Thereupon a new phase of intensified local marketing activity to develop business and

maximize performance within the country begins. Finally companies consolidate national units into a

more integrated and efficient global marketing organization. This is called the “Increasing commitment”

pattern of market penetration213. Despite many organizations choose for a low risk market entry mode,

which does not need big investments initially, this might turn out to be very expensive, since the

company has little involvement in marketing, and thus completely relies on its local partner. This local

partner might have completely different ideas about marketing the product than the MNC, which could

result in underperformance. The fact is that control only comes from involvement, and involvement

only comes from investment. Akzo Nobel should keep this in mind when balancing the long term

objectives it has set with entering a market by preparing a development plan at the time of entry.

213 Arnold, D. (2003)

Figure 8.3: The market entry mode decision


87

Chapter 9 Impact of Business Model Implementation________

The intention of ANSS is to build up business in India in such a way that both organization and society

benefits. In a few months a lot has changed for ANSS with regard to market opportunities in India and

the status of the sBU. The interest of HUL in the DFS concept has temporarily faded out and the

company has gone through reorganization and currently has little resources available for great-scaled

projects. Due to the fact that ANSS is a roadmap business it must generate revenues on the short

term and therefore priorities are set differently than it would have if the situation was different. The

advice on the business model that should be used was simple: try to become a premix supplier of one

of the national brands and/or enter the market as a brand holder aiming at the urban middle and upper

class and tie up with several organizations while using the traditional market distribution model. The

former option will hardly have an impact on the organization, but the company indirectly contributes to

the elimination of IDD and IDA. The latter option will have the biggest impact on both organization and

society. Hence, the impact of this will be elaborated in more detail.

First, implementation of this business model will have an impact on society and Indian society in

particular. The aim is to help eliminate the health problems mentioned earlier. If Akzo Nobel can reach

a sales volume of xtons DFS after five years as was discussed in the previous chapter, and assumed

is that average salt consumption is x grams per day, it should benefit approximately x people per year.

Moreover, Akzo Nobel Salt Specialties will create direct and indirect jobs in the target country, pay tax,

and do business in an ethical way. By doing business in an ethical way Akzo Nobel co-creates a

standard together with other organizations applying the same standards. This will have an enormous

effect on the way Indian companies do business in the long run214.

Second, the implementation will have an effect on Akzo Nobel itself. Currently it is not known where

this project will be accommodated, whether it stays at ANSS, it goes to Chelates, or perhaps to the

Innovation Unit. Until then it is impossible to assess what will happen with the personnel that currently

work on this project. However, setting up a new business in a country like India is challenging. Thus,

for employees of Akzo Nobel this project could offer great opportunities. Since Akzo Nobel must keep

pulse on the consumer and learn how to do business in India Akzo Nobel must set up a directly

controlled sales and marketing subsidiary in India eventually. This usually involves placing one or two

appropriately qualified executives in India alongside the local sales and distribution partner.

Consequently the organization structure becomes more complex as well as communication between

employees in different countries.

Moreover, Akzo Nobel needs to build capabilities to work with organizations with whom they have not

been involved with, such as the governments, NGOs, and GOs. This requires mental mapping. People

who are open-minded, entrepreneurial, determined, innovative, and eager to learn are needed. In

India things are going differently and probably take more time. Akzo Nobel employees should be

aware of that and adapt in order to become effective.

214 In India we have already seen a shift in less working hours per week and working conditions improvement because international companies set a good example to others: Lino Camponovo, MD of Intervet


88

Chapter 10 Conclusions and Recommendations______ 10.1 The opportunity

Clearly, there is a business opportunity for Akzo Nobel for DFS in India! The Indian edible salt market

holds tremendous potential to grow and offers many opportunities to get a share of the pie. The iodine

deficiency and anaemia rates in India continue to be very high and basically all parts of society are

affected. The Indian government acknowledges these health problems and is determined to solve

them, partly due to it is recognized that development of the country depends on the national health

status. Fortunately the (middle and upper class) population is increasingly aware of health issues and

consider a healthy lifestyle important. Responding to these needs benefits both society and the

company. This is completely aligned with Akzo Nobel’s CSR policy. Besides revenue and profitability

growth potential, participating in the Indian edible salt business as the first foreign multinational

company increases its reputation to the Indian government and helps the company to learn how to do

business in developing countries which might increase its innovativeness. The knowledge gained in

India could rapidly be transferred to another emerging market

10.2 How to respond to the opportunity?

Akzo Nobel can respond to the active call of the government and market players by trying to sell the

premix to the current national brands, and by entering the market with a brand. The first option

obviously is the easiest one. Because little resources are required and it could be quite profitable, this

seems the most appropriate option for ANSS given its current financial and organizational status.

Participating in the edible salt market as a brand holder might be very profitable. However, setting up

an organization on its own seems to be a mission impossible. Akzo Nobel should tie up with several

partners and leverage their strengths and exploit its own strengths. Because over x people middle and

upper class people can be reached through the traditional market distribution model, this seems to be

the best option. The (semi)urban BOP people can also be reached through this channel. Akzo Nobel

could create consumption capacity for this segment by adapting its value proposition, e.g. offering

smaller but affordable packages. Critical success factors in the Indian salt market are distribution,

price and communication. Since the country is very large and salt for the entire country is produced in

three states, transport costs account for a major share of total costs. Hence, if the company decides to

enter the market it needs to source salt from more than one location in the country. Furthermore, the

DFS market has not yet been created. The population needs to be educated about iron anaemia and

how to prevent from it first. These factors combined with a very price sensitive market, especially for

the consumers with an average or below average income, make it extremely important that Akzo

Nobel engages with partners that are strong in distribution, education, and are trusted and recognized

by the potential customers. The actors that have legitimacy are mainly governments, multilateral

organizations, and NGOs, and they have the best knowledge of the localities. These parties can

create health awareness as well as brand awareness. Notwithstanding the choice Akzo Nobel makes

of how to respond to the needs of the market, the company should definitely adapt its product mix to

the local preferences and education level. European standards are definitely not consonant with Indian

preferences.


89

10.3 Requirements Grabbing the opportunity and building sustainable business in India is not as easy as it seems. Many

hurdles have to be taken and the company must have a realistic view on what is required. Moreover, a

company needs to perform on different fields simultaneously. Before Akzo Nobel can enter the market

at all, the government and market players need to be convinced of the concept. Convincing the

government is crucial for Akzo Nobel, because if the standard on DFS does not approve Akzo Nobel’s

concept, it is not anymore necessary to consider how to participate in the market215. Despite being on

a threshold of a ‘boom’ of iron fortified salt, the market for DFS needs to be created. The market

definitely holds potential, but the commercialization of a concept like DFS requires a long term

orientation and power of endurance of companies that eventually want to make money in this

emerging country. Akzo Nobel should not expect big sales and income on the short term. Doing

business is something else than doing business in Europe. Amongst others stakeholder groups and

their importance completely differ. All these reasons require a shift in mindset and a dynamic CSR

policy: from short term money generation by keeping margins high and dealing with known

stakeholders to a long term oriented, low margin, high volume game with many unknown stakeholders

and a poor population. Consequently managers from a company that want to enter such a market

must understand that deep listening an mutual learning are necessary if products and services are to

meet real needs. Moreover, innovative entrepreneurship, creativity and focused action are required to

find a business case in a developing country. CSR policy must be dynamic, because it needs to adapt

to the local environment. Fringe stakeholders need to be engaged in strategic and operational

management.

10.4 Recommended actions and studies Since the commercial potential is high as mentioned above, Akzo Nobel should not be deterred too

easily, because of the many actions that have to be taken in order to enter the market. Rather, the

DFS project should not blow over! Due to a lack of resources and perforce prioritization on short term

revenue generating projects, it is hard for ANSS to keep the project alive alone. Consequently, for the

sake of the project it is recommended to accommodate it in sBU Chelates or try to get it financed by

the Corporate Innovation Unit. Moreover, Chelates’ interest is larger than ANSS’s, because of different

cost structures and contribution margins. For them there is a business case now. For ANSS on the

other hand, there is a potential business case. Besides deciding where to accommodate the project,

the project can only be continued if the government is convinced that the Akzo Nobel concept must be

approved. This requires amongst others conducting an efficacy study in India. Since this is crucial for

success in India and an efficacy trial with DFS combined with acceptance and field stability tests take

approximately 18 months, this must be started as soon as possible216. Convincing the Indian

government cannot be done without showing you face. These public officers are set on receiving

important guests that could help them solve some of their problems. Besides Deepak Pandhi, who is

visiting the public officers, it is recommended that from time to time a foreign delegation accompanies

him. The other market parties can also influence the government in its decision on setting a DFS

standard. Therefore Akzo Nobel must position its DFS concept in key meetings or seminars with

215 However, this is true from a Western point of view. In India there is room to work in a grey area, as the HUL example with dry mixing Ferrazone shows 216 A proposal of ETH Zürich has been received recently. Costs are EUR 130,000


90

various stakeholders. It is of paramount importance to make flyers or brochures of the DFS concept as

well. This will definitely help in convincing people of the concept. Brochures are also needed for the

partners that will create awareness amongst the population. It is crucial to include the community’s

perception of the benefits of DFS as well as their concerns regarding the discolouration of the food

after using DFS.

In the meantime funds are needed for technical support, for experimenting with lower grade salt,

because this makes our product more interesting to the major players. If the premix can be mixed up

properly with lower grade salt, Akzo Nobel can provide major players a competitive advantage,

because then it might be possible for them to focus on the 4th tier BOP217. As was mentioned in

chapter 7 in India salt is added during the cooking process. The impact of the DFS in this condition will

have to be evaluated thoroughly. Also other marketing aspects need to be considered, such as

identifying business partners and funding agencies, and a thorough segmentation study needs to be

conducted in order to identify in which state Akzo Nobel should start doing business. If Akzo Nobel is

convinced that they want to start up a business in India they should also focus a study on the

production side. How high are investment costs, where should the premix be mixed with local salt, and

what role should be granted to Akzo Nobel in this production process.

10.5 Recommendations BOP option Although the option to serve the BOP is not (yet) feasible, introducing this concept, to which

production from could possibly be added, must be done very carefully. The concept is a sensitive

subject within Akzo Nobel, because it has been introduced in vain twice. Hence, if such an option will

be feasible in the future, Akzo Nobel must make an own label of the concept formerly known as BOP.

Is Akzo Nobel brave and wise enough to grasp this opportunity and accept the challenge of the future?

217 As mentioned in chapter 7, lower grades of salt: “unrefined crystal salt” is eaten a lot in Rural India


91

Review________________________________________________

During the time I worked on this assignment I obviously had two goals: helping Akzo Nobel understand

the Indian retail salt market and advising them how to make money with their DFS concept. Despite

focusing on the retail market for a human consumption salt I kept my eyes and ears open for other

opportunities that arose as well. For instance I was exposed to people who gave me information on

another market that could be interesting for Akzo Nobel Salt Specialties: the salt licks market. I have

revealed an off-spin opportunity with Intervet, Akzo Nobel’s subsidiary that manufactures animal health

products. Intervet currently works together with one of India’s biggest NGO’s BAIF, who distribute their

products to x of small farmers. Intervet is looking for a partner to expand their product portfolio. ANSS

could be that partner by providing them salt licks218. From a practical point of view I believe I have

added great value by given insight in the Indian edible salt market, advising on the business model

that should be used, and by revealing an off-spin opportunity.

In this section the actual research will be subjected to a review. What are the constraints of the study?

Notwithstanding the fact that the research has strong points, such as the extensive qualitative and

quantitative data obtained, and the integration of theoretical, internal and external analyses, the

research is not without constraints.

In the first place the complexity of the market has made it hardly possible to work out a business

model in sufficient detail. Due to a lack of time and resources it was not (yet) possible to take evident

steps in the process of developing an appropriate business model. One of the major flaws is that the

Segmenting, Targeting, Positioning219 analysis has not yet been carried out. Also a more detailed

analysis on the production side is crucial in this respect.

As mentioned in chapter 2 a remark must be made to the method of analysis of the results of both the

qualitative and quantitative data. Despite measures that have been taken to diminish researcher’s

bias, this has proved to be not completely possible. The impressions and feelings of the researcher

will undoubtedly have played a role when interpreting these data. By following stricter methodological

rules for gathering data and interpreting this data, the influence of the researcher’s judgment could

have reduced.

The last comment that needs to be made is that the sample is probably not representative for the

entire Indian population. It has become clear that the States all have their own characteristics and that

it is hardly possible to view India as one homogeneous country.

218 According to dr. Hegde, president of BAIF, the cattle market will grow at enormous pace in the next twenty years 219 Coughlan, A.T., Anderson, E., Stern, L.W., and A.I. El-Ansary, (2006)


92

Bibliography___________________________________________

Books and articles 1. Ahmad, P.S. and J. Mead (2004): “Hindustan Lever Limited and Project Sting”, Darden

Business Publishing, University of Virginia 2. Arnold, D., (2003): “Strategies for Entering and Developing International Markets”, Financial

Times Prentice Hall, October 17th 3. Baan, J. (2005): “De weg naar marktleiderschap”, Prentice Hall, Amsterdam 4. Baarda, D.B. and M.P.M. de Goede (2001): “Basisboek Methoden en Technieken”, 3e druk,

Stenfert Kroese, Wolters Noordhoff, Groningen/Houten, The Netherlands 5. Balakrishna, P. and B. Sidharth (2004): “Selling in rural India”, The Hindu Business Line, 16

February 6. Beshouri, C.P., (2006): “A grassroots approach to emerging-market consumers”, McKinsey

Quarterly 7. Bijoor, H, (2006): “A market in waiting”, The Hindu Business Line, 17 August 8. Bodegom, van, R., (2006): De consument als respondent, Tijdschrift voor marketing,

november 9. Boyer, N. (2003): “The Base of the Pyramid, Reperceiving Business from the Bottom Up”,

Global Business Network, San Fransisco 10. C.M. and M.E. Raynor, (2003): “The Innovator’s Solution, creating and sustaining successful

growth”,Harvard Business School Press, Boston, Massachusetts, USA 11. Coondoo, D., Majumder, A. and R. Ray (2001): “On a Method of Calculating Regional Price

Differentials with Illustrative Evidence from India”, http://rspas.anu.edu.au/papers/asarc/coondoo.pdf

12. Corbridge, C., Rugg, G., Major, N., Shadbolt, N. R. and A. Burton, (1994): “Laddering: Techniques and Tool Use in Knowledge Acquisition”. Journal of Knowledge Acquisition 6, p. 315-341.

13. Coughlan, A.T., Anderson, E., Stern, L.W., and A.I. El-Ansary, (2006): “Marketing Channels”, 7th Edition, Pearson Prentice Hall, Upper Saddle River, New Jersey

14. Cramer, J., and R. Porte, (2005): “De lokale economie van ontwikkelingslanden”, Igitur - Utrecht Publishing & Archiving Services, Utrecht

15. De Soto, H., (2003): “The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else", Bantam Press, Transworld Publishers, London

16. Fein, A.J. (2004): “The Road to Opportunity in Wholesale Distribution”, Pembroke Consulting 17. G.C. Lodge, C. Wilson, Multinational Corporations: A Key to Global Poverty Reduction – Part

I, 2006, YaleGlobal Online 18. Groot, de, A.D., (1961): “Methodologie, grondslagen van onderzoek en denken in de

gedragswetenschappen”, Mouton, Den Haag, Mouton Den Haag, ISBN 9027977216 19. Hagel III, J. and M. Singer (1999): “Net Worth: Shaping Markets when Customers Make the

Rules”, Harvard Business School Press, Boston 20. Hardy, K.G. and A.J. Margrath (1988): Marketing Channel Management: Strategic Planning

and Tactics”, Scott, Foresman and Company, Glenview, USA 21. Hart, S.L., (2005): ‘’Capitalism at the Crossroads: The Unlimited Business Opportunities in

Solving the World's Most Difficult Problems‘’, Pearson Education Inc., Wharton School Publishing, Upper Saddle River, New Jersey

22. Hitt, M.A., Ireland, R.D. and R.E. Hoskisson (2003): “Strategic Management: Competitiveness and Globalization”, South-Western, a Thomson Business Press, South Western

23. Homburg, C. and H. Krohmer, (2003): “Marketingmanagement, Strategie, Instrumente, Umsetzung, Unternehmensführung”, Dr. Th. Gabler/GWV Fachverlage GmbH, Wiesbaden, ISBN 3-409-12515-9

24. Huizngh, E., (2003): “Inleiding SPSS 11.0 voor Windows and Data Entry”, Academic Service, Schoonhoven

25. Johnson, K. (2005): “Selling to the poor”, Time, 6 June 26. Karnani, A., (2006): “Fortune at the Bottom of the Pyramid: A Mirage”, Ross School of

Business, Michigan 27. Karsten, L., and M. Diepenmaat (2006): “Customer Relationship Management: introducing a

popular management concept in the Russian transportation business” 28. Kawamura, M., (2003): “Japanese Companies Launch New Ear of CSR in Management in

2003”, NLI Research, August 6th 29. Ketelaar, E. and J. Reinhoudt (2006): “MVO draagt bij aan reputatieverbetering en

waardecreatie”, Management Executive, september/oktober 30. Kotabe, M., and K. Helsen (2006): “Global Marketing Management”, John Wiley & Sons, INC


93

31. Kotler, P (2005): “Principles of Marketing”, Prentice Hall, London 32. Kotler, P. (1997): “Marketing Management: Analysis, planning, implementation and control”,

Prentice Hall, Englewood Cliffs, NJ 33. Kreitner et al (2001): “Organizational Behaviour (first European edition), McGraw-Hill

International, Berkshire 34. Kurlansky, M., (2003): “Salt, a World History”, 35. Leeuw, de, A.C.J. (2004): “Bedrijfskundig Management, Primair process, strategie en

organisatie”, Van Gorcum, Assen 36. Lyons, G., Stangoulis, J. and R. Graham (2003): “Nutriprevention of Disease with High-

Selenium Wheat”, Journal of Australasian College of Nutritional & Environmental Medicine Volume 22 No. 3, December

37. Malik, G. (2006): “An examination of the relationship between health and economic growth”, Working Paper No. 185, Indian Council for Research on International Economic Relations (ICRIER)

38. McDonough, W. and M. Braungart (2002): “Cradle to Cradle: Remaikng the Way We Make Things”, North Point Press, New York

39. Minto, B.(2002): “The Pyramid Principle”, 3rd Edition, Prentice Hall, London 40. Mooij de, M. and G. Hofstede (2002): “Convergence and divergence in consumer behaviour:

implications for international retailing” , Journal of Retailing, Pergamon 41. Mϋhlbacher, H., Dahringer, L. and H. Leihs (2006): “International Marketing”, Thomson

Business Press, South Western 42. Oburai, P. and M.J. Baker (2005): “International Marketing Strategies in India: An Application

of Mixed Method Investigation”, Vikalpa Volume 30, nr. 4 October-December 43. Osterwalder, A., Pigneur, Y. and C.L. Tucci (2005): “Clarifying Business Models: Origins,

Present, and Future of the Concept”, Communications of AIS, Volume 15 44. Paul, J.C.L., Gils van, M.R., Karsten, L., Offenbeek van, M.A.G. and J. de Vries, (1999):

“Organisatie en Gedrag”, 1e druk, 3e oplage, Kluwer, Deventer, The Netherlands 45. Perlitz, M., (2004): “Internationales Management”, 5th Edition, Lucius & Lucius

Verlagsgesellschaft mbH, Stuttgart 46. Prahalad, C.K. (2000): “India as a Source of Innovations”, Michigan Business School 47. Prahalad, C.K. (2006): “The Fortune At The Bottom Of The Pyramid: Eradicating poverty

through profits”, Pearson Education Inc., Wharton School Publishing, Upper Saddle River, New Jersey

48. Prahalad, C.K. and A. Hammond (2002): “Serving the world’s poor profitably”, Harvard Business Review

49. Prahalad, C.K. and S.L. Hart (2002): “The Fortune at the Bottom of the Pyramid”, Strategy + Business

50. Rolnicki, K. (1998): “Managing Channels of Distribution: The Marketing Executive’s Complete Guide”, American Management Association, New York, USA

51. Roy, A.S. (2006): “Training managers for rural markets”, The Hindu Business Line, 12 June 52. Saunders, M., Lewis, P. and A. Thornhill (2003): “Research Methods for Business Students”,

Pearson Education Limited, Harlow, England, Third Edition 53. Sinha, R.P. (1966): "An Analysis of Food Expenditure in India", Journal of Farm Economics,

Vol. 48, No. 1 pp. 113-123 54. Virmani, A. (2006): “Poverty and hunger in India: what is needed to eliminate them”, Working

Paper No. 1/2006-PC, Planning Commissioner, The Government of India 55. Weill, P., Malone, T.W., D,Urso, V.T., Herman, G. and S. Woerner (2005): “Do Some

Business Model Perform Better than Others? A Study of the 1000 Largest US firms”, MIT Sloan School of Management working paper No. 226, Massachusetts

56. Wit de, B. and R. Meyer, (2004): “Strategy: Process, Content, Context”, 3rd Edition, Thomson Learning, London

Reports

1. Jaarverslag Akzo Nobel N.V. 2006 2. The World Factbook 3. UNAIDS, 2006 Report on the global AIDS epidemic 4. NACO (April 2006), HIV/AIDS epidemiological Surveillance & Estimation report for the year

2005 5. Akzo Nobel’s CSR Report 2005 6. Procter & Gamble (2005): “Combating Hidden Hunger” 7. National Commission on Population of India (2006): “Population Projections” 8. Asian Development Bank (ADB) publishes Annual Report 2006 9. ICFAI (2005): Branding Commodity Product – Indian Salt Industry


94

Websites

1. http://www.whartonsp.com/promotions/promotion.asp?promo=2914&rl=1#pdfs 2. http://india.gov.in/outerwin.htm?id=http://www.ibef.org 3. http://nl.wikipedia.org/wiki/India 4. www.evd.nl 5. http://www.unicef.org/nutrition/files/SOWC06_Table2.pdf 6. www.adb.org 7. http://www.changemakers.net/library/temp/fortunepyramid.cfm 8. http://news.bbc.co.uk/2/hi/business/5405438.stm 9. www.indianspices.nl 10. www.ifoam.org 11. www.spizes.com 12. www.foodingredientsonline.com 13. http://www.thehindubusinessline.com/2004/02/16/stories/2004021600160900.htm 14. http://web.worldbank.org 15. http://www.aidsmap.com/en/docs/3E23470B-C8EF-40E5-AE3E-C63AA1AC0722.asp 16. http://www.avert.org/aidsindia.htm 17. http://www.unaids.org/en/HIV_data/2006GlobalReport/default.asp 18. http://data.unaids.org/pub/GlobalReport/2006/2006GR-PrevalenceMap_en.pdf 19. http://www.censusindia.net/ 20. https://www.cia.gov/cia/publications/factbook/index.html 21. http://www.avert.org/aidsindia.htm 22. http://www.maps.com/ref_map.aspx?nav=RM&cid=694,721,732,806&pid=12089 23. http://www.gbn.com/ 24. http://www.census.gov 25. http://mospi.nic.in/ 26. www.hll.com 27. http://www.avert.org/indiaaids.htm 28. http://mkaccdb.eu.int 29. www.duurzaam-ondernemen.nl 30. http://www.trade-india.com/ 31. http://www.phptr.com/articles/article.asp?p=101588&seqNum=4&rl=1


95

Interview

Name Organization Function Contact details

1 Prof. Arunachalam University of Madras

Professor Economics

2

Mr. Vijay Kumar Netherlands Business Support Office Chennai

Chief representative Netherlands Business Support Office, Chennai 203, Sigma Wing, Raheja Towers,177, Anna Salai, Chennai - 600 002 INDIA. Tel: 0091-44-2860 1640, 4215 8388 Fax: 0091-44-2860 3641 E-mail: [email protected]; [email protected]

3 Mr. A. Albert Stephen, Mr. A.R. Gauthaman,

Cygnus Business Development Executive

No.1 Nadamuni Street, OMS Court, 3rd floor, T.Nagar, Chennai- 600 017, tel.044-42122168, mobile: 9840393555

4 Mr. Deepak Pandhi Akzo Nobel 5 Mr. Premchand 6 Ms Malavika Kumar Sundar

Chemicals Manager Technoilogy

7 Tamil Nadu Salt Corporation

8 mr. Kasiraman Tuticorin Salt & Marine Chemicals (TSMC)

9 Mr. Michael Mota Sahayamata Chemicals Company

M # +91+94431 52990 Tel # +91+461+2320089 Tuticorin, Tamil Nadu

10 Ms. Malavika Kumar Sundar Chemicals

11 Mrs. Priadarshini Muley-Lotankar

DSM Head Nutrition Improvement Program India

12 Mr. Bansal Dutch Consulate in Mumbai

13 Mr. Anil Sinha and mr, Arvind Chaudhary

Reliance Chief Manager Maker Tower E, 8th Floor, Cuffe Parade, Mumbai, 400005, direct: +91 22 40613284, mobile:+91 9867620126, [email protected]

14 Dr. Lino Camponovo - Managing Director Mr. Sushil Nimse - Executive Director Mr. Trideep Chowdhury - General Manager - HRD Dr. Tarun Pal - Senior Marketing Manager Dr. Ravi Kumar - Marketing Manager - poultry Mr. Ashok Hegde - Key Account Manager

Intervet Managing Director Intervet House, 33, Pune-Nagar Road (Behind Eden Gardens) Pune – 411014, India

15 dr. Narayan G. Hegde BAIF President Dr. Manibhai Desai Nagar, N.H. 4, Warje, Pune 411058 Phone: 02025231661, email:[email protected]

16 dr. Isha Prasad Bhagwat Unicef Consultant

17 Mr. D.S. Jhala and mr. Nair

President Mr.D S Jhala, President ISMA M # +91 98252 11779 (preferred contact number) Tel # +91 288 2754126 email : [email protected] email (personal) : [email protected] / [email protected] Contact : Mr.Madhu Nair Tel : +91 22 2202 1283 email : [email protected] Address : 55A Mittal Chambers, Nariman Point, Mumbai.

18 Ms. Daphne Nair Tata Salt Marketing Manager 19 Mr. Rajeeb Kumar Dash THDC Ltd. A

Tata enterprise Senior Manager Marketing Services

City Ice building, 2A, 2nd Floor, 298, Perin Nariman Street, Fort, Mumbai, 400001, tel. 66614500, fax. 66614550, direct. 66614540, [email protected]

20 mr. Vijay Sharma Hindustan Lever Limited

Head of Shakti project HLL

21 mr. Ashish Marico Manager Salt 22 mr. Sathyapal Jayapal

(deceased) Micronutrient Initiative

The Micronutrient Initiative (MI) 11, Zamroodpur Community Centre, Kailash Colony Extension, New Delhi - 110 048, INDIA Tel : 91-11-41009801 to 07, Extn.212 Cell : 91-9350159524 Fax : 91-11-41009808 Sathyapal Jayapal Programme Manager - IDD (Asia Region) E-Mail : Error! Hyperlink reference not valid. & Dr.Saraswati Bulusu [email protected]

23 Werner Schultink Unicef UNICEF Werner Schultink Chief, Child Dev. & Nutrition Section United Nations Children's Fund India Country Office (UNICEF) Unicef House, 73 Lodi Estate New Delhi, 110 003 INDIA New Delhi 110 003 INDIA +91-11-24606590 +91-11-24627521, 24691410 [email protected] www.unicef.org

24 Mr. Arindom Datta / mr. S Venkatraman

Rabo India Financing

Director Strategic Advisory Food & Agribusiness / Director & Head, F&A strategic advisory / research Western & Southern Region

Rabo India Finance Limited 1-A, Janpath New Delhi, 110001, India Telephone: 91 11 23792588 Mobile: 09810708811, [email protected] / Forbes Building, 2nd Floor, Charnajit Rai Marg, Fort, Mumbai, 400001, Tel: 91 22 22034567, [email protected]

Appendix I The interviewees: an overview


96

25 mr. Chaman Kumar Government of India

Joint Secretary, Ministry of Human Resource Development , Department of Women & Child Development

Department of Women & Child Development (WCD), Ministry of Human Resources, New Delhi Chaman Kumar Shastri Bhawan, Dr. Rajendra Prasad Road New Dehi, 110001 India. New Dehi 110001 India. +91-11-23386227 +91-11-23381800 [email protected]

26 ms. Rekha Sinha ILSI Executive Director Y-40 B, First Floor Hauz Khas New Delhi - 110 016 Telefax : 91-11-26523477 / 26968752 [email protected]

27

Mr. Viraf Mehta, Dr. Shatadru Chattopadhaya

Partners in Change

Chief Executive, Senior Program Manager

C-75, South Extension Part-II, New Delhi-110049 India, T# +91 11 41642348-51, M# +91 11 41637379

28 Mr. Shankar American India Foundation

29 Dominique Frankefort WFP Deputy Country Director

World Food Program, New Delhi 2, Poorvi Marg, Vasant Vihar New Delhi, 110057 India. New Delhi 110057 India. +91-11-26150000 +91-11-26150019 [email protected]

30

Rajesh Shah

31 Drs. Gauri Wagenaar Netherlands Business Support Office, Ahmedabad

Chief representative 31, Shrimali Society, Opp. Police station, navrangpura, Ahmedabad, 380009, tel: +91 792644958, [email protected]

32 dr. M.R. Gandhi, CSMCRI Scientist G.B. Marg, Bhavnagar, 364002, India. Tel: 0278-2566547, [email protected]

33 S.K. Nanda Government of India

Principal Secretary, Food, Civil Supplies and Consumer Affairs Department

34 S.A. Dula Government of India

GM Industrial Extension Bureau

35 ms. Indu Capoor Chetna 36 Dr. Laxmi Government of

India Deputy Salt Commssioner

37 mr. Sedai en mr. K.K. Jand

Nirma Vice President and Marketing Director

Nirma House, Ashram Road Ahmedabad: 380009. Tel. 079 27546565-74, direct: 079 27540244, Mobile: 09825019961, [email protected]

38 mr. Sunderesan Government of India

Salt Commissioner S. Sundaresan Salt Commissioner Govt. of India, Ministry of Commerce & Industry Deptt. of Industrial Policy &


97

Promotion Lavan Bhawan, 2A, Lavan Marg, Jhalana Doongri, Jaipur-302 004, Rajastan, India. +91-141-2705571 / 2709568 (0) +91-141-2705571 [email protected]

39 mr. Saboo Surya Salt Managing Director 40 mr. Ponnuchamy Hindustan Salt

Ltd. Managing Director

41 Mr. Shrikant Kulkarni Akzo Nobel Chemicals

President Akzo Nobel Chemicals India Ltd. 401, 4th floor, century arcade, narangi baug road, Pune – 411001, tel: +91 2026125822, Mobile: +91 9850095556, [email protected]

42 Toine van der Berk DSM Senior Sourcing Analyst Indirect Spend

43 Manon Thijssen DSM Manager Nutritional Products

44 Sofie Tolk and Frannie Flinterman-Rolff

Fenedex Accountmanager Fenedex Raamweg 14, 2596 HL DEN HAAG Postbus 90409, 2509 LK DEN HAAG Tel: + 31 (0)70 330 56 00 Fax: + 31 (0)70 330 56 56 E-mail: [email protected]

45 Mr. Ashok C. Kaushik Indian Embassy

Marketing officer Embassy of India, Buitenrustweg 2, 2517 KD The Hague. Tel: 070-3469771; Fax: 070-3462594

46 Erik van Dam Triple Value Strategy Consulting

Partner

47 Mr. Latshimi Girish Royal Friesland Foods

Commercial director

48 Mr. Jilis van Delsen EVD Accountmanager India

(070) 778 8864

49 Dr. Klaus Kraemer Sight & Life Secretary-general Tel.: +41 61 688 7494 50 Sophia S.Y. Ho Asian

Development Bank

Deputy resident director, European representative office

Rahmhofstrasse 2, 60313, Frankfurt am Main, Germany, tel: +49 6921936414, fax +49 6921936444, [email protected]

51

Dave Maggs

Akzo Nobel

Manager Technology, Engineering, Chairman BOP Task Force

Mobile: +31 612961695, email: [email protected]

52 Mr. Tirath Gambhir Bombay General Stores

Owner of supermarket

53 Mr. André Veneman Akzo Nobel 54 Mr. Rob Regoort Akzo Nobel Director CSR

Chemicals

55 Ir. G.J. Stokkers Akzo Nobel Manager AN Process & Manufacturing Consultancy

56 Ms. Catherine Doody Ms. Ammarens Bruggenkamp –

Worldbank Advisor & WB/AIDB Liaison, Royal Netherlands Embassy

57 Mr. Justus de Jong Akzo Nobel BU Manager QHSE 58 Mr. Klaas Leeuw Akzo Nobel Technical Business


98

RespondentsExperts 29Akzo Nobel 10DSM 3CSMCRI 1NBSO 3Triple Value 1Cygnus 1Rabo 2Fenedex 1EVD 1Indian Embassy 1Friesland Foods 1Development Banks 2Salt Associations 1University of Madras 1Technology developers 1Micronutrient Inititative 1Salt manufacturers / Brand owners 14Tata 3HUL 2TNSC 1TSMC 1HSL 1Surya Salt 1Sundar Chemicals 2Sahayamata Chemicals Company 1Sabras 1Marico 1Government 5Salt commissioner 2WCD 1Industrial Extension Bureau 1Food, Civil Supplies and Consumer Affairs Department 1NGO's 8Unicef 2WFP 1BAIF 1ILSI 1Partners in Change 1American Indian Foundation 1Chetna 1Intermediaries 50Reliance 1Bombay General Stores 1small shops and wholesalers 48End-consumers 1555

Development Manager Salt Specialties

59 Mr. Cees Schut Akzo Nobel Senior Account Manager Sales Salt Specialties


99


Business Model Development

Implementation

Social problem

Technical solution

Yes

Country selection

India

No

South Africa

Selection of business model

• Market research • Business Case

Development

Sell product via Health

organizations

Sell concept in form of licensing

contracts

Produce end-product in Holland and sell it in IND and S-A

Produce premix in Holland and add salt and sell it in IND and S-A

Mix form

Finance business model

Implementationof business

model

Appendix II Overview of the various phases in the DFS project

Idea generation & broad

concept outline

Deliverable: NBD idea

Market/ technical research, objective/ strategy

determination

Deliverable: NBD business

plan

Go No go

decision

Execution & implementation

Deliverable: negotiated NBD

venture

Start-up & live business

Deliverable:

live business and generating new turnover

Phase 1 Phase 2 Phase 3 Phase 4

New business development approach


100

Salt manufacturer

Wholesaler End consumer Supermarket, grocery shops

Distributor

• Who are competitors? • Volume • Target group • Retail/catering? • Variety of products? • USP • SWOT • Experience with

BOP/developing countries

• Strategy • Vision (future) • Which distributor? • Production prices • DFS product finished?

When will they market it?

• How is distribution organized?

• Marketing • Most used business

model? • Capacity? • Departments in

India/South Africa? • Legal issues

• Who are the key players?

• Size • Buying price • Selling price • Where are they

situated? • Legal issues • Suppliers • Customers • SWOT • Marketing • Retail/catering? • Requirements • Purchasing policies • Which factors

influence prices? • Vision • Most used business

model? • Seasonality

• Who are the key players?

• Size • Margins • Where are they

situated? • Legal issues • Requirements • Purchasing policies • Which factors influence

prices? • Vision • Most used business

model? • Seasonality

• Who are the key players? • Image • Quality • Prices of different kinds of

salt • Brands • What other products? • Margins • Suppliers • Customers �

segmentation • Advertisement • Where are they situated? • Where should they be

situated? • Requirements • Purchasing policies • Which factors influence

prices? • Most used business

model? • Customer acceptability • Seasonality • What’s most important

factor on buying salt? • Legal issues

• Size of market • Preferences • Place of residence • Purchasing power • Where do they buy? • How do they use it? • Buying behaviour • Illiteracy rate • Perception on salt • How much do they want

to pay for it? • Cooking process • What kind of salt do they

use and when? • Age • Advertisement most

influential • Own a TV? • Valuation of outlets • Requirements • How much do they

spend on salt? • How do they buy salt for

culinary purpose? • Seasonality

Unicef and other NGO’s, governments

• What could be their role? ● Deficiency FE/Iodide/Se rate? Per person? • How badly do they want it? ● Which related programs do they have? • Demand for product? DFS on time? ● Most used business model? • Critical factors in market? ● Acceptability of customers? • Which factors influence prices? ● POE/SOE ratio and meaning

Overview distribution channel salt market Appendix IV


101

Double Fortified Salt Project (iodine + iron)

1. Gender � Male � Female

2. Age: � <30 � 31-40 � 41-50 � >50

3. State currently living in: � Tamil Nadu � Maharashtra � Uttar Pradesh � Delhi � Other, namely:

4. In what kind of area does the respondent live? � Urban � Semi urban � Rural � Slum

5. Members of your household, including yourself

� 1 � 2 - 3 � 4 - 5 � > 5

6. Family income per month (INR): � < 4,000 � 4,000 – 15,000 � 15,001 – 30,000 � 30,001 – 50,000 � > 50,000

7. Is the income level stable? � Yes � No 8. How high are your family’s monthly expenses on groceries? (INR)

� < 1,000 � 1,000 – 4,000 � 4,001 – 12,000 � > 12,000

9. Do you own a TV? � Yes � No 10. What fits best to you as a person? � I live under extreme time pressure

� I have plenty of time Which of the following products are more important to have in house than salt? Tick where appropriate!

11. Rice � Yes � No 12. Wheat � Yes � No 13. Softdrinks � Yes � No 14. Water � Yes � No 15. Fruit � Yes � No 16. Soap � Yes � No 17. Spices � Yes � No

18. Does at least 1 member of your family consume salt?

� Yes � No

19. When do you or one of your family members use the salt?

� During the cooking � When cooking is finished, but before the food is served � During my meal � During cooking and during my meal � Other, namely:

20. How long does it take before your family has used 1 kg?

� Less than 2 weeks � Between 2 and 6 weeks � Between 6 and 12 weeks � Longer than 12 weeks

21. What kind of salt do you or your family eat? � Coarse salt (quite big grains) � Powder salt (really fine grain)

Appendix V Questionnaire and In-depth interview schemes


102

� Both � Other, namely:

22. Are you aware of iodized salt? � Yes � No 23. Do you consume iodized salt? If no, go to question 25

� Yes � No

24. How come you started to use iodized salt? � A salesman recommended it � A friend recommended it � I saw a commercial that stated that it is good for people’s health � Other, namely:

25. Who normally buys the household goods? � You � Your partner � Your child(ren) � Your parents

26. How often do you go the shop to buy groceries?

� Once a month or less � Between once a week and once a month � 2-3 times a week � More than 3 times a week

27. How often do you buy salt? � Never � Once a month or less (Excluding never) � Between once a week and once a month � 2-3 times a week � More than 3 times a week

28. How much salt do you buy at once? � Less than 250 grams � Between 250 – 500 grams � Between 500 grams and 1 kg � Between 1 – 2 kg � More than 2 kg

29. What does the salt you usually buy cost per kg?

� Less than 5 rupees � Between 5 – 7 rupees � Between 8-9 rupees � 10 rupees or more

30. When do you buy salt? � When it is for sale � When we are out of salt at home � When we are almost out of salt at home � When we have got money to buy salt � Other, namely:

31. When do you usually decide to buy salt?

� More than 3 days before the purchase � 1-3 days before the purchase � On the day of the purchase but before you go the shop to buy groceries � In the shop

32. Do you go to the shop just to buy salt? � Yes � No 33. What is the decisive factor when you buy salt?

� Taste � Price � Colour � Brand � Health � Convenience in use of product � Other, namely:

34. How much do you spend on average when you purchase for groceries?

� Less than 50 rupees � Between 50 and 100 rupees � Between 101 and 250 rupees � Between 251 and 500 rupees


103

� More than 500 rupees 35. Where do you buy salt? � Hypermarket

� Supermarket � Small shop � I buy it from someone who brings it to my house (by cycle) � Other, namely:

36. What is the main reason you buy the salt there?

� Near my home � Low price � Wide selection � Other, namely:

37. Which information do you think is most important with regard to deciding which brand to buy?

� TV � Internet � Friends � Magazines / Newspapers � Salesperson’s advice � Other, namely:

38. Which brand do you usually buy? � Tata � Shudh � Annapurna � Non-branded � Other, namely:

39. Do you always buy that brand? � Yes � No 40. Why do you usually buy this brand? � Because of quality

� Because of price � Because it’s the only brand available where I live � Other, namely

41. Who makes the decision on what brand to use

� You � Your partner � You child(ren) � Your parents � depends upon who buys

42. Would you consider eating more if you know that the salt is good for your health?

� Yes � No

43. What is the maximum you want to pay per kg if you know that the salt is really good for your health?

� 5 rupees � 7 rupees � 9 rupees � 11 rupees � 13 rupees � Other, namely

44. Do you prefer a local, national or international brand?

� Local � National � International � Does not matter

45. Do you think you will buy DFS if it costs 11 rs per kg?

� Yes � Maybe � No










104

50. Do you have any suggestions for Akzo Nobel?

Thank you for your cooperation! Categorization questionnaire question 50

1. good quality (better than Tata) 2. health 3. taste 4. low/reasonable price 5. purity (white) 6. availability 7. advertisement (through buying salt): building brand / creating awareness of i2 8. free flowing 9. good quality + low price 10. good price + purity 11. tasty + purity 12. purity + quality 13. quality + healthy 14. purity, tasty, healthy 15. quality + low price + tasty 16. must be clean 17. health + low price 18. moisture free 19. quality + health + moisture free 20. Through PDS 21. Doctors must prescribe 22. good (looking) package / safe package 23. taste + good looking package 24. purity + moisture free 25. company image 26. easy to understand 27. quality + purity + low price 28. quality + availability 29. easy brand name 30. low price + availability (also in villages) 31. low price + tasty 32. must be a domestic brand 33. quality + tasty 34. first low price, then raise it 35. no chemical content 36. saltiness 37. saltiness + free flowing 38. tasty, purity, good price 39. 500 grams packages


105

In-depth interview schemes end consumers Cooking:

1. What’s a typical meal in their house? 2. What kind of meals do you normally cook? Enjoy cooking? 3. Do you cook from scratch or are you more a ready meal cook? 4. What do you like/dislike about cooking? 5. where did they learn to cook? 6. How would you describe your cooking style? 7. Would they ideally like to cook more? Or a particular type/category of food? 8. In an ideal world what cooking would you be doing?

Eating: 1. What is your favorite food? 2. Eating out versus eating at home? 3. What do they eat on a normal weekday (explore each meal time) vs what they eat at

weekends? 4. What do they like/dislike about food/eating? 5. How have their tastes change?

Shopping:

1. Where do they shop for food? For each shop: • Frequency • Type of shop • Strengths and weaknesses of shop they visit • Why they shop there

2. How much do they spend on food shopping? Why? Who in their house spends the most? On what type/categories of food?

3. what comment would someone make about them if they were to look at a normal shopping load?

4. Own brand vs branded: • What they buy and why? • How does this differ by category? • Within own brand – economy vs finest?

Health/diet:

1. how healthy are they? 2. how do they stay healthy? 3. how healthily do they eat? 4. How do they control how healthy their diet is? 5. what makes their diet healthy/unhealthy? 6. do they buy products with specific health benefits? 7. what do they avoid? 8. how carefully do they look at what is in products? 9. What are the worst things in food? What are they most concerned about in relation to

foods? 10. To what extent do health concerns govern what they buy/eat? 11. In which categories does it most/least influence their behaviour?


106

Appendix VII Incremental costs for DFS with the DFS standard 1,000 ppm iron


107

Appendix VIII Market share and positioning national brands Major players

Regional market shares of national brands220

220 September 2006 research from Reliance


108

Appendix IX Cost calculations DFS premix incl. freight costs

Freight costs from Rotterdam to India


109

Error! Objects cannot be created from editing field codes.

Appendix X DFS Project timeline


110

Appendix XI Percentage Prevalence of Anaemia in Children and women per state

Date post:	06-May-2015
Category:	Business
Upload:	dirk-jan-ter-horst
View:	5,631 times
Download:	10 times