Coca Cola India's Thirst for the Rural Market

"The rural market is a significant part of our marketing strategy which enables us to help the consumer link with our product."
                                        - Sanjeev Gupta, Marketing Director – Cola-Cola India, in August 1995.

'Thanda' Goes Rural

In early 2002, Coca-Cola India (CCI)  launched a new advertisement campaign featuring leading bollywood actor – Aamir Khan.

The advertisement with the tag line – 'Thanda Matlab Coca-Cola⁴' was targeted at rural and semi-urban consumers. According to company sources, the idea was to position Coca-Cola as a generic brand for cold drinks. The campaign was launched to support CCI's rural marketing initiatives. CCI began focusing on the rural market in the early 2000s in order to increase volumes.

This decision was not surprising, given the huge size of the untapped rural market in India (Refer Exhibit II to learn about the rural market in India). With flat sales in the urban areas, it was clear that CCI would have to shift its focus to the rural market. Nantoo Banerjee, spokeswoman – CCI, said, "The real market in India is in the rural areas. If you can crack it, there is tremendous potential."

However, the poor rural infrastructure and consumption habits that are very different from those of urban people were two major obstacles to cracking the rural market for CCI. Because of the erratic power supply most grocers in rural areas did not stock cold drinks.

CCI's Rural Marketing Strategy

CCI's rural marketing strategy was based on three A's – Availability, Affordability and Acceptability. The first 'A' – Availability emphasized on the availability of the product to the customer; the second 'A' - Affordability focused on product pricing, and the third 'A'- Acceptability focused on convincing the customer to buy the product.

Availability

Once CCI entered the rural market,it focused on strengthening its distribution network there. It realized that the centralized distribution system used by the company in the urban areas would not be suitable for rural areas.

In the centralized distribution system, the product was transported directly from the bottling plants to retailers (Refer Figure I).

However, CCI realized that this distribution system would not work in rural markets, as taking stock directly from bottling plants to retail stores would be very costly due to the long distances to be covered.

The company instead opted for a hub and spoke distribution system (Refer Figure II). Under the hub and spoke distribution system, stock was transported from the bottling plants to hubs and then from hubs, the stock was transported to spokes which were situated in small towns. These spokes fed the retailers catering to the demand in rural areas. CCI not only changed its distribution model, it also changed the type of vehicles used for transportation. The company used large trucks for transporting stock from bottling plants to hubs and medium commercial vehicles transported the stock from the hubs to spokes. For transporting stock from spokes to village retailers the company utilized auto rickshaws and cycles.

Affordability

A survey conducted by CCI in 2001 revealed that 300 ml bottles were not popular with rural and semi-urban residents where two persons often shared a 300 ml bottle.

It was also found that the price of Rs10/- per bottle was considered too high by rural consumers. For these reasons, CCI decided to make some changes in the size of its bottles and pricing to win over consumers in the rural market.

In 2002, CCI launched 200 ml bottles (Chota Coke) priced at Rs 5.CCI announced that it would push the 200 ml bottles more in rural areas, as the rural market was very price-sensitive.

Acceptability

The initiatives of CCI in distribution and pricing were supported by extensive marketing in the mass media as well as through outdoor advertising. The company put up hoardings in villages and painted the name Coca Cola on the compounds of the residences in the villages. Further, CCI also participated in the weekly mandies by setting up temporary retail outlets, and also took part in the annual haats and fairs - major sources of business activity and entertainment in rural India. CCI also launched television commercials (TVCs) targeted at rural consumers. In order to reach more rural consumers, CCI increased its ad-spend on Doordarshan. The company ensured that all its rural marketing initiatives were well-supported by TVCs.

When CCI launched Chota Coke in 2002 priced at Rs. 5, it bought out a commercial featuring Bollywood actor Aamir Khan to communicate the message of the price cut and the launch of 200 ml bottles to the rural consumers. The commercial was shot in a rural setting. In the summer of 2003, CCI came up with a new commercial featuring Aamir Khan, to further strengthen the Coca-Cola brand image among rural c
onsumers.

Marketing to Rural India: A way of empowering Women consumer

Marketing to Rural India: A way of empowering Women consumer 

Hindustan Lever, whose 2006 revenues were $2.8 billion, has been learning these lessons for nearly a decade. The company’s Project Shakti (its name means “strength”) was born out of this realization, and it has become a case study for business schools and evolved beyond its original goals. “The objectives of Project Shakti are to create income-generating capabilities for underprivileged rural women by providing a small-scale enterprise opportunity, and to improve rural living standards with greater awareness of health and hygiene,” says Dalip Sehgal, executive director of the Shakti initiative.

Hindustan Lever’s drive into rural India was prompted in part by growing competition. When the Indian economy opened up in early 1990s, multinationals such as Procter & Gamble stepped up their activities, forcing Hindustan Lever to seek higher revenues and growth by reaching into villages with 1,000 or fewer residents. Launched in 2001, Project Shakti was an important part of this strategy. It involved working with rural self-help groups (SHGs) to educate rural women, while also making them part of the company’s marketing network. “Women from SHGs become Shakti entrepreneurs — direct-to-home distributors [of Hindustan Lever products] in rural markets,” says Sehgal. “This micro-enterprise offers low risks and high returns. The products distributed include a range of mass-market items especially relevant to rural consumers,” such as soap, toothpaste, shampoo and detergent.

The Shakti website features a video profile of Rojamma, a young woman from the state of Andhra Pradesh in Southern India, as an example of a typical Shakti distributor. A mother of two who was left to fend for herself and two daughters after her husband abandoned the family, Rojamma initially made ends meet by working in her parents’ fields. She then joined the Shakti project and became a distributor of Hindustan Lever products, speaking in village after village to impoverished and often illiterate women about the need to bathe their children and wash their clothes regularly and also selling them soap and detergent. The commission Rojamma earned on her sales helped provide for her family. “Today she is a proud entrepreneur and enjoys not only the money she earns from the project but also the respect of society,” says Sehgal. “The lives of thousands of women have changed because of Shakti.”

A typical Shakti distributor sells products worth Rs 10,000-15,000 (around $250) a month, which provides an income of Rs 700-1,000 (around $25) a month on a sustainable basis. While this may not seem to be a high income, it makes an enormous difference to women who live in remote villages in dire poverty. In many cases, earnings from Shakti help them double their household income. Much of the additional income goes to educating children, and also to purchasing consumer durables such as television sets, which further expands the rural market for such products. Some Shakti distributors — whom the company calls “entrepreneurs” — invest the extra money in buying vehicles such as motor scooters that allow them to go into more villages.

Indeed, with help from Shakti distributors, Hindustan Lever has been able to reach rural consumers in thousands of remote Indian villages. According to media reports, Shakti distributors now account for 15% of the company’s sales in rural India. Meanwhile, the potential for growth is enormous, since studies have shown that just 15% of Indian consumers use products such as shampoo. According to Wharton’s Raju, there are behavioural reasons why rural consumers represent a sound bet for companies that are willing to invest in reaching them. “Affluent consumers demonstrate that they have ‘arrived’ by buying bigger houses or cars. People at lower income levels do so by buying premium brands. This means brand loyalty is very high among less affluent consumers. That is why the rural market is critical for companies. The first-mover advantage is significant.”

The Shakti model was piloted in 50 villages of the Nalgonda district in Andhra Pradesh. It has now spread to more than a dozen states, creating 26,000 women distributors covering 80,000 villages. By 2010, the goal is to recruit 100,000 Shakti distributors covering 500,000 of India’s more than 600,000 villages. “This initiative has been extremely successful,” says Ajay Gupta, CEO of www.ruralnaukri.com, a job site for the rural market.

In addition to the distribution network, the Shakti project includes Shakti Vani (or voice), a social awareness program, and iShakti, a community portal. “Desktop computers are set up in the homes of Shakti entrepreneurs,” says a Hindustan Lever spokesperson. “These computers are equipped with software developed by Unilever through which users can access content in categories including education, employment, agriculture, health and entertainment. They can also ask questions on any of these subjects and have them answered by experts.”

iShakti is in its early days; it was launched in November 2004. The Vani project, however, is operational in more than 20,000 villages in states like Madhya Pradesh, Karnataka, Chattisgarh and Andhra Pradesh. Hindustan Lever has also tied up with partners such as Tata Consultancy Services, India’s largest software firm, which is actively involved with the iShakti portal, and ICICI, a financial services institution that is involved with providing micro-credit loans. With the network now in place, other companies want to hop on to the Shakti bandwagon. One service that is likely to be added soon is insurance.

Growing business confidence in rural opportunities

Growing business confidence in rural opportunities

India’s rural markets present opportunities that companies seeking to become high-performance businesses cannot afford to ignore. But the size and scale of those markets (three-fourths of the country’s approximately 1.1 billion people live in villages) have been offset by concerns about the profitability of these markets and the durability of rural demand.Now, though, there is abundant evidence to indicate that businesses are seeing more promise in India’s hinterland. There are several strong regional and macroeconomic reasons for greater confidence. And, there is a growing body of statistics to demonstrate that rural markets, fuelled in part by rising purchasing power, hold real prospects for profitable growth across a wide range of industry sectors.       

Five reasons for greater business confidence in rural India                                           (a) Rural spending is now less dependent on farm income, which now constitutes less than 50 percent of the total rural income. Income remittances from migrant rural populations and increases in non-farm activities such as trading and agro-processing are boosting non-farm income. 

(b) The increase in procurement prices (the minimum price that farmers earn on produce sold to the government) is putting more money into the hands of the rural population. A series of good harvests, on the back of several good monsoons from 2005 to 2008, has accelerated rural employment in 

agricultural and allied activities. 

(c) The government has increased spending in rural areas, from US$9 billion for the financial year ending March 2007 to an anticipated US$16 billion for the financial year ending March 2010.3

(d) Improved access to finance and institutional credit has brought greater cash inflows to rural households. Institutional credit to the agriculture and allied sectors increased from INR 695.6 billion (US$14.5 billion) in 2002-03 to INR 2.6 trillion (US$55 billion) in 2008-09.

(e) Policy measures such as the 

US$13.9-billion waiver of agricultural loans and the National Rural Employment Guarantee Scheme (NREGS), which guarantees 100 days of employment to one member of every rural household, have helped to reduce rural under-employment and raised wages. The official minimum average per-day wage paid under NREGS has increased from INR 65 (US$1.4) in 2006-07 to INR 84 (US$1.8) in 2008-09.

Figure: Government budgeted expenditure on rural development

Rural Market: New Space to Fill

The increase in rural purchasing power is reflected in many ways. Rural incomes have been growing at more than 7 percent over the past few years, helping to account for almost 40 

percent of India’s total consumption of goods and services. Non-food expenditures are growing at an 8.2 percent annual compound rate. Rural 

households are purchasing a wide range of products-cars,flat-screen televisions, microwaves—that until recently would have been beyond 

their reach. Some industrial sectors have seen surprising growth coming from rural consumers. Fifty percent of revenues from the fast moving 

consumer goods (FMCG) sector now come from rural sales.

In the case of the telecom sector, subscriber base in the semi-urban and rural markets (Circle C geographies) has grown at a phenomenal 98 percent over the last five years in comparison 

to other circles representing metros and urban markets .