Case Study: Unilever in India - Rural Marketing

Initiatives
Abstract:
70% of the Indian population lives in rural areas. This segment, commonly
referred to as the 'bottom of the pyramid', presents a huge opportunity for
companies. Unilever's Indian subsidiary, Hindustan Lever Ltd (HLL), considered
one of the best-managed companies in India, understands the importance of
rural marketing. The trigger point came when a local firm Nirma, through its new
product formulation, pricing and distribution challenged HLL's detergent
business. Nirma's attack from below made HLL realise its vulnerability as well as
identify a new opportunity. Since then, HLL has launched various initiatives to
reach out to the rural consumer. It has changed its product formulations and
deliveries. It has begun a number of initiatives in terms of widening distribution
reach through traditional as well as unconventional channels. HLL has also
empowered rural women by assisting them in obtaining financial assistance
through its project shakti.

Keywords:
Unilever, MNCs (multinational corporations) in India, Hindustan Lever Ltd (HLL),
Fast moving consumer goods (FMCG), Rural consumer, Bottom of the pyramid,
Marketing mix, Micro-financing

Everybody wants brands. And there are a lot more poor people in the world than rich people.
To be a global business and to have a global market share you have to participate in all
segments.
Keki Dadiseth, erstwhile Chairman, HLL

The basic objective of Project Shakti is to economically empower underprivileged rural

women by creating income-generating capabilities and providing a sustainable microenterprise opportunity in addition to improving rural living standards through health and
hygiene awareness.Sharat Dhall, Marketing Manager -Rural, HLL

Introduction
In the early 2000s, around 700 million people, i.e. 70% of the Indian population
lived in 6,27,000 villages, in rural areas. Of this, 90% were concentrated in
villages with population less than 2000. According to a study conducted in 2001
by the National Council for Applied Economic Research (NCAER), there were as
many "middle income and above" households in rural areas as there were in
urban areas.
There were almost twice as many "lower income households" in rural areas as in
urban areas. There were 2.3 million "highest income" households in urban areas
as
against
1.6
million
in
rural
areas.

NCAER projections indicated that the number of "middle income and above"
households was expected to grow to 111 million in rural India by 2007, compared
to
59
million
in
urban
India.4
Gone were the days when a rural consumer had to go to a nearby town or city to
buy a branded product. The growing power of the rural consumer was forcing big
companies to flock to rural markets. At the same time, they also threw up major
challenges for marketers.
Servicing rural markets involved ensuring availability of products through a
sound distribution network, overcoming prevalent attitudes and habits of rural
customers and creating brand awareness. Price-sensitivity was another key
issue. Rural income levels were largely dependent on the vagaries of monsoon,
and demand was not easy to predict. Thanks to TV, consumer awareness in rural
areas had increased. Rural expenditures on Fast Moving Consumer Goods (FMCG)
were growing at an impressive rate of 20 -25%. Several companies were taking
rural marketing seriously, one of them being Hindustan Lever Ltd (HLL),
Unilever's Indian subsidiary. In 2004, HLL was India's largest FMCG company,
with 30 power brands (Exhibit: I), turnover of over Rs. 10,000 crores and 40,000
employees. HLL derived around 50% of its sales from rural areas. HLL's rural
marketing initiatives began way back in 1988, when the company had launched
'Wheel' for the rural and lower income urban consumer.
These efforts had intensified since the late 1990s when HLL like many other
companies faced flat growth in the urban markets. In early 2004, as it reviewed
its past performance, HLL realized that bulk of its future growth was likely to
come from rural areas. The challenge for HLL was to exploit this opportunity in a
profitable manner.

Background Note
HLL's history could be traced back to 1885 when the Lever Brothers set up
"William Hesketh Lever", in England. In 1888, the company entered India by
exporting 'Sunlight', its laundry soap. In 1895, the Lifebuoy soap was launched in
India followed by 'Pears' in 1902, 'Lux' flakes in 1905 and 'Vim' scouring powder
in1913. In 1930, the company merged with 'Margarine Unie' (a Netherlands
based company which exported vanaspati to India), to form Unilever. In 1931,
Unilever set up it first Indian subsidiary, the Hindustan Vanaspati Manufacturing
Company for production of vanaspati.

Reaching out to the rural consumer

Prior to the late 1990s, HLL like any other company had used traditional
modes of reaching out to the rural consumer - wholesalers and retailers...

Product Development
HLL's experience with rural consumers dated back to the mid-1980s, when
Nirma had been a serious threat to HLL's detergent business. Nirma's
success demonstrated that rural India did have the money and willingness
to buy packaged goods.

Communication
Mass media reached only 57% of the rural population. HLL realized that it had to
use unconventional media to enhance awareness. In late 1999, HLL engaged
Ogilvy Outreach , to take care of its rural communication campaign.

Looking Ahead
India's rural population comprising 12% of the world's population presented a
huge, untapped market. HLL had signalled its commitment to the rural market in
various ways. Management trainees had to begin their career with the company
by spending a month or two in a rural village. Senior managers continued to
emphasize the importance of rural markets. Various innovations in the marketing
mix had been introduced, with the requirements of the rural markets in mind.

Case Study: Coca Cola India's Thirst for the Rural

Market

Abstract:
The case focuses on the rural marketing initiatives undertaken by the cola
major - Coca Cola in India. The case discusses in detail the changes
brought about by Coca Cola in distribution, pricing and advertising to
make inroads into rural India. The case also discusses the concept of rural
marketing and its characteristics in a developing country like India.
Further, it also provides details about PepsiCo's rural marketing initiatives.

Issues:

The reasons behind CCI entering the rural market

The strategy adopted by CCI to penetrate the rural market
The role of advertising in the rural market

Keywords:
Rural marketing, cola major, Coca Cola, India, distribution, pricing,
advertising, rural India, rural marketing, characteristics, developing
country, India, PepsiCo, rural marketing
"We want to be the Hindustan Lever of the Indian beverage business."
Sanjeev Gupta, Deputy President Coca-Cola India in May 2002.
"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) (Refer Exhibit I for information about
CCI) launched a new advertisement campaign featuring leading bollywood
actor - Aamir Khan. The advertisement with the tag line - 'Thanda Matlab
Coca-Cola' 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. Also, people in rural
areas had a preference for traditional cold beverages such as 'lassi'6 and
lemon juice. Further, the price of the beverage was also a major factor for
the rural consumer.

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. Commenting on the transportation of stock in rural
markets, a company spokesperson said, "We use all possible means of transport
that range from trucks, auto rickshaws, cycle rickshaws and hand carts to even
camel carts in Rajasthan and mules in the hilly areas, to cart our products from
the nearest hub." In late 2002, CCI made an additional investment of Rs 7 million
(Rs 5 million from the company and Rs 2 million from the company's bottlers) to
meet rural demand. By March 2003, the company had added 25 production lines
and doubled its glass and PET bottle capacity.

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

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.

Future Prospects
CCI claimed all its marketing initiatives were very successful, and as a
result, its rural penetration increased from 9% in 2001 to 25% in 2003. CCI
also said that volumes from rural markets had increased to 35% in 2003.
The company said that it would focus on adding more villages to its
distribution network. For the year 2003, CCI had a target of reaching 0.1
million more villages.
Analysts pointed out that stiff competition from archrival PepsiCo would
make it increasingly difficult for CCI to garner more market share. PepsiCo
too had started focusing on the rural market, due to the flat volumes in
urban areas. Like CCI, PepsiCo too launched 200 ml bottles priced at Rs. 5.
Going one step ahead, PepsiCo slashed the price of its 300 ml bottles to
Rs 6/- to boost volumes in urban areas.