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Assistant Professor Rakhi Singh (Economics) &

Associate Professor Jones Mathew (Marketing)

Circa 1992. Mr. Ravi Varadarajan, Head of Business Development, Central Marketing Organization, SAIL,
pored over the facts and figures in front of him. Deregulation of the steel industry had just been
announced. News reports were flooding in of how the news had electrified the business world and SAIL
was going to have some stiff competition from hitherto unknown, but serious players. Though S.A.I.L.
had almost a monopolistic hold over the Indian market with serious competitive threat coming from just
a few companies like the Tata Iron & Steel Company, Jamshedpur (TISCO) and Jindal Steel, S.A.I.L.
realized it should start looking for pre-emptive strategies to distribute and exploit new markets.

With liberalization came a whole new swarm of big players into the market. Ravi envisioned that mere
pre-emptive marketing strategies might not work in the face of the floodgates which had been opened.
He understood the importance of out-flanking initiatives in keeping S.A.I.L.͛s market share intact against
the new competitive onslaught.

As he studied various options, he was stumped by the stark disparity between India͛s urban and rural
per capita consumption of steel. He realized that none of the major players, including S.AI.L. had even
attempted to make inroads into the rural areas of India.

Lack of government policy-direction or the lack of urgency to look at alternative markets to sustain
demand for steel were probably the reasons why steel producers never gave it due consideration. At a
meagre 2 kg per capita consumption in non-urban areas, compared to 75 kg in urban areas, it struck Ravi
that there was tremendous scope for demand building and opening up a new alternative segment for
steel consumption. Till now it was mainly the secondary producers of steel (͞re-rollers͟, as they were
known) who catered to the rather weak demand for steel products in the non-urban areas.

In a bid to understand the demand better in these areas, Ravi got authorization to explore the non-
urban market in India with the help of institutions such as Punjab Technical University (PTU) and the
Institute of Rural Management, Anand (IRMA). As a result, in 1996 S.A.I.L. made some exploratory steps
into non-urban marketing by forming an Agriculture Segment Development Cell which was instrumental
in getting a higher quality of billets* (see note) developed for making disc harrows (ploughs) for tractors.
S.A.I.L also participated in the popularization of steel grain bins under the ͞Save Grain Campaign͟ in the
states of Gujarat and Madhya Pradesh at competitive rates-the sole objective being to help non-urban
consumers and farmers grasp the long-term benefits of using steel for grain storage compared to
traditionally used materials such as wood, tin or mud.

As Ravi researched available material and the years rolled by, he and others in S.A.I.L.͛s think tank
became concerned with the intensification of competition in the domestic market and the excess supply
of steel over available demand. Seeing an opportunity to highlight the non-urban market as a potential
second major market segment, Ravi stressed on the need for exploring this vast untapped market. Charu
Sharma, Director of Market Research, was co-opted to explore this potential demand in a more detailed
and systematic method and to table her team͛s recommendations to the Marketing Group.

Charu͛s team went in for extensive surveys and interviews with local dealers, grassroots level
consumers, NGOs, district officials and the like. It became clear that the signs were not encouraging. It
was true that life in the rural sector had witnessed a phenomenal increase in agricultural production and
productivity in India with a gradual shift towards the usage of modern agricultural implements. Rural life
had also undergone a significant change due to increased urbanization. However, such developments
were not accompanied by a concomitant rise in consumption of steel in the non-urban areas as a result
of which these vast potential markets remained undeveloped.

When the preliminary findings were submitted to the Marketing Team, Ravi saw in the low levels of
rural demand a potential opportunity to increase steel consumption in the non-urban segment. Charu
had identified the major reasons for low penetration in the rural sector as lack of awareness and
distorted perception. Steel was perceived to be a high cost material and not readily available. Another
problem was the wide geographic spread and disparate demographic features of the non-urban market
segment. Ravi felt that he had a challenge on his hands now. What different marketing approach would
be required to translate this potential demand into actual use? This was the conundrum he had to solve.

As a result of the study commissioned by IRMA on S.A.I.L.͛s behalf, a couple of options were put forth on
what distribution channel strategies S.A.I.L. could follow to access the non-urban market. ]
 

 and ]c  
  
 seemed to be two such promising approaches.
Ravi analyzed the pros and cons of each in order to arrive at the best possible recommendation to make
for the benefit of S.A.I.L. from a long-term perspective. Since the prospective new target segment was
widely dispersed geographically and each geographic region had its own economic background and
cultural barriers, including language, the district level dealership seemed to have an edge.

However, the second approach had the benefit of targeting first those areas which had an existing
demand for steel but was serviced poorly by secondary producers. The steel-deficient regional approach
was based on the premise that since it was only a supply side problem, focusing on these areas would
bring a quicker solution to the problem of stagnant or slow demand. Besides, it would help overcome
the huge expenditure needed to create awareness for steel in general & SAIL steel in particular. He had
supporting information to analyze the skewed regional production and consumption patterns of steel in
the non-urban areas as outlined in the tables in Annexures III and IV.

To guide him in his analysis, Ravi referred to S.A.I.L.͛s objectives which had been identified as part of this
alternative market development strategy note. One of these objectives was: To have at least one dealer
in every district of the country i.e. to cover all 602 districts in the country. Some of the other objectives
were:

AY To reach materials to the dealers from nearest SAIL stockyard at SAIL͛s cost.
AY To provide support to dealers for marketing their product.
A sound, future-oriented retail strategy, Ravi realized, had also become imperative because there was a
huge amount of capex upscaling by S.A.I.L., resulting in a major capacity growth. In order to hedge
against any downturn in industrial demand, S.A.I.L. wanted to ensure that demand remained largely
unaffected in times of industrial slump. Therefore, a robust, alternative retail distribution strategy had
become important for safe, long-term growth.

As he delved deeper into research done on the subject, Ravi understood that low awareness, high price,
high initial investment and poor availability of steel were major stumbling blocks in the popularization of
steel as a viable alternative to traditional construction material in the non-urban areas. Communication
too posed a new challenge as the target market had a different demographic and psychographic profile
compared to urban consumers of steel or industrial buyers.

Another issue at hand was the appropriate product mix required for the non-urban market. Obviously it
would differ in terms of both, width and depth, as compared to an urban approach. Galvanized Plate
(GP), Galvanized Coil (GC) and Thermo Mechanically Treated (TMT) steel (a new-generation-high-
strength steel having superior properties such as weldability, strength, ductility and tensility) seemed to
be the most appropriate products for this new non-urban market. This product mix was a reflection of
the most prevalent demand patterns (grain storage, construction, making of farm implements, etc.)

Ravi was facing a dilemma of distribution and marketing strategy.

†
 

 





 
 

  




  











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a) Incentive Scheme for Dealers: To encourage dealers who are fulfilling their commitments, the
following consistency (cash) incentives have been introduced

Sl. No. Incentive Rs/mt Criteria

01 100 Fulfillment of monthly commitment
02 50 Fulfillment of annual commitment

b) Promotional Incentive : Dealers who take up promotional steps like Hoarding, Wall-painting ,
Newspaper/Cable TV advertisement directly will be reimbursed a promotional incentive (restricted to a
maximum of Rs. 100/- pmt of actual lifting in the financial year) within the maximum annual limit as
under:

uY Each Hoarding ʹ Rs. 25,000/- per annum

uY Each Wall Painting ʹ Rs. 2000/- per annum

uY Each Newspaper/magazine Ad ʹ Rs. 15000/- per insertion

 uY Cable TV Ad ʹ Rs. 3000/- per month

uY Bus Panel Ad ʹ Rs. 3000/- per month

uY Other Ads ʹ upto Rs. 8000/- per month

c) Annual Award for Dealers : Top 5 dealers from each region selected on the basis of factors like
fulfillment of annual commitment, improving brand image, consistent availability of product, adding
new customers will be felicitated with awards at the Annual Dealers͛ Conference.

d) Initiative for Publicity/Promotion in non-urban areas:

1.Y Wall Paintings

2.Y Radio Jingles

3.Y Product brochures/technical literature to the dealers.

4.Y Dealers meet/Mason meets are held from time to time

5.Y Promo items (calendars/pens/key chains) distributed among dealers

6.Y Advertisements of operative dealers in print media/dealer details also updated on the SAIL web
site.

7.Y Minimum quantity enhanced from 100 mt to 200 mt per month

 


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Materials to be made available to dealers at competitive prices. Proposed comparison of pricing for a
dealer and for a non-dealer is given as follow:

Dealers Non Dealers

Door Delivery Free of cost ʹ Rs. 150 ʹ 3100 Cost to be borne by the customer
(Depending on the location)
Additional Rebate Rs. 500 for GP/GC Nil
Rs. 300 for TMT
Cash Discount Equivalent to 15 days IFC ʹ Rs. Nil
100
Total Rs. 750 for GP/GC + cost of Nil
Rs. 550 for TMT

 


All India Production and Consumption: (1998)

Y
 Production (P)
ImportsY Appar nt
U ar Exports (E)

Y Consumption (P+I-E)

Y Y
Y
 YY  Y

 YY

Y Y
Y YY Y Y Y
Y YY Y Y Y Y
Y Y
Y YY Y Y Y Y
Y
Y YY Y Y Y Y
Y
Y YY Y Y Y Y
Y
Y YY Y Y Y Y
Y YY Y Y Y Y
Y Y
Y YY Y Y Y Y
Y
Y YY Y Y Y Y
Y Y Y Y Y
Y Y

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#Y$Y
%&Y
YYYYYYYYY!Y'(Y)(Y# (Y
YY *+Y
Y

Annexure IV
State And Region Wise Consumption:
Y

c   c  $%  &''(') &'')'* &''*'+ &''+', &'','' &'''-- .----&

1 Andhra Pradesh 192 245 264 310 316 324 348

2 Karnataka 40 48 73 50 180 184 210

3 Kerala 3 6 7 8 7 8 9

4 Tamil Nadu 250 298 291 358 252 284 310

5 SOUTH 485 597 635 726 755 800 877

6 Assam 8 16 18 14 16 24 37

7 Bihar 80 105 124 120 333 354 422

 8 Orissa 70 95 133 120 150 225 259

9 West Bengal 236 285 311 359 445 540 564

10 EAST 394 501 586 613 944 1143 1282

11 Delhi 195 268 294 306 342 368 440

12 Haryana 282 393 493 452 499 671 722

13 Jammu & Kashmir 6- 7 10 - - -

14 Punjab 370 480 565 568 432 707 732

15 Uttar Pradesh 475 640 656 777 575 818 1017

16 NORTH 1328 1781 2015 2113 1848 2564 2911

17 Gujarat 193 262 337 311 325 297 359

18 Madhya Pradesh 172 245 260 305 318 313 391

19 Maharashtra 480 781 826 788 827 990 1148

20 Rajasthan 11 17 35 18 21 53 57

21 WEST 856 1305 1458 1422 1491 1653 1955

..

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Notes

± Y *Billets : A section of steel used for rolling into bars, rods and sections. It can be a
product of the ingot route, or increasingly today produced directly by continuous casting
ß Y **GP/GC sheets and coils:
ö Y ***TMT: Thermo mechanically treated (TMT) steel, can be described as a new-generation-high-
strength steel having superior properties such as weldability, strength, ductility and tensility.
Y MT (mt)-metric tonne