Sachet marketing in india Here's an interesting business question: if roughly two-thirds of the world's population makes USD 1,500 or less per year, why try to sell them expensive, bulky goods and services originally designed for consumers who easily make twenty
times
as
much
in
North
America,
Western
Europe
or
Japan?
To the rescue come innovative micro-selling methods, aimed at new consumers in developing mega-economies like China, India, The Philippines, Mexico and Brazil. It's all about serving up your products, services and loans in affordable
portions,
sachets
or
sizes,
so
that
consumers
get
to
know
and
like
your
brand.
Meanwhile, you the manufacturer or service provider can still make a good profit from sheer overall volume (smaller sizes, but more buyers). Our sister-publication Springwise New Business Ideas has already been paying quite a bit of attention to these interesting initiatives: now it's up to TRENDWATCHING.COM to coin the overarching trend: SACHET Consider
MARKETING. the
following
examples
highlighting
the SACHET
MARKETING trend:
• In Brazil, fast moving consumer goods giant Unilever sells Ala, a brand detergent created specifically to meet the needs of low-income consumers who want an affordable yet effective product for laundry that is often washed by hand in river water. In India, Unilever successfully markets Sunsil and Lux shampoo sachets sold in units of 2-4 dollar cents; Clinic All Clear anti-dandruff shampoo sachets at 2.5 rupees each; and 16 cent Rexona deodorant sticks. In Tanzania,
Key
soap
is
sold
in
small
units
for
a
few
dollar
cents.
• Filipino telco Smart has turned its customers into salespeople: the Smart Buddy System allows cell phone customers to resell their unused credits, which not only eases the strain on cash flow, but earns them money as well! For each 1,000 pesos sold, the 'merchant' receives a 150 pesos commission. For more info, check out
theSpringwise
item on
the
Smart
Buddy
system.
• Mexican Banco Azteca, which launched in December 2002, is gearing a 'less is more' approach towards 16 million Mexican households who make too little (from USD 250-1300 a month) to attract the interest from established financial institutions. These Mexican consumers, even those without a bank account or solid proof of income, can now apply for a savings account, wire transfers, mortgages, or small one-year loans (sometimes purely based on their personal possessions). The force behind Banco Azteca is Grupo Elektra, Mexico's largest appliance retailer. Their 800+ appliance stores double as bank branches, and quite often bank clients are loyal Grupo Elektra customers
as well, giving them a partial credit history. For more info, check out the Springwise item on Banco Azteca. • GrameenPhone, Bangladesh's leading cell phone operator, is offering a special low-priced package to so-called 'phone ladies' in small villages, where fixed telephone lines are non-existent. The phone ladies share their cell phones with other villagers at a few taka a call. For more info, check out the Springwise item on GrameenPhone. • In a surprising twist, microfinance, which has blossomed in emerging economies in Asia, Africa and Latin America, is now also catching on in mature economies. The practice, which involves lenders granting small business loans to entrepreneurs with low incomes or poor credit histories, is now tax deductible in the US and the UK. In the UK alone, more than 20 microfinance banks (like WEETU for women and Prime for entrepreneurs over the age of 50) qualify for the tax program. Another 40 are on the way, waiting to be accredited. Participating UK businesses usually have fewer than five employees, and require unsecured loans of between EUR 1,500 and 15,000. (Source: WSJ.) • Whirlpool is cashing in on its line of inexpensive yet stylish washing machines in Brazil, India and China. Both price and looks have received aSACHET MARKETING makeover: machines cost USD 150 - 200 (about half of the US average) and are customized to local tastes. For example, in Brazil, customers wanted to see the machine operate, so Whirlpool made a transparent acrylic lid, that also happens to be cheaper than glass. Machines also have a smaller capacity, because lower income Brazilians do laundry more frequently. In China, where washers are considered status symbols and are often placed in living rooms due to lack of space, extra attention was paid to sleek looks. Wash cycles were named on a by-country basis (in India, the delicate cycle is called the 'sari' cycle). And like microfinance, Whirlpool is already exploring the possibility of bringing these 'people's washers' to Europe and North America. (Source: WSJ.) OPPORTUNITIES Thinking small in large volumes -- the essence of SACHET MARKETING -- yet never losing brand focus, could open up entirely new markets for many of the worlds B2C and B2B manufacturers and service providers. If your customers are willing but cash strapped, think micro loans, think mini-sizes, think leasing, think bundling, think reselling! It will make you money, AND lay the foundation for brand awareness with future affluent customers. And as the microfinance and Whirlpool examples show, some of the thinking may eventually translate in innovative products for mature
markets
as
well.
Small
IS
'Sundara'! >>
Email
this
trend
to
a
friend.
__________________________
SEPTEMBER 2004 | TRENDWATCHING.COM is about observing changes in consumer behavior and in business
thinking, on as broad a scale as possible. So whereas INSPERIENCES may be about conspicuous consumption, our SACHET MARKETING trend caters to the other end of the spectrum: those consumers who cannot (yet) afford to fully be part of the consumer society. As you may recall, when we introduced our SACHET MARKETING trend, we noted
that
two-thirds
of
the
world's
population
makes
USD
1,500
or
less
per
year.
This is not to say that there's no market opportunity: according to a recent article in Foreign Policy by University of
Michigan Business School professor C. K. Prahalad, and Allen Hammond of the World Resources Institute, the 18 largest developing nations are home to some 680 million families earning USD 6,000 a year or less. These low-wage earners take in USD 1.7 trillion a year -- roughly the size of Germany's gross domestic product. The money is there, but why try selling these consumers expensive, bulky goods and services originally designed for consumers who easily make thirty times as much in North America, Western Europe or Japan? The solution: SACHET MARKETING, named after single-use shampoo sachets which sell for a few cents in emerging economies (for example, more than 60 percent of the value of the shampoo market and 95 percent of all shampoo units sold in India are now single-serve; source: Foreign Policy), which is all about micro-selling methods, about serving up products, services and loans in small portions and sizes, light versions, or single-use sachets, so that aspiring consumers can afford AND get to know and like your brand. Like the Smart Buddy system in the Philippines we recently highlighted, and Banco Azteca in Mexico, Unilever in Tanzania, or Whirlpool in South America. With the number of aspiring MASS CLASS members steadily rising, SACHET MARKETING is on a roll. Time for some inspiring new spottings, proving that virtually every business discipline and B2C industry can play at this game:
Hardware Personal computers, SACHET MARKETING style: in India, the Simputer, priced at less than 10,000 rupees, may look like a Palm handheld device, but it's several times more powerful. Multimedia and internet-enabled, current models allow the user the choice of English or one of three Indian languages built into the computer. It is designed to be useful even to the illiterate, thanks to built-in text-to-speech conversion software. Acer has also introduced a subRs 21,000 AMD Athlon-based desktop for the Indian market, which comes with Linux, a 40GB hard disk drive, CD ROM and 1.44 Floppy Disk Drive. A smart move, given the fact that the number of PC users is expected to hit or exceed 1 billion by 2010, up from around 660 million to 670 million today, fueled primarily by new adopters in developing nations such as China, Russia and India, according to analysts. (Sources: Business Times, CNet.)
Software Microsoft recently announced it would offer a low-cost starter edition of its Windows XP operating system in Asia starting in October 2004. This 'XP Lite' will have lower-resolution graphics, fewer networking options and less capacity for multitasking than full XP versions. Described as a "low-cost introduction to the Microsoft Windows XP operating system designed for first-time desktop PC users in developing countries", the software will be sold in Thailand, Malaysia and Indonesia. Cost? In Thailand, the software will go for 1,490 Thai Bath, or roughly USD 36. Security software maker Symantec is following suit and has launched a Thai version of its anti-virus software that costs
half
as
much
as
its
English
counterpart.
(Sources:
CNN,
CNet
Domestic
Asia,
BBC.)
Appliances
Consul, a Brazilian affiliate of Whirlpool, has designed a fully automatic three-cycle centrifuge washing machine that costs no more than a clunky tank washer, about USD 220. In India, Electrolux Kelvinator launched a refrigerator that keeps ice frozen for up to six hours after a power failure, which is an essential feature in a region plagued by blackouts.
(Sources:
Financial
NYT,
Newsweek.)
Services,
Microfinance
Bradesco, Brazil's biggest private bank, invested USD 100 million to set up very basic teller services (called Banco Postal) in underused post offices. Even though most depositors earn USD 65 a month or less, Banco Postal has already captured 1.6 million new accounts, and is expected to break even soon (source: Newsweek). In India, India's ICICI Bank together with engineers at the Indian Institute of Technology in Chennai have built the first rural ATM to serve micro-savers in remote areas of the subcontinent. It can process small denominations (normal ATMs don't dole out 10-rupee notes, yet many Indian consumers need them) and worn notes that are the main currency in Indian villages, and at only $800, the machine costs less than one-twentieth of the price of a regular ATM. Meanwhile, Citibank India was the first in India to open online-only accounts for small savers. Customers with only USD 20 to deposit can get special convenience accounts whereby they do everything through ATMs, the Internet or the phone. The number of these accounts has surged more than 60 in the past year to one million. (Sources: Newsweek,
FEER.)
Packaging With SACHET MARKETING innovations taking off, it will come as no surprise that the sachet itself is ready for innovation too. Check out Snap! International and Snap Pak, two companies that provide packaging of sachet products and a unique new advertising medium. The units are designed to open and dispense the product with a twofingered snap-and-squeeze (rather than cutting or tearing). In addition to more convenience, one side of the packaging can be printed with high-resolution, photographic quality artwork. For more info, see an earlier article on Springwise Telco
New
Business,
our
other
website.
The Cell Phone is the new Car, and nowhere does this ring more true than in SACHET MARKETING prone regions! For example, one of the most popular cell phones in rural India is the sturdy Nokia 1100, which is advertised as dust-resistant and doubles as a flashlight, as power supply isn't always as reliable as it should be. In China, China Mobile brought out the Shenzhouxing brand, aimed at low-end users, many of them rural. The brand offers plans with heavy roaming restrictions that cost as little as 0.20 yuan a minute, a price that rural residents, most of whom rarely travel, are willing to pay. Low-end wireless services from Netcom and China Telecom - also with restricted roaming - are comparably
priced.
And this May, in the run-up to Mother's Day, Brazilian consumers snapped up 1.5 million cell phones, the vast majority of them 'prepagos' -- basic, cut-rate handsets that operate on prepaid phone cards and which can be had on installment plans for as little as USD 3 a month. In neighboring Venezuela, BellSouth International's USD 4 phone cards (instead of the usual USD 10 or USD 20 cards) are wildly popular, and sell at more than 30,000 retail outlets. (Sources:
IHT,
Foreign
Policy,
Newsweek.)
Automotive At the lower end of the MASS CLASS you'll find consumers dreaming of owning a Volkswagen Golf, though insufficient funds may entice them to go for a Chery QQ or Renault X90 instead. These new 'MASS CLASS' cars, sometimes costing less than 2000 euros, come in 'light' versions, though sport nice enough design to not be uncool. For
a
full
update,
see
our recent
report on
MASS
CLASS
CARS.
Travel And in an interesting (if not ironic) twist, 'mature' members of the consumer society are discovering the convenience of sachets: both Mikrotravel and TravelBags offer stylish sachet kits to service last minute travelers, or those just tired of having to lug around a multitude of heavy flasks and tubes. From mikroTRAVEL's website: "We address the needs of the consumer whilst away from home with innovative personal care and grooming products that can be easily used at the beginning and end of the day. Our products will allow you to reduce the time spent packing toiletry containers that are too bulky to travel with and too time consuming to use." It's a SACHET world, indeed!
OPPORTUNITIES Thinking small in large volumes -- the essence of SACHET MARKETING -- yet never losing brand focus, could open up entirely new markets for many of the worlds B2C and B2B manufacturers and service providers. If your customers are willing but cash strapped, think micro loans, think mini-sizes, think light versions, think leasing, think bundling, think reselling, think making money and paying respect to your future affluent customers. >> Email this trend to a friend. RELATED
TRENDS
AND
NEW
BUSINESS
IDEAS
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REBIRTH
SACHET
MARKETING
OBC EASY-ASIA
Why famous in rural india Rural people consume most products such as shampoo, biscuits, tooth powder, etc in micro units. This is majorly linked to the fact that they earn in daily or weekly wages. The following discussion is to reason out why do they prefer daily/weekly wages in turn to explain the popularity of shampoo sachets (and not a shampoo bottle). If you visit any rural household or a surrounding retail stores please observe what kind of things they have. Tooth powder in sachet, Coconut oil in sachet, Fail & Lovely in sachet, only one soap bar (though they might be using multiple soaps in a month), small biscuit packet (Do you know the very popular Britannia Tiger?? it just contains 3 pieces instead of regular 10 pieces), the telephone usage with a 1 Re coin box, mobile phone usage in small top-ups (10/- or so), chota pepsi, etc. Basically consumption world is a miniature here. Basic reason for this micro-units of consumption is to use them for a day or for at most a week. Their consumption budget is just about a week or less. That is because their earnings fall under in similar periods. Typically in rural locations, the work contract period is about a week or less. In fact, it is day-contracts which rules here. Before proceeding further discussion on these consumption patterns, let me talk about an interesting topic and it is about you (Yes, I am talking about you, the reader). Assume, after a shopping exercise, you came out of a shop to return your home. As you are with some luggage, you wanted to return home with a auto-rickshaw. You found 3 autos standing on the road and you know it takes about 45/- to reach your home. When
you asked each auto driver, you were told 3 prices, first guy – 100/-, second guy – 50/third guy – 10/-. Then which one will you take to reach home? and why? Think for a while before reading further. Coming back to our original discussion, rural people plan weekly budgets unlike the Indian government which does 5-year budgets. As we have seen before that is because rural people earn in similar periods. And surprisingly, it is their choice to earn in daily but not monthly. Yes, you read it right, it is their preference. Why is that so? It is because, their logical capability to think is very limited. Just like birds, they can do additions up to 10, beyond which it is difficult for them to count. To understand things for a year period, you need to foresee a lot of things, and plan accordingly. This requires arithmetic skill-set. So it is skill-set deficiency that makes an issue with them. Again, what exactly is the issue?? By the way, did you find out which auto you would prefer? I am damn sure that it is not the one which charges 100/-. Moreover, it is not the auto that charges 10/- either. Second guy who charges 50/-, which is a little more than the usual charge of 45/-, is the one you prefer. Why is that so? Why do you wish to pay higher, when there is a guy who would take you as cheap as 10/- (and in fact, you are willing to pay more than the usual charge)? The reason is simple. You know that it is not economically feasible for him to run at 10/-. Because you know if the usual charge is 45/-, then any auto must be making 10-15/- (or 25%-40% margin). This means actual cost is about 30/-. Then you would start doubting the guy who just charges 10/- instead of some price more than the actual cost of transportation, that is 30/-. You would believe that he would make money in another fashion perhaps by robbing you or so and not by direct charge. That’s what is known as fear of uncertainty. No one likes to take unknown risk. Rural Indians can’t take decisions beyond a week or more is due to their incapability of logical thinking or arithmetic calculations. Beyond anyone’s capability falls under uncertainty. Rural people don’t wish take those unknown risks. This is the reason for their earnings in short periods, and so, they spend on micro-units of consumable goods. As you see, arithmetic or logical skill-sets are so much important in life.
Increase your sales with sachet marketing! What just is sachet marketing? It is very much about taking your usual product and breaking it down into more bite sized components (sachets) so as to reach out to the masses. Example 1 To reach millions of villagers who otherwise will not be able to afford a phoneline, GrameenPhone in Bangladesh offered a special package for ‘phone ladies’, ladies who pay a fixed fee to the telecom operator, and who in turn allowed her fellow villagers to make phone calls for a few taka a call. Example 2 Instead of doing the financially impossible task of having every villager in India own an internet terminal to access their land records, Daknet in India set up kiosks with offline terminals in villages, on which villagers can prepare their request. A rural bus then drives by to ‘pick up’ these requests via a Wi-Fi transfer, drives to the nearest Wi-Fi Hub, dumps the requests and picks up the return messages for the villages on its return route. Sachet marketing is already behind the concept of land banking companies (buying a big piece of land and selling small parcels of it to retail investors to finance the purchase, with a margin), real estate reits (buying a shopping centre and selling shares of it to retail investors) and other big purchases being made into bite-sized portions. If you are selling big ticket items, this could just be the strategy to increase your sales. Fancy owning a portion of the aeroplane, the train or the bus you take?
Tapping India’s Rural Market Sara Huhmann Undergraduate Student, Packaging Introduction Ten years ago, foreign consumer products were scarce in India and only available to the affluent. Import restrictions prevented or severely hindered foreign consumer goods from entrance to India. With the economic liberalization that ensued, foreign brands are now prevalent across India (Luce,
2002). Today, multinational corporations view emerging markets such as India as prime opportunities for growth. According to Shanthi Kanaan, writer for The Hindu, rural markets are growing twice as fast as the urban markets (2001). With a rural population equal to just under 2.5 times the population of the entire United States as of the 2000 census, the potential consumer base is astounding. But generally speaking, success in India’s rural markets for multinational corporations has been
mediocre at best. It is from these struggles and failures, however, that multinational corporations seeking to enter the rural Indian market can learn how to do so more wisely. Kellogg’s‚ is an excellent example of a company that has struggled in the Indian market. Kellogg’s entered the Indian market in the mid-1990’s. They had the intentions of finding a new market, which would consist of over a million people, many of whom did not eat cereal. What Kellogg’s discovered
was that they were introducing a completely new product category. This meant they would have to invest large sums of money to create new eating habits in consumers. The most common Indian breakfast consists of biscuits and tea (Dawar and Chattopadhyay, 2002). While Kellogg’s was busy creating new eating habits, local competitors were able to snatch away portions of India’s already small cereal market by introducing local
cereal flavors at lower prices (Prahalad and Lieberthal, 2003). The unimpressive sales that followed in their first three years resulted in Kellogg’s needing to completely realign their marketing to meet local needs as well as introduce a line of inexpensive breakfast biscuits. Disappointments like this have caused companies who seek to enter the rural Indian market to reevaluate their entire approach. Tapping India’s Rural Market 93Understand the Rural Market
With a population already in excess of one billion people, India has caught the eye of multinational corporations across the globe as a place of opportunity for exploring new markets. While India has portions of their population that would be considered wealthy or middle class by Western standards, a much greater percentage of India’s population is low income. As a result, they
spend money, live, and use products differently than the countries where most multinational corporations originate (Prahalad Lieberthal, 2003). Rural areas, in particular, exemplify these differences. Understanding the characteristics that make the people and the market in rural India unique can help corporations to enter this market with success. The key characteristics define the term rural,
determine the amount and flow of income, and determine the types of products and packages that are typically used in rural India. Defining Rural Seventy percent of India’s population, or approximately 700 million people, live in rural areas (Moorthi, 2002). As of the 2000 census, this equates to just under 2.5 times the population of the U.S. A location is defined as rural if at least 75 percent of the population is agrarian. With such a large number of
potential consumers, it is clear why multinational corporations would like to successfully penetrate the rural Indian market. Rural Income With an average income equivalent to $42 per month ($504 dollars per year), rural Indians have a very low disposable income (Kripalani, 2002). Most rural homes have minimal storage space and no refrigeration. Ve ry few people own or have access to cars. As a result, rural Indian purchasing habits
tend to be of an “earn today, spend today” mentality. Rather than buying in bulk, which would mean paying more for a large quantity upfront, ru r a l Indians tend to buy what they need for short segments of time (Dawar and C h a t t o p a d h y a y, 2002). These factors result in consumers buying pro d ucts l o c a l l y, as well as on a daily basis. In addition to the fact that income levels are low, rural incomes also vary greatly depending on the monsoons. When a monsoon hits, this devastates
the livelihood of most rural consumers because they are dependent on agricultural work for income. Corporations are also directly affected because this makes it difficult to predict demand (Kanaan, 2001). Products and Uses Before a company considers entering the rural market, understanding the types of products and packages that rural Indians typically use is crucial. For example, urban Indian consumers would typically use toothpaste for brushing their teeth, while most rural
Indians prefer using tooth powder (Balu 2001). As a company seeking to enter India’s market with an oral care product, this would be an important fact to know and consider during both the product and package development stages. Similarly, Hindustan Lever Ltd. (HLL), the Indian 94 Journal of Student Researchsubsidiary of Dutch-based Unilever, discovered that rural Indians tend to use the same soap for washing everything from hair to their bodies to clothing (if they use any soap at all). Because HLL manufactures products including various
soaps and detergents, HHL product and packaging development processes have taken this rural habit into account by designing all-in-one soaps (Balu, 2001). By taking into account the low disposable incomes and the unique product and package needs of this market, consumer products that are designed and packaged for this market have great potential. Strategically Align with Industry Another key aspect to consider is how and where to produce and
package the product. There are several options when a company is attempting to strategically aligning with industry. Companies can partner with an existing Indian company, buy out a local Indian manufacturer of a similar p roduct, or strictly import products into India while keeping manufacturing facilities elsewhere . Partnering The first and best option for aligning with the Indian industry is for the multinational to partner with an Indian company that is already successfully
producing and selling a similar type of product. In doing so, the new company can take advantage of the manufacturing facilities and distribution networks that are already in place rather than having to start from scratch. As a result of India’s colonial experience when it was controlled by Britain, many Indians have “…a profound mistrust of foreign brands” (Luce, 2002). By creating a partnership with an Indian company plays down the foreign factor and helps to dispel some of this mistrust.
Hindustan Lever is a multinational corporation that has found success with this method of aligning with industry. By partnering with local entrepreneurs who own and manage their own plants, Hindustan Lever is able to manufacture their products with minimal amounts of fixed capital. In these partnerships, the entrepreneurs agree to devote their plant’s capacity to manufacturing only Hindustan Lever products (Prahalad and Liebethal, 2003). Buy-Out
A second alternative for aligning a new industry to enter India’s rural market is to buy out a local Indian manufacturer. As with partnering, buying out a local manufacturer gives a company the ability to capitalize on existing manufacturing facilities and distribution networks. The disadvantage is that Indian consumers may view this negatively. Coca-Cola is an example of a multinational corporation that tried buying out a local distributor. In 1992,
Coca-Cola made its second appearance to the Indian market. In an attempt to eliminate its biggest competitor, CocaCola acquired Thumbs Up, the local market leader in cola. When Coca-Cola tried to exchange its own brand on the regular Thumbs Up distribution network, Indian consumers looked unfavorably upon Coca-Cola. The company has been struggling ever since (Luce, 2002). Tapping India’s Rural Market 95Importing Additionally, companies can enter India’s rural market by importing
products from manufacturing locations overseas. Importing has only been a viable means of getting consumer goods into India for just over ten years, when trade restrictions were eased (Luce, 2002). However, there are several disadvantages to this method of marketing to rural India. Without a manufacturing facility in India, a company has no ties to India’s already challenging distribution network, thus making sales even more difficult. In addition, Indian consumers tend to feel more loyalty and trust toward locally made products. The
aforementioned Thumbs Up and CocaCola scenario also illustrates this fact. Though Thumbs Up is a cola of lower quality that Coke, it is a locally made Indian brand that rural consumers can relate with. Consequently, Coca-Cola is third behind Pepsi and Thumbs Up in the Indian soft drinks market (Luce, 2002). Partnering with or buying out an existing Indian company, as well as importing from overseas, are all viable ways to get packaged consumer goods
into rural India. Based on the past experiences of multinational corporations entering the market, partnering is the most successful option. Tackle the Distribution Networks Distribution networks in emerging markets tend to be very unique and often times disjointed (Dawar and Chattopadhyay, 2002). India is no exception. Before a multinational corporation even considers entering India’s rural
market, it is important to first get an understanding of the current distribution system characteristics as well as the ways that the system is likely to change over time (Prahalad and Lieberthal, 2003). In doing so, a company can assess whether or not accurate and timely product distribution can be achieved without first investing in the distribution networks. Some of the characteristics unique to rural India’s distribution networks include the modes of transportation
used as well as the point of sale. Despite the challenges of the rural Indian distribution environment, there have been distribution successes from multinational corporations. Modes of Transportation Over three million retail outlets in India are reached by companies that produce packaged goods. Methods of transportation used include camels, bulldrawn carts, bicycles, trucks, and trains (Prahalad and Lieberthal, 2003). In addition, poor roads and unreliable electricity are two additional obstacles
common to the distribution networks in rural communities (Kripalani, 2002). Though glass bottles are popular in India, breakage can be a serious problem when the glass is carried over bumpy roads in the back of a truck (Prahalad and Lieberthal, 2003). Companies must be prepared to design packages for their products that will be capable of withstanding these types of conditions. 96 Journal of Student ResearchPoint of Sale The retail establishment where most rural consumers purchase their
day-to-day goods is at a kirana or street shop. These small open stalls line the streets and are approximately the size of a living room. Consumers purchase everything from bananas to razors at a kirana. With over 2.5 million kiranas throughout India’s rural towns and villages, keeping store shelves stocked is one of the main challenges to consumer goods manufacturers (Bullis, 1997). In order to reach these local shops and establish a brand presence in them, companies need substantial amounts of
working capital and a large committed sales force (Dawar and Chattopadhyay, 2002). Success Stories In spite of all the distribution challenges, there have been several multinational corporations that have experienced great successes in tackling the distribution networks. Hindustan Lever has been able to build a distribution network in India that directly serves 800,000 stores and uses wholesalers and
distributors to reach another 3.5 million outlets (Dawar and Chattopadhyay, 2002). Not only does this help Hindustan Lever move products from manufacturing facilities to retail outlets, it also provides a large deterrent to potential competitors. In addition to the distribution networks that reach local stores in India, Hindustan Lever began using an experimental concept called Shakti distributors. They implemented this tactic in 2000 to get their products into some of the most
remote rural areas (Balu, 2001). Douglas Bullis calls this a multilevel marketing system, where independent distributors sell products directly to consumers and earn a commission on the products they sell, plus for other distributors they recruit (1997). It is similar to the way Amway and Mary Kay distribute products in the U.S. Shakti distributors are rural Indian women who partner with Hindustan Lever to receive training in micro-business skills, which
includes a Personal Digital Assistant (PDA) to access product prices. They purchase HLL products at cost and sell them to their villages for a profit. This unique method of distribution gets products beyond the typical reach of HLL’s distribution networks (Merchant, 2003). In spite of the unusual modes of transportation and the challenge of supplying small kirana, creative distribution methods have produced success for several multinationals in the rural Indian market.
Create the Packaging Solution When approaching the task of designing a package for the rural Indian market, all of the aforementioned factors must be considered. Multinational Tapping India’s Rural Market 97corporations that have been successful with marketing and packaging consumer products for rural India have taken time to research the target market. They built an insightful and unbiased understanding of the characteristics that make it
unique (Prahalad and Lieberthal, 2003). As a result of this research, two of the most effective elements of a package designed for rural India include the size and visual communication. Material usage is also another important element for the packaging engineer to consider. Think Small Due to the fact that rural Indians have small disposable incomes and very little storage space, one of the most popular concepts to hit the rural
market has been sachets. Sachets are plastic pouches that contain approximately 20 milliliters (.68 oz.) of product (Bailay, 2003). Sachets were first introduced to India in the 1990’s by an Indian company selling a 10-milliliter sachet of Velvette shampoo. Before the sachet, shampoo in India was only available in larger bottles, therefore limiting its sales success among people with small incomes (Moorthi, 2002). Sachets meet the
needs of the rural consumer in several ways. Sachets are inexpensive, they occupy a small amount of space, and they allow consumers to experiment with new products that they may never have tried before (Bailay, 2003). Coca-Cola is another company that has found success by thinking small. In a packaging change aimed directly at the rural and lower-income markets, Coca-Cola launched a new 200 mL (6.8 oz.) bottle for the equivalent of 10 cents in 2001 (Kripalani, 2003). After introducing the smaller size bottle,
sales increased 34 percent by the end of the first quarter in 2002 (Kripalani, 2002). Packaging in smaller units clearly helps to increase the affordability of products for rural Indian consumers. Visual Communication The rural area is a market where large portions of the population are illiterate. So, when packaging consumer products for rural markets, companies must use prominent logo symbols and logo colors to assure that illiterate consumers will be able to recognize the products (Bullis, 1997). Therefore, communicating brand values through
the package rather than with words becomes essential. Emotional Surplus Identity (ESI) is a concept that that uses the shape, color, and content of a package to differentiate a brand in the eye of a consumer. By creating a bond with the consumer through the package, companies are able to establish a relationship that encourages repeat purchases. Loud, bright colors are typically used on packages to differentiate a product from the
others on the shelf and to create a lasting impression in a consumer’s mind 98 Journal of Student Research(Srivastava, 2003). Another technique used by multinational corporations has been tailoring products, including changing brand names, to give them a rural image. In the eyes of the consumer, branded products are associated with quality and value. Nirma, the largest selling detergent in the world, found success in the rural Indian market by using unelaborate packaging to position their product as
one that cleaned well yet was affordable (Bullis, 1997). While this technique is not the most eye-catching, it allows rural Indian consumers to experience the benefits of a branded product without requiring elaborate or expensive packaging on the part of the multinational corporation. Material Usage Cost is not only a factor that influences a consumer’s decision. Multinational corporations also address cost when evaluating various packaging options. For example, meeting the needs of consumers by packaging
p roducts in small quantities increases the packaging costs for a company in comparison to a large bottle of product. One way companies are able to keep the prices of sachet-type packages down is partially due to lower govern m e n t duties on small packs. In some instances, it can actually be cheaper for a consumer to purchase sachets rather than a bottle of product. For example, a 100-milliliter (3.4 oz.) bottle of Pantene shampoo retails for 61 rupees whereas 100 milliliters worth of sachets sells for 40 rupees (88 cents) (Bailay, 2003).
By thinking small, using pronounced colors and logos, and planning for material usage, multinationals can create packages that meet the needs of the ru r a l Indian consumer. Conclusion With an approximate population of 700 million people, the rural Indian market is important for multinational corporations to tap. Although rural Indians need to purchase consumer goods just as their Western counterparts do,
rural Indian consumers have a different set of needs that must be met by both package and product. Spending time researching the rural Indian consumer as well as the market before diving in can help to prevent unnecessary struggles and failures. If the opportunity exists, partnering with an existing Indian company upon market entry can provide several key advantages to a company. Understanding the available distribution networks in rural India is crucial to making a successful entry into the rural Indian market. Packages need to be
designed to withstand more distribution abuse due to poor roads and more primitive modes of transportation. Finally, when creating a package for rural India, small sizes allow consumers to try new products. It also caters to the fact that most rural Indians have low disposable incomes and little storage space at home. By applying these lessons that have been learned from multinational corporations in the past, the task of entering the rural Indian market should be promising.
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Srivastava, Prashant. Personal Communication. October 21 and October 31, 2003. 100 Journal of Student Research
