ITC in Rural India                                                                          A Case Study      

By  

Abhishek Tandon (2009A08) Jerrin Jacob (2009A18) Kumar Mithilesh (2009A44) Rachit Khemlani (2009A48) Ranbir Vasudeva (2009A49)  

Subject: Rural & Social Marketing   

ITC in Rural India                                                                                                          

2  

Q1.  What is notable in the Indian context?  Rural India is on the rise. This can be more noted through following instances:

• In 2004, disapproving the claim by ruling co-alition of BJP that “India is shining”; rural folks outvoted them.

• NGOs worked closely with government and private sector. Self-help groups transformed village women into empowered entrepreneurs.

• Good deal of incentives were offered to small firms. SMEs were given more tax breaks. • With the growth of IT sector, FDI increased tremendously. • 88% of rural population lived on less than $2/day. • Government has focused greatly on rural employment, electrification, etc. NREGS was a good

step to provide jobs to rural folks. • Distribution chains of big FMCG companies didn’t extend beyond wholesalers located in small

towns that had a population of 100,000. • HUL started Project Shakti in 2001 to strengthen its rural presence. It was a great success. • ITC launched e-chaupal in 2000 to leverage on its agri-commodity business. Farmers were

benefitted.

ITC e­chaupal: Its Impact/Results on the Rural India 

Wide reach: The project has come a long way since its inception, and is today recognized as India’s largest Internet-based initiative, covering 1,300 choupals, linking 7,500 villages, and serving almost 1 million farmers. e-choupal has also established its presence in other states, such as Uttar Pradesh, Andhra Pradesh, and Karnataka. ITC, which exports US$140 million worth of agricultural commodities, sourced US$15 million worth of commodities from e-choupals in 2001.

Convenience for farmers: Web-enabled, real-time data on crop prices gives farmers an accurate picture of the prices they can expect from ITC and from different mandis. This information enables them to become informed decision-makers and thereby sell their produce at a price that gives them a higher profit margin. With the participation of agricultural supplies companies in e-commerce, the farmers now can also conveniently order agricultural inputs. Although the prices offered by ITC are not higher than those at the mandi, the farmer chooses ITC because the transactions are done closer to home and the practices of weighing and quality assessment are more efficient and transparent. Farmers save on travel time and costs and incur less wastage. Their savings have been estimated at Rs 400 to Rs 500 (US$8 to US$10) per ton of soyabeans.

Employment for villagers: The intermediaries are not removed from the value chain. Instead, their roles are redefined to samayojaks (coordinators), who assist ITC in setting up new e-choupals by conducting village surveys and by identifying the best sanchalaks. They manage the physical transportation of sales made at the e-choupal, collect price data from local auctions, and maintain records. In turn, these coordinators earn a commission on product processed. Over the years, with initiatives like e-chaupal; farmers became more informed and empowered in India.

ITC in Rural India                                                                                                          

3  

Key Elements of Empowerment 

1) Farmer calls the shots It is important to note that the final decision to sell their crops to the mandi or to ITC rests with the farmers themselves. The farmers can transact with the company directly and deal orders on the Internet. In the process, the farmers save about Rs 250–500 per ton, depending on their location relative to the collection center. ITC gains in terms of assured supply and savings of more than Rs 200 per ton by avoiding the transportation of the crop from the mandi to the collection center and other intermediary costs in the supply chain.

2) Information Access to information through e-choupal has reduced the dependence of the farmers on the traditional agricultural intermediaries. It has also enabled them to align their agricultural output with market demand. E-choupals enable transparent listing of various “mandi” prices, giving the farmers a fair chance to choose where to sell their produce to gain a better price, thereby increasing their bargaining power. Historical data on supply, expert opinion on future price movements, information on farming practices and techniques, soil testing and weather information also contribute to the empowerment of the farmer. 3) Inclusion/Participation The e-choupal model involved farmers in the design phase of the project. In some cases, farmers have also contributed to the content on the Web to ensure user-friendliness. The sanchalak who operates the computer is also a farmer selected from the village itself. Farmers actively access information for crop prices in mandis, and get inputs on soil testing, best farming practices, and expert advice from the system. 4) Accountability The e-choupal system considerably reduced transaction costs for the farmers. The weighing techniques under the system are accurate and transparent, and farmers are paid in proportion to the quantity of their produce, unlike the mandi system. In addition, quality measurement is more open as results are immediately available to farmers. 5) Local Organizational Capacity This initiative has created an organization at the local level that is transparent and accountable in its operations.  Q2. What are the opportunities and challenges of rural markets in India? 

Opportunities 

1. Low penetration level of FMCG products The rural Indian population is large and its growth rate is also high. The FMCG sector in the urban areas is becoming quite saturated (though it will continue to dominate in the next 8 – 10 years) while the penetration in the rural areas are only about 1%. The rural areas have and will continue to make up more than 50% (153 million) of India’s total households and accounting for more than its current 66% contribution to total FMCG consumption.

ITC in R 

 

2. HugeOver 70%simply shcompanicent of Itake of F

Sou 3. ImmiThe purcmarket. Tevery yeof FMCGpowder, 50%.

So

4. RisinIndia is n(2007), turban areurban are

Rural India  

e Consumer % of India’s hows the greaes to bank up

India's middleFMCG compa

urce: Census of In

inent Growthchasing poweThe market har and now acG are higher cooking oil,

ource: NCAER, Ind

g Rural Prosnow seeing athere are as meas. There areas.

53%5

0%

10%

20%

30%

40%

50%

60%

70%

Cigare

                      

Base 1.1 billion p

at potential rupon the volume-class and 5anies comes fr

dia, NSSO, 2001

h er in rural In

has been growccounts for clin rural markvanaspati gh

dian Market Demo

sperity a dramatic shimany ‘middlee almost twic

66%

58%

66

ettes Cooking 

Sale

Ru

                      

plus populatiural India brinme driven gro8% of the tot

from rural area

ndia is risingwing at 3-4% lose to 50% o

kets than urbahee, tea, cigar

ographics Report,

ift towards pre income andce as many ‘l

32%

6%

42%

Oil Electric Bul

es of consum

ural share 1985

                     

on lives in angs to the mu

owth. Rural Intal disposableas.

g steadily andper annum ad

of volume conan markets. Inrettes and hai

2002

rosperity in rd above’ houslower middle

57%

%

60%

lbs Tea

mer products

5‐86 Rura

                      

around 627,00uch needed vondia has a large income. Cu

d it has resuldding more thnsumption of n product cater oil, the sha

rural househoseholds in the income’ hou

51%

58%

Toilet Soap

s in Rural Ind

al share 1998‐9

              

00 villages inolumes and wge consuming

urrently, near

lted in the grhan one millif FMCG. The egories like to

are of rural m

olds. As per e rural areas useholds in ru

29%

47%

Toothpaste

dia

99

n rural areas.will help the Fg class with 4ly 34% of th

rowth of the on new consugrowth rates oilet soaps, ta

market is more

the NCAERas there are i

ural areas as

43%

58%

Washing Powder

 

4 

. This MCG

41 per he off-

rural umers of lot

alcum e than

study in the in the

ITC in Rural India                                                                                                          

5  

Source: NCAER Rural Infrastructure Report, 2007

5. Effectiveness of Communication A rural consumer is brand loyal and understands symbols better. The rural audience has matured enough to understand the communication developed for the urban markets, especially with reference to FMCG products. Television has been a major effective communication system for rural mass and, as a result, companies should identify themselves with their advertisements. Advertisements touching the emotions of the rural folks could drive a quantum jump in sales. 6. IT Penetration in Rural India Today there are over 15 million villagers in India who are aware of the Internet and over 300,000 villagers have used it! The rural consumers spend time and money to access higher level information. Studies have indicated that if the content has direct relevance and will result in commercial gains, people in rural areas are willing to pay for information services. Consumerism has altered rural buying behavior in recent years. Spending patterns of those who spend are now adapting to face the technology bug. If television could change the language of brand communication in rural India, affordable Web connectivity through various types of communication hubs will surely impact the currency of information exchange. As the electronic ethos and IT culture moves into rural India, the possibilities of change are becoming visible.  Challenges                                                                                                                      

1. Rural Consumer is different There is a vast difference in the lifestyles of the rural and urban consumers. The rural Indian consumer is economically, socially, and psychographically different from his urban counterpart. The kind of choices that an urban consumer makes is very different from the choices available to their rural counterparts. The behavior of rural consumer stems from fairly simple thought process in contrast to a much more complex one of urban counterpart. 2. Lack of market data to understand consumer behaviour Urban Indians and those living in small towns have been the target consumers for big FMCG companies so far. Therefore, there has hardly been any research into the consumer behavior of the rural areas, whereas there is considerable amount of data on the urban consumers regarding things such as - who is the influencer, who is the buyer, how do they go and buy, how much money do they spend on their purchases, etc. On the rural front the efforts have started only recently and will take time to come out with substantial results. So the primary challenge is to understand the buyer and his behavior.

ITC in R 

 

3. DispEven gremarketerextent th

Also withighly un 4. InfluRural copicture. Tstrong borural buy"laal wasubservieis a needinfluence 5. HeteThere is waani”. areas, difin urban 6. SpurRural maSo it becbrands. Thence is

Rural India  

persed populaeater challengr’s ability to hat 90% of the

Source: Cens

th agriculture npredictable w

uence of Retaonsumer’s braThe rural cusonding in termying behaviorla sabun denent to the retad to understaner in the buyin

erogeneous ca common sThe beliefs

fferent groupmarkets. Hen

rious producasses are illitecomes very eThe retailer albiased toward

0

20

40

60

80

100

120

Le

                      

ation in village lies in termsegment, targe rural popula

sus of India, 2001

being the mawhich can lea

ailer and choices stomer generms of trust ber is such thata" or "paancailer and he pnd the rural cng decision.

ulture and csaying about and customs

ps hold difference, it become

cts erate people aeasy for counlso gets a largds the fake pr

9.5

9.5

ess than 500 5

Pu

% 

                      

ages ms of the vasget and positiation is concen

ain business oad to high var

are greatly rrally goes to etween the twt the consumech rupey waalpushes whatevconsumer, sim

ustoms Indian villagof villagers

ent beliefs rees tricky to liv

and they idennterfeit produger profit on sroducts.

16.8

26.3

500‐999 100

upulation Ran

of population

                     

st differences ion his offerintrated in vill

of rural sectorriations in dem

restricted andthe same reta

wo. Also wither doesn't askli chai dena".ver brand fetmilarly need

ges – “Paanchange verygarding theirve up to the e

ntify a producucts to eat inselling the loo

25.7 29

52

8

00‐1999 2000

nge in Rural I

Cumul

                      

in the rural ngs. The poplages with po

r, the purchasmand patterns

d this is wheailer to buy gh the low eduk for the thin. Now in suchtches him theis there to stu

ch koas mein rapidly fromchoices. Thi

expectations o

ct by its packnto the markeok-alike rathe

9.8

11.

81.893

0‐4999 5000‐9

India (1991)

ative % of popu

              

areas which pulation is dispulation of le

sing power ofs.

ere the retailgoods. Natura

ucation levels ngs explicitlyh a scenario tgreatest retu

udy the retail

n paani badlm one place tis kind of divof rural consu

kaging (color,et share of e

er than the gen

2 7

3100

9999 10000 above

lation

severely limispersed to suess than 2000

f rural consum

er comes intally there’s aof rural secto

y by brand buthe brand bec

urns. Thus, as ler as he is a

le, aath koas to another. W

versity is not umers exactly

visuals, sizeestablished renuine product

& e

 

6 

its the uch an .

mer is

to the a very or the

ut like comes there chief

mein Within found .

etc.). eputed ts and

ITC in Rural India                                                                                                          

7  

7. Inadequate Infrastructure and Poor Connectivity Due to the poor infrastructure, % of villages are not accessible by regular modes of transport. Distribution of products becomes an arduous task here. Access to villages is hampered because of poor road, rail and telecommunications links. 8. Cyclic Income Farmers are very much dependent on rains in India. Also, the rural economy in India is primarily driven by crops. Hence, villagers acquire greater ability to buy FMCG goods during the periods of harvesting. Q3. What is the effect of stakeholders on the Bottom of Pyramid (BOP)?

The people at the BOP may be served by falling back on the Bottom of the Pyramid (BOP) marketing strategies and the 4 A’s - Availability, Affordability, Acceptability and Awareness. The BOP marketing strategies basically talk about aggregating the demand of consumers who have low individual purchasing power and are spread out. The basic commercial model for the bottom of the pyramid markets constitutes of four things namely,

• creating buying power, • improving access, • tailoring local solutions and, • shaping aspirations.

The 4 A’s model is explained in the context of ITC, as below:

Availability The first A is about making the product reach the consumers and the biggest barrier was overcome when a system for trading came into existence through e-chaupal. Distribution system was very critical for e-chaupal and through the “Hub & Scope Model” of procurement; ITC has ensured its success in rural areas. 6,500 e-chaupals cater to 40,000 villages in nine states, reaching 3.5 million farmers. With an e-chaupal covering average 6 villages and a Chaupal Saagar located close to small town (within 3-18 miles); bigger villages were targeted first, then the ones which were near a small town. Other than being a point of distribution, the procurement hubs were also used for promoting products to villagers who came frequently for either purchase of agricultural inputs or sale of their produce.

Acceptability It includes issues needed to be addressed to improve the willingness to consume, distribute or sell a product. In order to ensure how the product or service could be made more acceptable to the rural consumers, Sanchalaks were appointed. These sanchalaks are chosen among the villagers and this helps

ITC in R 

 

them buproduce, AffordabProduct populatioand the fpack, insmindset, SKUs at

Awarene

The last also needshould bmelas whplan. Mopivotal rthe need

Rural India  

uild credibility forecasts and

bility should seek ton where literfeature includstructions for

cost per-useround price-p

ess

A is linked tods to be adap

be in the locahich is frequeoreover, the pole in informfor personal

0

5

10

15

20

Source: ITC

                      

y with the vd technology.

to break an inracy is low ne

ded in the produse, packagi

e is more imppoints (Rs. 1, R

o the issues opted to the val language. Tented by the vpromotion pla

ming farmers ahygiene.

9.25

Farmer's Total 

Com

C Annual Report, 2

                      

villagers. San. Farmers are

nitial barrier feeds to be takduct need to bing etc. shoulportant than tRs. 2, Rs. 5, Rs

of promotion village environThe best placvillagers, the ans are deviseabout real-tim

3

Cost

mparison of T

Mandi Chain

2007

                     

nchalaks givemore likely t

for a villager ken into consibe rethought; ld be done takthe cost of ths.10) more fre

of products innment; the laces to promotlocal festivaled keeping ag

me market pri

8.385.38

ITC's Total Cost

Transactional 

n e‐Chau

                      

e the farmersto buy produc

to buy a prodideration befoe.g. price-po

king the BOPhe overall proequently since

n rural areas.anguage and te the services should alsogricultural cyices. They als

17

8

t Total T

costs ($/MT

upal Chain

              

s vital inputscts if they are

duct for the fiore coming ouoint, labels, sizP into consideoduct. They pe their buying

The promotimeans of co

es could be t be included

ycles in mind.so help a big

7.63

8.38

Transactional Co

)

about agricuendorsed by

first time. Theut with the prze of SKU, tyeration. For aprefer to buy g power is low

ion of the prommunication

the local haatin the promo. Sanchalaks way in prom

ost

 

8 

ulture them.

e rural roduct ype of a rural small

w.

oducts n used ts and tional pay a

moting

ITC in Rural India                                                                                                          

9  

Q4. Suggest some possible “affordable product forms” that ITC can offer to the rural BOP w.r.t. the FMCG sector. 

In rural areas people don’t believe in brand they buy product on the basis of the prices. For them buying a branded product is not a necessity always. They will buy products if we show them the value proposition.

Following product forms may be offered to rural BOP w.r.t. the FMCG sector:

• Low cost Toothpaste (by propagating awareness about oral care and launching low-cost toothpaste) • Low cost Soap (just like lifebuoy) and affordable hair-care products (sachets of shampoos & hair oil) • Fresh Mint based on natural ingredients (may complement cigarette consumers’ profile) • Chewing Gums (for teenagers & kids) • Vegetable Oil (since soya is already procured on a heavy scale) • Detergent (for the low-income and value-seeking consumers) • Food grain (flour “aata” --- a necessity product) • Salt (by promoting the importance of Iodine) • Tea (fitting to regional tastes; procured from farms) • Non-durables such as glassware, bulbs, batteries, paper products, and plastic goods • Health foods and beverages (to leverage on farm produce; an extension of agri-business) • Ready-to-eat and processed food variants (staples, wafers and confectionary) • Milk and related products (Their Hub & Spoke model of procurement already in place) • Instant noodles and ready-to-eat products (especially targeted for school children) • Paperboards, writing instruments (pen, pencil etc.)

 

 

References: 

1. Exhibits at the end of case – ITC in India

2. Kashyap Pradeep & Raut.(2005). Rural Marketing Book New Delhi. Biztantra Publication

3. http://www.ibef.org/economy/ruralmarket.aspx

4. Prahalad C K. (2004). Fortune at the Bottom of the Pyramid, New Delhi: Pearson Publication

5. Ganguly, A S. (1985). The Growing Rural Market in India. Marketing in India. New Delhi.

6. McKinsey Report.(2007). The ‘Bird of Gold’: The Rise of Indian Consumer Market. McKinsey Global Institute.

7. NCAER Rural Infrastructure Report. (2007). New Delhi : NCAER.