Thursday
December 23
2010

Karthik Chandrasekar

Rural Marketing Congress India 2010: Reaching the 700 Million

(Above: Investor Panel Session, from left to right: Anurag Agrawal, Sr VP- Intellecap, Vishal Vasishth, MD, SONG; Karthik Chandrasekar,Portfolio Manager, Acumen Fund; Gaurav Gupta, Regional Director, Dalberg. Photo courtesy of Rural Marketing Congress).

Everybody understands the macro issues facing India when it comes to sectors like energy, water, sanitation, healthcare, education and agriculture. But that knowledge, in and of itself, does not create an opportunity or a market demand.

Defining and addressing these challenges were front and center when I attended the Rural Marketing Congress India 2010 organized by Ideas-Exchange earlier this month. The event brought together panelists and delegates from companies of varied sectors and sizes – all focused on marketing to the 700 million strong and largely under-served Indian rural market. There were far more people with questions than with answers, and there were as many dialogues about what works and what to do as there were about what doesn’t work or what not to do.

Here are some of my simple, but important take aways from the conference:
(1) Rural is not the same of Bottom of the Pyramid, there is a sizable population of customers with spending power (usually rolled up and tied with a rubber-band), so, for a Mahindra & Mahindra (M&M), according to Rahul Sharma, Head – Centre for Rural Information & Insights, M&M there is as much value in the creation of a high-end Hummer of a tractor as there is in making a 15-horsepower Yuvraj-215 tractor for a small farmer (less than INR 2,00,000) that replaces his bullocks.

(2) Having a range of products helps provide customers the opportunity to choose the product that is right for them. The probability of a purchase is higher when a company has a range of products with which the consumer can compare price vs. performance. This is especially important in a nascent market were there aren’t too many players

(3) Bundling or having a basket of related products and services also helps. For M&M, this means bundling implements and agronomic advice. Financing based on customers’ cash flows and strong relationship management completes the equation. When internalized in the product price, financing and bundling can reduce customer acquisition and service costs – i.e., sales per field staff increases. This also provides an opportunity for awareness generation, marketing, and analyzing marketing RoI over a purely sales driven organization. KYC (or Know Your Customer), as my colleague from d.light design, Mandeep Singh puts it is key to tailoring both the product and messaging to the customer. This includes understanding historical associations (bigger and heavier is better) and perception (quality of light depends on size of room and ambient light available).

But, not everybody is selling tractors, mobile phones or fast-moving consumer goods, which seem to have found their way to the rural markets. The new bastions to be conquered for the rural market are the consumer goods market and the customized value added service market. The former is where I spend a lot of my time as the Energy portfolio manager at Acumen Fund, where we are looking to ways to reach clean energy products like lights or cook stoves to the large populations that use kerosene lamps and biomass based chulas today. Apart from players like d.light, Envirofit, Duron and Greenlight Planet (all present and paying attention) entrepreneurs like Ajaita Shah from Frontier Markets, Prema Gopalan from Swayam Shikshan Prayog and Anu Valli, Rural Energy Network Enterprise, RENE (IFMR Trust) are looking to directly address this market by taking the burden of awareness generation, KYC, marketing and distribution.

Everyone has come to the conclusion that MFIs are not going to be the answer when it comes to distribution, and that financing is often used as a means to postpone payment of the product with an option to default if the product does not perform as expected! Gaurav Gupta from Dalberg spoke about the burning issue on “To franchise or not to franchise?” and provided some great case studies on what works and what does not work, but, essentially pointed to the fact that the question is all about marketing. Even the likes of Hindustan Unilever (HUL) are figuring out how to tap the rural market for their potable water solution, Pure-it. That might explain the large number of HUL professionals in the audience! But, I digress.

The later, customized value added service market, is what is of interest to some of my colleagues who look at agriculture and healthcare. The fact is that (4) the rural Indian family is also adding more predictable streams of income from the non-farm sector and creating the ability for them to pay for ongoing services especially for information and financial services for agriculture, healthcare and education. What these organizations are looking to take advantage of is the information asymmetry today between the poor who lack access to the market.

V.N. Saroja from Indian Agribusiness Systems and Amit Mehra from Reuters Market Light are respectively taking the Internet and mobile-telephony route to address this market in the agriculture sector. Amit laid out what takes to build a highly personalized micro-information service with the farmer’s point of view. Something as simple as providing product names or local names over chemical names or information in drops/liter over ppm (parts per million) really makes a big difference and can only be generated via continuous feedback and customization of the product to the customer’s needs. With the right tools, the customers will show you the way – including farmers who collect market prices over time – and draw trend lines to negotiate with the middle-men!

I’ll end with a quick note on my own session on investors thinking outside the box. It was an honor to be seated next to Vishal Vasisth from SONG Advisors who laid out the macro drivers for the sectors that SONG looks at and the execution discipline when it comes to growth capital. Anurag Agarwal from Intellecap advised the entrepreneurs to get professional advisors when looking to raise capital, manage finances and legal issues. In my case, I asked entrepreneurs to focus on the micro-picture: why do people buy? Why would consumers continue to buy as other competitors and substitutes enter the market? For Acumen Fund, it all comes down to driving up adoption rates and driving down cost to serve. The former is all about a sandbox of innovation, product development and effective marketing, the latter is mostly about disciplined execution especially in markets like India. Getting the unit economics positive and staying disciplined in finance and operations (Management Information Systems, or MIS, strategy can play a huge role here – the INR 25 Crores spent by SKS is proof for return on investment) can provide the basis for scale as well as the freedom to play outside the box, which I suppose would be the lush fields of rural India!

P.S.: Many thanks to the Ideas Exchange team for organizing a great conference, and I look forward to it next year.

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Base of the Pyramid, conferences, rural