Wednesday
July 28
2010

Rishabh Kaul

Stories from Sarvajal’s Turf: Cartels

This is the second post in the Stories from Sarvajal series, where Rishabh Kaul describes his experience during this summer working at Sarvajal, a for profit enterprise trying to solve the water crisis in India. To get the maximum out of this post, do check out part 1.

After spending some time in North Gujarat, where things run pretty smoothly as far as issues of pricing and competition go, I made my way towards South of Gujarat. And boy was this was a whole new turf.

The South of Gujarat, especially the Valsad district, is a major industrial hub. In fact, Vapi, a major city in this district which is home to many chemical industries houses Asia’s largest Common Effluent Treatment Plant and is amongst the most polluted places in the world. This means there is a clear demand for purified water.

However, the pricing of the water brings into account various factors at play. Unlike the villages in the North where our machines are located, the south – apart from having regular houses – also has apartments (with no elevators). Also, unlike the North, labor costs are quite high. To transport the bottle from the ground level to the 4th floor, one has to pay up to 25 Rupees. Existing pure water players sell water in the range of Rs 25-40.

However, a bigger challenge that confronts new players is the existence of water syndicates. These syndicates have strong tie ups with the local communities.

How can Sarvajal operate under these conditions? The challenges are numerous.

Firstly, we have to understand that our franchisee owner/operator is from the village and hence is aware of these forces. At the same time, for us to ensure that he adheres to the rules without feeling like it isn’t a profitable business, we have to sit down with him and clearly make him understand how it is that a low margin high volume business works.

Secondly, what should prevent him from directly supplying to the syndicates at our rate (Rs 9) and then letting these syndicates sell the water at whatever price it is that they want to sell? After all, using this tactic, he can enter communities which he doesn’t have access to.

Some might think that the second bit isn’t really a challenge. Some of the cleverer lot might even suggest why not bypass these middlemen and directly enter these communities and market forces will take care of the rest, right? It makes good business sense right?

Well, not really. One reason is because, if the franchisee directly supplies to these communities (that have been served by syndicates for a long time) his fuel costs increase. Let’s suppose that due to the high volume of customers, that’s not an issue. There’s a bigger problem of the syndicate attacking the operator, his house, our machine or his delivery van while he is in their territory.

This is where tough choices have to be made. In such cases our marketing efforts have to be carefully executed. True, it’s a tough business and one has to move in aggressively, especially in the summer months when the demand is high, however one has to be tactful in doing so. So in my case, I suggested the franchisee operator to focus on areas that had no reach, to go to the poorest of the poor and explain to them the hazards of drinking contaminated water.

In my case, I was living with the franchisee operator so I got to interact with his neighbors and increase the word of mouth marketing of our product. One way of increasing market share was by using existing linkages. Say, if we’re supplying water to a shop, we’d ask him to consider buying water from us for domestic usage and thus enter into his community.

It’s still risky, mind you.

To counter the first problem, it’s only the numbers that can motivate the operator. So we embark on a massive marketing spree where we visit each household in our catchment area. Within a matter of 2 days, we were able to increase his customer base by 70 customers (or 140%). This showed him that people did like the value proposition that we offered. Slowly, over a period of time, these people would spread the Sarvajal message to their neighbors (who were paying nearly 4 times the price) who would then approach the operator to sign them up as well. This is a much different approach than aggressive marketing in other providers’ catchment area and risking the security of our operators and their assets.

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