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INDIAN INSTITUTE OF
PLANNING AND MANAGEMENT

Project Report on Industry

Research

Submitted to Prof. Alpi Jain

By Group No. FN739 -

1. Nupur Jain
2. Shashank Tayal
3. Sumit Mudgil
4. T. Subramanian
5. Vanashree Shreya
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6. Yugandhar Reddy
ACKNOWLEDGEMENT

We know that the helping hands of many people back up the success.. Even our project
wouldn’t have been possible without the eminent guidance of our teachers, suggestion of our
colleagues and a sincere thanks to our respondents for their valuable views.

We are thankful to Prof. ALPI JAIN for giving us continuous help and guidance for the project.
We are indebted to our colleagues at IIPM for their contributions in improvements and
reviewing the project report.

We express our heartful gratitude to all who assisted and supported to accomplish our goal.

Above all we are thankful to almighty who blossomed us with his blessings for the completion of
the project.

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PEST ANALYSIS

POLITICAL ENVIRONMENT

India is the biggest democracy in the World. The government type is federal republic. Based on
English common law; judicial review of legislative acts; accepts compulsory ICJ jurisdiction
with reservations; separate personal law codes apply to Muslims, Christians, and Hindus. The
political Situation in the country is more or less stable. For most of its democratic history, the
federal Government of India has been led by the Indian National Congress (INC). State politics
have been dominated by several national parties including the INC, the Bharatiya Janata Party
(BJP), the Communist Party of India (CPI), and various regional parties. In the 2004 Indian
elections, the INC won the largest number of Lok Sabha seats and formed a government with a
coalition called the United Progressive Alliance (UPA), supported by various left-leaning parties
and members opposed to the BJP. Overall India currently has a coalition led government and
both major political parties the UPA and BJP, whichever comes in power.

Many companies set a standard as to the way of tackling political issues. Most of them have its
tactical way of handling political issues. First, in the 1960s, many countries began to nationalize
foreign firms which also affected FMCG sector. This was a call for local equity participation in
foreign firms. Thus, so many companies were subject to local control on prices, imports,
employment of expatriates and so on. As a result of the adverse effect of nationalization policy,
in the 1970, many US companies e.g. IBM and coca cola left India. There was fear by foreign
companies on certain issues such as knowledge leakage; loss of trademark etc. Many companies
are only engaged in lobbying rather than active politicking. In other words, companies never get
involved in sponsoring political parties.
The basic breakthrough was made during the implementation of LPG policies by the Indian
government during 1991 and thereafter.

ECONOMIC ENVIRONMENT

The economic factors in India are improving continuously. The GDP is estimated at 1.298
trillion U.S. dollars in the year 2009. The Growth Rate- real growth rate in 2008 was 9.03%.

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India has the third highest GDP in terms of purchasing power parity just ahead of Japan and
behind U.S. and China. Foreign direct investment rose in the fiscal year ended March 31 2008 to
about $24.57 billion from just $15.70 billion a year earlier. There is a continuous growth in per
capita income; India’s per capita income is expected to reach Rs. 36,278 by the end of 2008-09
from Rs.33,283 in 2007-08. This will lead to higher buying power in the Hands of the Indian
consumers. FMCG market environment is becoming highly competitive especially in the
Western and Northern India. P&G, HUL, ITC are the major competitors in the Indian market.
More so, there are so many discounters in the Indian market resulting from lower degree of entry
barriers. This has had bolstering effect on FMCG’s profit potentials. Retailers are pressurizing
FMCG producers to reduce prices of their products. Consumers on the other hand would not
want to buy expensive product or brands due to current economic tide. In the developing
countries and the emerging economies (Asia and Africa), where there are political instability,
companies have adopted their strategy to ensure that their profitability drive is sustained. Some
Products are packaged in small size for low or regular income earner, for affordability. In some
developing countries, Nigeria to be precise, there was uncertainty about duties to be paid by
companies due to inflation and fluctuation of currency. The effect was a decrease in profit in
2005 compared to 2004, though there was increase in turnover.

SOCIO-CULTURAL ENVIRONMENT

India is the second most populous nation in the world with an approximate population of over
1.1billion people. This population is divided in the following age structure: 0-14 years – 31.8%,
15-64 years – 63.1% and 65 years and above – 5.1%. There has also been a continuous increase
in the consumption of beer in India. With an increase in the purchasing power the Indian
consumer which preferred local hard liquor which is far cheaper is now able to get a taste of the
relatively expensive beer market. The social trend toward beer consumption is changing and
India has seen an increase of 90% beer consumption from the year 2002- 2008. This increase is
far greater than the increase in the BRIC nations of Brazil (20 per cent), Russia (50 per cent) and
China (almost 60 per cent). Thus this shows a positive trend for beer industries in India.
The companies are working relentlessly to bring improve hygiene and better nutrition to people
in Asia, Africa and Latin America, especially the poor and obesity. Over 12% of Indian
population lives on less than $1 per day. However, the low literacy of consumers affects
marketing vehicles such as advertisement in print media. This therefore requires employment of
more resources, for instance to enhance face-to-face communication. Besides, companies are
employing about million of nationals. It ensures that diversity works for everybody both
employees and consumer alike. In order to achieve and ensure that diversity works amongst
employees, companies employ the strategy of diversity toolkit so as to manage and leverage
diversity. FMCG companies are focused on building an exclusive culture and embracing

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difference, which resulted in high demand of its products in the developing and emerging
markets.

TECHNOLOGICAL ENVIRONMENT

The Indian Industry is heating up with a lot of foreign players entering the Indian market. The
technological knowhow and expertise will also enter the Indian market with an increase in
competition. For example beer brewing technology major Ziemann has entered India and has set
up manufacturing plant in India. Ziemann Group, based in Ludwigsburg near Stuttgart in
Germany, has founded Ziemann India. It will start production in 2008. This will help bring in
technological knowhow and increase the production of beer.. The new plants are planned for
Sonipat in Haryana and for another location near Bangalore. Both breweries will have an annual
capacity of 1 milllion hectoliters each in the beginning and might be extended later. Thus with
European technology entering the Indian market increased production and lowering cost of
production could play a major role in the Indian market.

The initiatives taken by the Government for the technological up gradation are as follows:

1. Assistance to industry associations/voluntary agencies to set up testing centre’s;

2. Field testing stations provide testing services and services for quality up gradation;
3. Under the integrated technology up gradation and management programme 59 clusters
have been taken up, which include National Programme for the Development of Toy
industry, Stone industry, Lock industry, Machine tool industry and Hand tool industry
taken up in collaboration with UNIDO.
4. Under the scheme of promoting ISO 9000/14001 Certification, SSI units are given
financial support by way of reimbursing 75 % of their expenditure to obtain certification
subject to a maximum of Rs. 75,000.
5. Under the credit linked capital subsidy scheme for technology up gradation (launched in
2000), 15% capital subsidy is admissible on the loans up to Rs. One crore, advanced by
Schedule Commercial Banks, SFCs, NSIC to SSIs for technology up gradation.
6. Setting up Biotech Cell in SIDO.

Since 2000, companies have been spending on IT to improve its business especially in the
area of e-business so as to improve brands communication and market through internet,
making transaction simple along chain. Today, companies are trying to minimize cost
through IT efficiencies at global level. Area of concern is genomics, advanced bioscience,
advanced materials science and nanotechnology. In 2003, many companies installed and
commissioned “pallet live storage system” from Bitto Storage System Ltd. This was meant
to store its frozen products. The facilities include: pallet live storage systems, carton live

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storage systems, pallet racking, boltless shelving, plastic bins and containers, wide span and
heavy load shelving, cantilever racking, and multi-tier shelving systems.

ENVIRONMENT

The environmental regulatory requirements envisage a wide legislative framework covering

every aspect of environment protection like air, water, noise, forest conservation, wildlife
protection, etc. Also, separate set of laws and rules for emission of hazardous wastes have been
enacted. The Ministry of Environment and Forests (MoEF), is the nodal agency for regulating
all such environmental aspects. It undertakes conservation & survey of flora, fauna, forests and
wildlife; prevention & control of pollution; a forestation & regeneration of degraded areas.
Every industry has to abide by all such guidelines and parameters for environmental protection
because only this will ensure its sustainable progress and growth
In recognition of local legislation, and to keep its corporate responsibilities, government has
designed management system. Companies pay more respect for consumer health and safety.
This policy is to ensure all operators establish a formal environmental management system.
Training programs are being arranged in various regions/business groups to ensure compliance
with the company Standard for Occupational Health and Safety Environmental Care (SHE). This
framework is based on the ISO 14001 management standard. Companies have also worked in
conjunction with government of countries of its operation as regards waste management. For
instance in India, 2008, over 21 tones of wastes were supplied to small and medium size
recycling businesses to reduce the amount of plastic waste sent to landfill.

Industrial analysis

FMCG are products that have a quick shelf turnover, at relatively low cost and don't require a lot
of thought, time and financial investment to purchase ‘Fast Moving Customer Goods’ is in
opposition to consumer durables such as kitchen appliances that are generally replaced less than
once a year . FMCG is characterized by strong presence of MNC and well established
distribution network. The intense competition between the organized and unorganized segments
operating at low operational cost.

The Indian FMCG sector with a market size of US$13.1 billion is the fourth largest sector in the
economy. A well-established distribution network, intense competition between the organized
and unorganized segments characterize the sector. FMCG Sector is expected to grow by over
60% by 2010. That will translate into an annual growth of 10% over a 5-year period. It has been
estimated that FMCG sector will rise from around Rs 56,500 crores in 2005 to Rs 92,100 crores
in 2010. Hair care, household care, male grooming, female hygiene, and the chocolates and
confectionery categories are estimated to be the fastest growing segments, says an HSBC report.
Though the sector witnessed a slower growth in 2002-2004, it has been able to make a fine
recovery since then.

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Growth Prospects

With the presence of 12.2% of the world population in the villages of India, the Indian rural
FMCG market is something no one can overlook. Increased focus on farm sector will boost rural
incomes, hence providing better growth prospects to the FMCG companies. Better infrastructure
facilities will improve their supply chain. FMCG sector is also likely to benefit from growing
demand in the market. Because of the low per capita consumption for almost all the products in
the country, FMCG companies have immense possibilities for growth. And if the companies are
able to change the mindset of the consumers, i.e. if they are able to take the consumers to
branded products and offer new generation products, they would be able to generate higher
growth in the near future. It is expected that the rural income will rise in 2009, boosting
purchasing power in the countryside. However, the demand in urban areas would be the key
growth driver over the long term. Also, increase in the urban population, along with increase in
income levels and the availability of new categories, would help the urban areas maintain their
position in terms of consumption. At present, urban India accounts for 66% of total FMCG
consumption, with rural India accounting for the remaining 34%. However, rural India accounts
for more than 40% consumption in major FMCG categories such as personal care, fabric care,
and hot beverages. In urban areas, home and personal care category, including skin care,
household care and feminine hygiene, will keep growing at relatively attractive rates. Within the
foods segment, it is estimated that processed foods, bakery, and dairy are long-term growth
categories in both rural and urban areas.

FMCG Sector Size

1. The Indian FMCG sector is an important contributor to the country's GDP.

2. It is the fourth largest sector in the economy and is responsible for 5% of the total
factory employment in India

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3. This has been due to liberalization, urbanization, increase in the disposable incomes
and altered lifestyle
4. The lower-middle income group accounts for over 60% of the sector's sales. Rural
markets account for 56% of the total domestic FMCG demand
5. Fast moving consumer goods have gained importance with retailing gaining
prominence.
6. Total market size in excess of US$ 13.1 billion
7. Availability of key raw materials, cheaper labor costs and presence of highly
effective supply chain system gives competitive advantage.
8. The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion
in 2015.
9. Penetration level as well as per capita consumption in most product categories is low
indicating the untapped market potential, hence the market potential of growth is
very high.
10. Burgeoning Indian population, particularly the middle class and the rural segments,
presents an opportunity to makers of branded products to convert consumers to
branded products.
11. With 200 million people expected to shift to processed and packaged food by 2010,
India needs around US$ 28 billion of investment in the food-processing industry.
12. With the retail gaining momentum, the FMCG prospective growth can be realized
with increase in sales volumes.
13. There is an increase in the disposable incomes and altered lifestyle which is being
fueled by the increase in the per capita income.
14. The increase the population will increase the demands many fold.

Threats / Risks

1. Due to cut throat competition there is severe pressure on margin for the manufacturers of
FMCG products.
2. The rural and semi urban population is growing but the problem faced by the FMCG
manufacturers is the logistics.

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3. Some problems associated with rural markets is acute dependence on the vagaries of the
monsoon, seasonal consumption linked to harvests, festivals and special occasions, poor
roads and power problem.
4. Once the product fails it’s not easy to revive it back.
5. When the company launches a new product its competitor will also launch the new
product in the same line, within the short span.
6. Hopping from one product to another is too high, due to very large pool of products.
Customer Loyalty is big issue.

7. Tolerance level in the customer satisfaction is quite low, due to easy availability of other
options.

Opportunities

India is one of the world's largest producer of FMCG goods but its exports are miniscule as
compared to production. Though Indian Cos. have been going global, their focus is more
towards Asian countries because of the similar preferences. HUL and ITC are one of the top
companies exporting FMCG goods from India. An expansion of horizons towards more and
more countries would help these companies to grow their consumer base and henceforth the
revenues. Opportunity in Food Sector - The advent of modern trade has opened up greater
opportunities for companies to diversify their brand and strength its food division.

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. Penetration levels for some major categories like skin-cream (22%), shampoo (38%),
toothpaste (48%) and processed foods, continue to remain low offerings but great growth
opportunities products.
Policy for Foreign Direct Investment (FDI)
Promotion of foreign direct investment forms an integral part of India’s economic policies. The
role of foreign direct investment in accelerating economic growth is by way of infusion of
capital, technology and modern management practices. The Department has put in place a liberal
and transparent foreign investment regime where most activities are opened to foreign
investment on automatic route without any limit on the extent of foreign ownership. Some of the
recent initiatives taken to further liberalize the FDI regime, inter alia, include opening up of
sectors such as Insurance (upto 26%); development of integrated townships (upto 100%);
defense industry (upto 26%); tea plantation (utp 100% subject to divestment of 26% within five
years to FDI); Enhancement of FDI limits in private sector banking, allowing FDI up to 100%
under the automatic route for most manufacturing activities in SEZs; opening up B2B e-
commerce; Internet Service Providers (ISPs) without Gateways; electronic mail and voice mail
to 100% foreign investment subject to 26% divestment condition; etc.
The Department has also strengthened investment facilitation measures through Foreign
Investment Implementation Authority (FIIA).
List of Industries Requiring Compulsory License
With the introduction of New Industrial Policy in 1991, a substantial programme of deregulation
has been undertaken. Industrial licensing has been abolished for all items except for a short list
of five industries related to security, strategic or environmental concerns. These are:

1. Distillation and brewing of alcoholic drinks.

2. Cigar, cigarettes and other substitutes of prepared tobacco.
3. Electronic, aerospace and all types of defense equipment.
4. Industrial explosive including match boxes.
5. Hazardous chemicals.

GOVERNMENT INITIATIVES
• Rural focus, employment generation and infrastructure spending will improve rural
income. Focus on the rural areas to continue. Sustained focus on agriculture growth,
direct subsidy to farmers and extension of debt waiver for 6 months has been provided.
• Allocation under Rural Employment Guarantee Scheme (NREGS) increased by 144%.
• Excise and custom duty cuts provided at the start of the year to continue.
• Process for the smooth introduction of the Goods and Services Tax (GST) will come in
effect from 1st April, 2010.
• 4% duty maintained on paper and paperboards, biscuits, sharbats, cakes and pastries.

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• Investment linked tax incentives to be provided to the businesses of setting up and

operating 'cold chain' warehousing facilities for storing agricultural produce.
• Tax exemption on personal income increased from Rs 150, 000 to Rs 160, 000 FOR
Males and 190,000 for Females
Fringe benefit tax (FBT) abolished. Surcharge of 10% on personal income-tax also
removed. The FMCG sector will benefit with the removal of the fringe benefit tax as it
adds to the costs unnecessarily.
• GST is a tax on consumption and FMCGs form the core of the consumption basket. The
government's announcement regarding GST will usher in a single tax regime across product
categories. It will lead to rationalization and simplification of the consumption tax structure at
both the centre and state levels, thus bringing relief to the consumers.
• The tax incentives provided to cold chain warehousing facilities would give a boost to the food
processing industry. 30% of the produce does not reach the end consumer, but gets wasted
annually. This results in low prices for farmers and higher cost for consumers. Though private
players are investing in cold storage facilities, support from government is needed on priority
basis.
• Concession customs duty of 5% on specified machinery for tea and coffee and to be
reintroduced for another financial year. Excise duties on certain food products like
biscuits, pastries remains unchanged at 4%
• Exemptions on the personal income tax would increase the income in the hands of the
consumers, thereby increasing spending. No changes made in the corporate tax rates.

• Rate of minimum alternate tax (MAT) on book profits has been increased from 10% to
15%, but with a provision of carrying forward the tax credit on MAT to ten years from
the current seven years.

Porter’s Five Forces Model

Rivalry among Competing Firms
In the FMCG industry, rivalry among competitors is very fierce. There are scarce customers
because the industry is highly saturated and the competitors try to snatch their share of market.
They use all sorts of tactics from intensive advertisement campaigns to promotional stuff and
price wars etc. so overall the intensity of rivalry is very high.

Potential Entry of New Competitors

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The industry does not have any measures with which it can control the entry of new firms. The
resistance is very low and the structure of the industry is so complex that new firms can easily
enter and also offer tough competition due to cost effectiveness. Thus, potential entry of new
firms is highly viable.

Potential Development of Substitute Products

There are complex and never ending consumer needs and no firm can satisfy all sorts of needs
alone. There are plenty of substitute goods available in the market that can be replaced if
consumers are not satisfied with one. The wide range of choices and needs give a sufficient
room for new product development that can replace existing goods.

Bargaining Power of Suppliers

The bargaining power of suppliers of raw materials and intermediate goods is not very high.
There is ample number of substitute suppliers available and the raw materials are also readily
available. There is no monopoly situation in the supplier side because the suppliers are also
competing among themselves.

Bargaining Power of Consumers

Bargaining power of consumers is also very high. This is because in FMCG industry the
switching costs of most of the goods is very low and there is no threat of buying one product
over other. Customers are never reluctant to buy or try new things off the shelf.

e.g. -1) Sunsilk-Thick-Long-200-ml-free conditioner-Rs 101.00 (HUL)

Fiama Di Wills Silky Strong Shampoo 200 ml – Free conditioner - Rs. 109.00 (ITC)

2) Dove Soap – Rs 43 (HUL)

Fiama Di Wills Soap – Rs 40 (ITC)

ITC Ltd
Introduction

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ITC Ltd is one of India's premier private sector companies with diversified presence in
businesses such as Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-
Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel,
Greeting Cards, Safety Matches and other FMCG products. Presently, ITC has a market
capitalization of nearly US $ 15 billion and a turnover of over US $ 4.75 billion. It employs over
21,000 people at more than 60 locations across India. ITC has been rated among the World's
Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes
magazine, among India's Most Respected Companies by Business World and among India's
Most Valuable Companies by Business Today. ITC was incorporated on August 24, 1910 under
the name of 'Imperial Tobacco Company of India Limited'. The name of the Company was
changed to I.T.C. Limited in 1974.

ITC is involved in following businesses:

Cigarettes: ITC is the market leader in cigarettes in India and has a wide range of popular brands
such as Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan,
Berkeley, Bristol and Flake in its portfolio.

Packaging: ITC's Packaging & Printing Business is the country's largest convertor of paperboard
into packaging. It was set up in 1925 as a strategic backward integration for ITC's Cigarettes
business. It offers a variety of value-added packaging solutions for the food & beverage,
personal products, cigarette, liquor, cellular phone and IT packaging industries.

Hotels: ITC entered the hotels business in 1975 with the acquisition of a hotel in Chennai which
was rechristened Hotel Chola. Today ITC-Welcome Group with over 70 hotels is one of the
foremost hotel chains in India.

Paperboards: In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam
Paperboards. ITC's Paperboards business has a manufacturing capacity of over 360,000 tonnes
per year and is a market leader in India across all carton-consuming segments.

Greeting, Gifting & Stationery: ITC's stationery brands "Paper Kraft" & "Classmate" are widely
distributed brands across India. The Paperkraft designer stationery range consists of notepads &
multi subject notebooks in hard, soft covers & multiple binding formats including spirals, wires
etc. ITC's Greeting & Gifting products include Expressions range of greeting cards and gifting
products.

Safety Matches: ITC's brands of safety matches include iKno, Mangaldeep, VaxLit, Delite and
Aim. The Aim is the largest selling brand of Safety Matches in India. ITC also exports premium
brands to markets such as Europe, Africa and the USA.

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Agarbattis: ITC has launched Mangaldeep brand of Agarbattis with a wide range of fragrances
like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Durbar, Tarangini, Anushri, Ananth and
Mogra. Mangaldeep is also being exported to USA, UAE, Bahrain, Nepal, Singapore, Malaysia,
Oman and South Africa.

Lifestyle Retailing: ITC entered the Lifestyle Retailing business with the Wills Sport range of
international quality relaxed wear for men and women in 2000. The Wills Lifestyle chain of
exclusive stores later expanded its range to include Wills Classic formal wear (2002) and Wills
Clublife evening wear (2003). In 2002, ITC entered into the popular segment with its men's
wear brand, John Players. In 2005, ITC introduced Essenza Di Wills, an exclusive line of
prestige fragrance products.

Food: ITC made its entry into the branded & packaged Foods business in August 2001 with the
launch of the "Kitchens of India" brand. In 2002 it expanded into Confectionery, Staples and
Snack Foods segments. ITC's brand in Food category include: Kitchens of India, Aashirvaad,
Sunfeast, Mint-O, Candyman, and Bingo!

Agri Exports: ITC's International Business Division (IBD) is the country's second largest
exporter of agri-products. ITC exports Feed Ingredients (Soyameal), Foodgrains (Rice, Wheat,
Pulses), Coffee & Spices, Edible Nuts, Marine Products, and Processed Fruits.

e-choupal: The e-Choupal model of ITC has been very effective in tackling the challenges posed
by the unique features of Indian agriculture, characterised by fragmented farms, weak
infrastructure and the involvement of numerous intermediaries, among others. ITC's e-Choupal
won the Stockholm Challenge 2006 award is for using information technology for the economic
development of rural communities.

SWOT
Strength Weakness

• Brand
• Management • Dependence on tobacco revenue
• Distribution Network • Negative connection of tobacco

Opportunities Threats

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• Rural market & e-choupal

• Low per capita consumption of
personal care products • Competition both domestic and international
• Increasing tax on cigarettes

Distribution Network

Bengaluru Kolkata Saharanpu Munger

r

Godown Branches
(19) (19)

Wholesale Distributor

(60 per branch)

Retailer Secondary
Wholesaler

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Grocery Stores Hotels, Restaurants & Supermarkets

Cafes

Role of Each Member

• Factories – Supply to 18 godowns
• Godowns & Branches - Manage by C&F agents getting monthly remuneration
• No rent paid by ITC
• One branch – 60 WDs , 5 AMs and 20 Area Executives
• Margin – 2% of sales
• Appoints secondary Wholesalers

4 Ps of HUL & ITC

Personal Care Products

1. Product : Soap & Shampoo

Soap -

HUL - 1) Lux ITC – 1) Vivel

2) Breeze 2) Superia

Shampoo –

HUL – 1) Sunsilk ITC – 1) Fiama Di Wills

2) Clinic Plus 2) Superia

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2. Price :

The different products available both ITC & HUL have classified all of these in the different
categories of pricing matrix.

Economy pricing is low on price but moderate on quality.

ITC – Aim Matchstick; Superia soap, oil & shampoo; Capstan cigarette.

HUL – Breeze soap & shampoo.

Penetration pricing is low price and high quality.

ITC – Classmate notebooks, Mangaldeep agarbattis, Fiama Di wills, Gold flake cigarettes, Miss
Players.

HUL – Aashirwad Atta, Clinic Plus shampoo & oil.

Premium is high quality along with high price.

ITC chain of hotels fall into this category. Wills lifestyle also becomes a part of this and so does
Insignia cigarettes.

HUL – Dove soap & shampoo, Surf excel, Sunsilk

3. Place : SHAMPOO Urban Rural

ITC Fiama Di Wills Superia

HUL Sunsilk Clinic Plus

SOAP Urban Rural

ITC Vivel Superia

HUL Lux Breeze

Branding & Positioning Strategies:

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ITC is planning to increase its penetration in the rural areas. As part of this plan, the company
will introduce a small hypermarket format in select states with an investment of around Rs 80
crore. It will also open more e-choupal kiosks.
In ITC it is believed that these initiatives will help farmers in less developed markets like Uttar
Pradesh, Madhya Pradesh, Rajasthan and Maharashtra to get a better return for their produce.
“We are planning to increase our farmer service centres in rural areas (e-choupal kiosks) from
the present 6,450 to 20,000 by 2012. We are looking at setting up 40 small hypermarkets in the
first phase on the similar lines of our existing hypermarket model — Choupal Sagar next year at
an investment of Rs 2 crore each. In the second phase we will add 30 new small hypermarkets,”
said, S Sivakumar, chief executive (agri business division), ITC.
These initiatives, he said, would also help the company achieve higher export returns. “These
kiosks are mainly information centres, where farmers can access information on foreign market
requirements, traceability norms and other quality criteria. Also, financial products including
crop insurance to farmers are sold. This will trigger them to adopt slightly risky but high return
crops and farming practices like organic cultivation methods.
While ITC’s chairman YC Deveshwar announced plans to create a ‘trust’ through which
business enterprises both in the private and public sector can contribute to provide a range of
critical services to the Indian farmer.
ITC Ltd is also planning to set up 50 Choupal Sagars (rural super stores) by the end of this fiscal
year. As for ITC, S Sivakumar, chief executive, agri business, ITC, said: "We have introduced
‘Choupal Prathishtan Keth’ to showcase the best farming practices to farmers. At present, we
have 10 Choupal Sagars spread across nine states, and nine more Choupal Sagars are under
construction.
ITC plans rural supermalls at its hubs

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SHOPPING malls are unlikely to remain a purely urban phenomenon for long. ITC's first rural
supermarket will commence operations a few kilometres away from Bhopal in Madhya Pradesh.
The supermarket would be unique in the sense that it would house just about everything under
the sun — from soaps to colour televisions, from two-wheelers to even tractors. The company is
also in talks with service companies to retail banking and insurance products at the
supermarkets.
The supermarkets are coming up at ITC's `hubs', where farmers can come to sell their produce.
The hubs are a part of ITC's e-choupal project, wherein farmers can log in to a Web portal and
check the trading prices for a particular day. They can then choose to come and sell the crops at
ITC's hubs.
ITC's first hub-cum-supermarket, which is coming up near Bhopal, is on eight acres of land.
Apart from the mall, it would contain godowns for storing the wheat and soyabean and also for
stocking products retailed at the mall, a petrol pump and a parking lot for 160 tractors.
To attract footfalls during the lean season, ITC plans to organise various activities and events
including melas. Secondly, the hubs are strategically located to attract suburban crowds as well.
ITC's Agri-Business is India's second largest exporter of agricultural products. ITC is one of the
India's biggest foreign exchange earners (US $ 2 billion in the last decade). The Company's 'e-
Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by
empowering Indian farmers through the power of the Internet. This transformational strategy,
which has already become the subject matter of a case study at Harvard Business School, is

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expected to progressively create for ITC a huge rural distribution infrastructure, significantly
enhancing the Company's marketing reach.

What began as an effort to re-engineer the procurement process for soy, tobacco, wheat, shrimp,
and other cropping systems in rural India has also created a highly profitable distribution and
product design channel for the company—an e-commerce platform that is also a low-cost
fulfillment system focused on the needs of rural India. The e-Choupal system has also catalyzed
rural transformation that is helping to alleviate rural isolation, create more transparency for
farmers, and improve their productivity and incomes.

Pricing Policies:

The different products available ITC has classified all of these in the different categories of
pricing matrix.

Economy pricing is low on price but moderate on quality. Brands that fall in this category are –

Aim Matchstick; Superia soap, oil & shampoo; Capstan cigarette.

Penetration pricing is low price and high quality. Brands that fall into this category are –
Classmate notebooks, Mangaldeep agarbattis, Fiama Dwills, Glodflake cigarettes, Miss Players.

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Premium is high quality along with high price. ITC chain of hotels definitely fall into this
category. Wills lifestyle also becomes a part of this and so does insignia cigarettes.

ITC vs HUL

The different products available both ITC & HUL have classified all of these in the different
categories of pricing matrix.

Economy pricing is low on price but moderate on quality.

• ITC – Aim Matchstick; Superia soap, oil & shampoo; Capstan cigarette.
• HUL – Breeze soap & shampoo.

Penetration pricing is low price and high quality.

• ITC – Classmate notebooks, Mangaldeep agarbattis, Fiama Di wills, Gold flake

cigarettes, Miss Players.
• HUL – Aashirwad Atta, Clinic Plus shampoo & oil.

Premium is high quality along with high price.

• ITC chain of hotels fall into this category. Wills lifestyle also becomes a part of this and
so does Insignia cigarettes.
• HUL – Dove soap & shampoo, Surf excel, Sunsilk

Captive product pricing

The pricing of supplies, such as razor blades, staples, computer software, or camera film, which
cannot be used without a companion product. Often producers of these products will use a
product mix pricing strategy wherein they will set a low price on the companion product with a
high mark-up on the supplies.

Revenue Model:

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Segment-wise Performance

Year March 4QFY 2008 4QFY 2007 % change FY2008 FY2007 % change
(Rs. Cr)

Cigarettes 3,583.0 3,294.0 8.8 13,825.6 12,833.7 7.7

Others 738.4 491.2 50.3 2,511.1 1,689.5 48.6
Hotels 339.3 304.3 11.5 100.2 985.7 11.6
Agri 1,078.1 841.5 28.1 3,868.4 3,501.3 10.5
Business
Paperboards 619.7 533.4 16.2 2,364.3 2,100.1 12.6
&
Packaging

Innovative Steps:
Reverse Auctioning

A reverse auction (also called procurement auction, e-auction, sourcing event, e-

sourcing or eRA) is a tool used in industrial business-to-business procurement. It is a type
of auction in which the role of the buyer and seller are reversed, with the primary objective to
drive purchase prices downward. In an ordinary auction (also known as a forward auction),
buyers compete to obtain a good or service. In a reverse auction, sellers compete to obtain
business.

Reverse auction is a strategy used by many purchasing and supply management organizations
for spend management, as part of strategic sourcing and overall supply management activities.In
a typical auction, the seller puts an item up for sale. Multiple buyers bid for the item, and one or
more of the highest bidders buy the goods at a price determined at the conclusion of the bidding.
In a reverse auction, a buyer contracts with a market maker to help make the necessary
preparations to conduct the reverse auction. This includes: finding new suppliers, training new

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and incumbent suppliers, organizing the auction, managing the auction event, and providing
auction data to buyers to facilitate decision making.
E- choupal

ITC followed a different media of communication strategy which is more elaborate

and extensive in rural marketing so far, which benefits both the farmers and the organization.
Launched in June 2000, 'e-Choupal', has already become the largest initiative among all
Internet-based interventions in rural India. The strategy was to use the Information Technology
and bridge the information and service gap in rural INDIA which gives an edge to market its
products like seeds, fertilizers and pesticides and other products like consumer goods. The
computer, typically housed in the farmers house, is linked to the Internet via phone lines or,
increasingly, by a VSAT connection, and serves an average of 600 farmers in 10 surrounding
villages within about a five kilometer radius. Each e-Choupal costs between US $3,000 and US
$6,000 to set up and about US $100 per year to maintain. The farmers can use the computer to
access daily closing prices on local mandis(government mandated markets), as well as to track
global price trends or find information about new farming techniques either directly or, because
many farmers are illiterate, via the sanchalak (the village farmer who runs the e-Choupal and
acts as ITCs representative in the village). In addition they can also know about weather
forecast(local) and best practices in the world from e-Choupal website. They also use the e-
Choupal to order seed, fertilizer, and other products such as consumer goods from ITC or its
partners, at prices lower than those available from village traders; the sanchalak typically
aggregates the village demand for these products and transmits the order to an ITC
representative. At harvest time, ITC offers to buy the crop directly from any farmer at the
previous day closing price; the farmer then transports his crop to an ITC processing center,
where the crop is weighed electronically and assessed for quality. The farmer is then paid for the
crop and a transport fee. ITC has made to retain many aspects of the existing production system,
including retaining the integral importance of local partners, the company’s commitment to
transparency and the respect and fairness with which both farmers and local partners are treated.

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Diagram of functioning of the e-choupal.

Kitchens of India :-

Indian food - delicious, rich in variety and extremely popular! The desire to bring this delectable
fare to the rest of the world has given birth to the venture called 'Kitchens of India'. With same
Master Chefs, same Indian recipes, same cooking methods and the same great Indian taste,
authentic delicacies from ITC 's Gourmet restaurants is now available in 'keep fresh' packs.
These Indian dishes trace their origin to a bygone era when Maharajas ruled the land and
cooking was an art form perfected by few. ITC made its entry into the branded & packaged
Foods business in August 2001 with the launch of the Kitchens of India brand. With ITC's
Kitchens Of India Ready-to-eat products, nothing has changed, except where you eat.
Completely free of preservatives and absolutely delicious, there's no better way to discover
Indian food.

Recommendations:

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Advertisement for aashirvad atta is found to be ineffective and infrequent. So, the company can
come up with an aggressive advertisement to attract the Indian housewife as they are the
decision maker in the buying of the atta.

The branded atta can be exported to countries where we are exporting the whole wheat.

The company can approach the government for distributing their products in the military canteen
and also sell to organizations that provide mid day meal scheme.

The company can come up with the concept of forming a retail chain of food products all over
India as it follows the marketing startegy of umbrella branding. In such retail all the food
products can be sold at a discounted rate, as more and more products are coming under the
umbrella of food processing.

Hul Ltd
INTRODUCTION

Hindustan Unilever Limited (abbreviated to HUL) formerly Hindustan Lever Limited is

India’s largest consumer products company and has an annual turnover of over Rs 13,000
crores. It was formed in 1933 as Lever Brothers India Limited and came into being in 1956 as

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Hindustan Lever Limited through a merger of Lever Brothers, Hindustan Vanaspati Mfg. Co.
Ltd. and United Traders Ltd. It is headquartered in Mumbai, India and has employee strength of
over 15,000 employees and contributes for indirect employment of over 52,000 people. The
company was renamed in late June 2007 to “Hindustan Unilever Limited”.

Business Operation
HUL has seven business segments namely soaps & detergents; personal products; beverages;
foods; ice creams; exports; others that include chemicals and agricultural products. The
company’s prominent brands include Lux and Lifebuoy soaps, Sunsilk Naturals and Clinic
hair care products; Fair & Lovely skin care products; Lakme colour cosmetics and Pepsodent
& Close up oral care. The company’s food and beverage segment comprises of Kissan jams,
Knorr soups, Brooke Bond and Lipton tea, and Brooke Bond Bru coffee while Kwality
Wall’s ice cream is one of its prominent ice cream brand.

The company operates with two divisions namely the combined Home and Personal Care (HPC)
division that includes soaps, detergents and personal care products and Food division. The
company has plants at nine locations in northern, nine in southern, four in eastern and 10 in
western regions of India. The installed capacity stood at 215,352 MT of personal products and
453,906 MT of synthetic detergents. The company markets Huggies diapers and Kotex
sanitary pads through its JV Kimberly Clark Lever Pvt Ltd.

Financials

Total income -Rs.124,579 million (Year end, March 2008)

Net profit - Rs. 15,396. million (Year end, March 2008)

BRAND PORTFOLIO
HUL LTD

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REVENUE MODEL
Segment-wise Sales (%) 2007-08 2008-09
Soaps, Detergents & 47 49
Household Care
Personal Products 29 29
Foods 22 20
Chemicals, Agri, Fertilisers 1 1
& Animal Feeds
Others 1 1
EBIT as % of Sales 13.1 13.1
Fixed Assets Turnover 8.6 8.3
(No. of times)
Economic Value Added 1314 2097
(EVA) (Rs. crores)

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PAT / Sales (%) 11.8 11.6

Return on Capital 78.0 107.5
Employed (%)

Return on Net Worth (%) 80.1 103.6

Distribution

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To meet the ever-changing needs of the consumer, HUL have set up a distribution network that
ensures availability of all our products, in all outlets, at all times. This includes, maintaining
favourable trade relations, providing innovative incentives to retailers and organising demand
generation activities among a host of other things.

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Similarly, the success stories of urban markets cannot necessarily be replicated in rural markets.

The evolution of HUL's distribution network: - The first phase of the HUL distribution network
had wholesalers placing bulk orders directly with the company. Large retailers also placed direct
orders, which comprised almost 30 per cent of the total orders collected.

Hindustan Unilever Ltd (HUL), the country’s largest household and personal care products
maker by sales, is expanding its so-called go to market (GTM) initiative, launched in Mumbai
last year, in an attempt to revamp its national distribution network and streamline its supply
chain.
HUL’s GTM initiative in Mumbai was aimed at rationalizing its distribution network, make it
more efficient, deliver stocks to retailers faster and reduce inventory on their product shelves. It
farmed out the task of stock deliveries to logistics provider Mahindra Logistics as part of the
Mumbai project.

Success Secret of HUL (INNOVATIVE STEPS)

1) GTM DSTRIBUTION STRATEGY
In Mumbai, the company consolidated its 21 distributors into four ‘mega distributors’, who now
account for sales of about Rs480 crore, dealership reduction has been an ongoing exercise, but
declined to provide figures about the pilot project.

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The GTM initiative has been internally labelled by parent firm Unilever Plc. as one of its 10
most important initiatives, said the senior HUL executive, as well as an executive with a firm
that does business with HUL. Both of them declined to be named as they were not authorized to
comment on the company’s operations.
Unilever has said it is looking at global savings of €1.5 billion (Rs9,855 crore) annually by 2010
through the restructuring operations.
The HUL executive and the HUL business associate added that the company is restructuring
other aspects of its operations as part of the GTM project and that it would cut back on losses
and in-transit theft.
The consolidation is aimed at giving the distributors, who typically operate on a 4% profit
margin, a bigger share of the pie at a time when they are being wooed by other sectors.
“At least a couple of our distributors are now owners of close to Rs100 crore companies, up
from the Rs8-10 crore business they had just under an year ago,” the HUL executive said.
“Our distribution network is changing from being one driven by entrepreneurs to becoming large
professional distribution houses with service orientation,” Bakshi said. “Our biggest strength in
the market is our distribution network, our knowledge of the market and our strong brands. We
now want to leverage these, ensure that our distributor-partners make sustainable returns and be
prepared for the emerging market of 2013.”
HUL had revenues of Rs13,913.40 crore in 2008, HUL follows a calendar year for declaring
results—and sells some of the country’s most recognized brands such as Surf Excel detergent
powder, Lux soaps, Ponds and Dove skin care products.
As part of its effort to streamline distribution, HUL has also started outsourcing most of the sales
team to professional staffing firms. Traditionally, bookings from retailers were the responsibility
of the distributor’s sales team.
“Distributors’ salesmen have generally been not very competitively paid and have no job
security and decent working conditions. While they have traditionally been paid between
Rs4,000-7,000, the new salesmen are graduates wherever available and are paid Rs7,000-11,000
and are from a staffing services company,” said the HUL business associate, adding that HUL is
now asking distributors to use their own resources to upgrade staff offices and training.
Currently, about 2,400 distributors across the country employ 9,000 salesmen to take weekly
orders from a million retail outlets.
Enlisting Mahindra Logistics led to a system being put in place that has cut seven-day inventory
to one day.
Orders are logged in the evening by distributors’ staff and delivered by the company the next
evening to the distributor. Mahindra Logistics delivers stocks to retailers the next morning.
Essentially this frees distributors’ resources that are otherwise tied up in stocking excess
inventory and preventing losses due to in-transit damage. Consumers get fresher stock from
retailers.

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The system also ensures that products that languish on a retailer’s shelves are not supplied,
eliminating losses from expired stock. The shift from dependence on the unorganized sector to
an external logistics supplier will also reduce loss due to pilferage, one HUL executive said
The GTM pilot in Mumbai, meanwhile, could make HUL distributors more visible to retailers
because sales people are required to now visit retailers regularly instead of waiting for orders to
come in.
The consumer products business “works on personal relationships and it helps for retailers to
have an equation with the distributor”, the HUL business associate said. “With retailers now
putting a range of global products in every segment on their shelves, HUL, a major player in the
food, personal care and home segments, faces the threat of shrinking market share.”
A May report from the Federation of Indian Chambers of Commerce and industry, before the
crash in financial markets and a global economic slowdown, projected India’s household and
consumer care products market to grow 16% this fiscal year to Rs95,150 crore.

2) NATIOANL BRANDS
HUL 35 brands and 1,200 SKUs (stock keeping units), HUL also plans to rationalize the number
of SKUs in its portfolio. However, consumers prefer to have rounded numbers for the key price
points and grammages.
With new businesses such as Pureit (an in-home drinking water purification system) gaining
ground, HUL has gone national - with its brand reaching 700 towns, selling one million units
and achieving a sales turnover of Rs 190 crore between April 2008 and March 2009.
However, there are still no plans to launch this service across other Unilever markets. "The
business is still in the investment phase and we continue to commit resources behind it mainly to
fund brand development and sales infrastructure. The potential for the business is high given the
critical need for clean water at low cost".
Pureit has been launched on a pilot basis through the company's rural initiative - Project Shakti.
The 'Shakti ammas' would offer would offer Pureit water purifiers to households in their villages
at an affordable price.
Besides, HUL would launch or re-launch two of its brands every quarter. For instance last year it
had 30 new brand launches and re-launches. Recently it re-launched its largest selling soap
brand Lifebuoy. 'Doing well by doing well' was the motto of its recently concluded AGM.
3) HUL's INITIATIVE IN RURAL DEVELOPMENT:
Hindustan Lever Limited (HUL) and its constituent companies have been in India since 1931.
Over these decades, while HUL has benefited from the developments in the country, it has
contributed equally to these developments. HUL has launched a direct contact program called
Lifebuoy Swasthya Chetana. This project aims at covering about 5-crore people in 15,000

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villages in 10 states. “The project intends to generate awareness about good health and hygienic
practices, and specifically, how the simple habit of washing hands with soap is essential to
maintaining good health. The initiative will involve interaction with students and senior citizens,
who are expected to act as change agents,” say HUL marketing personnel.
HUL has consciously woven India's imperatives with the company's strategies and operations.
The company’s main contributions include developing and using relevant technologies,
stimulating industrialization, boosting exports, adding value to agriculture and generating
productive employment and income opportunities.
HUL has been proactively engaged in rural development since 1976 with the initiation of the
Integrated Rural Development Programme in the Etah district of Uttar Pradesh, in tandem with
the company’s dairy operations. This Programme now covers 500 villages in the district.
Subsequently, the factories that HUL continued establishing in less-developed regions of the
country have been engaged in similar programs in adjacent villages.
These factory-centered activities mainly focus on training farmers, animal husbandry, generating
alternative income, health & hygiene and infrastructure development.
The company has acquired a wealth of experience and learning from these activities.
4) KEY LEARNING’S ON RURAL DEVELOPMENT:
The principal issue in rural development is to create income-generating opportunities for the
rural population. Such initiatives are successful and sustainable when linked with the
company’s core business and is mutually beneficial to both the population for whom the
program is intended and for the company.
HUL’s decision to focus on niche marketing also seems to be showing results. The company had
recently decided to focus on 30 power brands out of its portfolio of more than 110 brands.
Explaining the move, Banga says: “Today, focus is crucial and niche marketing is the order of
the day. You cannot fight every battle - you have to identify the strengths and persist with them.”
And that is precisely what HUL seems to be doing.

But the potential is even larger, both in terms of consumption and penetration. The fact that 70%
of the population accounts for only 50% of even relatively well-penetrated categories, like soaps
& detergents, indicates the enormous scope of consumption-led growth in these categories.
Therefore such categories will derive growth out of increased usage. In categories, which are
relatively less penetrated, like personal products, rural India offers an even bigger growth
opportunity through greater penetration and then consumption. For example only three out of 10
consumers in rural markets use shampoo or skin care products. Therefore growth in such
categories will emerge, as more consumers purchase these products, and then continue to use
them regularly.

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Hindustan Lever has taken many initiatives over the decades to create markets in the rural
hinterlands. There by marketing relevant products, at affordable prices.

A unique example is Hindustan Lever's Lifebuoy soap. In rural India, health is of paramount
importance, because indisposition is very directly related to loss of income. Lifebuoy, whose
core equity is health and hygiene, has for decades now been synonymous with soap in rural
India.

At the same time, if products have to come up the order in the rural purchase hierarchy, they
have to be affordable. If rural India today accounts for about half of detergents sales, it is
because HUL has developed low-cost value-for-money branded products, like Wheel. The
company has also taken initiatives to create markets even for apparently premium products, by
offering them in pack sizes, like sachets, whose unit prices are within the reach of rural
consumers. For example, initiated in the 1980s, sachets (Rs.2, Re.1, or 50 paise) today constitute
about 55% of Hindustan Lever's shampoo sales. With media reach gradually increasing, rural
consumers today, where the media has its footprints, share the same aspirations with their urban
counterparts. HUL has responded to the trend with low unit price packs of even other products -
Lux at Rs.5, Lifebuoy at Rs.2, Surf Excel sachet at Rs.1.50, Pond's Talc at Rs.5, Pepsodent
toothpaste at Rs. 5, Fair & Lovely Skin Cream at Rs.5, Pond's Cold Cream at Rs.5, Brooke Bond
Taaza tea at Rs.5.

Based on these insights, HUL launched Project Shakti in the year 2001, in keeping with the
purpose of integrating business interests with national interests.
Empowering Women in Rural India
The objective of Project Shakti is to create income-generating capabilities for underprivileged
rural women, by providing a sustainable micro enterprise opportunity, and to improve rural living
standards through health and hygiene awareness.
Following the pioneering work carried out by Grameen Bank of Bangladesh, several institutions,
NGOs and government bodies have been working closely, for nearly five years, to establish
Self Help Groups (SHGs) of rural women in villages across India. Their experiments clearly
indicate that micro-credit, when carefully targeted and well administered can alleviate poverty
significantly.
A crucial lesson learnt was that rural upliftment depended not on successful infusion of credit,
but on its guided usage for better investment opportunities
This is where HUL's Project Shakti is playing a role in creating such profitable micro enterprise
opportunities for rural women.

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Catalyzing Prosperity in Indian Villages

Under the project, HUL offers a range of mass-market products to the SHGs, which are
relevant to rural customers. HUL is investing significantly in resources who work with the
women on the field and provide them with on-the-job training and support. This is a key factor in
ensuring the stabilization of their fledgling businesses.
HUL imparts the necessary training to these groups on the basics of enterprise management,
which the women need to manage their enterprises. For the SHG women, this translates into a
much-needed, sustainable income contributing towards better living and prosperity. Armed with
micro-credit, women from SHGs become direct-to-home distributors in rural markets.
5) Risk-Free Micro Enterprise That Yields High Returns
A typical Shakti entrepreneur conducts a steady business which gives her an income in excess
of Rs.1,000 per month on a sustainable basis. As most of these women live below the poverty
line, and hail from extremely small villages (with populations of less than 2000), this earning is
very significant, and almost twice the amount of their previous household income.
For most of these families, Project Shakti is enabling families to live with dignity, with real
freedom from want.
In addition to money, there is a marked change in the woman's status within the household,
with a much greater say in decision-making. This results in better health and hygiene,
education of the children, especially the girl child, and an overall betterment in living standards.
The most powerful aspect about this model is that it creates a win-win partnership between
HUL and the consumers, some of whom will depend on the organization for their livelihood, and
builds a self-sustaining cycle of growth for all.

RECOMMENDATIONS
1. Project Shakti

Call it the Project Shakti or mere HUL’s rural India distribution network, you will hardly find
any difference. If there is any difference then the difference lies in the people’s perception. It
will not be wrong to say that Self Help Groups (SHG) is the backbone of the project Shakti
because HUL makes Shakti entrepreneurs out of the SHG. Everyone wondered why HUL has so
much attachment with Andhra Pradesh later it was revealed that Andhra Pradesh has the largest
number of SHG,i.e, slightly less than half a million, which is sixty percent of total number of
SHG in India.

HUL Shakti works on the model ‘Bottom of Pyramid’ (BOP) propounded by C.K. Prahalad, in
which company first sees the potential of the BOP market and then according to need and want

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decides to roll out project Shakti foot prints. Till now HUL made profits out of just few years
(four) old project with help of few thousands (approx 5000) Shakti entrepreneurs covering eight
states (130 districts and 35000 villages). Apropos to the said facts and figures we would like to
recommend.

2. INCREASE THE REACH

India’s biggest advantage is its huge population which is in every aspect is a good signal for any
FMCG major. 70% percent of India resides in rural areas. Huge potential is still untouched;
HUL should pull up its socks and work faster towards this by making as many entrepreneurs and
customers either through SHG or by any other means. SHG are there in every part of rural India
so the need for the day is to reach them as soon as possible.

Every Shakti entrepreneur covers 1000 to 1400 homes within the radius of 12 kms.
Usually to return to the same home it will take a Shakti entrepreneur 100-125 days due to the
poor social infrastructure and mode of transport. Apropos to the given facts we would like to
recommend

3. INCREASE THE NUMBERS

Rural consumers generally don’t buy in bulk and expect Shakti women to revisit their house on
regular basis. But due to the constraints, entrepreneurs find it difficult to visit frequently. An
idea here is to increase the number of Shakti entrepreneurs within the given reach, i.e, 1000-
1400 homes. Advantages to this are firstly visit the target consumers frequently and secondly
spend more time in order to convert non-consumers into consumers by educating the customer
about health and hygiene.

Generally a rural woman takes loan from the SHG for initial payment on a specific terms and
conditions. SHG also have other projects under them under various schemes of government and
self-started schemes, which also require funds. Micro credit is firstly not easily available and
secondly the interest rate varies between 10-12%. Apropos to the said facts and figures we
would like to recommend:

4. AVAILABILITY OF CREDIT

With a marketing network in place in coming years, Mission Shakti will be the biggest
movement in the state to eradicate poverty and for the empowerment of women. SHGs are likely
to make village moneylenders jobless, and would be able to do away with the middle man in
trade, if bank credit is adequate and the marketing network functions efficiently. Even a HUL

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local distributor can extend onetime credit to the entrepreneur, which is common in only
specified areas.

Money drives HUL to rural India and same motivator drives women of SHG to be a part of HUL
Shakti. A Shakti entrepreneur earns Rs700-Rs1000 a month from the sale of goods worth Rs
10,000-15,000. The 15-month pilot project in Andhra Pradesh turned out to be a good learning
ground. For instance, the company initially decided to save distributor margins by cutting one
layer of distribution - the local distributor. These savings helped in giving higher margins to the
Shakti entrepreneurs and retailers. Stocks were directly sent to the Shakti distributor from the
local C-and-F (carry and forward) depots. However, Shakti's still trying to effectively bring
down distribution costs. Targeting the Bottom Of Pyramid is at least 5-10 per cent costlier than
selling in urban markets. HUL need to keep driving costs down, especially while scaling up.
Manpower costs are one area where a lot could be done - it forms 80 per cent of total costs in
selling to the BOP. The task is manpower intensive as employees are required to identify and
develop new BOP markets, train the entrepreneurs and revisit existing markets to ensure that it
has adequate stocks. Hence, HUL is experimenting with three-four pilot models. It has rolled out
mobile trainers who move from village to village and perform multi-functions from selecting
entrepreneurs, training them and hand holding. It is also experimenting with exclusive trainers.
Apropos to the said facts and figures we would like to recommend

5. INCREASE THE MARGINS

In order to impact both livelihood opportunities and living standards of rural communities ‘i-
Shakti’ - an IT-based rural information service has been developed to provide information and
services to meet rural needs in agriculture, education, vocational training, health and hygiene.

The premise of the i-Shakti model is to provide need based demand driven information and
services across a large variety of sectors that impact the daily livelihood opportunities and living
standards of the village community. The i-Shakti kiosk will be operated by the Shakti
Entrepreneur, which further strengthens the relationship we have already cultivated and builds
new capacity. HUL expects that the information provided would improve the productivity of the
rural community and unlock economic and social progress. To catalyze overall rural
development, HUL hopes to collaborate with mainstream institutions (both corporate and not-
for-profit organizations) that are experts in agriculture, health, insurance, financial services and
education, with i-Shakti in place HUL could easily reduce the overhead costs. Allowing Shakti
entrepreneurs to sell products other than the HUL portfolio but not the other FMCG brand gives
another reason to earn extra.

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The principal issue in rural development is to create income-generating opportunities for the
rural population. Such initiatives are successful and sustainable when linked with the company’s
core business and is mutually beneficial to both the population for whom the programme is
intended and for the company. Based on these insights, HUL launched Project Shakti in the year
2001, in keeping with the purpose of integrating business interests with national interests.
Apropos to the said facts and figures we would like to recommend

6. WHY ONLY RURAL WOMEN

Even the UPA government Rural Employment Guarantee Scheme includes people from all
walks of life then why HUL just embrace women. Rural India has huge amount of seasonal and
disguised unemployment (generally unemployed men). This segment can also be used as
distributors because firstly they are more active as compare to women and secondly they can
also work in night when head of the family of the consumer household is available.

Recommendations could be countless but right timings are inevitable. HUL should also work
with more organizations (profit and non-profit) along with state governments to bring all
possible resources to the rural India in order to create a win-win situation for all parties. A lot
has to be done, doing things efficiently is required but effectiveness is the call for the day.

References:
1. Google.com
2. Stock Watch.com
3. Papers4u.com
4. FMCG & Retail Marketing Blog
5. Coolavenues.com
6. FICCI Massmerize 2009
7. Hemonline.com
8. Technopak
9. Codewit.com

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IIPM INDUSTRY RESEARCH

NEW DELHI