Enhancing Rural Marketing - ITC perspective
PAGE
DECLARATION
This is to certify that the material embodied in this study
entitled Enhancing Rural Marketing an ITC Perspective is based on
my own research work and my indebtedness to other work/publications
has been acknowledged at the relevant places.
This study has not been submitted elsewhere either wholly or in
part for award of any degree.
(Students Name)
This is to certify that the project titled Enhancing Rural
Marketing an ITC Perspective done by is a part of her academic
curriculum for the degree of B.Com(H). It has no commercial
implication and is done only for academic purpose.Teacher
in-charge
(Mentor)Dept. of Commerce ACKNOWLEDGEMENT
My minor project report Enhancing Rural Marketing an ITC
Perspective has become successful because of the helping hand by
the courteous people mentioned below, without their inspiration,
help, continuous guidance and co-operation; I could not have
succeeded in this project.With deep sense of gratitude I
acknowledge the encouragement and guidance received by guide
(Faculty of College).
I convey my heartful affection to all those people who helped
meTABLE OF CONTENT1. INTRODUCTION 52. OBJECTIVES OF THE STUDY.8
3. RESERCH METHODOLOGY........94. LITERATURE REVIEW10 Features
to be considered......10 Customization of the Ps....11 Growing
importance of Rural Marketing..18 Developing effective Rural
Marketing strategy20 E-Choupal as a Rural Marketing strategy of
ITC.... 221. E-Choupal The Innovation 222. Model before E-Choupal..
23 3. New Model- The E-Choupal 254. Re-engineered Value Chain..
265. Gain to Farmer.. 276. Gain to ITC....277. Sources of
efficiency in new model..288. Social Impact of ITC E-Choupal . 289.
Key success factors2910. Drawbacks.....3011. ITC E-Choupal Meta
Market..3012. Awards received by ITC for E-Choupal... 315.
CONCLUSION. 326. BIBLIOGRAPHY 33INTRODUCTION Indias way is not
Europes. India is not Calcutta and Bombay. India lives in her seven
hundred thousand villages.....................Mahatma Gandhi,
1926
Marketing in developing countries like India has been adopted
from the western world. Concepts like Brand identity, Customer
relationship management, 4 Ps of the marketing mix, Consumer
behavior process; Segmentation, targeting and positioning etc. have
often been lifted straight from the marketing intelligentsia abroad
and adopted in Indian conditions, often with minimal success.
Reason lies not in the fault of such concepts, but their
integration with the Indian ethos and culture.
The rural India offers a huge market potential. Nearly
two-thirds of all middle-income households in the country are in
rural India. Despite, the strong potential the rural markets are
less exploited. Six lakh villages out of seven lakh are yet to be
reached. The paper thereby presents the modified version of Philip
Kotlers famous marketing mix consisting of 4Ps. The focus is on its
modification and subsequent customization to Indian rural markets
perspective. The 4 Ps have to be modified to include 1P i.e.
Packaging and 1R i.e. Retailer as special focus areas. Further to
ensure the sustainability of the marketing mix two Es i.e.
Education and Empowerment have to be at the core. Improving the
lives of the billions of people at the
bottom of the economic pyramid is a noble endeavor.
It can also be a lucrative one
-C.K Prahlad
CONCEPT OF RURAL MARKETINGAny marketing activity in which the
one dominant participant is from a rural area is called Rural
Marketing.72% of Indias population lives in its 640,000 villages.
Agriculture is the only source of livelihood for a large majority
of these people. While Indian agriculture progressed considerably
since the days of the Green revolution in the mid-1960s, most of
the farmerseach of whom owns about a hectare of landhave remained
poor. First, they do not have bargaining power when they buy farm
inputs or sell their produce, because they are small. Second, they
do not have access to real-time information on prices and weather
or news that impacts their incomes. Third, it is unviable for any
market mechanism to bring them customized knowledge to improve
their farm yields because the agro-ecological and resource
circumstance of each one is different from that of the others.
Fourth, the infrastructure in rural Indiaphysical, social, and
institutionalis also weak.
The Indian Fast Moving Consumer Goods (FMCG) industry began to
shape during the last fifty odd years. Globally, the FMCG sector
has been successful in selling products to the lower and middle
income groups, and the same is true in India. Over 70% of sales are
made to middle class households today and over 50% is in rural
India. The sector is excited about a burgeoning rural population
whose incomes are rising and which is willing to spend on goods
designed to improve lifestyle. Also with a near saturation and cut
throat competition in urban India, many producers of FMCGs are
driven to chalk out bold new strategies for targeting the rural
consumer in a big way. MART, the specialist rural marketing and
rural development consultancy, has found that 53 per cent of FMCG
sales and 59 per cent of consumer durable sales lie in the rural
areas. Of two million BSNL mobile connections, 50 per cent went to
small towns and villages; of 20 million Rediffmail subscriptions,
60 per cent came from small towns; so did half the transactions on
Rediff's shopping site. According to a study by Chennai-based
Francis Kanoi Marketing Planning Services Pvt Ltd, the rural market
for FMCG is worth Rs.65,000 crore, for durables Rs 5000 crore, for
tractors and agri-inputs Rs.45,000 crore and two- and
four-wheelers, Rs.8000 crore.
In total, a whopping Rs.123,000 crore. This can be doubled if
the corporate world understands the rural buying behavior and make
their distribution and pricing right.
OBJECTIVES OF THE STUDYMost of the times in the urban market the
product is offered at the augmented product level where the
objective of the product offering is to exceed the customer
expectation.. To overview the concept of rural marketing in India.
To assess the 4As of Rural Marketing to penetrate into the rural
market. To understand the preference of rural consumers. To analyse
and understand E-Choupal as a rural marketing strategy of
ITC.RESEARCH METHODOLOGYPaper is mainly based on secondary data
available from different published literature and case studies on
rural marketing and data is collected from the unstructured
questionnaire from various books, journals magazines and various
search engines on internet.LITERATURE REVIEW
How does a company pick rural markets for promotion of its
products? In this context, we cannot speak of the whole of India,
sometimes not even the whole of a state. What we need to do is, to
focus attention on specific areas of opportunity. This may seem a
simple problem, but in reality it is a major decision for any
company to take as it involves the spending of large sums of money
on advertising and distribution.
Marketing according to a leading management theories Peter
Drucker can be put in this way The aim of marketing is to know and
understand the customer so well that the product or service fits
him and sell itself."
The gist of marketing can be understood from the above quote, be
it in rural areas or urban areas, western world or developing
world. Features of Rural Markets in IndiaMarketing in nothing but
creating customers. But, due to the differences in the needs,
buying behavior, values and aspirations of the customers the
marketing concepts have to be modified to be successful. The unique
features of rural India which call for special attention are as
follows:
a) Traditional Outlook: The rural consumer values old customs
and tradition. Basic cultural values have not yet faded in rural
India. Buying decisions are highly influenced by social customs,
traditions and beliefs in the rural markets.
b) Level of Literacy: - The literacy rate is low in rural areas
as compared to urban areas. This comes in way of the marketer in
promoting the product. Advertising is very expensive making it
difficult to communicate with the target audience.
c) Lack of Proper Communication and infrastructure facilities: -
Nearly 50% of the villages in the country dont have all weather
roads. The Infrastructure Facilities like roads, warehouses,
communication system, financial facilities are inadequate in rural
areas making physical distribution becomes costly.
d) Many Languages and Dialects: - The number of languages and
dialects vary widely from state to state region to region and
probably from district to district. Even though the numbers of
recognized languages are only 16, the dialects are estimated to be
around 850.
e) Low Per Capita Income: - Even though about 33-35% of gross
domestic product is generated in the rural areas it is shared by
74% of the population. Hence the per capita incomes are low
compared to the urban areas. Normally the rural consumers spent a
majority of their income in basic necessities, which makes them
very price sensitive. Customization of the PsThe unique features of
Indian rural markets as seen above, demand for the customization of
the general marketing mix. The customized marketing mix in the case
of Indian rural markets consists of 4Ps i.e. Product, Price,
Promotion, Place combined with 1 additional P that is Packaging and
one R i.e. Retailer as special focus areas. However, at the base of
this marketing mix will be 2 Es of Education and Empowerment.
The traditional marketing hypothesis tends to ignore the
requirement of a developing countrys rural needs. The concept of
marketing has to be taken in conjunction with economic,
psychological and social implications. Hence, the concept of
Mega-Marketing where all such factors are taken into consideration
while developing the Marketing Mix is more relevant to succeed and
build enduring brands. In rural Indias case the two most important
considerations are Education and Empowerment opportunities which
traditional approaches of marketing fail to acknowledge. Then only
the opportunity provided by the rural market can be fully tapped.1.
Product
Authentic marketing is the art of identifying and understanding
customer needs and creating solutions that deliver satisfaction to
the customers, profits to the producers and benefits for the
stakeholders. ................... Philip Kotler
The product offerings have to be customized. The various product
levels as outlined by Philip Kotler, namely Core Benefit, Basic
Product, Expected product, augmented product and Potential Product
should be adequately taken into consideration and the product
offerings should be henceforth customized according to the
needs.
Most of the times in the urban market the product is offered at
the augmented product level where the objective of the product
offering is to exceed the customer expectation. But in the rural
markets of India which have been till date characterized by the
absence of choice, sub-standard products and cheap clones of their
urban counterparts; the immediate level to be operated is the
Expected product where his expectations are met.
Also, due to the low level of incomes and literacy levels, it is
imperative that the basic needs of the consumer are met. For e.g.
In India, 70% of the shampoo market is in sachets. 40% of rural
workers are daily wage earners and have a daily purchase habit and
could do so because of low unit price packs. Here the product is
meeting the basic level of need and providing the benefit of
convenience and economy without enthralling or overtly exceeding
his expectation.
In case of durable goods the rural customers essentially look
for a product that is frill free, sturdy and long lasting and in
case of consumer goods he looks for products that operate at the
basic level and can provide additional benefits in synchronization
with their habits and lifestyle. For e.g. success of HUL in the
soap category indicate the need to new product development after
listening to customers needs and not blindly applying the urban
solutions to rural problems.
2. Promotion: Effective Communication
If you're trying to persuade people to do something, or buy
something, it seems to me you should use their language, the
language in which they think.- David Ogilvy
Companies cannot rely on conventional advertising techniques in
Indias rural areas where only one in every three households owns a
television and most of the villagers are illiterate. Something that
appeals to the urban customer may not appeal to the rural customer
due to varying lifestyles. So again, even if the media reaches him,
there might not be an impact because of a different lifestyle. Few
of the available options in the traditional media are
_ Puppetry,
_ Folk Theater & Song,
_ Wall Painting,
_ Demonstration, Posters,
_ Agricultural Games,
_ NGOs network
Customization: Combining the above two points we would like to
stress the need to concentrate on both product development and
communication in order to win the mind space of the average rural
Indian. Again a concept touted by the marketing gurus regarding
product and promotion strategies in International markets (analogy
extendable to domestic companies moving from urban to rural areas
as well) can be used.
In order to achieve success company should avoid straight
extension. Rather some form of adaptation preferably, product or
communication or both. In case of deep pockets, product inventions
suited for Indian conditions would be able to generate more returns
rather then a simple copied strategy from abroad or urban
markets.
3. Place: Physical Distribution and Channel Management
Distribution poses to be a serious problem to the companies
wanting to enter the rural markets. Distribution costs and lack of
retail outlets are major problems faced by the marketers. The
various options in distribution in the rural markets, which will be
out of the ambit proposed traditionally by the marketing gurus,
would be:-
a.) Rural Marketing Vehicle (RMV) Marketers need to make more
on- ground contact with their target audience as well as make
demonstration of products as consumers in rural markets rely on the
'touch and feel' experience. One of the ways could be using company
delivery vans which can serve both the purposes. b.) Melas and
Haats:- According to the Indian Market Research Bureau, around 8000
melas are held in rural India every year and annual sales at melas
amount to Rs.3,500 crore. Besides these melas, rural markets have
the practice of fixing specific days in a week as Market Days when
exchange of goods and services are carried out. Also, every region
consisting of several villages is generally served by one satellite
town where people prefer to go to buy their durable commodities.
Marketing managers can use these feeder towns they will easily be
able to cover a large section of the rural population.
4. Pricing the product
A significant portion of the rural population is paid in daily
wages. Daily wage earners tend to have little stock of money, and
therefore tend to make purchases only to meet their daily needs.
The implication is that pack sizes and price points are critical to
sales, and importantly, that rural consumers view the
purchase-tradeoff dilemma across a much wider range of product
categories. As a result, the nature of competition is much greater;
a beverage manufacturer is not only competing but also other
products that consumers may consider one-off luxury purchases such
as shampoo. So marketer will have to examine method by which he can
make the product more affordable. In the case of consumer durable
one way is to work through rural bank and offer higher purchase
terms to consumer. In short, the Value for money is the most
important concept that will differentiate the successful brand from
the rest.
5. The 5 the P OF MARKETING- i.e. Packaging
The reason for putting packaging out of the product as a special
focus area is that due to low literacy levels the importance of
symbols and packaging become more important in having a high brand
recall thus, after the 4th P of marketing, it is 5th P which is
packaging going to play a key role in rural markets.
COREThe two biggest problems that the rural India faces are
Illiteracy and Unemployment. To integrate them in ones Marketing
mix ensures that the product or service offered ensures wider
participation and better chances of success. Hence, it gives the
rise to the concept of two Es: Education and Empowerment at the
core of our improved Marketing Mix.
This concept presents an opportunity to improve the life of
rural Indians and thus, ensure that they actively patronize the
companys products.
1.) Education: Since vast majority of rural India lacks even
basic education levels and modern outlook, it is important that the
company introducing a new product should look at building category
and not just selling products. It is important to consistently
drive home the point that the customers life is going to be
enhanced because of products consumption.
2.) Empowerment: Because of huge disguised unemployment levels
in agriculture and lack of employment opportunities in other
sectors, any concept which uses any scope for income generation
would be favored more than the traditional marketing mix concepts.
For e.g. ITC aims to help improve farmers' incomes and then help
its own business.
Case: E-Choupals : ITC has started up to over 6,500 E-Choupals
across India at a cost of about Rs 1.5 lakh (USD 3,400) each in
villages. It is improving Incomes of farmers by:
--Wiring rural communities with computer access to its e-trading
platform
-- Offering better on-line prices than auctions for produce
-- Providing quality seeds and on-line agricultural advice.
Next, it aims to help its own business by:
-- Growing its commodities business overseas
-- Gaining access to rural consumers
-- Selling goods and services back to the farmers
Thus, it is able to break the vicious circle of Low production,
low investment and
low income into high-high scenario.
GO RURAL, LIVE GLOBALGrowing importance of Rural Marketing
There are many reasons that have urged the FMCG companies to
enter the uncharted territory of rural India. Some of the
attractions are discussed below;
1. Large Population
The rural Indian population is large and its growth rate is also
high. Over 70% Indias one billion plus population lives in around
640,000 villages in rural areas. This simply shows the great
potentiality rural India has to bring the much needed volumes and
help the FMCG companies to bank upon the volume driven growth.
Table 1. Percentage distribution of households and income Area
Households Population
2. Rising Rural Prosperity
India is now seeing a dramatic shift towards prosperity in rural
households. As per the National Council for Applied Economic
Research (NCAER) study, there are as many middle income and above
households in the rural areas as there are in the urban areas.
There are almost twice as many lower middle income households in
rural areas as in the urban areas.
3. Growth in Market
The purchasing power in rural India is on steady rise and it has
resulted in the growth of the rural market. The market has been
growing at 3-4% per annum adding more than one million new
consumers every year and now accounts for close to 50% of volume
consumption of FMCG. The growth rates of lot of FMCG are higher in
rural markets than urban markets.
4. Effectiveness of Communication
An important tool to reach out to the rural audience is through
effective communication. A rural consumer is brand loyal and
understands symbols better. This also makes it easy to sell look -
alike", says Mr. R.V Rajan, CMD, Anugrah Madison Advertising.
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, it is
argued, could drive a quantum jump in sales. Developing effective
rural marketing strategy
Till recently most FMCG companies used to treat rural markets as
adjuncts to their urban strongholds. However it is beyond doubt
that the treat rural markets are not dumping grounds for low-end
products basically designed for an urban audience. The winning
strategy instead is to focus on their core competency such as
technological expertise to design specific products for the rural
economy. The most remarkable example in this context is the launch
of sachets which has transformed the rural market considerably as
packaging in smaller units and lesser-priced packs increases the
products affordability. Also companies like HUL and Nestle who have
adopted this strategy have benefited tremendously. Another case is
of Britannia with its Tiger brand of low priced and conveniently
packaged biscuits becoming a great success story in rural markets.
Companies also need to change the profile of their brand managers
as they are usually urban-bred MBAs, fed on a staple diet of
western marketing principles and are aliens to the rural India. A
step in this direction like hiring managers from the Institute of
Rural Management Anand (IRMA) could probably go a long way in
improving the situation. Along with the cultural dynamics, the
needs and latent feelings of the rural people have to be well
understood before launching products in rural segments. Marketers
would do well to first understand this and then designing products
accordingly. For example, Cadburys has launched ChocoBix, a
chocolate flavored biscuit which is based on the consumer insight
that rural mothers opt for biscuits rather than chocolates for
their children. Another very important factor that needs to be
looked at is the proliferation of spurious products. Rural masses
are illiterate people and they identify a product by its packaging
(color, visuals, size etc.). So it becomes very easy for
counterfeit products to eat into the market share of established
reputed brands. The retailer also gets a larger profit on selling
the counterfeits rather than the genuine products and hence is
biased towards the fakes. Companies would also do well to have a
proper sales and distribution network. In terms of sheer reach the
companies can gain significant competitive advantages as the rural
market is highly fragmented and a brand needs to be on the shop
shelf before it can be sold. Companies should also make sure that
the prices of their products are not pushed up.
E-Choupal as a Rural marketing strategy of ITCITC Limitedis an
Indianconglomerateheadquartered in Kolkata, West Bengal.The
diversified business of ITC includes five segments:Fast Moving
Consumer Goods, Hotels, Paper boards, Packaging and Agri
Business.In 2012-13, ITC's annual turnover was US$ 8.31 billion.It
employs over 25,000 peopleat more than 60 locations across India
and is part of FORBES 2000list.Agri-business of ITC is one of the
largest exporters of agricultural products in India. The Company's
'E-Choupal' initiative is enabling Indian agriculture to
significantly enhance its competitiveness by empowering Indian
farmers through the Internet facilities. This transformational
strategy has become the subject matter of a case study at Harvard
Business School. It is expected to progressively create for ITC a
huge rural distribution infrastructure, significantly enhancing the
Company's marketing reach.E-Choupal - The Innovation
The e-Choupals, information centers linked to the Internet,
represent an approach to seamlessly connect subsistence farmers
with global markets. It has helped link the largest labour force
with the mandis, the international markets as well as the final
consumer at much reduced transaction costs. ITC facilitates
disintermediation through the creation of an alternative
development paradigm that skips the formation of cooperatives and
self-help groups and replaces then with the network society. It
exemplifies the fact ITC could be and is an enabler in
developmental goals. The e-Choupal project thus brings out the
concept of profitable rural development.
The Model before the E-Choupal
There are three commercial channels for agricultural products in
rural areas of Dahod in Madhya Pradesh, where the first e-Choupal
was set up. The mandis, the traders for eventual resale to crushers
and the producer run co-operative societies for crushing in
co-operative mills. The farmers traditionally kept a small amount
for their personal consumption and got the produce processed in a
small-scale job shop crushing plant. The Mandi was central to the
functioning of the marketing channel. It acted as a delivery point
where farmers brought produce for sale to traders. Buying and
selling transactions were conducted by commission agents and were
based upon verbal agreements and mutual understanding alone. This
lack of professional competition combined with the communal
stranglehold on rural trading made commission agents extremely
wealthy.
Sources of Inefficiency in the Old Model
The inefficiencies of the traditional system badly impacted the
farmers. The farmesr did not have the resources to analyze or
exploit price trends, as prices were set dynamically in the mandis.
So the farmers did not have any information on local pricing levels
and trends. The selection of mandi was based upon dated and
unreliable information as opposed to quoted prices and by the time
the farmer got his price it was too late to change the selection of
mandis. Also, at the time of inspection there is no formal method
of grading the produce and inspection is done by sight only. The
evaluation tends to favor the informed and wealthy buyer and not
the poor farmer. The farmer therefore did not have any incentive to
improve the quality of the produce. Also, the farmers produce was
auctioned off at variable prices, though the margins of commission
agents were ensured irrespective of the price that the farmer got.
These practices uniformly exploited the farmers situation. Also, at
the time of weighing and bagging the product, the farmers produce
was consistently underweighted. Given this obvious bias, the farmer
had a largely negative opinion of the auction for non-financial
reasons too. They felt a systematic loss of dignity in the
auctioning process. As the farmer could not refuse the sale at the
auctioned price, he ended up losing as much as 60 per cent to 70
per cent of the potential value of the crop. At the time of the
auction, the farmers were never paid in full at once for his
produce and his payments were stretched over time. Repeating the
trips to the mandis cost him time and money.
How is the E-Choupal Different?
The E-Choupal model is not subsidized. ITC shareholder looks for
a competitive return, like all shareholders do and there is no
government money involved. Latent value is extracted from the
unevolved markets and emerging economy. Elimination of non-value
adding activity and creation of new value forms the crux of this
project.
Public Institutions and Private Companies participate in a
collaborative yet competitive space to deliver the benefits of a
near perfect market to the disadvantaged, in an otherwise
incomplete market
ITC E-Choupal Proposition
Step 1: Leveraging information technology for empowered access
to markets (inputs and outputs)
Step 2: Economic viability of IT infrastructure investments
through Win-Win Business Models
Step 3: Customer responsive IT infrastructure in the villages
facilitate access to supplementary education, health and
e-governance services.
Business Model
The business model of the E-Choupal centers on the deployment of
a network of Internet-connected kiosks, known as E-Choupals,
throughout agricultural areas in India with the help of VSATs (Very
Small Aperture Terminals). An E-Choupal is an electronic version of
the traditional choupal, where farmers are provided with the latest
weather reports, local and international produce prices, and
farming best practices. Costing US$ 3,000 - 6,000 each to set up,
they also serve as procurement and purchase points, allowing
farmers not only to sell their produce to ITC but also to buy
agricultural inputs and consumer goods for daily household
consumption. The New Model: The E-Choupal
The model is centered on a network of E-Choupals which are
information centers armed with a computer connected to the
Internet. The name is derived from the Hindi word Choupal meaning a
traditional village gathering place. The E-Choupals are meant to
act as an e-commerce hub as well as a social gathering place. ITCs
goal is to set up enough number of e-Choupals such that a farmer
has to travel not more than five kilometers to get to an E-Choupal.
ITC expects each E-Choupal to serve five to seven villages in the
5-km radius. It reaches out to more than a million farmers in
nearly 40,000 villages through 6500 kiosks across 10 states (Madhya
Pradesh, Karnataka, Andhra Pradesh, TamilNadu, Haryana, Uttarkhand,
Rajasthan, Maharashtra and Uttar Pradesh). The E-Choupal is managed
entirely by the sanchalak who is trained on basic business skills,
quality inspection and pricing. The Sanchalaks are useful in that
they help overcome the literacy barrier, keep the costs low (since
no additional infrastructure is required) and help manage the
relationships in the villages (since they have the most information
about villagers). Virtual vertical integration can only work if
there is a continuous flow of information between the E-Choupal and
ITC. Maintaining continuous commercial flows keep the sanchalak
motivated to spend time and money in calling the ITC
representatives to find out about new products, convey village
demands and provide local updates. ITC maintains commercial volumes
and therefore commission checks flowing through E-Choupal by
intelligently sequencing procurement and sales all year round.
Selective Disintermediation The Commission Agents
ITC recognized the fact that completes disintermediation would
result in the loss of an essential service especially in the rural
context. The goal was selective disintermediation so that agent
would participate, but only as providers of essential services, not
as principals in a trading transaction.
Financial InstitutionsITC has tied up with banks such as ICICI
and designed products that will help the rural India. These
include:
Non cash loans for agricultural inputs: Banks purchase inputs on
behalf of the farmer and the farmer is expected to pay back the
loan to the financial institution
Loans are given to Sanchalaks instead of providing loans
directly to the farmer. The Sanchalak can manage credit risk much
better since they have better access to the farmer
Direct loans are given to the farmers based on Sanchalak
recommendation
Products are designed to deal with rural cash cycles such that
payments that cannot be made in bad years, can be corrected for in
later years
Re-engineered Value Chain
The re-engineered value chain is different from the traditional
value chain in the following aspects:
Price Setting: The benchmark price is static for a given day.
Information on prices is communicated to the Sanchalaks through the
E-Choupal portal.
The commission agents are responsible for feeding daily mandi
prices to e-Choupal. Also, the price quoted to the farmer is
conditional and the farmer has the option to refuse the sale.
Quality tests: These are performed right in front of the farmer and
any deductions are rationalized to the farmer. Also, the entire
process is more scientific for instance, weighing is done by means
of electronic machines and instruments like moisture meters are
used to measure moisture content.
Gain to the FarmersBetter Information Content: Prior to the
E-Choupal the farmers information was incomplete or inaccurate. Now
E-Choupal allows farmers access to prices at several nearby
outlets. Infact, now the farmers can even access external pricing
indicators such as prices on the Chicago Board of Trade website to
track global trends and determine the optimum timing of their sale.
This gives the farmer the empowered choice to sell or not sell his
product.
Transaction Losses: Most farmers have to travel long distances
to come to the mandi and incur costs of overnight stays or multiple
trips. The sale to ITC takes not more than a few hours. This means
lower logistic costs for the farmer. ITCs electronic weighing
scales are accurate and impartial as compared to the mandis manual
scales. This helps eliminate pilfering and loss of produce.
Professionalism: The ITC procurement center is a well maintained
professionally run operation where the farmer is treated with
respect and actually serviced as a customer. These factors work to
provide a better price to crops, reduce transaction losses and give
the farmers a sense of dignity. Also, there is an increased bottom
line for the farmer in way of increased yields, improved quality of
produce and reduced transaction costs.
Gain to ITC
Disintermediation Savings: The commissions paid to the agents
were not excessive but the true cost of intermediation, including
the rent seeking was between 2.5 per cent and 3 per cent of
procurement cost. A 0.5 per cent commission to the Sanchalak has
replaced this.
Freight Costs: Direct reimbursement of transport costs to the
farmer is estimated to be half of what ITC used to pay the
commission agents for transport to their factory.
Control on Quality: Removal of intermediary manipulation of
quality and the ability to directly educate and reward quality in
the customer base results in higher levels of quality in e-Choupal
procurement.
Risk Management: The E-Choupal allows ITC to develop long term
supplier relationships with its farmers and attain some modicum of
social security over time. Risk is also managed in the e-Choupal by
far stronger information infrastructure.
Sources of Efficiency in the New Model
Pull based Marketing: This channel is different from the
traditional channel where agricultural inputs were sold mainly by
pushing it to the end customer through dealers, now farmers
educated in best practices understand exactly what inputs they need
and why they need it. This eliminates the need to spend time and
money in advertising.
Demand Aggregation leading to Scale Economies: In the rural
environment, physical infrastructure is inadequate. The scale
economies allowed by aggregation are crucial for keeping down
logistics costs. E-Choupals ensure quality in delivering products
and services through several product/service specific partnerships
with the leaders in the respective fields. ITC gives the
participating company direct access to the customer through
E-Choupal in return for a commission. E-Choupals also impact the
future of the villages in which they operate.
Social Impact of E-Choupal
The E-Choupal model profitably provides an inaccessible village
with a window to the world. E-Choupal brings with it higher
remuneration and appreciation of the professional transaction,
which is causing several shifts in the social fabric. Bridging the
information gap, cheaper and smarter agricultural inputs and farmer
as a source of innovation all these factors together contribute to
better agriculture, higher quality of produce and consequently
better lifestyles. E-Choupal leverages technology to reach out to a
wide base of farmers wherein the sanchalak ensures that the
practices actually make their way from the website to the field.
The services offered by the E-Choupal include:
Weather - E-Choupals weather information is intelligently
coupled with advice on the activities in the agricultural
lifecycle. The availability of accurate rain information has cut
losses due to weather by more than half.
Agricultural Best Practices - Scientific practices organized by
crop type are available on the Website. Additional questions are
answered through FAQs (frequently asked questions) and access to
experts who respond to emails from the villages.
Customized Quality Solutions - ITC performs laboratory testing
of the sample collected. Based on these results, farmers are given
customized feedback on how to improve the crop quality and
yield.
Intelligent Product Deployment - Inputs such as fertilizers and
pesticides are not generic in their application and are relative to
the soil type and crop. Determining these parameters requires
services such as soil testing. ITCs full-service approach provides
this advice by coupling the input sale to the information on the
Web site and services such as soil testing. At the same time ITC
benefits from net procurement costs that are about 2.5 per cent
lower.Key Success Factors
Insights into the agricultural value chain, rural India, and the
distribution business is essential in order to figure out the value
addition as a result of Information Technology
Entrepreneurial capacity of the rural community and building
this capacity in way of training
Retention of the more important aspects of the existing
system
Tie-ups with local partners On the whole though, the E-Choupal
has largely been a success. With its model ITC has succeeded in
creating barriers to competitive entry in way of scale of
operations and rural know-how. The E-Choupal model demonstrates
that private partnership can play a major role in recognizing
markets and increasing the efficiency of an agricultural system.
Critical factors in the apparent success of the venture are ITCs
extensive knowledge of agriculture, the effort ITC has made to
retain many aspects of the existing production system, including
maintenance of local partners, the companys commitment to
transparency, and the respect and fairness with which both farmers
and local partners are treated.Drawbacks The revenues of commission
agents are lesser than they were before the system of
E-Choupal.
The workers in the mandis who were employed to bag and weigh
products have lost their jobs because of use of machines for these
purposes. Mandis have lost taxes that contribute to maintaining
their infrastructure since there has been a diversion of tax
revenues to the mandis located near the procurement hubs
Villages are stratified and not everyone can access the
E-Choupal at the Sanchalaks home. Income level differentials are
large and the female population does not have access to the
computer. The gender barrier has thus not yet been impacted.
Engagement with the female population may be possible through the
active distribution through e-Choupal, of products tailored
especially for them.
ITC E-Choupal Meta -Market
ITC E-Choupal creatively leverages information technology (IT)
to set up a meta-market in favor of India's small and poor farmers,
who would otherwise continue to operate and transact in unevolved
markets where the rent-seeking vested interests exploit their
disadvantaged position. E-Choupal also sidesteps the value-sapping
problems caused by fragmentation, dispersion, heterogeneity, and
weak infrastructure. ITCa 94-year-old, for-profit, Indian
agribusiness company with annual revenues of US$ 2.6 billionhas
taken on the role of a network orchestrator in this meta-market by
stitching together an end -to- end solution. The solution
simultaneously addresses both the viability concerns of the
participating companies by virtually aggregating the demand from
thousands of small farmers, and also the value-for money concerns
of the farmers by creating competition among the companies in each
leg of the value chain.
E-Choupal is an integral part of ITC's competitive strategy to
create shareholder value. The creation of shareholder value is
enmeshed with economic empowerment, market linkage needs, and
enhanced modal incomes of India's agrarian communities. The
mutuality and the strategic fit make it possible for ITC to scale
up the initiative to a significant size.
Awards received by ITC Limited for E-Choupal In 2006, ITC's
E-Choupal program won the Stockholm Challenge Award in the Economic
Development category. ITC Ltd has won the Development Gateway Award
for 2005 for its ITC E-Choupal initiative which has already grown
into a movement in rural India. ITC is the first Indian company and
the second in the world to win this $1, 00,000 awards. According to
an official announcement by the company here, the Development
Gateway Award, previously known as the Peterzberg Award, recognizes
ITC's E-Choupal as the most exemplary contribution in the field of
information and communication technologies (ICT) during the last 10
years ITC was awarded with United Nations Industrial Development
Organisation (UNIDO) Awardat the international conference onSharing
Innovative Agribusiness Solutions 2008at Cairo for its exemplary
initiatives in agri business through theE-Choupal. ITC was awarded
with theAshoka Change makers Health For AllAward 2006 for the Rural
Health Services model for delivery of health services through the
E-Choupals.CONCLUSIONThe urban markets have reached the point of
saturation while almost eighty percent of the rural markets are
untapped; rural consumption in India is more than the urban
consumption; so the scope of expansion is more in the rural
markets. This makes it necessary for the companies to explore the
rural markets by taking steps to understand the needs, desires,
wants, attitude of rural consumers. Resource flows are the results
of entrepreneurial resourcefulness, and creation of successful
economies by competitive enterprises. Resourcefulness provides a
positive attitude to economic development. This attitude requires
suitable market accessories, such as E-Choupal, that spur economic
activity and then raise the modal incomes of millions of households
in thousands of agrarian communities leading to very large scale
development (VLSD) IT, E-Commerce, and virtual networks. They have
a substantive impact on the resourcefulness of the agricultural
economy. There is also a surge in the resourcefulness of
traditional institutions that will have to do their best to extend
their relevance and survival by coordinating the economic
activities of the frontline actors in the networked farm economy.
These work towards enhancing the profitability of whole communities
of enterprises.
Rural marketing benefits both the company and the rural
population and in a way helps in creating a better living
standard.
BIBLIOGRAPHY1. Rural Marketing Indian Perspective By- Singh,
Awadhesh Kumar, Satyaprakash Pandey Rural India getting Richer you
bet!.2. Rural Marketing: Making inroads into the hinterlands. By -
Hetal Adesara3. The Challenge for Indian MBA: Bridging the gap
between Philip Kotler and Countryside India. By - Sumit D Gupta4.
ITC E-Choupal: STOCKHOLM CHALLENGE
5. International Marketing Conference on Marketing &
Society, 8-10 April, 2007, IIMK6. What Works: ITCs E-Choupal and
Profitable Rural Transformation. Washington, DC: World Resources
Institute. http://www.nextbillion.net/node/14337. VSRD
International journal of Business and Management Research
www.vsrdjournals.com8. Rural marketing of consumer products,
Economic and Political Weekly, Vol. 8, No. 34 (Aug. 25,
1973)INTERNET WEBSITES LINKS www.i4d.csdms.in
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www.thehindubusinessline.com/2005/09/18/index.htm Knowledge@Wharton
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