Rural is more about doing it the right way: Effective Execution of Strategies

The Event Theme:

Rural India is the next growth destination. The aspirations of today’s rural consumers, who are “better-connected” and “more-aware”, are rising. They are fuelled further by their increasing incomes. “Why” marketers should go rural is not a question anymore… The task now is to devise strategies that can seize this opportunity. The “how” of it!

To help marketers navigate this future effectively, Rural Marketing Association of India organized a Conclave with the theme “From why rural to how rural”.

The event saw an amalgamation of two generations of the rural marketing fraternity. Experienced industry veterans joined the new age professionals to share the best practices and preview the next practices through panel discussions, presentations and case studies.

My Session Theme:

While some marketers have hopped on to the rural bandwagon early, many have started exploring more recently. Strategies that worked in rural markets, as also those that didn't, have been well documented. Riding on the increasing penetration of mobile devices and internet, social media and e-commerce are no longer the things of the future in rural India.

Coming well after the mid-point of the event, on Day 2, my job was to pick a few widely recommended “hows” (the strategies) from the preceding sessions, and share my thoughts on “how exactly” does one go about implementing them.

I picked four “hows” and went on to prescribe “how exactlies” based on the lessons from ITC e-Choupal experience… 

How 1: Because rural is a ‘connected community’ and the rural people are ‘social’, you must work through “Opinion Leaders” to influence the buying decisions of rural consumers.

Such Opinion Leaders could be Panchayat Presidents, Large Farmers, Shop Keepers, Teachers, and so on…

How Exactly does one go about finding the right Opinion Leader relevant to my offering and my context?

Step 1 is to figure out the exact role such a person would play in your business model, and accordingly determine the relevant profile.

For example, it could be a Value Chain Intermediary who is making up some missing infrastructure to improve efficiency.

Like the way the village money lender knows whether or not to extend an additional loan when the previous loan has not been repaid. Despite the missing credit rating infrastructure, he would know what to do because he knows whether the crop has failed, or if an unforeseen domestic expense has come up, or if the farmer simply wants to renege despite having cash on hand.

Or the way an Adathiya in the Mandi knows if the lot of agri produce has to be priced higher or lower than the average. Despite the missing laboratory infrastructure, he would know whether the lot has more of good, bad or ugly material. With one look!

That’s how the role of Samyojak came into being in ITC e-Choupal system. One of the roles of Samyojak, located at Choupal Saagar (the hub of the hub & spoke e-Choupal architecture) is to disburse cash to farmers. While the Banks offered to do this job at a cost of 1.0% of transaction value (accounting for the cost of a bill clerk, a cashier, and a security person, working in two shifts to service our working hours of 0700-2100), the adathiyas were ready to do this at 0.25% by combining all three roles into one! We found a Samyojak in the adathiya. He was making up for the missing cash-less transaction ecosystem. One day, when the infrastructure is in place, Banks will be able to do this more effectively.

Other example could be an Influencer who demonstrates the value of an offering through personal usage. Sort of a “lead consumer”.

It is important that the rest of the consumers perceive this person as “one amongst them”. Not the Agent of a Company, promoting their offerings. Nor should the companies see him as a Leader of the farmers / consumers as in a Trade Union context.

Thus, a medium sized farmer became a Sanchalak in the e-Choupal system. Not a large farmer, nor a shop keeper or a teacher with whom the majority of the farmers cannot identify with.  

The Choupal Sanchalak was the “go to” person for both the villagers (when they had an issue with the companies riding on the e-Choupal platform) as well as the companies (when they had an issue with the villagers). Sanchalak was “one of us” for both the parties!

To my mind, this unique institution of Sanchalak is a bigger innovation in the ITC e-Choupal model than bringing Internet to the villages when most of them hadn’t even seen telephones!

The social capital of the Choupal Sanchalak is further enhanced through a public oath he takes in front of the whole village that he would act a like trustee etc.

How 2: Although the rural consumer’s aspirations are more urban-like, you must tailor-make products for rural consumers and their contexts because rural is heterogeneous (eg. single razor vs multi-blade systems) 

You must co-create with rural consumers, because you can’t otherwise keep up with the speed with they are changing. They are not urban consumers with a standard time lapse, as someone said.

How Exactly do you co-create? This is an often-used but hardly understood phrase!

It may be easier to understand co-creation, if we first understand what is not J

Co-creation is not more research. It is not bringing consumer voice to the boardroom.

Co-creation is not crowd-sourcing ideas.

Co-creation is not even marketers immersing with consumers and developing empathy.

Co-creation is not testing company-centric product designs with the consumers.

Co-creation is giving consumers the tools and structure that allow them to become designers!

Sanchalaks – as lead consumers (of crop management knowledge, for example) – were integral part of the e-Choupal web portal design team. It was at their instance that a typical “best practices’ content was structured as “current practices, what is right or not right with them” and “why some practice needs to be changed, and then the recommended practices”. This helped add credibility to the portal that the scientists panel understood their context and then only were recommending something else, rather than a conventional expert style instruction…

The structure of periodic village meetings with all the farmers, further rolled up into Sanchalak Sammelans, helped embed their insights and inputs into the continuously evolving design of e-Choupal on an ongoing basis instead of an occasional feedback system…

We pleasantly realised that the brand “e-Choupal” was owned by the community, and that ITC was a mere trustee, when such a co-creation process articulated the brand tagline as “kisanonke hithme, kisanonka apna” in the very second year of the initiative.  The highest level any brand can attain, to my mind J  

When everyone was looking for a low-cost-last-mile to reach the rural markets, ITC e-Choupal was working on an intelligent-first-mile by working together with the communities.

How 3: You must forge partnerships to win in the “high-cost-to-reach but low-ticket-size” rural markets

Partnerships are relevant from many angles, how exactly do you determine what kind of a partnership does one forge?

I have a product, you have the channel. Let’s partner to expand outreach?

I have a product targeted at a market. You have a non-compete product for the same market. Let’s partner and go to market together and cut costs?

All such partnerships are eminently worthwhile. But the best partnership potential is in creating what is called a meta-market.

There is a fundamental disconnect in the conventional markets. Consumers think in terms of activities; companies think in terms products / services. For example, a car buyer would think in terms of information to understand the features of cars available in the market, source of credit, dealer in the vicinity, insurance, RTA etc. Each of these belong to a different industry, each trying to reach the consumer independently!

What a meta-market does is to cluster such complementary products / services and offer a complete solution to the consumer.

In the context of agriculture, farmers think in terms of weather forecasts, market prices, access to farm inputs, credit, insurance, markets for the produce, and so on… The ITC e-Choupal ecosystem assembled all these players from diverse set of industries on one platform to offer a seamless market experience to farmers / consumers at one place, right in the village! As many as 160 organisations ride on this platform today!

How 4: You must leverage technology to operate in the rural markets, because it can cut costs through remote delivery as well as personalise offerings

There is so much technology around me, how exactly do I use technology? Mobile advertising, geo-coding?

Simple! You understand the unfulfilled consumer needs and the current business processes first, and then see what role technology can play. Not the other way round.

For example, when the farmer goes to a mandi to sell his produce, four transactions are rolled into one. Price discovery, Sales, Delivery, Cash Collection. The sunk cost of transportation he has incurred even before discovering the price forces him to sell at whatever he is offered. Taking the produce back doubles his transportation cost with no guarantee that he would fetch a better prices next time he comes to sell.

ITC e-Choupal brought price discovery process to his doorstep using Internet (supplemented by the quality testing by the Sanchalak) empowering him to decide when and to whom he would sell without the pressure of a sunk cost.

When he sells to ITC, we have the ability to stack the produce of different farmers in different lots pooled as per our quality norms rather than the random aggregation done by the adathiya in a mandi. This helps preserve identity and maintain product integrity, so critical for the success of our brands.

A win more + win more solution enabled by technology J

 

Microfinance

Earlier this week, when President of MFIN Vijay Mahajan tipped off that "some MFIs may have to shut shop as early as 1st Jan 2011, as Banks refuse to lend", of all things, Karna from Mahabharata came to my mind...

Bankers may only be proving the stereotypical notion that they are, after all, fair weather friends; or may be right in their judgment in not putting any more good money behind bad. But, much like the Karna's story, many factors beyond the new loans from Banks may have contributed to the death of such MFIs.

Here is my take on what some of those factors are:

1. While the interest rates of MFIs are lower than what a local money lender charges, the fact that the rates hardly came down in so many years of MFI existence implies that the sector hasn't innovated enough. Whoever survived without innovation for long?

2. Actually, at the heart of MFI value proposition are two other complementary services viz. (a) improving income generating capability of the borrowers - beyond their cost of borrowing - through several Business Development Services, including collectives for scales of economy and (b) social mobilisation for improving credit repayment culture and taking up activities that benefit the community as a whole, eg anti-liquor campaigns. Along the way, as MFIs proliferated many of them focused on transaction efficiency, and lost sight of these two pillars that defined the original business logic.

3. That politicians cutting across party lines are egging the borrowers not to repay their loans, likening the MFIs to Loan Sharks, suggests that the industry hasn't built any political capital either, in all these years! A wide range of motivations were attributed though, such as opportunistic political gains and selfish interest of some politicians who are money lenders themselves hence anti-MFI.

4. What's even more surprising is the lack of overt support (in this hour of crisis) from the very beneficiaries themselves - the borrowers - even after knowing fully well that the MFIs would close and they may have to resort to higher cost borrowings again. The absence of social capital in the operations of many MFIs (described in 2 above) meant that the borrowers didn't see the long term benefits of continued engagement with those MFIs, instead were happy extracting the short term transactional benefits (escape from repaying their loans). In contrast, when the middlemen struck work at mandis in 2004 to stop ITC eChoupal from making the agri markets transparent, thousands of farmers came on to the streets spontaneously to support eChoupal.

5. Appropriate regulations did not evolve along with the growth of the MF sector.

6. The MF market got distorted, with Government also acting as a lender through SHGs in many States. In fact, competition with Government (who is also a regulator) in a distorted market, is a big threat for the sustainability of many social enterprises. People at BoP are the common target, by definition.

7. Wrong choices of scaling models by many MFIs is another factor. Any organisation can choose from four scaling models - scaling up, scaling deep, scaling out or scaling through. Up requires standardisation of processes for efficient replication of a demonstrated unit. Prerequisite of deep is a capability to orchestrate an ecosystem to deliver multiple products & services to the same customer group. Out is replication of the same model in a different domain. And, through is a typical franchising approach with the attendant conditions. Some MFIs attempted crossing from one model to the other or even blending different models without building the requisite capabilities, obviously leading to trouble.

8. Large sums of money was pumped in through Private Equity, IPO etc. before the sector geared itself for scaling. These sources of money demanded rapid growth, which in turn meant diluted quality of execution (multiple loans to the same borrower, coercion in recovery etc). Coupled with 7 above, this is a recipe for disaster.

9. Not enough manpower was trained in conjunction with the growth of the sector, unlike what was done in other manpower intensive large scale businesses, such as Software, Green Revolution and Operation Flood. It is estimated that some 100,000 people are employed in MFIs. Again, whoever succeeded without quality manpower.

10. In many places, the group leaders (of borrower groups) started their own bridge loan businesses, thus "ever-greening" the loans, making the ground reality opaque to MFI staff.

11. Many people question the ethics of some MFI promoters for using the growth & profits from the highly leveraged soft loans (originally given for a social cause) for private gain. In businesses at BoP, it is important for the lead players not to lose the strength of morality to be able to push Government towards reform.

What Next?

Notwithstanding all the above factors, the business case for MFIs still exists. By virtue of the crisis wrought by the Ordinance in Andhra Pradesh, good MFIs are suffering as badly as the bad.

Instead of trying in vain to revive the sector after it is dead, all the stakeholders need to kick-off a consultation process to determine the right way forward in each of these and such other factors, with the future of the borrower in mind. Karna did die due to many curses, but mythology tells us that every curse can be lifted too!

Agriculture & Climate Change: Aligning Small Farmers

Last week I spoke on this topic at the Global Forum on Food & Agriculture, Berlin. These were the broad talking points I had jotted down for myself:

A. All of us know the three dimensions of agriculture vis-à-vis climate change

1. That agriculture is a part of the problem, causing climate change through Green House Gas emissions (methane from flooded paddy fields & ruminants like cows, nitrous oxide from the soils, CO2 from fossil fuels used in farm equipment etc)

2. That agriculture is also one of the most vulnerable sectors impacted by climate change (fall in productivity due to changing weather patterns)

3. And, that agriculture can be an important part of the solution to climate change (through emission reductions, carbon sequestration, increasing soil organic matter etc)

B. At a macro level, what needs to be done to produce abundant food that is safe, healthy and climate friendly also seems to be reasonably well known!

But, unlike in other sectors, the key actors that need to implement these solutions are hundreds of millions of small farmers spread around the world.

C. The challenge of aligning the small farmers to climate change issues is four fold!

1. Bringing relevant information to farmers living in dispersed geographies, especially where the supporting infrastructure is weak

2. Personalising the sustainable crop & livestock management practices to individual farmer circumstances, and then transferring that knowledge

3. Coordinating availability of all inputs like credit, water, seeds, risk management instruments etc, so that the new knowledge is actually adopted by everyone

4. And, most importantly, providing a financial incentive to the individual farmer when he has a difficult trade-off between today’s cost and tomorrow’s benefit, or between individual effort and common good

D. There is a solution to this apparently complex challenge. In fact, it is practically demonstrated through our company’s innovative business model named ITC eChoupal; that reaches four million small farmers in India today.

Although Information Technology is the most known face of ITC eChoupal, the model has three equally important components.

1. Firstly, leveraging Internet and increasingly Mobile phones so that real time information and personalized knowledge can reach the small farmers in an audio visual mode

2. Secondly, co-opting social capital through user groups that can help equitable distribution of common resources like water; also helps in accessing indeigenous knowledge and in conducting participative research

3. Thirdly, a collaborative network of organizations working together to bring a complete end-to-end solution to the farmer through a meta-market approach

E. With this approach, I am confident that we can align small farmers in the war against climate change. This alignment will happen faster, if the international community creates a fair reward system for farmers recognizing their contributions to climate change mitigation (eg carbon sequestration activities and bio-based energy services)

Blending Innovation and Social Entrepreneurship, Changing lives

Here is a summary of my opening remarks during the panel discussion on “Blending Innovation and Social Entrepreneurship, Changing lives” at the Villgro Unconvention on 11th Dec 2009 (http://nxy.in/7rxhn)

1. What is “changing lives”?

To me, “changing lives” has two aspects and one outcome

(a) Align capacity of the people. Am saying “align” rather than the more commonly used term “build”, because I believe everyone has some sort of special capacity innately. Capacity could be social rights, economics knowledge, communication etc

(b) Enable unconstrained access to markets. Markets for information, knowledge, inputs (products and services) into production activity and access to output markets

so that

(c) everyone can fulfill their aspirations whatever they are, including a better quality of life!

2. Why do we still need to talk about “changing lives”, despite so many centuries of civilisation?

I will illustrate my arguments referring primarily to the context of rural Indian people (because that’s Villgro’s canvas, and that’s where my experience lies in any case), but many of these observations are relevant to all poor people.

Because of certain inherent and fundamental characteristics of rural people (especially farmers) and certain other challenges, their access to markets is constrained. Consequently all their hard work, innovation and risk are burnt in sheer survival rather than creation of wealth. Incidentally, in the same panel, Paul Polak described such people as “survival entrepreneurs”

I call some characteristics fundamental, because they are unlikely to change (to any significant effect) in the foreseeable future. They are:

(a) Fragmented Size: Each of the 120 million Indian farmers owns an average of just about a hectare-and-a-half of land. Consequently, they end up with weak bargaining power in any value chains they are part of. They end up buying any thing they buy at a very high retail price at the end of a long chain. CK Prahalad called this “Poverty Premium”. On the other hand, whatever they sell they sell at a whole sale price at the beginning of another long chain; receiving only a small share of the consumer Rupee as a result.

(b) Geographic Dispersion: These 120 million farmers live in some 600,000 villages spread across a large geography. As a result access to real-time information is difficult and cost of reaching goods becomes expensive.

(c) Heterogeneity: Besides the broader variations in soil types and climatic conditions across India, the individual farmers also differ from each other so much (eg. access to finance, cash flow needs, risk appetite, family labour and so on) that any generic solution is not going to be optimal for many. Personalisation of solutions is an imperative, but personalizing isn’t viable for any business when these people are fragmented and dispersed!

The challenges arising out of these fundamental characteristics are further compounded by inadequacies in the infrastructure. Infrastructure of three types. The more commonly known physical infrastructure viz. roads, power, telecom; also irrigation in case of farmers. Then the social infrastructure viz. education for competence building, health – a major reason for indebtedness in rural India. Finally, and most importantly, the still evolving institutional infrastructure viz. credit ratings, dispute resolution, commodity price risk management, farm yield risk management etc.

As a result of these fundamental characteristics and the infrastructure inadequacies, when the farmers access markets such as banks for loans, agri extension officers for farm management knowledge, mandis for selling agri produce etc their transaction costs are high; that is when they are actually able to access.
Otherwise they have to rely on middlemen in the villages who provide them all these services at one shop conveniently, but extract their pound of flesh by spinning a cycle of dependency and exploit it to their advantage!

In other words, these two options are like relying on the Devil or swimming through the Deep Sea to access the markets. What’s the outcome you then expect, except the world still looking for solutions to “change their lives”?

3. In this back drop, I propose that innovation along three vectors can make a difference and possibly hold a light at the end of the tunnel for these people:

(a) Technology: For relevant products (e.g. energy solutions – solar lights, communication solutions – mobile phones) at better value for money price points, and for remote access (information, knowledge, e-learning, health diagnosis & delivery) by side stepping or making up for infrastructure inadequacies

(b) Institutions: Fusing technology, social capital (making up the missing institutions and provide an alternative to the traditional middlemen e.g. Joint Liability Groups making up the missing credit appraisal mechanism; ITC eChoupal Sanchalak for facilitating value added access to Internet) and collaborative networks (that orchestrate an ecosystem to bring end-to-end solutions to the poor like middlemen, yet offer freedom of choice like the unbundled market institutions) to create more equitable markets

(c) New Business Models: Enmesh the interests of people and business (e.g. identity preserved supply chains in eChoupal system that raises the incomes of the farmers and increases ITC’s profits), and third party pays business models (leveraging the volume ala’ media business) for fiancial viability and scalability of the enterprises