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

 

Role of Corporate Sector in Inclusive Growth: Importance of Business Model Innovation

Earlier today, I spoke at the SMF-IIMA Conference on "Challenges to Inclusive Growth in the Emerging Economies".

My talk posed and answered four questions.

Q1: Who is "excluded" from the current growth process, that we now want to include?

Two sets of people are excluded, may be are even short changed, from the exciting growth story of the emerging economies in general, and India in particular, in recent times.

1. Some sections of our population, because they suffer from certain inherent disadvantages, are excluded from the new economic opportunities and growth (e.g. farmers, rural crafts persons, people with physical disabilities etc)
2. Some other people are excluded from the economic equations, because they don't have a say today! I am talking about our grand children and their grand children. The decisions taken by our generation have a bearing on the availability of natural resources (e.g. water) and the quality of ecology (green house gases) when they are around on this planet.

Q2: What can Corporate Sector do in this context?

Traditionally inclusive growth has been the domain of Government, Civil Society Organisations, Multilateral Institutions. Although there has been some progress over all these decades, none of us can feel satisfied with today's position of either of these excluded segments. For example, per capita GDP of an Indian farmer is just about 1/4th of that of rest of Indians. And, the concerns on climate change are at a level we have never seen before.

Programmes of these agencies miss out on one or the other aspects of three crucial areas.

1. Sustainability - where the programmes are subsidy based, their long term sustainability is suspect
2. Outcome effectiveness - for the target segment of people is weak, as the programme focus is typically on outlays
3. Scalability - is often the most challenging aspect of a successful programme

Call these SOS, if you will, by the first letters of the three areas. That's the message to the world.

On the other hand, by the very nature of enterprises, Corporates survive & thrive by doing these three things right...

1. Profit, the key metric of financial sustainability is the core objective of any commercial enterprise
2. Value Proposition to the target group of customers is the essence of market and competitive strategy, and guarantees outcome effectiveness.
3. Growth, the other metric by which Corporates swear, is what goes into determining market capitalisation of an enterprise

In other words, Corporates have the specific wherewithal to engage in inclusive growth agenda by applying these capabilities and deal with the SOS challenge.

Q3: Why is Business Model Innovation important?

Despite such a case for Corporate involvement in inclusive growth, there is widespread skepticism too!

Many in Government and Civil Society are skeptical about the intentions of Corporates. They simply see such engagement as a lip service, since they believe that 'profit' and 'inclusive growth' are at cross-purposes

Even the Financial Investors see a conflict between a company's profit objective and its social or environmental engagements.

On the other hand, if Corporates stay out, the SOS challenge unlikely to vanish. If the income divides expand and the ecological insensitivity continues we will have a serious problem. No business can succeed in a failed society, or in a world where natural resources are exhausted.

Then, there is also a huge business opportunity in selling products & services to the poor, and in selling eco-friendly products.

How do we reconcile these conflicting realities? The only answer is Business Model Innovation.

If we are able to innovate business models in a way that the profit objective of Corporates is enmeshed with the social or ecological benefits to the community at large, the new goal will be well aligned.

While many Corporates create shareholder value indifferent to society, and some even do at the cost of society, the conflict can be resolved if shareholder value is created "through" serving society. That's where business model innovation comes in!

By calling it business model innovation, I am distinguishing it from product or service innovation that can help inclusive growth. Renewable energy, micro finance, mobile phones, and road infrastructure are some examples of such product & service innovations.

Q4: Is there a special tool kit for business model innovation for inclusive growth?

Based on my experience in building the many phases of ITC eChoupal, and having observed several other inclusive growth initiatives of ITC from ring side, I see three important tools in a kit that will help innovate business models and deliver inclusive growth.

1. Co-creation together with the Communities: Both design and execution. This makes up for the missing infrastructure (eg individual credit rating, dispute resolution) through infusion of social capital. This also cuts costs. More importantly this co-opts lead consumers and helps accelerate product & service innovation. Two of the new institutions innovated under ITC eChoupal system viz. Sanchalak and Samyojak are vital components of a co-creation platform.
2. Leveraging Technology: Technology helps in remote delivery of services (eg eLearning, Telemedicine) and overcomes the physical access barriers as well as the knowledge concentration barrier. Technology can multiply productivity. Technology can also personalise solutions to individuals, so important given the heterogeneity of the target segment we are talking about. Technology helps in precision, leading to better resource usage and improve quality of the output.
3. New Revenue Models: Integrating the micro producers into value chains that connect them to the markets, is one way in which their share of a consumer price can be taken up. The principle of "Third Party Pays", as in Media business, is an important way in which the burden on the low-income producers or consumers can be reduced. This leads to rapid market expansion. Platforms that can carry products & services of several other organisations can create "increasing returns ecosystems" and deliver exponential growth, once the network effect sets in.

Wish you good luck, in co-creating a new world order :)

eAgriculture: Perspective to Practice

Earlier today, I chaired a Panel Discussion on "eAgriculture: Perspective to Practice" at eIndia 2010. The Panel was quite diverse, consisting of the Knowledge & Information Management Officer of FAO Rome, the Director of Kerala IT Mission, the Dean of Bombay Veterinary College, Dean of Raichur Agri University, a Project Manager of C-DAC who is implementing the e-Village project in Arunachal Pradesh and a Director of a Farmers Organisation from Uttarakhand.

I opened the discussion, by saying that the role of 'e' across the whole agricultural value chain has been well visualised. Several models also have been successfully demonstrated. For over a decade now. 'e' played central a role in information generation, information processing and information exchange in those idea. 'e' filled the gaps in the crucial linkages across the value chain starting with research, and moving on to education, extension, crop management, supply chain management and post harvest management in those models. 'e' increased productivity, improved efficiency, reduced risk and delivered value through traceability in the pilot projects. Yet large scale operationalisation of these ideas is far from satisfactory, in the sense that the intended benefits haven't reached even a fraction of the needy farmers. So, the question to the Panel was "What does it take to translate the Perspective to Practice in eAgriculture?"

At the end of the session, I synthesised the experiences and case studies shared by the Panel into a model that I called "Pentagon", named after the five dimensions of what it takes to translate the perspective to practice in eAgri... The acronym of this model turned out to be C-ROSE, taking the first letter of each of the dimensions!

Collaborative Ecosystem of several stakeholders, that can stitch an integrated end-to-end solution for the farmer instead of each player targeting a sliver and increasing the costs of friction. An ecosystem that institutionalises a Knowledge sharing network for collaborative learning to hasten evolution of the practice.

Relevant Technology that is easy to use, in local language; may be a speech interface in addition to the text. A technology that is robust to withstand the challenging physical conditions and make up for the infrastructural deficiencies.

Orientation that doesn't view outreach to the farmer just as a last mile challenge, but more importantly, sees it as a first mile challenge to appreciate the individual needs of all the farmers. This can help in delivering personalised solutions. Given the heterogeneity of farmers' circumstances, such an approach is vital.

Sustainable business models that can be scaled to reach out to "all" the farmers, not just a prototype here or a pilot there. Scale doesn't necessarily mean that one initiative needs to reach "all" the farmers; multiple local enterprises can replicate a proven model and scale out to saturation.

Enabling Environment, most critically the Policy environment that fosters competition and that does not distort markets. The reversal of reforms in APMC Act, Essential Commodities Act or Forward Markets Regulation halted the roll out of 'e' solutions more than, possibly, any other dimension mentioned in the model.

Happy to incorporate any other dimension that any of you would like to add, and change the shape of this model. A Hexagon or even a Septagon? The end goal is to be Bang-on :)

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

Marketing to the Bottom of the Pyramid

Earlier this week (7 Dec), I spoke to the members of the six winning teams of ISB’s iDiya initiative (http://www.isb.edu/iDiya/). My topic was “Marketing to the Bottom of the Pyramid”. Actually, I conducted the session much like an MBA class. I just asked the questions, got the participants to respond based on their experiences, and I put it all together as a synthesized output. Here it is:

A. Why is marketing to the consumers at the BoP different from marketing to the consumers at the ToP or MoP?

• What is different about these consumers?

1. By definition, income of these consumers is low
a. Incomes are seasonal for farmers. There is also variation in incomes across seasons
b. Most of the money is spent on Food. Purchasing power for discretionary products is low
c. People prefer single serve products. Low unit cost products.

2. Awareness levels of these consumers about most products / services is low (primary focus is on subsistence)

3. Acceptance of new products is low.
a. There was also a counterpoint that acceptance of new products is actually high, if the product is relevant and the value is communicated effectively)
b. New products are accepted when opinion leaders in the community use them and demonstrate value
c. Word of Mouth is a better communication channel among the BoP consumers

4. Urban BoP is more homogenous than their rural counterparts
a. Urban BoP has lower disposal income as their cost of living is higher than that of their rural counterparts
b. A number of urban BoP consumers may not have a permanent address, as they keep migrating for jobs and / or change addresses when they come back to towns seasonally

• What are the challenges in marketing to these consumers?

1. Reaching products to them is a challenge. Supply chain costs are high and unviable, compared to product margins, as they are scattered (especially rural consumers)

2. Communicating with them is also a challenge, due to low media penetration. Difficult to reach consumers other than top socio-economic segment in the village

3. Competition from the local middleman is a problem. Because he lends, he has a grip on the consumers. He pushes high margin products, not necessarily products that are relevant to the consumers. Alternative channels (eg Banks) have the risk of defaults, as they don’t know the consumers as well as the local money lender does. Their documentation processes are rigid, and borrowers prefer easy access from the money lenders.

B. In light of these differences and challenges, how should we approach marketing to these consumers? (Answers largely revolved around rural consumers)

1. We must offer Products relevant to these consumers. These are (a) those that raise their incomes and reduce their risk (b) low cost products
i. Reach R&D to people at grass roots to increase their productivity and improve quality
ii. Reach finance. Actually complete range of financial services credit, savings, remittances, insurance
iii. Bring Crop Insurance, Health Insurance, Commodity futures
iv. Information about new investment & employment opportunities is an important service that can be provided
v. Reduce dependence on agriculture, through allied activities like livestock or even BPO. Facilitate some primary processing activities in the villages.
vi. Build capacity for these other activities

2. We must leverage technology to create such products and also to overcome the infrastructure barriers
i. Technologies include mobile phones, radio, internet
ii. Apply basic & appropriate technology to solve problems, many times learn from the BoP people themselves

3. Organise people at BoP into groups to reduce transaction costs in dealing with them
i. Thereby build scales of economy in farm inputs sourcing
ii. Collective farming or cooperative farming also examples
iii. Reduce role of traditional middlemen, by bringing educated rural youth back to villages
iv. Leverage the discipline characteristic among women to be the new intermediaries, as demonstrated by SHGs

4. Multiple organizations must come together in a collaborative way to deliver complete solution to these consumers
i. PPP is a good way. Government financial support is crucial to many projects, especially in agriculture & employment
ii. Partnerships with Not-for-Profits are useful in establishing relationships with the community, and in communication

C. What are some of the challenges you visualize while executing these strategies?

1. Many execution challenges are cannot be anticipated; so be adaptable

2. Customising products and services to the local needs; understanding the local needs itself is a challenge
i. Delivering after sales services is expensive
ii. Acceptability of new products / technology / ideas will take time to build awareness and educate people about the benefits

3. Competition with middlemen and other local players isn’t easy.
i. If the products / services improve market transparency, there may be resistance too from these people
ii. Competing with counterfeit and look alike products at substantially lower prices will be a challenge too

4. Identification of right leaders within the village will be a challenge in itself

5. Retaining talent is also challenge, as most people would like to work in urban areas
6. We need a pipeline / platform to connect companies with BoP consumers (right from consumer understanding to distribution of products)
i. Such a pipeline could be built in a collaborative mode (Government could pitch in with some subsidy, especially for services like agri extension and other capacity building activities)

Here is a picture of a part of the White Board I scribbled on; this helped in putting this note together :-)