Trimillennium Management; Customers; Channels: Be Indian, buy Indian, sell Indian

TRIMILLENNIUM MANAGEMENT :CHANNELS
Be Indian, buy Indian, sell Indian

By Sharad Sarin

With nearly 80 per cent of the population, the 2 lowest income-groups in India account for 63 per cent of the total spending on 22 fast-moving consumer good (FMCG) categories. In rupee terms, these account for nearly Rs 42,000 crore of purchases in contrast to the Rs 7,000 crore spent on the same categories by the high-income classes, which comprises 3.50 per cent of the population of our country. No marketer who wants to build a presence can, obviously, afford to ignore the lowest income-groups.

Our projections indicate that, by 2030, when India's population will cross 1.35 billion, 40 per cent-or 540 million people-will be classified as amongst the poorest. Assuming a 2 per cent annual rate of growth in their real incomes, at today's prices, this segment of the population could provide a market of Rs 84,000 crore for the FMCG sector.

The bottom end will, therefore, offer top-drawer opportunities. Not through evolutionary routes, but through revolutionary thinking. The texts on channel- management suggest that channels should be viewed as orchestrated networks that create value for customers through the generation of form-, possession-, time-, and place-utilities. Besides demand-management, channels should also pay a role in stimulating demand. In the Indian context, an orchestrated approach to stimulate demand would be the key to unfold the potential of the lowest level. Borrowing from Sam Pitroda, it may be wise not to listen to extant wisdom; he calls this disruptive thinking. Selling products at subsidised rates through the inefficient ration-shops of the public distribution system cannot be a solution to serve the poor. Similarly, the expansion of conventional channels may take decades, and fail to tap the opportunities that the bottom layers offer.

India has 600,000 villages and nearly 3,000 urban centres. The customers in these markets are served by 5.50 million outlets, supported by long and short channels of distribution called intermediaries. So, for its tea business, Levers, through a system of 30 C&F agents and 2,500 redistribution stockists, is able to service 4 lakh retail outlets (2.9 lakh in urban India and 1.1 lakh in rural India). By 2002, Levers has an ambitious plan of appointing a stockist for every 100,000 potential consumers. With an average of 500 outlets per stockist, this would translate into one outlet per 200 persons. In aggregate terms, that works out to 10,000 redistribution stockists and 5 million retail outlets.

Retailers should draw their inspiration from the all-time retailing giant, Sam Walton. Starting with a single discount store in 1962, Wal-Mart is today a $50 billion organisation. He once said: ''We are all working together; that is the secret. And we will lower the cost of living for everyone. Not just in America, but we will give the world an opportunity to see what it is like to save and have a better lifestyle, a better life for all. We are proud of what we have accomplished. We have just begun.'' India needs several Waltons. The man, despite the US per capita income of $300 then, was able to see beyond the obvious when he started out.

Perhaps the channel with the chance of reaching the rural and urban poor is that of the traditional melas and haats. Over 47,000 haats are organised every year in India, and their average daily sales are Rs 2.25 lakh. This works out to Rs 825 crore a year. And the 25,000 melas achieve a sale of Rs 350 crore per annum. Thus, Rs 5,000 crore of merchandise is sold through these mobile and temporary markets. Can these be India's answer to Walton? Perhaps. But a corporate initiative may well be needed to improve the effectiveness and, consequently, the sales from these markets.

The very poor will not attract any attention from marketers unless they bear the look of potential customers. That will call for initiatives to convert them into customers. This would call for blending the missions of successful marketers like Walton, Mohammed Yunnus (Grameen Bank, Bangladesh), and Verghese Kurien (NDDB). Walton not only sold products at the lowest prices, he also generated employment and created purchasing-power among his 60,000 workers. Mohammed Yunnus, by giving very small loans to the poorest, not only ensured credit to 2 million borrowers, but also covered 34,000 villages-half the 68,000 villages in Bangladesh-and also generated employment for 11,000 people, who became bankers on bikes by working for 1,041 branches. Amul's is a similar success story. The model covers 170 districts and 70,000 villages across India. Together, the 170 unions market 10 million litres of milk every day, and supplement the family-incomes of 90 lakh people by Rs 4,000 per year. Every day, 90 lakh milk pourers line up in collection centres in 70,000 villages.

Several other co-operatives of the very poor have emerged as powerful ventures that encourage the formation of small groups to help each other. This is how Lijjat Papad started. And this how Grameen Bank ensured the 99 per cent recovery of its loans. NGOs running micro-credit organisations, can monitor the activities of small help groups. However, for this to happen, education is a must.

The major initiatives have to come, not from the government, but from corporations and individuals. The likes of ITC, HLL, Indian Oil, and Amul have to combine to create innovative channels of distribution, that will, in effect, be a collaborative effort rather than the lone effort of individual companies. The structure will be a hybrid one: a combination of enablers, intermediaries, and consumers.

A study by the NCAER in 1998 identified inadequate infrastructure, low incomes, and different lifestyles as the key reasons for the low penetration of products and the low consumption by the lower-income class. By coming up with low-priced products, marketers can tap that potential. But the real challenge is not in manufacturing such products, but in enabling the poor segments to become customers. To quote C.K. Prahalad: ''We have a problem to be solved: serving the bottom of the economic pyramid. The solution represents a profitable business opportunity. There is no alternative. India cannot progress without creating a consumer class out of the poor.''

Channels of distribution will play the most strategic role in demand stimulation. Subsidies are no solution' only a co-operative, horizontal marketing system of channel management holds promise. A new paradigm of collaborations is needed to transform the scenario, which will happen in this century.

Sharad Sarin is a Professor at the XLRI

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