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Contn Selling To The Poor Profitably HLL It's an unlikely location for the secular to meet with the temporal. That's what the twain do in Kalamma's mud and thatch house in Shivanenigudem, a village in the Nalgonda district of Andhra Pradesh, where a clutch of brands from the stable of consumer goods behemoth Hindustan Lever Ltd jostle for space on a tiny shelf, with an array of pictures of Gods from the Hindu pantheon. Kalamma, and 120 of her sorority from 49 other villages in three blocks in the district, are Lever's unsung (and newest) brand ambassadors who vend the company's products in villages that are not part-not directly; these are serviced by wholesalers from the nearest town-of its distribution network. If successful, Lever will replicate this strategy of using rural Self Help Groups (SHGs)-Kalamma is the member of one such-in the 230,000 Indian villages it reaches indirectly, and the 330,000 it doesn't reach at all. ''The question (we set out to answer) is, Can we improve our rural reach through a viable, sustainable model?,'' explains Dalip Sehgal, Director (New Ventures), HLL.
Part of the answer is already in. Lever's marketshare is up in the 50 villages: from 1-2 per cent to 15 per cent in detergent powders and bars; and from 34 per cent to 50 per cent in oral care products. It's too early-Project Shakti began only in November 2000-to comment on the rest, but HLL's approach marks a departure from its traditional rural marketing strategy. Rural demand is a function of four factors: penetration, consumption, income, and population. Companies have preferred to focus on the first two. ''But we realised,'' says K. Srinivas, HLL's point man in Nalgonda (his card reads Business Manager, New Ventures), ''that unless we did something about income, there would be no consumption.'' To address the income issue, Lever turned to the SHGs. Modelled on similar entities created by Bangladesh's Grameen Bank, SHGs are essentially thrift-and-savings organisations comprising 15-20 members that were promoted by the Government of India in the mid-1980s. Established with the support of local governments or Non Government Organisations, SHGs provide rural women with a means to save; individual members put away the pennies, the SHG opens a savings account in a local bank, at the end of the year, the bank lends the SHG an amount equal to the balance in the account, and individual members borrow from the SHG and start a business. India boasts around 600,000 SHGs. Andhra Pradesh alone accounts for 330,000 of them with a membership of 5,000,000 women and a cumulative corpus of Rs 800 crore. Each member of a group saves Re 1 a day. Thus, a group with 15 members would save Rs 5,400 a year and take a loan of a matching amount from the bank (at an interest rate of 12 per cent a year). Members can borrow from this corpus at an interest rate of 2-2.5 per cent a month, but to sustain SHGs, they will need to invest this in activities that generate income. That's the point of entry HLL sought: a locally-focussed business as Lever's retailer, the company reasoned, would be attractive. The groups choose representatives, or an individual chooses to become HLL's local retailer and borrows money from the SHG for this purpose; Lever supplies them with stock; and they sell this at a retail-margin of 10 per cent (organised sector retailers make 8 per cent). If the SHG has nominated the representative, the profits are ploughed back into it, but if an individual has borrowed capital from the group to enter the business, she keeps the profits. And since the SHGs are largely Government-sponsored, Lever had to convince bureaucrats in Hyderabad about the merits of its strategy. The potential is staggering: assuming that half of all personal products bought by rural consumers are made by Lever; that 50 per cent of the population of a village buys these products; that the average monthly spend on these is Rs 4; and that the population of the village is 1,000, the women entrepreneur will generate a turnover of Rs 2,000 a month. Her profit: a cool Rs 200. HLL reaches out to SHGs, not through Redistribution Stockists (RS), its conventional channel, but through Mutually Aided Co-operative and Thrift Societies (MACTS). These are federations of typically between 15 and 20 SHGs, and boast a corpus between Rs 60,000 and Rs 70,000. MACTS lend money to SHGs, monitor local welfare initiatives, and, in the new scheme of things, some of them distribute Lever's products. The Venkateshwara macts in Peddakaparthy village (corpus: Rs 1.15 lakh) invested Rs 20,000 as capital in the HLL-distribution business in December, 2000. To date, it has clocked a turnover of Rs 130,000 and makes a profit of Rs 1,300 a month. The success of the model, though, will depend on the viability of its constituents. Since it is dealing with first time retailers Lever has limited itself to vending 12 Stock Keeping Units (SKUs). Increasing this, reasons Pradeep Kashyap of mart, which is helping Lever implement its strategy, will help. Thus, along with HLL's offerings, the women could vend a Philips bulb and a Nippo dry-cell. Lever isn't averse to this, but is justifiably loath to rush things. ''The viability of the business will increase, but the complexity would go up exponentially,'' says Sehgal. Over the next few months, HLL proposes to streamline the model. The options before it include expanding the area covered by each women entrepreneur (from one village to more, but that would require them to be mobile), and making the MACTS more profitable. By end 2001, HLL hopes to cover the 900 other villages in the Nalgonda district. Then, it will move to other districts in Andhra Pradesh, Tamil Nadu, Karnataka, and Gujarat. That's a tall order but the gains-a possible improvement in reach by a factor of 4-8-are well worth it. -Ranju Sarkar THE
SIMPUTER TRUST Some people take conferences seriously. Vinay Deshpande, the 53-year old CEO of Encore Software, is one such. At a November 1998 conference, he found himself next to Vijay Chandru and Swami Manohar, both professors at the Indian Institute of Science when a declaration on the ideal approach to it was being framed. ''The declaration,'' recalls Deshpande, ''called for evolving technology suited to local needs'' Deshpande's conversation with the Dons took the shape of a device providing ubiquitous net access; and the Simputer was born.
The product's given name is the Simple, Inexpensive, Multi-lingual, Computer, and it is a hand-held like those made by Palm, only with more horsepower. The tech specs: a Strong-arm processor, 16 MB of flash memory, a monochrome Liquid Crystal Display, and a built-in modem. The price: around Rs 9,000. When this correspondent saw the prototype it was being test-driven by Beerappa, a 36-year-old farmer in Jattipalaya village, 45 kilometres outside Bangalore. The little hand-held, and the agri-oriented Kannada sites he could browse had captured Beerappa's imagination. The Simputer is operated by pointing a stylus at icons, and it delivers a text to speech output (if the website allows this, and most local language ones do). The machine connects to the net through a telephone jack. And it runs on Linux.
The intellectual property for the device has been transferred by Encore and the professors to a non-profit trust, the Simputer Trust, and the software and the hardware for the appliance have been made open source. ''We want a number of manufacturers to compete on price and innovation. But one of the provisos is that any change made should be given back to the public at large through the trust after a year,'' says Deshpande. The Simputer may eventually find its largest market among companies that wish to reach out to their sales people and customers in the rural hinterland. Despite that and the fact that a hand-held may not be the ideal device in the rural context, it indicates a desire to reach out to people traditionally ignored by technology. As for applications, the rural customer is savvy enough to come up with his own. -Venkatesha Babu ARAVIND It's before nine in the morning, and the Aravind Eye Hospital in the Anna Nagar area of temple-town Madurai is up and running. From the outside, the five-floor structure resembles a school, not a hospital. At the reception, you are told 700 people have registered at the hospital already that day. Yet, all is strangely quiet, in relative terms, for a hospital. And, all is surprisingly organised for what is, at the end of the day, a charity. Don't tell that to Aravind Srinivasan, the scion of the Venkatsamy-family that founded the first hospital, in Madurai in 1976. ''We are a non-profit organisation, but we always work towards a profit,'' says Srinivasan who is simply designated Administrator. If that sounds like typical MBA-speak, there's reason for it: Srinivasan has one, from the University of Michigan Business School to boot (that's where management guru C.K. Prahalad teaches). And like 17 other members of his extended family, he's a doctor, an ophthalmologic surgeon. Today, the Aravind Eye Care System is a charity with four hospitals in various parts of Tamil Nadu, and a fifth one coming up at Pondicherry at a cost of Rs 20 crore.
More numbers: last year, 1,93,000 people underwent surgery at the four Aravind hospitals; 1,33,000 of them were treated free. And those who paid, did 30 per cent less than prevailing market rates; ergo, the theory about paying patients subsidising non-paying ones does not hold true here. In its 25-year life, Aravind has never made losses. In 2000-01, the trust recorded a turnover of Rs 27 crore. ''Corporate hospitals may boast 25 times our turnover, but their profits may well be 25 times lower than ours,'' says Srinivasan. For the record, Aravind's profits last year were Rs 15 crore. But how does a business manage to get its 20 per cent paying customers to subsidise the 80 per cent non-paying ones without over-charging them? And how does it manage to do so with a cash surplus that powers growth-the money invested in the Pondicherry hospital, for instance, came from internal accruals. The answer isn't funds and grants, as these accounted for less than 1 per cent of the income side of Aravind's financial statements in 2000-01. Behind Aravind's success is a business model that has now been chronicled by the Harvard Business School in a case study, and by Prahalad in several presentations on selling to the poor. Indeed, the University of Michigan Business School is facilitating the migration of the Aravind model to a hospital in South Africa. Shorn of frills, this model has four components: motivated employees; optimal management of manpower and hospital resources; and superior marketing skills.
Motivated Employees: It isn't easy to manage an army of 280 doctors (200 of them are trainees). It's harder still to do so when you can't afford to pay them the kind of salaries corporate hospitals do. Each of Aravind's 80 surgeons perform, on an average, 75 surgeries a week. Still, the turnover of doctors, at 25 per cent, isn't that high. A stint at Aravind is far less risky than private practice; even a year at Aravind is a great learning experience; and the trust regularly sends its doctors abroad to improve their understanding of the latest treatment methodologies. The trust hires support staff-paramedics, technicians, and the like-for all its hospitals from neighbouring villages. They are trained only in terms of their specific functions at the hospital, earn Rs 1,000 a month, and are provided with free food and board; hence, few look at life beyond the hospital. Optimal Management of Manpower and Resources: The doctors, whose time is expensive, do not waste their time on routine tasks; all preparatory work is done by other staff and they are called on only for the final prognosis and the actual surgery. Every surgeon has a large retinue of paramedics and the operating theatres at Aravind's hospitals are strangely reminiscent of assembly-line manufacturing operations. Every patient, paying and non-paying, is out of the hospital in two hours, unless surgery is required. Operations are performed within two days, and non-paying patients who have legged in from other centres are provided free food and board-nothing fancy, merely a dorm and functional rope cots, but it suffices. The trust also has a small manufacturing facility in Madurai, Aurolab, that makes Intra Ocular Lenses used in cataract operations, and is now working on foldable lenses. The former used to be imported at high-cost; the latter still is. Sutures, needles, and formulations, are also made in-house. Today, Aurolab, itself an economically viable entity, has reduced the working cost of the hospital by as much as 30 per cent. Marketing Strategy: Aravind's marketing team finds sponsors for the 100-plus eye camps it holds in a month. These attract non-paying patients to the hospitals. Word-of-mouth, and the positive rub-off associated with treating those who can't afford eye surgery, attract paying patients. ''It is the free patients who bring in the paying ones,'' says P. Namperumalsamy, Director, Aravind Eye Care System (that's the name of the trust). Only, there aren't enough paying patients coming in. The ideal mix would be 30:70, but in Aravind's four hospitals it is 20:80. ''If the proportion of paying patients reduces to 16 per cent, we will go into the red,'' warns Srinivasan. It is this emphasis on operations that made the mp Birla Group request Aravind Hospitals to manage its Birla Eye Hospital. This arrangement is not for profit, but surely, management expertise could well be another revenue stream for Aravind. -Nitya Varadarajan 1 2 |
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