INTRODUCTION
‘India’s way is not Europe’s. India is not Calcutta and Bombay. India lives in her seven hundred thousand villages.’………………..Mahatma Gandhi, 1926
Marketing in developing countries like India have often been borrowed from the western world. Concepts like Brand identity, Customer relationship management, 4 P’s 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 tremendous market potential. Nearly two-thirds of all middle-income households in the country are in rural India and represents half of India’s buying potential. Despite, the strong potential the rural markets are by and large less exploited. Consider the market, out of seven lakh villages in India only one lakh have been tapped so far. The paper thereby present the modified version of Philip Kotler’s famous marketing mix consisting of 4P’s. The focus is on its modification and subsequent customization to Indian rural market’s perspective. The 4 P’s 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 E’s 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
INTRODUCTION
72% of India’s 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 farmers’each of whom owns about a hectare of land’have 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 India’physical, social, and institutional’is 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 STUDY
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.
‘ To analyse and understand the rural marketing strategy of ITC
‘ To understand the consumption pattern of the rural consumers in regard to confectioneries.
‘ To understand the preference of rural consumers in case of confectioneries.
‘ To understand the frequency of such purchases by the rural consumers.
LITERATURE REVIEW
Unique features of rural marketing
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."
We feel that the above quote is the gist of marketing, be it in rural areas or urban areas, western world or developing world. Marketing in nothing but creating customers and thus its concepts remain the same. 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 and thus, subsequent changes in the application of marketing concepts 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) Levels 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 don’t 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.
The above points indicate the need for subsequent adoption of ‘Marketing principles’ as propounded by Kotler and other management thinkers, with requisite changes suiting the Indian Market. The marketing mix in the case of Indian rural markets consists of 4P’s 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 E’s of Education and Empowerment.
The traditional marketing hypothesis tends to ignore the requirement of a developing country’s 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 India’s 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 customer’s 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 India’s rural areas where only one in every three households owns a television and most of the villagers are illiterate. Also what 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 as it may fail to attract him as fails to connect to it due to the lifestyles being different. Few of the available options in the traditional media are
_ Puppetry,
_ Folk Theater & Song,
_ Wall Painting,
_ Demonstration, Posters,
_ Agricultural Games,
_ NGO’s 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
For most companies wanting to enter the rural markets, distribution poses a serious problem. 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.
CORE
The two biggest problems that the rural India faces are Illiteracy and Unemployment. To integrate them in one’s 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 E’s: 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 company’s 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 customer’s life is going to be enhanced because of product’s 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 2,000 e-choupals across India at a cost of about Rs 1.5 lakh (USD 3,400) each in villages. It is now adding 5 a day, with plans to cover 100,000 Indian villages in 5 years (India has a total of 600,000 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, income investment and
subsequently low production into high-high scenario as thus increasing consumption for
its products.
GO RURAL, LIVE GLOBAL
Impulse to go Rural
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% India’s 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. To drive home the potential of rural India just consider some of these impressive facts about the rural sector. 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.
Challenges Rural Vs Urban Consumers
A rural Indian consumer is economically, socially, and psycho graphically different from an urban consumer. The preferences of a rural consumer are totally different from that of an urban consumer. So, the way the FMCG companies approach the rural population must be different from the way they approach the urban population.
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 product’s 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.
REPORT
ITC Perspective
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 adversely impacted the farmer. The farmer did not have the resources to analyze or exploit price trends, since prices were set dynamically in the mandis. The farmers thus did not have any information on local pricing levels and trends. The timing of the sale was thus more often than not sub-optimal. The selection of mandi was based upon often 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, since 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 farmer’s produce was auctioned off at variable prices, though the margins of commission agents were ensured irrespective of the price that the farmer got. The agents colluded in establishing the practices of the trade and these practices uniformly exploited the farmer’s situation. Also, at the time of weighing and bagging the product, the farmer’s 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. Also, since 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 farmer was 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 use. Some of the guiding management principles when transforming the current model into a viable business model were:
The New Model
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. ITC’s goal is to set up enough number of e-Choupals such that a farmer has to travel no more than five kilometers to get to an e-Choupal. ITC expects each e-Choupal to serve five to seven villages in this 5-km radius. It reaches out to more than a million farmers in nearly 11,000 villages through 2,000 kiosks across 4 states (Madhya Pradesh, Karnataka, Andhra Pradesh and Uttar Pradesh). The average number of farmers with access to a single e-Choupal is approximately 1,000. 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 Institutions
ITC has also tied up with banks such as ICICI and designed products tailored to rural India. These include:
‘ Non cash loans for farm 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 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 Farmer
Better Information Content: Prior to the e-Choupal the farmer’s information was incomplete or inaccurate. Now the 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 no more than a few hours. This means lower logistic costs for the farmer. ITC’s electronic weighing scales are accurate and impartial as compared to the mandi’s 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 for his crop, 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-Choupal’s 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. ITC’s ‘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 ITC’s extensive knowledge of agriculture, the effort ITC has made to retain many aspects of the existing production system, including maintenance of local partners, the company’s commitment to transparency, and the respect and fairness with which both farmers and local partners are treated.
Framework of evaluation for E-Choupal
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 Sanchalak’s 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. ITC’a 94-year-old, for-profit, Indian agribusiness company with annual revenues of US$ 2.6 billion’has 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.
E-Choupal wins
Development Gateway Award
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 (ITC) during the last 10 years. ITC E-Choupal won the award for its contribution to development priorities such as poverty reduction, its scale and replicability, sustainability and transparency. As the largest information technology-based corporate initiative in rural India, ITC e-Choupal was chosen from 135 nominations from across the world. The award was presented in Beijing at the Development Gateway Forum by Ms Frannie A. Lautier, Vice-President of the World Bank Institute, in the presence of Mr Austin Hu, Deputy Chief of Mission in Beijing for the World Bank, and Mr. Alan J. Rossi, CEO, Development Gateway Foundation, to the ITC Chairman, Mr. Y.C. Deveshwar, who received it on behalf of ITC. Accepting the award, Mr. Deveshwar said: "ITC e-Choupal demonstrates that the private sector can achieve synergy between creating shareholder value and rendering service to society.
RECOMMENDATION
Resource flows are the results of entrepreneurial resourcefulness, and competitive enterprises create successful economies. Resourcefulness provides a positive attitude to economic development. This attitude requires suitable market accessories, such as eChoupal, 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 have a substantive impact on the resourcefulness of the frontline actors in the farm 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.
STRATEGY FOR THE FUTURE
ITC recognizes the limitations of today’s e-Choupals as a vehicle of procurement efficiency. Not every crop lends itself to such an intervention. In crops such as soy where value can be maximized, followers will soon imitate ITC and eliminate the company’s competitive advantage.
The soy E-Choupal is ‘Go Rural 1,’ with several more to follow.
‘ Go Rural 2. The source of value in this generation will be identity preservation through the chain. This is a significant source of value in crops such as wheat, where the grade of the grain determines its end use. The ability to separate different grades from field to consumer will command a price premium. E-Choupals in Uttar Pradesh have already started wheat procurement.
‘ Go Rural 3. This wave takes identity a step further by building the concept of traceability into the supply chain. This is vital for perishables where traceability will allow ITC to address food safety concerns and once again provide a value that the customer is willing to pay for. Shrimp is a good example of a crop for which Wave 3 will be important.
CONCLUSION
Taking the Internet to the villages and empowering rural India with information at the click of a button is what best describes ITC’s much acclaimed initiative – e-Choupal.
ITC’s unique web based initiative offers farmers of India all the information, products and services they need to enhance farm productivity improve farm-gate price realization and cut transaction costs. With the e-Choupal farmers can access latest local and global information on weather, scientific farming practices as well as market prices at the village itself through this web portal – all in Hindi. It also facilitates the supply of high quality farm inputs as well as purchase of commodities at their doorstep.
Given the literacy and infrastructure constraints at village level, this model is designed to provide physical service support through a Choupal Sanchalak – himself a lead farmer – who acts as the interface between computer terminal and the farmers. Full contents of this site are therefore made available to the registered sanchalaks only.
In a presentation recently made on e-Choupal, ITC’s International Business Division head of research J Ravindra Kumar showed how the e-Choupal initiative gave farmers the power of scale and better bargaining power when it came to selling their produce and buying agri-inputs.
At the end of the day what a farmer wants to achieve is higher income through increased yields, improved quality and reduced transaction costs, which is exactly what e-Choupals provided. These e-Choupals provided the power of scale to the small farmers, customized knowledge despite heterogeneity and real-time information despite distances.
ITC’s e-Choupal leverages IT to improve farmers’ decision making ability to align farm output with market demands, and to improve productivity and brings in best of breed partnerships. The company targeted the bottom rung of the farmers first as the company’s vision was to cover the largest segment of rural India thus spanning 100,000 villages across 15 states by building capability to deliver superior shareholder value sustain ably. ITC’s only mandate was that of ‘Improving quality of life in rural India.’ And that it did.
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