SUPPLY creates demand. That's what consumer goods behemoth Hindustan Lever goes on to prove yet again with its latest rural marketing exercise, turning one of the golden rules of economics on its head.
One would have thought that with about 600 million consumers across the country buying one or more of the company's several soaps and detergents and creams and shampoos through a million retailers in its fold, Hindustan Lever would take things a little easier. Instead, the company has just launched Operation Bharat, a one-time, mammoth sampling exercise to reach another 22 million potential customer households. And, probably, wipe out the competition in one clean swoop in the process.
For the company which defined rural marketing in the country around 40 years ago, the question is no longer how to go rural but how fast it can get there. Under the new project, packets containing samples of the company's personal care products including shampoo and talcum powder are being sold at, hold your breath, just Rs 15. Very subtle changes in pack sizes, packaging and pricing backs the entire exercise. Imagine the kind of loss Hindustan Lever is prepared to bear to preempt competition and you get an idea of how serious the company is about this exercise.
The current project follows directly from Operation Streamline, the rural markets expansion weapon Hindustan Lever had thought up two years ago to meet its insatiable appetite. After the initial test marketing, the company found that consumption in these markets had increased by as much as two or three times the previous levels. Products and product lines (differing pack sizes, product and brand extensions) are now reaching deeper into the market than ever before.
Already, Hindustan Lever products reach some 50,000 villages through 3,000 urban stockists. The new programme aims at adding 10,000 new stockists in large villages to reach twice the number of villages. Hindustan Lever's brands are even now visible in outlets in villages with population sizes of down to 2,000. Operation Bharat is targeting deeper, not passing up even population clusters of just 1,000 residents.
A satisfied V.S. Sitaram, general sales manager for detergents, details the principle behind his company's exercise. Hindustan Lever's products typically reach the villages through the city stockist. The stockist visits a village probably once a fortnight and expects a cash transaction. The village shopkeeper has hardly any cash to buy too many products upfront, so he prefers to stock fewer goods. Thus, the existing distribution model was reaching its outer limit. But the rural population which accounts for three-fourths of the population, was contributing to roughly half the sales. To sell more meant expanding the rural markets beyond their standard boundaries.
Hindustan Lever studied the traditional channels of the rural areas and identified a very efficient existing distribution system being used by local brands. Instead of the nearest town as the hub, it started with a feeder village. A large village stockist supplied goods to surrounding villages. His distribution costs are low as he supplies smaller volumes on cycles or bullock carts or autorickshaw. He even gives credit to the small retailers. This way, he covers many more villages than his city counterpart.
Hindustan Lever decided to tap these stockists and take its goods literally to their doorstep. The face of Hindustan Lever is now closer than ever before to the smallest retailer, says Sitaram. A retailer can now keep more products of the company as he gets the same facilities as a city retailer - credit, the chance to communicate one-on-one with the company, and the freedom to return unwanted products.
Rural retailers are now stocking almost double the number of lines. From a modest 10 or 15 - which would roughly include about four or five products - these retailers are stocking up to 25 lines already. The hesitation to display products like, say, shampoos is getting replaced by a confidence to attract customers. The new, improved retailer is coaxing the customer to buy more of what he already uses and to try out what he doesn't. And its working. Villagers are actually trying out scouring bars (Vim Bar) instead of or along with age-old domestic options like ash.
The project already covers over 100 districts of medium and low penetration. Hindustan Lever expects to connect to all similar districts within a couple of years. It is going far deeper in the market than the competition in every category. And though the new distribution network will cost a bit more, it can pay rich dividends, even up to 60 per cent more in these target areas.
Pity. Instead of gloating over the success, Hindustan Lever actually waxes eloquent on how communicating a brand continues to be an area of learning for it.