To Create a Rural Marketing Plan for a Dairy Cooperative (on Fed) in Odisha

Introduction

“The only way to beat the competition is to stop trying to beat the competition. ” - (W. Chan Kim, 2005)Hindustan Lever Ltd. (HLL) is widely considered as one of the pioneers among companies catering to the so called bottom of the pyramid in India. But its widespread rural presence was not always the case.

HLL had initially operated in the Indian market for over 5 decades as a premium brand serving the needs of the elite class of India, which formed a very small segment in the market. It was during the 1990s that an indigenous company Nirma ltd. did something that was completely unheard of at the time. Nirma came out with low cost detergents for the lower rung of the country which was living mostly in the rural areas. This was a segment which was never thought of as a potential customer base by MNCs like HLL. But there was something that Nirma saw in that market which HLL failed to see. Rather than focusing on the wealthy few in the urban terrain they saw an opportunity to cater to the untapped market of the aspiring poor living in the sub-urban and rural areas of the country.

Nirma created a completely new business system which included new product formulations, wide distribution network, special packaging for daily purchasing and value pricing. HLL, which initially disregarded the move was seen following the trend as they couldn’t disregard the success that Nirma had achieved.

In 1995, HLL brought a radical change to its business model and launched its own product Wheel, in the same market segment. HLL decentralized its production, marketing and distribution and created sales channels through small outlets where they can reach the rural market. It also changed its cost structure to create low cost products for the rural market. But the low cost doesn’t mean cheap quality products. HLL had done extensive research to create a product that was customized to the needs of the rural diaspora. The innovative formulation of Wheel addressed the fact that rural people often wash their clothes in rivers and public water systems, so it had a robust formulation which can withstand hard water.

In a very short period of time both companies saw high volumes and profits, with Nirma becoming the largest detergent brand in the world and HLL emulating its new business model in other developing countries to become a global giant. This was perhaps one of the first cases in the Indian market where we saw Indian companies looking beyond the boundaries and constrains of the existing market and instead of trying to outperform competition for market share in the already saturated red oceans, they tried to create blue oceans of their own by creating demand in an uncontested market space and reaping the benefits thereof. What is interesting is that by creating a blue ocean they have opened up a Pandora’s box. The rural markets are now becoming a source of growth opportunity and a lot of companies are analyzing the markets to find out unmet needs of the customers and use new and innovative ways to satisfy those needs.

A promising landscape

The urban demand for consumer products has remained stagnant for quite some time now whereas the rural markets are gearing up to rule the roost. Rising wages and increasing job opportunities in rural India is leading to a burgeoning markets in suburban and rural areas. Spending by India’s 800+ million rural consumers has reached $69 million during 2009 to 2012 which is 25% more than their urban counterparts (Kapur, et al. , 2014). The monthly per capita expenditure in rural markets during this period was 19. 2% exceeding the urban markets by 2 percentage points.

According to Credit Suisse nearly 75% of the factories that set up in India from 2004 to 2014 were built in rural area and accounted for almost 55% of the country’s manufacturing GDP and 70% of all new manufacturing jobs by 2014 resulting in a CAGR of 6. 2% for per capita GDP in the country side which surpassed the urban CAGR of 4. 7% during the same period. (Kapur, et al. , 2014)

The above numbers suggest that there has been a steady increase in the income of rural consumers especially due to the focus of manufacturing in rural areas which gave the rural people another source of income apart from agriculture. The country is headed on a path of inclusive growth and prosperity the real beneficiaries of it are going to be the ones who are present in the right place at the right time. And more than ever the right place for businesses right now are the rural markets.

The rural India or rather the real India has all the lime light focussed on it as it has started flourishing and is prophesised to have a bright future ahead of them. So there is an impetus for the businesses to understand the rural markets so as to provide products and services in which the rural consumers perceive value. This is not an easy task given the psyche of the rural consumers is poles apart from their Urban counterpart. Each rural market is again a different challenge from the other given the cultural diversity in the country which is deep seated. In such situations the way to approach each market should be different.

Despite such challenges, what these markets pose is a chance for the companies to create a sustainable framework/model of operation by which they are not only contributing to their own profits but also creating value for the customers which goes beyond the product itself that they are purchasing. This leads us to what is going to be a recurring theme throughout, i. e. the idea of ‘inclusive capitalism’.

This includes creating a sustainable ecosystem for these markets of which the beneficiaries are both the company and the customers. This can be done by empowering the lives of the customers through innovative technologies or business models which encloses the product or services that they are availing. There existed a time when the rural markets and rural consumers were looked at as one that is satisfied by merely meeting its physiological needs and it was thought that the scheme of things would remain the same no matter what the government policies were.

But as the urban sector kept getting saturated and was growing at a snail’s pace, botched down by cut-throat competition, the companies were staring at a black hole as they were out of growth options. But companies are slowly realizing the tremendous potential of creating their own blue oceans in the rural markets. But it’s not going to be easy as they cannot rely on their existing strategies and business models any more. They have to stop benchmarking themselves with their competitors, instead they have to focus on creating value through innovative business strategies for its customers in the rural

An overview of the case

Now that Industries are slowly realising the market potential it is time to act on it. This leads us to our study of one such company which has been around in the state of Odisha since 1985. The Orissa State Cooperative Milk Producers Federation (OMFED) has enjoyed monopoly for nearly 26 years in the state. But the times have now changed as new entrants and major national players are eying for a piece of the market share pie.

A new private dairy venture Milk Mantra, selling its dairy products under the brand name of Milky Moo, which entered the regional market in 2011 has been able to capitalise on the growing demand for milk and milk products and has taken up a sizeable share of the urban market through its innovative marketing and product design. Milk Mantra turned its ₹18 crore in revenue in its first year of operations in 2012 to ₹182 crore in the last fiscal according to Forbes (2018).

With demand tearing through the roof, there is a supply gap of 30 lakh litre per day of milk and seeing this as an opportunity Amul has vouched to invest 250 crores (Singha). It is pretty clear that once the transition from the current duopoly to oligopoly happens OMFED can no longer take things for granted as the supply will exceed demand and the winner will be the one with the best overall strategy. When such a situation comes, which is inevitable, OMFED needs to be prepared and to do so, it needs to focus on its strengths.

OMFED has deep distribution networks in the state and deep pockets due to its long lasting domination in the regional dairy market. So, it makes complete sense to give a marketing push to the rural and suburban markets where majority of the consumers, 83. 3% as per the 2011 census, lie.

The rural market of Odisha though is an uncharted territory as targeted marketing has never been done before. So it is still a mystery as to how they may react to it. But in order to achieve growth in the soon to be crowded market it has to focus on marketing its value added dairy products in order to gain good margins and relatively high volumes. If done successfully it will help them create a strong foothold which will be highly valuable in the long run.