Marketing environment

Unit 3: Marketing Environment.

3.1. Introduction.

A marketing oriented company always looks its external environment carefully to analyze opportunities and threats. This external environment influences company’s strategies in two levels i.e. external macro environment and external micro environment. The macro environment involves political and legal, economic and natural, social and cultural and technology environment. The micro environment consists of supply chain, customer and competitor. These factors are uncontrollable by the organization. Even the best company faces threat if any of the external environments are adverse to it. A moderate company will be successful if the external environment favors it. Hence marketing companies should monitor the external environment carefully and continuously.

Objectives:

After studying this chapter you will be able to explain

a. The need of environmental scanning.

b. How external micro environment affects the company’s strategies.

c. The influence of external macro environment on company’s plans.

d. The difference between the external macro and micro environment.

e. The role of organization’s internal environment in dealing with opportunities and threats.

3.2. Environmental scanning

This is the process of gathering, analyzing and forecasting of external environments’ information to identify opportunity and threats that company faces.

Need for environmental scanning:

It helps in

1. Identifying the opportunities company has in immediate future.

2. Identifying the threats faced by the company.

3. Demand forecasting

4. Developing appropriate business plans.

5. Adjusting company strategy in changing competitive environment.

3.3. Analyzing the organization’s micro environment

Marketing department let alone can not satisfy all the needs of customer. Therefore it is essential to integrate the functions of suppliers, publics, company departments and intermediaries in creating the value to the customer. These forces are known as organization’s micro environment.

Microenvironment: The forces which are very close to company and have impact on value creation and customer service

Figure 3.1

Forces in the micro environment

Micro Environment

3.3.1. The company:

Remember in the previous unit we discussed about the strategic and marketing planning. Deducing a strategic plan in to specific marketing plan require coordination of other functions like finance, Human resource, production, and research and development. For example, Safe Express, a leader in the supply chain management solution wants to hold its position in the US $ 90 billion Indian logistics market. Company plans to expand its service areas in the coming months. To meet the targets of the marketing plan, other departments of safe express also expanding their horizon. Company is coming out with logistics parks in different cities; plan’s to hold seven million square feet of warehousing capacity in the next three years and investing Rs 10 billion in three years to meet that targets. The above example shows that company’s marketing plan should be supported by the other functional department activities also.

3.3.2. Intermediaries:

Marketing intermediaries: The firms which distribute and sell the goods of the company to the consumer.

Marketing intermediaries plays an important role in the distribution, selling and promoting the goods and services. Stocking and delivering, bulk breaking, and selling the goods and services to customer are some of the major functions carried out by the middlemen.

3.3.3. Publics:

These are microenvironment groups, which helps company in generating the financial resources, creating the image, examining the companies’ policy and developing the attitude towards the product.

We can identify six types of publics

1. Financial publics influence the company’s ability to obtain funds. For example, Banks, investment houses and stockholders are the major financial publics.

2. Media publics carry news and features about the company e.g. Deccan Herald

3. Advertisement regulation agencies, telecom regulation agency( TRAI), and insurance regulation agency(IRDA) of the government

4. Citizen action groups: Formed by the consumer or environmental groups. For example, people for ethical treatment of animals (PETA) or Greenpeace.

5. General publics: a company should be concerned towards general publics’ attitude towards its products and services.

6. Internal publics: Employees who help in creating proper image for the company through word of mouth.

3.3.4. Competitors:

A company should monitor its immediate competitor. It should try to position its product differently and be able to provide better services.

3.3.5. Suppliers

Suppliers are the first link in the entire supply chain of the company. Hence any problems or cost escalation in this stage will have direct effect on the company. Many companies adopted supplier relation management system to manage them well.

3.3.6. Customers:

A company may sell their products directly to the customer or use marketing intermediaries to reach them. Direct or indirect marketing depends on what type of markets in which company’s customers present. Generally we can divide the markets into five different categories. They are

a. Consumer market.

b. Business market

c. Reseller market

d. Government market and

e. International market

You will come to know about these five different markets from the following example.

MRF a tyre company sells its product directly to consumer (in case of urgency) i.e. operates in consumer market. It operates in business markets by selling tyres to companies like Maruti Udyog limited which in turn uses these tyres in their cars. MRF also sells TYREs to BMTC and KSRTC, transport organizations of Karnataka government. If MRF sells tyre in African or American countries then it is operating in the international market. If MRF buys the old tyres, retreads it and sells it to the consumer at a profit then company is operating in the reseller market.

3.4. Company’s macro environment.

Figure 3.2 Forces in the macro environment.

Macro Environment

3.4.1. Demographic environment.

Demography: 

The study of population characteristics like size, density, location, gender composition, age structure, occupation and religion.

Demography statistics helps companies to develop their products in better way. These statistics are also used in developing proper supply chain, communicating product information and changing the product attributes. Demographic environment is analyzed on the basis of the following factors.

1. Age structure of the population

2. Marital status of the population

3. Geographical distribution of the population

4. Education level

5. Migration

6. Occupation.

Age structure of the population: from the following table you can generalize that India is having 48% population who are aged less than 21 and 28% of the population are in the bracket of 21-25. Most of the companies are focusing on these two segments. For example, Radio Indigo, FM radio station from Jupiter capital venture operates in Bangalore and Goa, plays international music. Radio indigo targets youth segment who like western music.

TABLE 1: POPULATION IN DIFFERENT AGE GROUPS AND THEIR PROPORTIONS TO TOTAL POPULATION

Age group	Population	Percentage
All Ages	1,028,610,328	100.0
0 - 4	110,447,164	10.7
5 - 9	128,316,790	12.5
10 - 14	124,846,858	12.1
15- 19	100,215,890	9.7
20 - 24	89,764,132	8.7
25 - 44	284,008,819	27.6
45 - 64	139,166,661	13.5
65 - 79	41,066,824	4.0
80+	8,038,718	0.8
Less Than 18	422,808,543	41.1
Less than 21	492,193,906	47.9
Age no stated	2,738,472	0.3
Source : C2 and C14 Table, India, Census of India 2001.

Marital status of the population:

TABLE 2: POPULATION BY MARITAL STATUS AND SEX: INDIA – 2001

Marital status	Number of Persons ( in '000)			Percentage (%)
	Persons	Males	Females	Males	Females
Total	1,028,610	532,157	496,454	100	100
Never Married	512,668	289,619	223,048	49.8	54.4
Married	468,593	231,820	236,773	45.6	43.6
Widowed	44,019	9,729	34,290	4.3	1.8
Divorced / Separated	3,331	988	2,343	0.3	0.2
Source : C2 and C14 Table, India, Census of India 2001

Half of the Indian population falls into the never married category. This provides an opportunity for organized wedding industry. Indian wedding industry is worth Rs 1, 25,000 crore today. Vintage group and shaadi.com are few to name in this industry. These companies are offering end to end solution to the customers who are looking for lavish wedding in the exotic locations both in domestic and abroad.

Geographical distribution of the population

TABLE 3: NUMBER OF VILLAGES AND UAs / TOWNS BY SIZE CLASS AND THEIR POPULATION

	Population
Persons@	1,028,737,436
Males	532,223,090
Females	496,514,346
Rural	742,617,747
Urban	286,119,689
% Urban population	27.8%

Rural India with 74 crore population is a biggest market. Companies are trying to get a pie in this untapped market. For example, DCM Shriram limited, opened ‘Hariyali’ bazaars in rural market. These bazaars offer quality agriculture inputs, financial services, and farm output services.

Education level: More than 3 crore people in India either have graduation or post graduation. This has led to the growth of many sunrise sectors. This educated population fueled the growth of information technology (IT), information technology enabled services (ITES), and biotechnology industries.

 TABLE 4: NUMBER OF VILLAGES/TOWNS BY RANGE OF LITERACY RATE & SEX, INDIA, 2001.

Range of Literacy (Percent)	Persons		Males		Females
	No.of Villages	No. of UAs/Towns	No. of Villages	No. of UAs/Towns	No. of Villages	No. of UAs/Towns
Nil	3,077	0	3,546	0	9,899	0
Less than 10	8,664	0	4,516	0	28,412	0
10-25	31,494	0	14,410	0	90,198	17
25-50	162,727	122	72,057	33	244,760	475
50-75	294,596	1,740	237,381	624	186,245	2,638
75 or above	93,055	2,516	261,630	3,721	33,029	1,248
Total*	593,613	4,378	593,540	4,378	592,543	4,378
Source : Primary Census Abstract, Census of India 2001 Note: *Excludes villages/UA/Towns with no Male/Female population.

Migration:

 Geographical shift in the population is becoming an interesting area in the demographic studies. The Table 6, list out the various reasons for migration.

TABLE 5: NUMBER OF MIGRANTS BY PLACE OF BIRTH – INDIA 2001

	Category	Migrations by Place of birth	Percentage
A.	Total Population	1,028,610,328
B.	Total Migrations	307,149,736	29.9
B.1	Migrants within the state of enumeration	258,641,103	84.2
B.11	Migrants from within the districts	181,799,637	70.3
B.12	Migrants from other districts of the state	76,841,466	29.7
B.2	Migrants from other states in India	42,341,703	13.8
B.3	Migrants from other countries	6,166,930	2.0
Source : Table D1 India, Census of India 2001.

TABLE 6: REASONS FOR MIGRATION OF MIGRANTS BY LAST RESIDENCE WITH DURATION (0-9 YEARS) INDIA 2001

Reason for migrations	Number of Migrants			Percentage to Migrants
	Persons	Males	Females	Persons	Males	Females
Total migrants	98,301,342	32,896,986	65,404,356	100.0	100.0	100.0
Reason for migration : Work / Employment	14,446,224	12,373,333	2,072,891	14.7	37.6	3.2
Business	1,136,372	950,245	186,127	1.2	2.9	0.3
Education	2,915,189	2,038,675	876,514	3.0	6.2	1.3
Marriage	43,100,911	679,852	42,421,059	43.8	2.1	64.9
Moved after birth	6,577,380	3,428,673	3,148,707	6.7	10.4	4.8
Moved with households	20,608,105	8,262,143	12,345,962	21.0	25.1	18.9
Other	9,517,161	5,164,065	4,353,096	9.7	15.7	6.7
Source: Table D3, Census of India 2001

Marketers started identifying the niches in the migrated communities and offered their goods and services. For example, Nandhini, an Andhra restaurant in Bangalore catering to the food needs of the Andhra community. Patrika, a Rajasthan based daily now available through out the country.

Occupation:

TABLE 7: DISTRIBUTION OF MAIN WORKED BY DIFFERENT INDUSTRIAL CATEGORIES, INDIA 2001

Industrial category	Main Workers ('000s)	Percentage (%)
Total main workers *	312,972	100.0
Agricultural & allied activities	176,979	56.6
Mining & quarrying	1,908	0.6
Manufacturing	41,848	13.4
Electricity, gas and water supply	1,546	0.5
Construction	11,583	3.7
Wholesale, retail trade & repair work, Hotel and resturants	29,333	9.4
Transport, storage & communications	12,535	4.0
Financial intermediation, Real estate, business activities	6,109	2.0
Other services	31,131	10.0
Source : Industrial classification data based on sample.

Agriculture is the main occupation of the people in India but the share of other services is growing rapidly. The other service category includes IT and ITES. Employees of these categories have high disposable income. This has led to the opening of specialty stores and manufacturing of the luxury items in the country.

3.4.2. Political and legal environment.

Government policies, legislation, regulations, and stability will directly affect the business. Therefore it is inevitable for the firm to closely monitor this environment. The political and legal forces are grouped into the following four categories.

1. Monetary and fiscal policies: These policies regulate government spending, money supply and tax legislation.

2. Social legislation and regulations. Environmental protection act which specifies the emission level.

3. Government relationships with industries: Government subsidies and change in tariff rate will have direct impact on the particular company.

4. Legislation related to marketing:

Following are the list of legislation which affect marketing activities of the company.

• · Companies act 1956.
• · Industrial dispute act 1957
• · Consumer protection act
• · Minimum wages act
• · Payment of bonus act.
• · Environmental protection act
• · Industries development and regulation act.
• · Trade union act
• · Contract law
• · Factories act 1948
• · The contract labor (regulation and abolition) act1970.
• · Sales promotion employees’ act1976
• · Shops and establishment act 1953
• · Copyright act 1957
• · Trade marks act 1999
• · Patents act 1970
• · Designs act 2000
• · Foreign exchange management act 1999

3.4.3. Economic and Natural environment:

Consumer spending pattern

According to National sample survey 2005-06,

1. Monthly per capita consumption in rural area: Rs625.

2. Monthly per capita consumption in urban area: Rs1, 171.

3. Food expenditure in monthly per capita consumption: 53%

4. Food expenditure in monthly per capita consumption: 40%

The above data shows that most of the expenditure in monthly per capita income goes to the food expenditure only. Marketers in the non food category should promote heavily to change this spending pattern. Companies in the food category should note that food expenditure in monthly per capita expenditure is coming down. Hence extra effort is required by these companies to sell their products.

Interest rate: when interest rates are high, consumer tend not to make long term purchase like housing. If the interest rate is low people put their money in alternative financial options where they get better return.

Inflation: If the inflation is high, consumer buying power will go down. Hence government always tries to control the inflation within the limit.

Changes in income: The rise in the salaries of the employees, improved performance of stock market and better industrial growth led to the change in the income pattern in India. Many Indians became millionaires and billionaires. Percentage of below poverty line is decreasing, but the concern is rich and poor divide is growing.

NATURAL Environment:

Environmental concerns are growing over the years. Governments increased regulations to manage the natural resources. Marketers should aware of such trends in the natural environment. Some of the factors which organizations should keep a vigil are

a. Inadequate raw materials

b. Global warming and pollution levels and

c. Regulatory world.

a. Inadequate raw materials: We are over depending on Middle East countries for petroleum products. Automobile companies are improving their technologies and also planning to come out with hybrid cars which use alternative fuels.

b. Global warming is a big issue today.

c. Regulatory world; The Indian government through environmental protection act, making stringent rules on emission and environment standards. Companies, particularly in automobiles should adhere to those norms, which are expensive and time consuming.

3.4.4. Social and cultural environment:

1. Working women and rise of metro sexual man.: 

Number of women who are working in India is increasing. This segment is looking towards products which help them to bring better work life balance. MTR a fast food giant in south India started offering ready to eat products to this segment. The products are instant in nature where a woman dips a product in the hot water for 2-3 minutes and serves. Metro sexuality is another new phenomenon, wherein a man also assumes the role of women like purchasing household items and helping in kids’ education etc. It made marketers’ task more difficult on positioning their products.

2. Time short people: 

 This segment involves people who work long hours and have less personal time. These people are looking for products which satisfy them quickly and conveniently. For example, Easy bill, from Hero group offers one stop solution to consumer to pay their utility bills and do other financial transactions.

3.4.5. Technology environment

1. Growth of information and technology and biotechnology industries: 

Manufacturing organization adopted many technology solutions in the recent years. This has boosted the performance of IT companies. For example, companies adopted ERP solutions, CRM packages and other software to reduce the cost, retain the customer and increase the efficiency. Biotech firms came out with innovative health solutions to the consumer. This has resulted in companies like wockhard and Nicolas Piramil to invest heavily in this sector.

2. Nano technology: 

The technology in waiting, which is expected to reduce the size and cost of the materials.

3. TATA nano car, a technology breakthrough: This has been described as a giant leap by an Indian manufacturer. TATA Company used different metal compositions, engine configurations and accessories to bring path breaking entry level car which just cost Rs 1 Lakh to the consumer.

3.5. Difference between Micro environment and Macro environment.

Macro EnvironmentV/S Micro Environment
Parameter	Macro environment	Micro environment
Size	Large	small
Uncertainty	Very high	low
complexity	High	low
control	Cannot be controlled	Can be controlled to some extent
Example	PEST	Customer, Supplier

               

PEST (Political and legal, economic and natural, social and cultural, and technology environment) Analysis:
Factors	Weightage	Opportunity	Threats	Score
1. Political and legal environment
a. Monetary policy
b. Fiscal policy
c. Environmental policy
d. Lobby groups
2. Social and cultural environment
a. Gender
b. demographics
c. work culture
3. Economic and natural environment
a. Income
b. Spending power
c. Inflation
d. Interest rate
e. Raw materials
f. Taxation
4. Technology environment
a. Entry barriers
b. Growth of technology
c. Transfer of technology
Total	1

3.6. Summary

· Environmental scanning is necessary to understand opportunities and threats faced by the company.

· Micro environment factors like marketing intermediaries, suppliers, competitors, publics and customers influences company’s strategies. These are controllable to some extent.

· Population variables like age, gender, marital status and occupation helps the company to assess the market and change or develop their offerings

· Shortage of raw material and increase in the income disparity are immediate concerns of the organizations.

· Working women and time short people changing the socio- cultural environment of the country.

· Technology is helping company to reduce cost, increase the efficiency and save time.

· Micro and macro environment are differentiated on the basis of size, complexity, and uncertainty.

Strategic marketing process

Unit 2: Strategic Marketing Process:
2.1. Introduction.
Marketing strategies and programs in the organizations are derived from the companywide strategic planning. Thus, you have to understand how organizations develop their strategic plans. After analyzing the strategic plan, you should be able to relate these plans’ role in guiding the marketers, and application of these plans to serve customers with the help of company employees as well as intermediaries.

Objectives:
After studying this chapter you should be able to:
1. Describe the companywide strategic planning.
2. Discuss how to design marketing planning models
3. Identify the marketing mix exists in the company.
4. Prepare marketing planning for the company.

2.2. Strategic Planning
Strategic planning is the process of defining the company mission, setting the long term and short term objectives, designing an appropriate business portfolio and coordinating functional strategies of the company.
Looking at the definition, you will be able to identify four important factors of the strategic planning. They are
1. Defining the company mission.
2. Formulating the objectives
3. Designing an appropriate business portfolio
4. Coordination among functional strategies.
Now, we will discuss the above points and their relevance to the marketing plans.
2.2.1. Defining the company mission:
An organization mission explains who its customers are, how it satisfies their needs and what type of products it offers.
Let me explain this concept by taking a mission statement of the trends in vogue, a family beauty saloons chain from cavin care, a well known fast moving consumer goods (FMCG) company in India. The mission statement is
“1. To provide the customer an unparalleled service experience
2. To provide the customer the largest range of "natural" products and services
3. To be the first to introduce sub-formats and value-added services
4. To be the most preferred family beauty salon chain for customers, employees and
Alliance partners
5. To provide consistent profits to all stakeholders”
Trends in vogue mission statement analysis:
a. Who its customer is? Mission statement 4 states “family who are going to beauty saloons” as their customers.
b. How it satisfy their needs? Mission statement 1 and 2 describes the needs as unparalleled service experience and offering largest range of natural products and services
c. What type of products it offers? The company offers natural products in their beauty saloons.
2.2.2: Formulating the objectives.
Mission statement provides a general view of the company’s customer, products and their method of satisfying the customer. Mission statement is once again divided into specific objectives which are stated in writing, can be measured quantitatively and fixed for particular time. Objectives may be business oriented or market oriented. They help marketers to develop strategies and programs. You will come to know how organizations deduce their mission into different objectives form the following example of Bharat Electronics Limited (BEL), a public sector enterprise in the electronic field.
Mission: To be a customer focused globally competitive company in defence electronics and in other chosen areas of professional electronics, through quality, technology and innovation.
Objectives:
o To be a customer focused company providing state-of-the-art products & solutions at competitive prices, meeting the demands of Quality, delivery & service.
o To generate internal resources for profitable growth.
o To attain technological leadership in defence electronics through in-house R&D, partnership with defence/research laboratories & Academic institutions.
o To give thrust to exports.
o To create a facilitating environment for people to realize their full potential through continuous learning & team work.
o To give value for money to customers & create wealth for shareholders.
o To constantly benchmark company’s performance with best-in-class internationally.
o To raise marketing abilities to global standards.
o To strive for self-reliance through indigenization
2.2.3: Designing an appropriate business portfolio.
After setting mission and objectives, management will develop its business portfolio.
Business portfolio is the right mix of businesses that company operates and products that offers to customers.
Portfolio analysis is the process by which company analyze its products and businesses.
Company develops their business portfolio in two steps
a. Analyze the existing business portfolio and decide which business should receive more, less or no investment.
b. Developing the new business portfolio for future to meet growth opportunities and eliminating the unprofitable portfolios.
Analyzing the existing business portfolio:
The current business portfolio of the company is analyzed by the businesses in which it operates. To make it clearer, let me take an example of ITC group. The company operates in FMCG, hotels, paper boards, specialty papers and packaging and agribusiness. These businesses are independent from each other and have their mission and objectives separately. These subsidiaries of organizations are called as Strategic business units (SBU)Strategic business unit: The unit of the company that has separate mission and objectives and that can be planned independently from other businesses.
Characteristics of SBU.
1. It may be brand, or a product line or separate division of the company.
2. It is having distinct mission and objectives.
3. Have own executive team.
Strategic planning models used in assessing the existing businesses:
1. BCG matrix ( Boston Consultancy Group)
2. GE matrix ( General electric)
BCG matrix: This model is used to identify company’s SBU’s position in the market. As it identity’s the company’s SBU’s strength, weaknesses, opportunities and threats on the basis of market growth rate and relative market share, this model is also known as growth share matrix .


STAR
Question Mark
COW
DOG
High Low
Relative Market Share
Axis components:
1. Market growth rate: The rate at which market is growing
2. Relative market share: Market share of the SBU divided by the market share of the largest competitor.
Model components:
Star: This category represents the high market share and high industry growth. SBU’s in this category require large investment to defend their position. Ultimately they will turn as cash cow after some time.
Cash cows: This category represents the low growth rate and high market share which is the characteristic of SBU operating in mature industry. Here company needs less investment to hold their position. Hence it generates more cash or in management terms we say cash cow can be milked.
Question Mark: This category represents high market growth and low market share. SBU’s in this category has two options, either to invest heavily and bring them to star position or divest / liquidate from that position.
Dogs: SBU’s in this category generates less cash for the company as it operates in low growth and low market share. Usually companies will not invest in this category and try to liquidate or divest.


BCG matrix for ITC
1. SBU: FMCG
Industry growth rate: 24% (AC Nielson retail audit report 2007)
Company growth rate: 50% (the Hindu business line 19th January 2008)
Company’s market share : 8% (outlook business)
Largest competitor share: HUL: 54% (outlook business)
Relative market share= 0.14
2. SBU: Paper board
Industry growth rate: 7.2% (the Hindu business line 27th May 2007)
Company growth rate: 11% (the Hindu business line 19th January 2008)
Company’s market share: 55%
Largest competitors share: BILT 35%
ITC’s FMCG segment analysis shows that though it is market leader in some categories their overall relative market share is 0.14. Company is in the high growth low relative market share area i.e. question mark position. ITC should invest heavily to convert its SBU business position into star.
ITC’s Paperboard industry is in low growth and high market share category i.e. in cash cow segment. It should plan for investing the cash generated from this position into other businesses.
GE matrix:
Management can use the GE business matrix to classify SBU’s on the basis of two factors
1. Market attractiveness: Market size, entry barriers, competitors, technology and profit margin are some factors used to analyze the market attractiveness.
2. Business position: On the basis of market share, SBU size, R&D capabilities and cost controls we can determine the business position.
Each cell in the model represented by the particular strategy namely, invest strategy, protect strategy, harvest strategy and divest strategy
Invest strategy: In this position SBU
a. Should receive ample resources
b. Should support by well financed marketing efforts.
Protect strategy: SBU’s in this position should
a. Allocate the resources selectively.
b. Develop strategies which help in maintain its market position.
c. Generate cash needed by other SBU’s.

Business position
High Medium Low

Invest

Invest

Protect

Invest

Protect

Harvest

Protect

Harvest

Divest


Harvest strategy: SBUs should not receive substantial new resources and if required, sell them.
Divest strategy: SBUs which falls into this category should not receive any resources and sell i or shut it as early as possible.

Developing the new business portfolios
After analyzing the existing business of the company, let us discuss company’s future plans i.e. growth or downsizing. Company adopts growth strategies to become more competitive in the market, tap new opportunities and become preferred employer. Downsizing is used when product or market became unattractive to it. The Ansoff Product-Market Growth Matrix is a marketing tool created by Igor Ansoff and first published in his article "Strategies for Diversification" in the Harvard Business Review (1957). The matrix allows marketers to consider ways to grow the business via existing and/or new products, in existing and/or new markets.



Ansoffs model of product/ market expansion.


a. Market penetration: A strategy used in increasing the sales of company’s existing products without modifying it in the existing market.
Characteristics of market penetration.
1. Serve customer with existing products by opening new stores.
2. Increase the promotion activities to increase the consumption.
3. Improve the service offerings.
Café- coffee day a reputed coffee chain in south India, started its operation in brigade road, Bangalore, in the year 1996. It offers different varieties of the coffee to its existing customers. Today it is having 100 stores in Bangalore.
b. Market development: In this strategy company identifies the new markets to sell their existing products.
In case of market development company identifies and develops new markets for its existing products
Café coffee day, enthused by the success of offering a world-class coffee experience, has opened a Café in Vienna, Austria and is planning to open other Cafes in the Middle East, Eastern Europe, Eurasia, Egypt and South East Asia in the coming months.
(Source: www.cafécoffeeday.com)
c. Product development: In this strategy, Company identifies new markets and sells their existing products.
Café coffee day added quick bites and ice-cream in their menu to cater to the needs of customers.
d. Diversification:A strategy for company growth through starting up or acquiring businesses outside the company’s current products and markets.
Café coffee day started offering tea and cold drinks in its highway café retail outlets. These highway café outlets offer excellent service to the travelers on the high way.
Downsizing: Eliminating the unprofitable products of the company from its product line
In the year 2000 M.S. Banga then chairman of Hindustan Unilever limited (HUL), used power branding strategy to improve the sales and productivity. He reduced HUL’s number of products from 110 to 35. Remember, now you won’t find vigil or Margo in the market. These products from HUL, removed from the market as they were unable to contribute to the bottom line.
2.2. 4. Coordination among functional strategies.
Organization’s strategies exist in three different levels. They are corporate level, business level and operation level. In the strategic plan, company brings the synergy between all the three levels. To make it more clearly to you, company’s marketing strategy are different from HR strategies but it should bring coordination between both to meet organization’s objectives.
Self Assessment Questions 1:
i. ------------ explains who its customers are, how it satisfies their needs and what type of products it offers.
ii. Growth share matrix is also known as---------------------
iii. Cash cow in BCG matrix represents
a. High market growth and high relative market share
b. High market growth and low relative market share
c. Low market growth and high relative market share
d. Low market growth and low relative market share
iv. Product market growth model was developed by------------------
v. A strategy for company growth through starting up or acquiring businesses outside the company’s current products and markets is known as----------------




2.3. Developing the marketing mix.
Marketing mix: The product, its price, promotion and distribution blended together to get favorable response from the customer.
This is also called as 4P’s of Marketing or Market assortment.

Figure 2.1
The marketing mix
Product
· Variety
· Quality
· Features
· Brand name
· Packaging
· Services
Promotion
· Advertising
· Sale promotion
· Public relation
· Publicity
· Personal selling
Place
· Channels
· Coverage
· Assortments
· Locations
· Inventory
· Transportation

Customers and
Intended positioning
Price
· List price
· Discounts
· Allowances
· Credit period
· Credit terms






























1. Product: It is a good, service, idea, place or person that offered to customer to satisfy his/her need. The attributes comprising product are variety, quality, warranty, design, packaging, and service
For example, Marico, a FMCG company offers hair oil in two brand names i.e. parachute and nihar. The brand nihar, offered in two types of packaging i.e. Sachets and bottles and offered in two qualities i.e. coconut oil and perfumed hair oil.
2. Price: the value at which customer is willing to purchase the product.
For example, BSNL offers prepaid service recharge coupons in Rs175, Rs335, Rs500, Rs 1000, Rs2000 and Rs 5000 denominations.
3. Place: Distribution of goods from the factory to the target customer. It includes distributors, stockiest and retailers. To illustrate, Zenith computers uses authorized distributor to sell laptops and desktops to the target customers.
4. Promotion: communicating product features and its uses to target customers through different Medias. For example, Bharati group promotes its cellular services AIRTEL through TV, Radio and news paper.
2.4. Planning, control and implementation.
2.4.1 Marketing planning:
Though strategic plan exists in the organization but it is very essential to have functional plans to coordinate departmental activities. For example, the marketing plan guides the sales and distribution activities of the organization. Therefore it is essential to know what the contents of a marketing plan are.
Contents of marketing plan
a. Executive summary: Brief summary of plan, which help busy executives to go through the points very quickly.
b. Analyzing the current market situation: The following factors should be answered in this section.
i. What is the intended market and market segment?
ii. What is the consumer buying behavior process for particular category of products?
iii. How conducive is the marketing environment to do the business?
iv. Whether company got right marketing mix for intended target customer?
v. Who are major competitors and what are their marketing strategies?
c. PEST analysis: In this section, the external environment of the company is analyzed to find opportunities and threats.( for detail see UNIT 3)
d. Objectives and issues: This part of the marketing plan should discuss marketing objectives that company would like to achieve in particular period and issues that may affect them.
e. Marketing strategy: This section should highlight on
i. Identifying the segmentation, target customer and positioning strategy
ii. 4P’s of marketing
f. Planned activities: the following factors should be discussed in this section
i. What are the programs that company plans to undertake?
ii. Who are responsible to monitor these programs?
iii. How much time it takes to complete the program?
iv. How much will it cost?
g. Marketing Budget
h. Control: Any program implemented need to be controlled to check its performance. Hence organization should take periodic auditing by a review committee. The control process for the plan should be discussed in this section.
2.4.2 Marketing Implementation and control.
Marketing implementation:
The process in which marketing strategies and plans are converted in to proper marketing actions to achieve the objectives.
Marketing implementation depends on the following factors:
1. Organization structure
2. Organization culture

Marketing control: The process of evaluating marketing performance and taking corrective actions .
Marketing control involves four steps they are
a. Set specific marketing goals.
b. Measure the marketing performance
c. Evaluate the market performance against objectives
d. Take corrective actions
Marketing control is divided into two parts. They are operation control and strategic control. Operation control involves assessing the current activities against annual plan and taking corrective actions. Strategic control is used to assess whether existing strategic plans of the company meets the opportunities exist for it. Marketing audit is used as a strategic control tool.
According to Philip Kotler “marketing audit is comprehensive, systematic, independent and periodic examination of a company’s environment, objectives, strategies and activities to determine problem areas and opportunities and to recommend a plan of action to improve the company’s marketing performance.
Characteristics of marketing audit:
1. Comprehensive.
2. Systematic
3. Independent
4. periodic
Components of marketing audit:
1. Marketing environment audit
2. Marketing strategy audit
3. Marketing organization audit
4. Marketing systems audit
5. Marketing productivity audit.
6. Marketing function audit
Self assessment questions2:
i. Example of strategic control is-----------------
ii. Marketing implementation depends on ------------------- and -----------------.
iii. Marketing mix is also known as--------------- and ---------------
iv. Which of the following does not belong to the marketing control?
a. Set specific marketing goals.
b.Measure the marketing performance
c. Evaluate the market performance against objectives
d. Understand the organization culture
v. PEST analysis helps to identify company’s ------------------ and -----------------------
Summary:
· Strategic planning process involves defining the company mission, formulating the objectives, designing an appropriate business portfolio and coordination among functional strategies.
· BCG and General electric models are used to analyze existing market situation of SBU.
· SBU’s growth and downsizing strategies are determined by Ansoff model of product- market growth matrix.
· Marketing mix or 4Ps of marketing is the assortment of product, place, price and promotion.
· Marketing implementation depends on organization structure and its culture.
· Marketing audit is used as a tool for control.

Terminal questions:
1. Explain how organization defines its mission..
2. Discuss the models used to analyze the existing business portfolio of the company.
3. Explain the Ansoff ‘s product market growth matrix
4. What is marketing mix? Explain its components.
5. Briefly explain the contents of marketing planning.



Answers to SAQ’s and TQ’s:
SAQ1:
i. Mission
ii. BCG
iii. C. Low market growth and high relative market share
iv. Igor Ansoff
v. Diversification.
SAQ2:
i. Marketing audit
ii. Organization stricture and organization culture
iii. 4P’s of marketing and market assortment.
iv. D. understanding the organization culture
v. Opportunities and threats.

Reaching the bottom of pyramid: TATA group initiatives

Reaching out to rural India

Objective of article: Promote Tata brand among bloggers.
Source:www.tata.com

The rural landscape is changing and helping this transformation are a clutch of Tata companies which are offering quality products and services to customers in the small towns and villages of India Prime Minister Manmohan Singh recently talked about his vision for rural India: "My vision of rural India is of a modern agrarian, industrial and services economy co-existing side by side, where people can live in well-equipped villages and commute easily to work, be it on the farm or in the non-farm economy. There is much that modern science and technology can do to realise this vision. Rural incomes have to be increased. Rural infrastructure has to be improved. Rural health and education needs have to be met. Employment opportunities have to be created in rural areas." This is a vision that the Tata Group has not just seen, but incorporated into its business strategy. Agriculture and agro-based industries account for 25 per cent of India's GDP. More significantly, over 60 per cent of the country's population is engaged in this activity. However, this very statistic simultaneously reveals why rural India remains a backwater for the country's industry; that 60 per cent of the people generate only 25 per cent of the country's GDP means that their purchasing power is low.
Most of industry's 'engagement' with rural India is in terms of corporate social responsibility (CSR), rather than business. Most industries, excepting the ones that directly deal in agricultural inputs, machinery or commodities, confine their business attentions to India's cities, where the country's purchasing power resides. This can be seen in the fact that though a small fraction of the country's population reads English, most of the country's print advertising spend flows to its English language media, read mainly in the cities.
But the fact about India's smaller cities, its towns and villages is that they are growing. There's a market out there, and it's waiting to be addressed. In terms of purchasing power, it may not have great depth, but it has enormous width, like the bottom of any pyramid. It is also a market with its own characteristics and its own dynamics. City formulae don't always work here. Grabbing a foothold takes much more than mere marketing savvy.
CK Prahlad in his ground-breaking book 'The Fortune at the Bottom of the Pyramid', speaks about the need for companies to design and develop innovative products and services, and help the poor prosper by partnering and engaging with them. He goes on to say that there is huge consumer potential in rural India and addressing this segment is a win-win partnership for both companies and the people. The companies benefit by widening their consumer base and selling more products; the rural people benefit by getting quality goods and services, which motivate them and raise their self-esteem.
This vast expanse of rural, semi-rural and semi-urban India has been a focus of Chairman Ratan Tata's vision for Tata Group companies. He believes that there is a large niche market comprising the emerging Indian consumer, which seeks a better quality product or service at a fair price, but can't get it. And he is convinced that Tata companies can profitably fulfil that need. Here, we recount the experiences of Tata companies that have worked to translate the Chairman's vision into reality, and the amazing levels of success that so many of them have achieved.
Tata BP Solar: making the sun rise
In remote Ladakh, 7,500 ft above sea level, in the bitterly cold Himalayan climate, 14,000 homes have lights. In Punjab, farmers are able to irrigate their fields without conventional electricity supply. In Chattisgarh, tribals living in 107 'grid-inaccessible' villages can watch television, and students can study at night…
In villages across India, children are getting a better education, families are getting better healthcare and people are able to connect with their loved ones far away, thanks to Tata BP Solar, a company that has been at the forefront of solar energy field since 1991.

"Over 70 per cent of India's population lives in the rural areas, but 70 per cent of electricity generated is used in urban areas," says AK Vora, managing director of Tata BP Solar. "Even in the future, rural areas will continue to get an unequal share of power, because urban needs will keep on increasing," he adds.
The power of the sun
Tata BP Solar is playing a key role in helping bridge the urban-rural energy divide. In India, energy planners think of power requirements only in terms of large MWs. But, says Vora, in villages you need small amounts of power; for homes and businesses such as shops and flour mills. Solar power can provide energy security and, therefore developmental opportunities to 700 million rural Indians. "Solar power is clean, eco-friendly and the most easy-to-set-up source of power. You don't need large transmission towers, lengthy cabling and heavy switchgear. You can light an entire village in less than a week," says K Subramanya, COO, and Tata BP Solar. The needs of the rural people are simple: fuel for cooking, water for drinking, light for studying, and television and telephone for entertainment and connectivity.
It's all in the idea
While Tata BP Solar has a slew of products such as solar home lighting systems, solar lanterns, solar cookers and solar hot water systems, the innovation is in the packaged solutions that they have designed for specific segments in rural India:
Sunbank, a customized package for rural banks that are being computerized, consists of a power pack along with solar modules, batteries and controllers, and provides power for three to six hours a day. The company is looking at powering ATMs next. Suraksha, a solar-powered communication system, helps police stations function effectively. India has tens of thousands of primary health centres, but most of them have very little or no power, and vaccines need to be refrigerated at temperatures lower than 6°C. The health centre package, Arogya, includes a solar powered vaccine refrigerator manufactured indigenously by the company and approved by the World Health Organisation (WHO). In Madhya Pradesh, the Rajya Siksha Abhiyan has given computers to over 3,000 rural schools, but realised that there is no power to operate them. Tata BP Solar is proposing to put together a school package called Tejas, which powers computers, TVs, lights and fans. Specific packages for e-governance and panchayats are now being developed.
The government is driving banking, farming, education and health activities in rural areas, and Tata BP Solar is ensuring that these initiatives bear fruit through the use of solar energy. "Each of our package solutions addresses the government's agenda in different areas," says Subramanya. "We are also understanding the real needs of villagers and developing products depending on the budget, playability and product use." One work-in-progress product is a low-cost solar lantern. The present lantern, a bestseller, is priced at Rs 4,000 ($80), too expensive for the rural segment. The company's R&D department is relooking at the product to bring the price down to Rs 1,250 ($27). They are also developing a rural solar water heater, smaller in size (40 to 50 litres) and cheaper than the current range, sold primarily in urban areas for between Rs 18,000 ($387) to Rs 45,000 ($969), depending on the size. "The target is to take it to the market by the end of this year at a cost less than Rs 4,000 ($80)," says Vora.
Spreading out:The company distributes and sells its products through dealers, who also create awareness and educate the end-customer on the products' functionality. "We ensure that our products are sold in areas that are easily accessible, not more than one night's bus ride away. Service technicians must be trained by us," says Vora. Training also provides a much-needed source of employment for the local people. Though 75 per cent of the company's products are sold in rural, semi-rural and semi-urban areas, its dealers are still not in the heart of rural areas, and it is exploring different channels for selling in these markets. A partnership with the Ramakrishna Mission, which is active across the country, has been successful. Other channels under consideration are self-help groups and TV dealers, as TV has a very wide penetration. The company is also talking to Tata Chemicals' Tata Kisan Sansars in north India, as they interact directly with farmers. The biggest obstacle in making its products available at a price affordable to the masses is what Vora calls the 'capital cost barrier'. "Solar products have a capital cost, but no running cost, as the sun is free. For conventional electricity, the user pays a monthly bill while the capital investment is done by the generating company," he elaborates.
Lighting up lives
Since people cannot afford to buy solar products outright, financing is important. Tata BP Solar has networked long and hard to get banks to give loans to villagers buying solar products. But banks and financial institutions prefer to give loans for products and technologies that they are familiar with, like tractors or water pumps. Through a unique initiative called Arunodaya, the company is trying to make banks aware of the positive cost-benefit ratio of solar products, and banks have started giving loans. Arunodaya's objective is not to market solar products but to spread awareness about solar energy and its applications through seminars and workshops. "The customers are a by-product of Arunodaya's activities," says Vora, who points out that Tata BP Solar has a greater responsibility towards promoting solar energy and developing applications, as it is the leader in this field in India. Tata BP Solar products have transformed lives in the villages of Punjab, Uttar Pradesh, Haryana, Kerala and Tamil Nadu. It has done pioneering work in Rajasthan, Assam, Orissa, West Bengal, Bihar, Chattisgarh, Jammu and Kashmir, and north east India. The idea is to make the sun shine on rural India, to brighten its future.
Lighting up Ladakh
Most Ladakhis lived a harsh life without electricity, till Tata BP Solar and the Ladakh Renewable Energy Development Agency (LREDA) joined hands to light up their world. In a short time-frame, Tata BP Solar installed 8,700 solar home lighting systems and delivered 6,000 solar lanterns to 80 remote villages and hamlets situated at altitudes between 2,600 m (8,500 ft) and 5,000 m (16,500 ft) above sea-level, over rough terrain in bone-chilling weather. Half the villages were accessible only on foot; some were a three-day trek from the nearest motorable road. On June 4, 2002, the first of 118 trucks loaded with solar products set off from the company's sophisticated manufacturing facility in Bangalore to Ladakh, over 3,000 km away, a journey that took two whole weeks. Just four months later, 14,000 homes in dozens of villages in Ladakh were illuminated each night by a golden glow. Thirty-six teams of local people were trained to install the products and educate the people. "Our team has done amazing work in that difficult terrain," says Vora.Today, the company has a regional office in Leh – the highest solar service centre in India – an on-site project management team and more than 70 locally-trained technicians. It's a job well done and there's a general sense of satisfaction about helping the Ladakhi people. A grateful Buddhist monk at Strongday Gompa in Zanskar summed up his feelings, "Solar light is like giving eyes to a blind man."
Rallis India: farmer's friend
Rallis India is the country's leading agrochemicals company, and has helped the Indian farmer for close to 40 years, by improving yields and returns on crops. It provides a wide range of agro inputs and services through the entire agricultural cycle – from seed to harvest. "We spend a lot of our time interacting with the farmer, trying to understand the problems that he faces in the field," says Dr Venkatrao Sohoni, managing director, Rallis India. "We also educate the retailer, to whom the farmer normally goes with his problems." When the farmer sows the crop, he is uncertain of the yield. Lack of rains, erratic electricity, pests, bad seeds – any one of these can ruin the crop. No one can alter nature, but the Rallis R&D centres at Hyderabad, Bangalore, Turbhe and Patancheru have enabled the company to offer the farmer the very best inputs – seeds, insecticides (Tata Mida, Asatafa, Rogor), fungicides (Contaf, Contaf Plus, Fujione) and herbicides (Fateh, Tata Metri).
Countrywide classroom : Rallis is present in every district in the country, and reaches the farmer through its own personnel as well as through retailers, distributors and preferred dealers. During the agricultural season, as many as 1,200 technical field assistants (TFA) along with agronomists visit India's villages, interacting with the farmers.
TFAs demonstrate the efficacy of products by spraying crops on special plots to show the difference between treated and untreated crops in terms of health, vigour, quantum of pest infestation and damage. They advise farmers about when and how to use their products, and on crop selection, depending on the soil. "The farmers are encouraged to spread this knowledge. Our intention is to create centres of information within villages," says Sohoni.
Over the years, Rallis has built an impressive all-India database of progressive farmers who can be considered as peer leaders or trendsetters. It has a list of more than 50,000 farmers who are knowledgeable about cotton, and another 56,000 that grow rice. The database is also used to share learnings and to plan marketing activities. Marketing initiatives vary according to crop, season and region. Campaigns often resemble a mela (fair), with a convoy of gaily decorated jeeps and carts with placards and posters, meandering down village roads. Sometimes, even boats are used. Contact has intensified over the years as farmers have become more knowledgeable and even net savvy. Rallis has a farmer helpline, troubleshooting by telephone and email from its website. It holds training sessions for the retail network and works closely with local agricultural universities. "We are not into selling pesticides. We deal with the whole crop cycle and educate farmers so that our products are used safely, judiciously and effectively," says Sohoni. The company plans to set up dedicated kiosks manned by informed personnel and updated continuously.

The focus is not on selling Rallis products, but on making the company a trusted friend of the farmer. "Very often, solving a problem may not require the use of our products. The farmer sees our TFA as a knowledgeable friend, and increasingly relies on his advice to improve yields," says Sohoni. This sets Rallis apart from other agro companies; it spends more time generating demand rather then pushing its own products by virtue of lower prices.
Market mantra: As pesticides are mostly generic by nature, Rallis is constantly faced with products that are similar to its own. The critical differentiation is through service, quality and interaction with the growers. "We have a very strong brand equity in this market. The Tata name is associated with Rallis and often people call it Tata Rallis," says Sohoni.
Whether in R&D or marketing, innovation makes the difference. Rallis has created a mascot, 'Dr Vishwas', a sort of super-man who identifies farmers' problems and offers complete solutions. He appears in all the company's communications. Some of the farmers who call the Rallis helpline actually ask to speak to Dr Vishwas! The company also has a unique marketing programme called 4S (Sampark-Sambandh-Samruddhi-Santushti) which means building relationships through information and service. The sales and marketing staff are joined by factory workers, R&D scientists and officers in the field. Each group is assigned an area and a number of farmers to meet. Apart from understanding problems, if farmers are moving to other products, they can find out why. It is an invaluable marketing device that builds trust and a priceless knowledge base. A process called Innogate captures innovative marketing and problem-solving practices.
Farmers first: In the new product development (NPD) process, listening to the farmer gives the company new product ideas. After gathering information and doing research, the most promising ideas are intensively worked on before the new product is introduced into the market. Rallis introduces four or five new products each year. Many of them are new forms or combinations of existing products and not necessarily new molecules. With 40,000 retail outlets across the country, the Rallis retailer is a vital cog in the wheel. "Both the retailer and the farmer are very astute in differentiating between companies that just sell products and those that are interested in the farmer's well-being," Sohoni points out. Rallis continuously trains its people – through the web as well as on the job – so that farmers get the best advice and latest information. After every interaction, it is mandatory for field staff to send a report to all marketing and sales people in the company. The customer satisfaction survey helps Rallis to find out how the company is perceived by farmers and retailers. A recent Gallup survey showed that Rallis is known for providing quality products and service. The Rallis brand is recognised in all parts of the country. "Going forward, the challenge for Rallis is to bring in unique products and to continue to enrich our product portfolio so that we are able to gain marketshare, stay abreast of the changes in agronomy that affect inputs and their profile, and react swiftly to pest complaints," says a quietly confident Sohoni. Little wonder that farmers consider Rallis their friend in need.
Tata Chemicals: one-stop farming shop
The face of Indian agriculture is changing. New practices, techniques and farming methods have evolved, and the farmer is keen to be a part of the new revolution. But a dismal lack of rural infrastructure and finance prevents him from gaining access to this brave new world. "Farmers today primarily need to get the right information and find markets to sell their products at a good price," says Prasad Menon, managing director, Tata Chemicals. "For farmers, the top priority is acquiring the knowledge that can improve their yield," adds Kapil Mehan, chief operating officer of the Tata Chemicals fertiliser division. Tata Chemicals is India's leading soda ash and fertiliser company, and has had a long association with the farmer, supplying high quality urea, a vital input for most crops.
From seed to…
In 1998, Tata Chemicals set up the Tata Kisan Kendra (TKK), a one-stop shop for the Indian farmer, supplying all requirements, from seed sowing to post-harvest. TKKs enabled farmers to purchase the products they needed as well as gain from expert information. Four years later, the company decided to shift the focus to offering services as well, and re-branded the rural initiative. Now named Tata Kisan Sansar (TKS), it offers farmers a range of agri-services and agri-products. Says Mehan, "In effect, we are telling the farmer to look at farming as a business, not a subsistence activity that he continues to do because his forefathers did it. An increase in his income will mean a higher standard of living for him and his family."
The change is in keeping with the evolving farming mindset in the country, an openness of mind to seek knowledge, new techniques and ideas. "That," says Mehan, "is a challenge for companies in agri-business today. We can no longer go to farmers with a pre-designed basket of products and services; we have to design them according to their needs." TKS operates in northern and eastern India – Punjab, Haryana, Uttar Pradesh, Bihar and West Bengal. It is franchised, working on a hub-and-spoke model. The hub acts as a resource centre to a number of TKS outlets, and each TKS services a number of surrounding villages. With 25 resource centres and 497 TKSs, the initiative reaches more than 35 lakh farmers in 16,000 villages.
…the farmer's every need
TKS centres offer soil and water testing, contract farming and credit facilitation. Each has a complete range of agri-inputs like fertilisers, seeds, pesticides, herbicides and micronutrients. Agronomists at each TKS share their expertise with farmers, and provide the latest information on weather, market pricing and crop production, enabling them to take quick and informed decisions. All the centres are being computerised and a database of farmers is being built up, allowing sharing of techniques and information. Tata Chemicals has tied up with Cornell University's College of Agriculture and Life Sciences, a premier American agricultural college. Professors from the university have interacted with trainers at TKS centres as well as farmers in the field. The focus is on human capacity building. The company is also trying to set up development centres in association with some agricultural universities.
Farming family
Farmers can avail of TKS services by becoming a member of the Tata Kisan Parivar (TKP). They can also choose to pay selectively for services. TKP is essentially a relationship-building initiative where Tata Chemicals identifies farmers who are open to new techniques, and can also be spokespersons in villages. The 30,000 members of TKP are given training in the latest farming techniques, offered services at a discount and taken for educational trips to agricultural universities. They also get family insurance coverage. The Kisan Sahyog Parivar is yet another initiative. Farmers are encouraged to form self-help groups (SHGs) that provide a platform for facilitation of credit as well as learning and sharing among themselves.
Improving lifestyles
The TKS is a business development initiative – an alternate delivery mechanism to provide products and services in a more reliable manner, so that the farmer feels confident about them. Both the farmer and the company benefit from the initiative. In 2005-06, TKSs did business worth Rs 307 crore ($66 million), growing from Rs 38 crore ($8 million) in 2002-03
TKS is now expanding its basket of products to include lifetstyle goods. It has done pilot projects with Titan for selling Sonata watches, with Tata Indicom for telecom services, and with Tata BP Solar for solar power products. Indian Oil has approached TKS for setting up fuel stations and selling packaged kerosene, to prevent adulteration. Going ahead, Tata Chemicals is looking at adding financial and credit services, as well as crop insurance to its range of services. With these new initiatives, the partnership between TKS and farmers will grow stronger and deeper.
Tata Motors: wheels of fortune
India's plans to link villages with towns and towns with cities across the country, through world-class highways and all-weather roads, is going to dramatically change lifestyles, both in terms of transportation of goods as well as people. Tata Motors, India's leading auto manufacturer, is gearing itself to address and accelerate this transformation. Tata Motors commercial vehicles are known for their reliability and durability. Seven out of every 10 trucks on Indian roads proudly carry the Tata logo. But the smallest vehicle it made was a four-tonner, which was too big to be economically deployed in large numbers in small towns. "What was required was an optimal vehicle that could economically carry smaller loads and reach out into small towns and villages. Issues such as purchase price, cost of operation and reliability would be critical," says Shyam Mani, VP (sales and marketing), Commercial Vehicles, Tata Motors. A few years earlier, Tata Motors had consciously decided to focus on being a customer-centric company rather than a product-centric one, developing products that fit customer requirements rather than making customers adjust their requirements to suit existing vehicles. With this intention, in 2002, the company remodelled their Tatamobile in response to customer feedback asking for an economical and reliable vehicle for intra-city and local transport, and the 207 DI was born – a sturdier vehicle that drives well on dirt tracks, has a higher operating speed and more applications. "Changing customer attitudes are driving the market today. Issues like reliability and low maintenance costs are now basic requirements, not product differentiators. The key to success is how well you learn the differentiators," says Mani.
Who is the customer?
With the help of McKinsey, the company classified its customers into a four-level pyramid. At the bottom was the acquisition-price-sensitive customer, who is looking only at price, not performance. Above that is the return-on-investment customer, who is willing to pay a price for better value. The third layer is the looking-for-a-balance customer, who weighs both price and performance. At the top is the only-performance customer, who is willing to pay a higher price for it. The rural customer is not too aware of features and benefits, and is found more at the lowest end of the pyramid, while the educated urban customer lies at the second level. In both urban and rural India, there will be customers in all the four segments, in varying percentages. "The challenge, as competition increases, is to bring out products that provide the benefits of one segment at the price point of the lower segment," says Mani. The company targeted customers, largely from semi-urban and rural areas, who fell into the two bottom layers of the pyramid, which cover 85 per cent of the market.
What does (s)he want?
Through its interaction with customers, the company learnt that the five essential attributes they look for in a small commercial vehicle are lower operating costs (as compared to a three-wheeler), reliability, durability, safety and comfort, and – most important of all – a viable business proposition. "Commercial vehicles are actually a business investment. If a customer is not able to earn the money to be able to pay back the acquisition price and earn some profit, (s)he is not going to buy the vehicle. The economic cycle must be complete," says Mani.
Dealing an Ace:
The company realised that the entry level for the semi-urban and rural market was a product between a three-wheeler and a pick-up truck, at a price-sensitive level. It put together a team to develop such a vehicle, and it came up with an Ace.
A sturdy vehicle that can carry loads up to 1.5 tonnes over distances up to 300 km, the Ace is a four-wheeler at a price slightly higher than a three-wheeler, but offering greater stability, safety and comfort. More important, the operating cost was extended to a product lifecycle cost, which covered purchase cost, operating cost and resale price. "It has the lowest product lifecycle cost; that is our USP. It is essentially a last-mile load carrying vehicle, useful in congested cities as well," says Mani.
"We took the Ace on road shows through villages and demonstrated the features and benefits. Customers were encouraged to test drive the vehicle," says UT Ramprasad, head – marketing communications, CVBU. "The brand communication for the Ace was 'All the goodness of the Tata Truck now in a mini size' – thereby the descriptor of the category as a mini-truck. Using the metaphor of an elephant (a mother elephant representing the Tata truck), the Ace was simply called the baby elephant!"
Mani relates the case of a person who wanted to set up a paan-bidi shop. When he saw the Ace, he bought the vehicle instead. "With approximately the same investment, he now gets bigger returns and more prestige," he says.
Finessing the finance: The low-price-high-performance Ace has cast its spell on auto financers in urban areas, who now offer five-year financing for the vehicle (three-wheelers get only two/three-year financing), so that customers pay a monthly instalment approximately the same as that for a three-wheeler. "The instalment payment has gone down and income has increased, boosting net earnings. The customer is happy and our sales have jumped. It's a win-win situation," informs Mani.
But in rural India, financing is still difficult. Finance companies find higher comfort levels with a regular salary slip than with agricultural income or property. There is a critical need for micro-finance in rural markets, and Tata Motors is hoping it will happen soon.
Changing lives: Research had indicated that in rural areas, owning a four-wheeler increases the family's status but the price was a deterrent. "The Ace therefore is an emotional brand at a functional price. In addition to a business, it enabled the customer to climb the social ladder," says Ramprasad, who adds: "Semi-urban and rural customers use Tata products for their day-to-day livelihood. Their belief and trust in the Tata brand is huge." Tata Motors has also developed the Cityride bus, a low-end, 16-seater bus built on the existing 407 platform for passenger movement between small towns. "We believe that by providing quality vehicles at affordable prices, we can help people improve their quality of life. We believe our vehicles empower people, whether it is the Ace, the 207 DI or the Cityride bus," says Mani.
In top gear: As markets continue to move towards semi-urban and rural areas, the company is extending its reach through a unique concept called 1S outlets, that handle only sales. At over 300 such outlets across India, customers can see and buy the product within 50 to 100 km of their village. Apart from its dealers, Tata Motors has tied up with local garages for servicing, and enhanced their service skills through training. A mobile service van supplements their reach.
The Ace has been so successful that the company is struggling to meet demand. Today, the Ace is available in only nine states, and Tata Motors is enhancing its capacity before launching the vehicle in more states. The wheel of fortune rolls swiftly through semi-urban and rural India, as Tata Motors changes people's lives for the better.
Tata AIG Life Insurance: Insuring the bottom of the pyramid
Life insurance companies in India are mandated by regulations to adopt rural and social criteria as part of their business obligation. The rural mandate dictates that an increasing percentage of the company's annual business (in terms of number of policies) has to come from rural areas – it starts from 7 per cent in the company's first year of operation and increases each year until the sixth year when it reaches 18 per cent. The social mandate requires companies to cover a certain number of people who belong to the informal or unorganised sector (in both urban and rural areas) which comprises close to 90 per cent of the population. Of the country's 14 life insurance companies, one company decided to do things a little differently. "We thought we would take another route," says Vijay Athreye, assistant VP and head (rural and social) at Tata AIG Life Insurance. "We decided to treat it as a business opportunity rather than an obligation." In doing so, the company is also giving the rural poor an opportunity to provide for their own security needs and hence develop.

Go to the villages: Athreye joined the company in 2001, started the rural insurance division and spent a lot of time studying rural markets and the insurance business in rural areas. He soon realised that the structure of the insurance industry leans towards the urban scenario in terms of products, delivery, people processes and service.
"Insurance is sold, not purchased. Traditionally agents sell insurance to earn a livelihood. They usually earn a 40-per cent commission on the first year's premium and 6 to 10 per cent in subsequent years (according to regulations)," Athreye explains. "So while agents are enthusiastic about doing sales, they are not happy giving service, especially if the amount is small. In rural areas, the lack of infrastructure makes servicing by the agent that much more imperative but because insurance services in rural areas are not differentiated from urban, the agents are unable to service them and the credibility of insurance takes a beating."
He divided the rural market into three distinct segments: the 'almost urban' people living in large towns, as well as rich farmers; the rural 'middle class'; and the 'bottom of the pyramid' – the 70 per cent of rural India that have no or limited access to any organised financial services/banks. "We had to find a way of addressing the last segment," says Athreye, "as it would help us fulfil our obligation as well as generate incremental new business."
The challenge was to create a channel which could handle micro insurance – not the usual agents – but organisations and people who would be interested in selling insurance to the poor and be content to service the market with small earnings.
Why not women?
Regular agents were interested in servicing only high policy amounts to earn their livelihood. So, in a country where men are supposed to be the primary bread earners, Tata AIG decided to position insurance as a supplementary livelihood activity, and talk to community-based women. "In rural areas it's very difficult for women to find a source of income, so we asked ourselves: can we encourage women to become our micro insurance agents, and by creating relevant products and processes build capacities in them to sell insurance?" Athreye explains.
The company started in Andhra Pradesh, where Tata AIG was doing a project with the Department for International Development (DFID), an arm of the British Ministry of Finance that gives funds on a matching funds basis for financially deepening activities in rural areas. Tata AIG and DFID contributed towards a corpus which was used to develop the idea of utilising grassroots level community workers to develop infrastructure and collaterals that would promote and service micro insurance to landless daily-waged adults in the state.
Tata AIG encouraged the women to form partnerships in groups of five and called them CRIGs (Rural Community Insurance Groups). They travel around in branded vans owned by Tata AIG, which also double as collection and policy servicing units. Over four three-day capacity building modules, women learn soft skills, develop insurance skills and learn data management through computers. About 150 women are now earning Rs 700 ($15) a month. Some have graduated to selling regular products to the rural middle class, and earn as much as Rs 2,000 ($43).

The model has been replicated in other parts of the country with some changes. It's not been easy in states like UP and Rajasthan, where the men don't allow womenfolk to go out of the house for work. Here, the company approached NGO field workers and volunteers. Today, of the 460 rural agents selling micro insurance, 60 per cent are women. A woman agent is typically a cluster leader or an office bearer of a rural self-help group (SHG).
Making a difference: One of the big challenges that the company faced was training the women. The Insurance Act requires that every person who sells insurance has to be trained for 100 hours at designated training centres, all of which are in urban areas. It was a problem to get women to stay in a city for so many days. Tata AIG has shared its learnings, both in India and abroad, and now a new micro insurance regulation allows micro insurance agents with only 25 hours of training in the village. The company is confident that this will help ramp up its woman force rapidly.
"We operate in 10 states (Andhra Pradesh, Kerala, Tamil Nadu, Karnataka, Maharashtra, Gujarat, Jharkhand, West Bengal, UP and Rajasthan) and have more than 50,000 policy holders; close to 85 per cent would belong to the third category (the bottom of the pyramid), for our policy holder survey shows that it is the very first time that they have bought an insurance policy and it is our women agents who have reached out to them," says Athreye proudly.
The company has developed no-frills, low-priced personal products, for rural markets, that focus on savings. A premium of Rs 150 ($3) to Rs 300 ($9) offers coverage of between Rs 15,000 ($320) to Rs 20,000 ($430). Many NGOs, cooperatives/women federations and other such rural organisations including MFIs are partnering with Tata-AIG in mentoring and monitoring the programme at the grassroot level. With new micro insurance regulations that allow level commission (companies can now pay 20 per cent commission through the product's tenure, giving micro agents a more regular income), Tata AIG has developed a new set of products – variants of earlier products – and is awaiting regulatory clearances for them.
Tata AIG has also evolved its processes to deal with rural realities – illiteracy, a cash economy, lack of birth certificates or proof of age. The company has settled many claims, ensuring that the money is given to the beneficiary vide an NGO, so that the proceeds are used well. Tata AIG is expanding its reach and is planning micro insurance-based offices across the country.
It's all business
"We have consciously decided to target the 'bottom of the pyramid'; we move up only after we have gained a foothold. We are looking at rural markets more holistically, as selling only to the very poor is not sustainable for the company in the long run," says Athreye. Last year, the company grew 80 per cent in terms of both policies and premiums. They have covered over 18,000 rural individual policy holders with micro insurance in the first six months of this year and hope to end the year with over 35,000 policies contributing close to Rs 75 lakh ($161,400) in first premium terms.

Athreye is clear that this is business, not corporate social responsibility (CSR): "We have invested money, are working on making it a sustainable business by creating value for our customers through a choice of products, and want to generate long-term profits," he says. "The biggest thing about development is having choices. We are educating people about insurance and about the product choices they have – offering them relevant services at their doorstep, including frequent collection of premiums," he adds. In trying to create value for the rural customer, a livelihood for the agent and a business for itself, Tata AIG is also changing the face of rural India.
Tata Teleservices: ringing in a new era
In India's metros, state capitals and small towns, telephones have morphed into cell phones. From the high-powered executive in his tinted-glass Mercedes to the vegetable seller down the road, people everywhere are chatting, getting information and doing business on the cell phones.
But it's a different story in India's villages, where many are yet to see a telephone. Communication is still a problem, and most villages are yet to savour the benefits of Alexandra Graham Bell's remarkable invention. Of the 70 per cent of our population that lives in rural India, only 1.5 to 2 per cent are connected through a telephone.
In 2002, in an effort to increase rural tele-density, the government set up a universal service obligation (USO) fund. Telecom operators had to give a certain percentage of their gross revenues to this fund. It also mandated that every telecom operator must provide telephone services in rural areas each year, up to a certain percentage of their annual business turnover, which would be subsidised from the USO fund. Last year the system was changed to a tender system, where operators could bid for rolling out services in certain areas of the country that have zero to less than 1 per cent tele-density. They would receive a subsidy from the USO fund to enable them to provide services in those areas.
Tata Teleservices Ltd (TTSL), which started operations in 1996 in Andhra Pradesh, is a major telecom player in India. Over the years, it has expanded its network and today covers 2,500 towns in 20 circles. It is the market leader in the fixed wireless telephony market, with a customer base of over 2.8 million. TTSL has bid successfully to provide telephone services in 242 SDCAs (short distance charging areas). It sees rural telephony not just as a service to India's villagers, but also as a great business opportunity.
Darryl Green, CEO of Tata Teleservices, expands on the company's philosophy, "There is a huge amount of satisfaction in working in the rural areas. In urban areas, the telephone has become an integral part of life. But in rural areas, people have to travel long distances on foot or a bicycle to find out good or bad news from family and friends. For them to be able to pick up a phone and get that news in a second, makes this business that much more meaningful."

But the challenges of providing telecom services to rural India are manifold. Many villages cannot be accessed easily owing to their remote location; setting up a network is fraught with difficulties, thanks to rough terrain; the investment required is high and the returns are very low, as many villagers cannot afford the cost of telephone services. It's also difficult to get people to work in these areas; they are remote and lack amenities. Electricity is one of the primary requirements for telecom services, but many villages do not have electricity. Diesel generators are expensive and can work only as a stopgap measure. The government is supposed to help telecom companies get electricity, but the companies have to do most of the work and also bear the cost. "However, once electricity comes into a village, it can only lead to further development," says Green.
Another challenge has been to communicate the benefits of the product to the people, as many of them are illiterate. The company's sales people first put on an entertainment show to attract a large crowd and then use visuals to talk about the services and the registration process. Many times they have to carry their own camera to complete registration formalities as villagers rarely have their own photographs. An important learning for the company has been in understanding the communication needs of villagers. "In rural communities, communication takes place mainly among defined family groups. So they want a service that allows them to call families in and around their village at reasonable rates," says Green. The company's family-and-friends (Parivaar) programme at special calling rates has been well accepted.
TTSL's telephones also provide unique information services that are required in these areas. They have an LCD display and different language capabilities for diverse Indian regions. Farmers can avail of the SMS facility to find out crop prices in other markets; get weather updates and the price and availability of agri-equipment. "This kind of information is very important for farmers and helps them make better decisions, which in turn helps them increase their income," says Green. The cost of the service has been adapted for the rural customer. In the pre-paid scheme, the company retains ownership of the phone, so there is no deposit to be paid, just an activation fee which ranges from Rs 600 ($13) to Rs 800 ($17). If the customer wants to stop subscribing to the service, the company takes back the phone. TTSL is trying to develop lower cost phone models to attract more customers.
The CDMA technology enables customers who can afford a computer to connect to the internet with these phones. Tata Teleservices is also helping school children gain access to information by providing internet services free of charge to local schools. This is a corporate social responsibility activity in conjunction with CDMA equipment maker Qualcomm, which is initially being rolled out in Maharashtra and Madhya Pradesh. Another key learning has been in setting up a distribution network. The company has set up a three-tier network with a main distributor who looks after a large area, generally an SDCA, and has feeders (on his pay roll) which feed into 'runners' – people appointed and trained by TTSL – who visit villages on a bicycle or a two-wheeler at defined times on defined days of the week, selling recharge vouchers and servicing equipment; each runner covers between 200 to 300 customers. The company has also joined hands with Tata Chemicals' Tata Kisan Sansar network, disseminating information through these centres and using them as local distributors. Tata Teleservices has invested Rs 240 crore ($51 million) in rural telephony in these 242 SDCAs, covering Rajasthan, Bihar, UP East, UP West, Maharashtra, Andhra Pradesh, Karnataka, Punjab and Haryana. It will reach out to more than 6,00,000 subscribers by end March 2007. It hopes to get more subscribers and induce existing customers to move up to value-added products and services. "Right now, the need is a fixed wireless phone in the house, so that all family members can benefit from it. Cell phones will be the next wave, when their affordability increases," says Green. Apart from looking at products for individuals, the company is also looking at helping small businesses by offering services based on CDMA technology.
Less than 15 years ago, the telephone was a luxury for most urban Indians, who had to endure years of waiting to be allotted one. Today, it is the exact opposite, as telecom companies vie for customers. Availability of telephone connections at an affordable price has made the difference. The Tata foray into rural areas is bound to cause a similar transformation, sooner rather than later.
Sonata: the times they are a-changin'
Sonata, a division of Titan Industries launched in 1997, targets the mass market in watches. Priced between Rs 395 ($8) and Rs 1250 ($27), Sonata is the largest selling watch brand in the country, with volumes of over 4 million units annually.
Currently 80 per cent of Sonata sales come from urban areas where consumer awareness for the brand and its distribution is strong. Last year, the division made a concentrated effort to focus on the rural sector. "Our focus comes from a combination of two factors: providing quality products to the lower income market, and taking the opportunities available in that market," says C Srinivasan, business head, Sonata.
"The rural market exists, but it is dominated by the unorganised sector. The key was to understand how to address it," he adds. Srinivasan and his team spent a lot of time in several parts of rural India, trying to understand rural attitudes and minsets of people towards owning watches. 80 per cent of rural Indians did not wear a watch. The reasons ranged from functional to socio-cultural. The need to know time accurately is low; the sunrise (and sunset) is their timekeeper, as is their body clock. The ringing of the school bell, the arrival or passing of a train or bus also indicates the time. Most houses have a wall clock.
People also sis not buy watches a gifted or handed down within the family. In many parts of the country, a watch is an essential part of wedding gifts and most people wait for the occasion to own a watch. A watch is also considered a personal luxury item. Hence, they feel guilty about spending money on items that benefit only them; a colour TV or a motorbike would benefit the whole family. That is why a watch is considered as self-indulgence. However, there were occasions when individuals felt not having a watch could lead to embarrassing moments, such as when they were late for an appointment with an important person, a court hearing or when receiving a guest at the station. Even if villagers buy a watch it's usually cheap (about Rs 150 or $3), non-branded and therefore unreliable. However, they expect the watch to last at least two years. Rural folk are very price conscious and must have a very good reason for spending a large amount like Rs 500 ($10). At that price, they expect a watch that can be passed down to the next generation.

While on the one hand watches are seen as a fashionable indulgence, on the other hand, they connote success and command respect for the owner. Wearing a watch gives a subtle message that you have achieved something in life; 'aapki shaan badhata hai' (it increases social status). A gold plated watch with a gold bracelet conveys this best. But, as rural India progresses, the times are definitely a-changing'. Farmers no longer want their children to follow in their footsteps. They want them to become doctors or engineers. Rural women, especially, want their children to have a better future.
Project Swades:
In keeping with these aspirations, Sonata launched project Swades, aimed at changing people's mindsets and making them aware of the value of time. "We used these learnings to project a watch as something that will help people progress," says Srinivasan. The message communicated to people that a Sonata watch from Tata is reliable, of good quality, affordable and can be instrumental to their success. The idea was to convey to people that having a watch can help manage work and life more effectively, make more money and a better life for the family. "The communication is complicated due to the cultural diversity of our country. We have to address each region differently," says Srinivasan. For instance, owning a watch can help farmers to actually save money by helping them to keep track of the time when they hire pump sets and tractors for a certain number of hours. Without a watch they have no way of knowing for how long they have used the machines and may get short-changed by lenders who take them back before the allotted time. In February this year, pilot projects were started in rural Uttar Pradesh and Tamil Nadu, to test the market. Gaily decorated mobile vans travelled around villages to generate interest. Sonata watches were also displayed at local melas (fairs) and haats (markets). "We are talking to customers, in the 20-to-35 year age group, about the kind of products they want, and also trying out different price points. So if customers want a watch at Rs 250 ($5), we have to see how we can deliver the product in that price," says Srinivasan.In rural areas where Sonata does not have a strong distribution network, there is need for setting up a parallel distribution system that can provide access to interior areas at a low cost. Project Swades is a pilot project and the team is still gathering information. They hope to have a deliverable business model soon. "The biggest advantage is that India is progressing and rural India seems to be clear on what it wants," says an optimistic Srinivasan. Meanwhile, Sonata is talking to banks for micro financing, so that more people can afford to buy watches. Another interesting option for organising financing is the post office where many people have savings accounts. Sonata is also looking at training youngsters to market and service the watches. This will provide the much-needed employment in rural areas.
Srinivasan is looking very seriously at driving down product costs in tune with Mr Tata's dream of offering a low-cost watch (priced at around Rs 100 or $2), without compromising on quality. "Our efforts are fairly encouraging; on paper Rs 175 ($3.5) seems possible today and we are working with our vendors to reach the target," says Srinivasan.