Wednesday, March 15, 2006

Building Wealth by the Penny

The kind of "Horatio Alger" story that you are happy to read. It's the "long tail." of distribution. Hat Tip, Tom Barnett

In Rural India, a Sales Force in Saris Delivers Soap, Social Change
By John Lancaster
Washington Post Foreign Service
Tuesday, March 14, 2006; A13

CHOLLERU, India -- With its open sewers and mud-walled homes, this impoverished farming village of 2,200 in southern India did not look like fertile territory for an entrepreneur. But Srilatha Kadem was undeterred. Oblivious to the midday heat, she marched briskly along the unpaved streets, her cloth bag filled with soaps and shampoos and her heart with vaulting ambition.

She stopped at a tile-roofed house, where a gray-haired woman in a green sari lounged in the shade of the small verandah. "You're charging the same as the shops," the woman said grumpily.

"There is a difference in quality," replied Kadem, a cheerful woman with silver toe rings and a fifth-grade education who works as a saleswoman for Hindustan Lever Ltd., the Indian subsidiary of the Dutch consumer products giant Unilever. "What you buy on the streets, it doesn't come from a good company. These products which I brought are from a good company."

Consumer culture, spurred by rapid economic growth, is spreading to the vast rural hinterlands where two-thirds of India's 1.1 billion people still live. The trend is creating new opportunities not just for big business, which has long focused on the urban middle class, but also for some of India's poorest citizens.

A 30-year-old mother of two, Kadem is part of a novel Hindustan Lever initiative that enlists about 20,000 poor and mostly illiterate women to peddle such products as Lifebuoy soap and Pepsodent toothpaste in villages once considered too small, too destitute and too far from normal distribution channels to warrant attention.

Started in late 2000, Project Shakti has extended Hindustan Lever's reach into 80,000 of India's 638,000 villages, on top of about 100,000 served by conventional distribution methods, according to Dalip Sehgal, the company's director of new ventures. The project accounts for nearly 15 percent of rural sales. The women typically earn between $16 and $22 per month, often doubling their household income, and tend to use the extra money to educate their children.

"At the end of the day, we're in business," Sehgal said in a telephone interview from company headquarters in Bombay. "But if by doing business we can do something positive, it's a great win-win model."

Hindustan Lever is not alone in recognizing the vast potential for profits in rural India. As urban markets become saturated, more businesses are retooling their marketing strategies, and in many cases their products, to target rural consumers with tiny incomes but rising aspirations fueled by the media and other forces, according to experts.

Companies are offering many products, from single-use shampoo packets that sell for less than a penny to $340 motor scooters available for monthly payments as low as $4.50. Banks are targeting first-time customers with $10-minimum-deposit savings accounts. Cellular phone companies are upgrading rural networks while offering monthly plans for as little as $3.40.

"In four to five years the rural market will be a major sector that is well beyond anyone's imagination," said Rajesh Shukla, principal economist for the National Council of Applied Economic Research in New Delhi. "Nobody was expecting this was going to happen."

Still, the economic boom reflected in India's 8 percent annual growth is primarily an urban phenomenon, driven by service industries such as outsourcing. It has largely bypassed rural India, where malnutrition rates are sharply higher than in sub-Saharan Africa and most people still earn their living from farming that depends on monsoon rains. Poor roads and inadequate electricity deter many businesses from seeking new customers and opportunities outside cities and larger towns.

But some are taking a fresh look at rural India, where spending power has risen modestly thanks to villagers who migrate to cities for work and send earnings home, according to V. Kasturi Rangan, a Harvard Business School professor who studies emerging markets.

Corporate interest also has been piqued by the success of microcredit initiatives that began two decades ago in Bangladesh and have been widely embraced in India and other developing countries. Run by nonprofit groups or commercial banks, microcredit programs typically provide poor women with tiny loans, which can be used for income-generating activities that start with the purchase of a milk cow, for example, or a handloom.

With lower default rates than conventional loans, microcredit programs have lent credence to the idea that small-scale entrepreneurship can play an important role in alleviating poverty, as well as create opportunities for big business. In his book "The Fortune at the Bottom of the Pyramid," C.K. Prahalad, a University of Michigan Business School professor, cites numerous examples of companies that have generated wealth for the poor and profits for themselves by focusing on underserved rural markets.

Hindustan Lever has long recognized the potential of rural India, where even now only 15 percent of the population uses shampoo -- leaving 85 percent as potential customers, said Sehgal, the company official. The market had languished because the company could not figure out a way to profitably distribute its products in small villages.

That changed with the proliferation of women's self-help groups that use microloans to buy such items as mobile phones that can be used to do business in villages without landlines. Reasoning that a similar model could apply to selling soap and face powder, the company launched Project Shakti, which recruits its sales force from the groups.

"We are not too fussed about whether they are educated," Sehgal said, "because the inputs we give them are things they can learn," such as simple bookkeeping.

Women are considered a better bet than men, he added, because "they are far more honest." The company plans to employ about 100,000 women by 2010, enough to sell its products in about 500,000 Indian villages.

One of the early proving grounds for the program was a poverty-stricken cluster of villages in the southern Indian state of Andhra Pradesh. One was Cholleru, where Kadem, known as the local "Shakti entrepreneur," lives with her husband, 11-year-old daughter and 14-year-old son in a simple house off a courtyard of packed earth.

Married at 15, Kadem pulled weeds for 60 cents a day before she was recruited to the program three years ago. During two months of training, she said, she was schooled in the alphabet of her native Telugu, which she had forgotten, as well as in the rudiments of sales and bookkeeping.

Kadem initially built her customer base by holding night classes for village women. She taught them how to sign their names -- instead of the thumbprint they normally used -- and instructed them on the hygienic benefits of Lever products.

Kadem now covers four villages, traveling by bus or three-wheeled motor-taxi. She earns about $26 a month, almost as much as her husband brings home as a machine operator at an explosives factory, she said. The extra money covers installments on a new television set and means that the family can afford to send both children to private English-language schools.

"We should not distinguish between male and female," said Kadem, who hopes her daughter will become a doctor. "I want my children to be better than me."

With sales on the increase, Kadem hopes to buy a motor scooter, but for now, she makes the rounds of Cholleru on foot. In an hour and a half the other day, she visited 11 households, selling Rexona deodorant, Rin laundry detergent and other products in transactions that rarely exceeded 40 cents.

She returned home with her bag noticeably lighter -- and a broad smile. "I am feeling very happy," she said. "When I sell something, why wouldn't I be happy?"

2 Comments:

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4:00 AM  
Anonymous Anonymous said...

Hey! Very Nice! Check out this website I found where you can get a FREE
GAME SYSTEM. It's not available everywhere, so go to the site and put
in your zipcode to see if you can get it. I got mine and sold it!

http://www.degree-programs-online.info/extramoney.htm

4:07 AM  

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