MARKETING MANAGEMENT I

UNILEVER IN INDIA
HINDUSTAN LEVERS PROJECT SHAKTI: MARKETING FMCG TO THE RURAL CONSUMER


CASE ANALYSIS NOTE (CAN)





UNDER THE GUIDANCE OF
DR. JOFFI THOMAS
(IIM, KOZHIKODE)



GROUP 05

ANAMIKA CHAUDHARY (PGP/17/255)
DEEKSHA S. (PGP/17/265)
MANOTOSH CHOWDHURY (PGP/17/275)
PRAMA MUKHERJEE (PGP/17/285)
SHAKUN (PGP/17/295)
ASHISH RASTOGI (FPM07/05/O)
(SECTION E)


1. How is HUL placed in the Indian Consumer market?

A. HULs position in the Indian Consumer market can be best understood by a Situation
Analysis, which enables us to understand the circumstances and conditions with respect to
what are known as 5Cs, namely, Company, Collaborators, Competitors, Customers and
Climate. Here is an attempt to encapsulate the same for HUL in India:

Company: Hindustan Level Limited was formally incorporated in 1956 with the merger of
three entities. The parent company, Unilever Limited was the worlds largest FMCG
Company with a global turnover of roughly US$55 billion in 2004. Unilever held 51.5% of
the Indian Companys stock. Domestic and foreign institutional investors held 14.3% each,
and the India public held the remainder. The companys broad product line, covering nearly a
thousand SKUs across about twenty categories, included detergents, personal products,
beverages and foods. Market share of the Indian subsidiary varied by product category, but
overall it was the market leader in most of the markets it competed in, with the aggregate
share around 40-45%.

Collaborators: The three competitive advantages that HUL had included well-established
brands, local manufacturing capacity and supply chain and vast sales and distribution
network. By 2004, HUL directly serviced over a million outlets across India through a
network of over 7000 stockists. These were HULs primary customers who would order
stocks and receive them from HUL through a carrying and forwarding agent (CFA). The
stockists would then sell them to all outlets in their town. Besides this, in order to tap the
rural markets better HUL had launched Programme Shakti in December 2000, collaborating
with self help groups (SHGs).

Competitors: With a broad spectrum of product ranges with wide ranging prices, HULs
competition took two broad forms.
In the low-priced segments, competition came from a large number of relatively unorganized
local players. Each of these players typically operated in small geographies, invested almost
nothing in brand building, offered higher trade margins, and sold to consumers at prices
lower than those of HUL brands.
In the higher-price segments, competition came from organized national brands. Colgate-
Palmolive (in oral care and personal wash categories), Procter & Gamble (hair-care, fabric
wash and feminine-hygiene categories) were the major international competitors seeking a
share of the burgeoning Indian market. Besides, national players like Tata Oil Mills Co
(TOMCO) and Godrej Soaps were also formidable forces to reckon with.
A special mention needs to be made of Nirma which ate into HULs market shares in the
laundry business.

Customers: In the worlds second largest market in terms of potential buyers, HUL offered
an array of products across different FMCG categories catering to all pockets. Besides, the
customer markets could primarily be divided into urban and rural categories with the rural
markets being highly fragmented and difficult to reach. With an intention to target them
better, HUL launched the Shakti programme.



Climate: PESTLE Analysis

Politico-Legal: HULs growth in India was closely linked to the political developments in
the country. While the period prior to 1990 represented a highly regulated License Raj with
prohibitive restrictions on foreign direct investment, the post liberalization era witnessed the
easing of import restrictions and removal of entry barriers. This meant increased competition
from international as well as local rivals.
Socio-Economic: With an estimated population of 1.02 billion in 2003 (and a high
concentration of 70% in rural areas), India is the worlds second-largest market, only after
China. The per-capita income in 2003 was reported at $600 (estimated to be $2900 on
purchasing parity basis). While economic growth was encouraging with an average GDP
growth of 6% over the last decade, there still remained a considerable chunk of population
below the poverty line (about 250 million in 2003).



2. What was the motivation for the Shakti initiative? Was it a CSR initiative?

In 2004, HUL was facing the plight of growing number of competitors in stagnating urban
markets. But over 70% of Indias 1 billion population is rural, out of which HUL had direct
reach to only 16%, which was still greater than its competitors. But this privileged position of
HUL was threatened when its competitors started emulating its rural distribution initiatives.
The urban market was already filled with competition and the differentiating factor and
decision factor for who will be the market leader depends on the extent of penetration of rural
markets. Thus the large potential and untapped rural Indian market, combined with its
positive attributes of helping out underprivileged women, motivated the New Ventures
Division of HUL to come up with the new SHAKTI initiative.
CSR can be defined as a form of corporate social regulation integrated into a business model.
Although the Shakti initiative had the business objective of extending HULs reach into rural
markets, there was a greater social objective of providing sustainable livelihood opportunities
for underprivileged rural women. This would improve the condition of the Shakti
entrepreneurs and simultaneously by addressing women, HUL would have greater impact on
the entire household by improving health, hygiene and education levels. Shakti contributes
more to the upliftment of the rural community than to the margins of HUL. Even through all
the positives, some downsides for Project Shakti was also present. The project affected the
local retailers of the villages who did not have the luxury of the Shakti entrepreneurs to
reduce prices or deliver at their doors. Also, from an environmental perspective this
initiative, which offers consumers their goods in small sachets at lower prices can be
considered as a pollution causer in the long term due to accumulation of more plastic waste.
But the ultimate gains from this initiative in a social sense is very profound and hence Shakti
can be considered as a CSR initiative of HUL.

3. How will Project Shakti influence distribution in rural markets?

Serving customers in more remote areas of India poses unique challenges. Rural markets are
scattered over large areas with low per capita consumption rates. While the aggregate


potential of rural market is large, the potential of each of the 600+ dispersed markets is very
low. Rural markets are not connected to urban centres by air or rail, with road connectivity
poor at best. Accessing these markets, even if feasible, incurs extra costs. Project Shakti, in
this sense, helps HUL to penetrate and distribute to more areas, especially villages with
population less than 2000.
Shakti employs an innovative sales and distribution initiative that delivers growth to the
untapped rural markets of India. Drawing inspiration from the likes of the Bangladeshi
Grameen Bank model, various NGOs and multilateral bodies formed self-help groups in rural
India which functioned as mutual thrift societies. HUL engineered an innovative channel by
partnering with three federations of SHGs known as MACTS. These federations would
purchase HUL products directly and subsequently sell them to the outlets in villages via the
SHGs.
But since the income generated was too small, this business model was subsequently
modified. A member of a SHG in each of 50 chosen villages was appointed as the Shakti
entrepreneur, who sold directly to the local outlets or to the consumers. A RSP (Rural Sales
Promoter) was hired to train these entrepreneurs and help them expand and develop their
businesses. To keep selling costs low, the administration of the RSPs was outsourced to a
third party, but the training and selection power was retained by HUL itself. Thus the
distribution channel of HUL started with the manufacturer at HUL to the RSP, the Shakti
Entrepreneur to the outlet and finally to the consumer.

4. If Shakti cannot become profitable, should HUL continue the program? Why?

HUL was committed to serving the low-income group and hence could have incurred lesser
revenues because of the following:
Higher packaging costs per unit as each unit contained less of the product
Higher trade margins offered as compared to larger SKUs

But project Shakti grew as a result of:
Expansion into new markets and increased no. of new Shakti entrepreneurs
Increased turnover of existing Shakti entrepreneurs

Project Shakti broke even in 2004.
Even if it doesnt become profitable, HUL should continue executing this project, looking at the
long term perspective. With none of the other FMCG companies trying to enter the rural India
where media coverage and relay is near-to zero and with only 100,000 out of 600,000 villages in
reach of HUL, they got the first mover advantage and can reap larger benefits in the longer run.
Motivating and giving them formal training and focusing efforts on the selected geographies and
the existing entrepreneurs can be of help.
Also, being a part of such a socially responsible initiative will make HUL stand in a good stead
always and it will penetrate deeper into the huge proportion of untapped village/rural
population.
Hence, Project Shakti should not be aborted given that it holds long-term rational benefits.