S.A.I.L.

- Distribution Strategy For Non-Urban Markets

Associate Professor Jones Mathew (Marketing) &

Assistant Professor Rakhi Singh (Economics)

Circa 1992. Mr. Ravi Varadarajan, Head of Business Development, Central Marketing
Organization, SAIL, pored over the facts and figures in front of him. Deregulation of
the steel industry had just been announced. News reports were flooding in of how
the news had electrified the business world and SAIL was going to have some stiff
competition from hitherto unknown, but serious players. Though S.A.I.L. had almost
a monopolistic hold over the Indian market with serious competitive threat coming
from just a few companies like the Tata Iron & Steel Company, Jamshedpur (TISCO)
and Jindal Steel, S.A.I.L. realized it should start looking for pre-emptive strategies to
distribute and exploit new markets.

With liberalization came a whole new swarm of big players into the market. Ravi
envisioned that mere pre-emptive marketing strategies might not work in the face
of the floodgates which had been opened. He understood the importance of out-
flanking initiatives in keeping S.A.I.L.’s market share intact against the new
competitive onslaught.

As he studied various options, he was stumped by the stark disparity between

India’s urban and rural per capita consumption of steel. He realized that none of the
major players, including S.AI.L. had even attempted to make inroads into the rural
areas of India.

Lack of government policy-direction or the lack of urgency to look at alternative

markets to sustain demand for steel were probably the reasons why steel producers
never gave it due consideration. At a meagre 2 kg per capita consumption in non-
urban areas, compared to 75 kg in urban areas, it struck Ravi that there was
tremendous scope for demand building and opening up a new alternative segment
for steel consumption. Till now it was mainly the secondary producers of steel (“re-
rollers”, as they were known) who catered to the rather weak demand for steel
products in the non-urban areas.

In a bid to understand the demand better in these areas, Ravi got authorization to
explore the non-urban market in India with the help of institutions such as Punjab
Technical University (PTU) and the Institute of Rural Management, Anand (IRMA). As
a result, in 1996 S.A.I.L. made some exploratory steps into non-urban marketing by
forming an Agriculture Segment Development Cell which was instrumental in
getting a higher quality of billets* (see note) developed for making disc harrows
(ploughs) for tractors. S.A.I.L also participated in the popularization of steel grain
bins under the “Save Grain Campaign” in the states of Gujarat and Madhya Pradesh
at competitive rates-the sole objective being to help non-urban consumers and
farmers grasp the long-term benefits of using steel for grain storage compared to
traditionally used materials such as wood, tin or mud.

As Ravi researched available material and the years rolled by, he and others in
S.A.I.L.’s think tank became concerned with the intensification of competition in the
domestic market and the excess supply of steel over available demand. Seeing an
opportunity to highlight the non-urban market as a potential second major market
segment, Ravi stressed on the need for exploring this vast untapped market. Charu
Sharma, Director of Market Research, was co-opted to explore this potential
demand in a more detailed and systematic method and to table her team’s
recommendations to the Marketing Group.

Charu’s team went in for extensive surveys and interviews with local dealers,
grassroots level consumers, NGOs, district officials and the like. It became clear that
the signs were not encouraging. It was true that life in the rural sector had
witnessed a phenomenal increase in agricultural production and productivity in
India with a gradual shift towards the usage of modern agricultural implements.
Rural life had also undergone a significant change due to increased urbanization.
However, such developments were not accompanied by a concomitant rise in
consumption of steel in the non-urban areas as a result of which these vast
potential markets remained undeveloped.

When the preliminary findings were submitted to the Marketing Team, Ravi saw in
the low levels of rural demand a potential opportunity to increase steel consumption
in the non-urban segment. Charu had identified the major reasons for low
penetration in the rural sector as lack of awareness and distorted perception. Steel
was perceived to be a high cost material and not readily available. Another problem
was the wide geographic spread and disparate demographic features of the non-
urban market segment. Ravi felt that he had a challenge on his hands now. What
different marketing approach would be required to translate this potential demand
into actual use? This was the conundrum he had to solve.

As a result of the study commissioned by IRMA on S.A.I.L.’s behalf, a couple of

options were put forth on what distribution channel strategies S.A.I.L. could follow to
access the non-urban market. “District-level dealerships” and “Steel-deficient
regional approach” seemed to be two such promising approaches. Ravi analyzed
the pros and cons of each in order to arrive at the best possible recommendation to
make for the benefit of S.A.I.L. from a long-term perspective. Since the prospective
new target segment was widely dispersed geographically and each geographic
region had its own economic background and cultural barriers, including language,
the district level dealership seemed to have an edge.

However, the second approach had the benefit of targeting first those areas which
had an existing demand for steel but was serviced poorly by secondary producers.
The steel-deficient regional approach was based on the premise that since it was
only a supply side problem, focusing on these areas would bring a quicker solution
to the problem of stagnant or slow demand. Besides, it would help overcome the
huge expenditure needed to create awareness for steel in general & SAIL steel in
particular. He had supporting information to analyze the skewed regional production
and consumption patterns of steel in the non-urban areas as outlined in the tables
in Annexures III and IV.

To guide him in his analysis, Ravi referred to S.A.I.L.’s objectives which had been
identified as part of this alternative market development strategy note. One of
these objectives was: To have at least one dealer in every district of the country i.e.
to cover all 602 districts in the country. Some of the other objectives were:

 To reach materials to the dealers from nearest SAIL stockyard at SAIL’s cost.
 To provide support to dealers for marketing their product.

A sound, future-oriented retail strategy, Ravi realized, had also become imperative
because there was a huge amount of capex upscaling by S.A.I.L., resulting in a
major capacity growth. In order to hedge against any downturn in industrial
demand, S.A.I.L. wanted to ensure that demand remained largely unaffected in
times of industrial slump. Therefore, a robust, alternative retail distribution strategy
had become important for safe, long-term growth.

As he delved deeper into research done on the subject, Ravi understood that low
awareness, high price, high initial investment and poor availability of steel were
major stumbling blocks in the popularization of steel as a viable alternative to
traditional construction material in the non-urban areas. Communication too posed
a new challenge as the target market had a different demographic and
psychographic profile compared to urban consumers of steel or industrial buyers.

Another issue at hand was the appropriate product mix required for the non-urban
market. Obviously it would differ in terms of both, width and depth, as compared to
an urban approach. Galvanized Plate (GP), Galvanized Coil (GC) and Thermo
Mechanically Treated (TMT) steel (a new-generation-high-strength steel having
superior properties such as weldability, strength, ductility and tensility) seemed to
be the most appropriate products for this new non-urban market. This product mix
was a reflection of the most prevalent demand patterns (grain storage,
construction, making of farm implements, etc.)
Ravi was facing a dilemma of distribution and marketing strategy.

Question: To establish a deep penetration of S.A.I.L’s products into the

hinterland, which of the two approaches should Ravi recommend to the
Board of Directors in terms of channel and marketing strategy and
creation of alternative demand source?

Annexure I

Suggested Incentives for Dealers and Promotional Support:

a) Incentive Scheme for Dealers: To encourage dealers who are fulfilling their
commitments, the following consistency (cash) incentives have been introduced

Sl. No. Incentive Rs/mt Criteria

01 100 Fulfillment of monthly
commitment
02 50 Fulfillment of annual
commitment

b) Promotional Incentive : Dealers who take up promotional steps like Hoarding,

Wall-painting , Newspaper/Cable TV advertisement directly will be reimbursed a
promotional incentive (restricted to a maximum of Rs. 100/- pmt of actual lifting in
the financial year) within the maximum annual limit as under:

• Each Hoarding – Rs. 25,000/- per annum

• Each Wall Painting – Rs. 2000/- per annum

• Each Newspaper/magazine Ad – Rs. 15000/- per insertion

• Cable TV Ad – Rs. 3000/- per month

• Bus Panel Ad – Rs. 3000/- per month

• Other Ads – upto Rs. 8000/- per month

c) Annual Award for Dealers : Top 5 dealers from each region selected on the basis
of factors like fulfillment of annual commitment, improving brand image, consistent
availability of product, adding new customers will be felicitated with awards at the
Annual Dealers’ Conference.

d) Initiative for Publicity/Promotion in non-urban areas:

1. Wall Paintings

2. Radio Jingles

3. Product brochures/technical literature to the dealers.

4. Dealers meet/Mason meets are held from time to time

 5. Promo items (calendars/pens/key chains) distributed among dealers

6. Advertisements of operative dealers in print media/dealer details also

updated on the SAIL web site.

7. Minimum quantity enhanced from 100 mt to 200 mt per month

Annexure II

Suggested Supply of Material to the Dealers at competitive prices:

Materials to be made available to dealers at competitive prices. Proposed

comparison of pricing for a dealer and for a non-dealer is given as follow:

Dealers Non Dealers

Door Delivery Free of cost – Rs. 150 – Cost to be borne by
3100 the customer
(Depending on the
location)
Additional Rebate Rs. 500 for GP/GC Nil
Rs. 300 for TMT
Cash Discount Equivalent to 15 days IFC Nil
– Rs. 100
Total Rs. 750 for GP/GC + cost Nil
of
Rs. 550 for TMT

Annexure III

All India Production and Consumption: (1998)

Production (P)
Imports Apparent 
Year Exports (E)
Secondary 
(I) Consumption (P+I­E)
Main procedures 1 Total
procedures 2

1991­92 1743  284 2027 297 6 2319

1992­93 2103  283 2386 480 36
1993­94 2339  286 2625 434 97 2860
1994­95 2719  441 3160 924 186 3023
1995­96 3106  1474 4580 688 398 3987
1996­97 2959  2139 5098 649 557 5082
1997­98 2819  2610 5429 683 693 5349
1998­99 2911  2820 5731 423 1467 5555
1999­00 3944  3684 7628 612 1726 5461
2000­01 4393 4358 8751 596 6773
 1988 7621

Note: 1 – SAIL & TISCO
        2 – Essar, Jindal, Lloyds, Ispat and others.5

Annexure IV
State And Region Wise Consumption:
(MT)

1994- 1995- 1996- 1997- 1998- 1999-

Sl. No. State / Region 2000-01
95 96 97 98 99 00

1 Andhra Pradesh 192 245 264 310 316 324 348

2 Karnataka 40 48 73 50 180 184 210

3 Kerala 3 6 7 8 7 8 9

4 Tamil Nadu 250 298 291 358 252 284 310

5 SOUTH 485 597 635 726 755 800 877

6 Assam 8 16 18 14 16 24 37

7 Bihar 80 105 124 120 333 354 422

8 Orissa 70 95 133 120 150 225 259

9 West Bengal 236 285 311 359 445 540 564

10 EAST 394 501 586 613 944 1143 1282

11 Delhi 195 268 294 306 342 368 440

12 Haryana 282 393 493 452 499 671 722

13 Jammu & Kashmir 6- 7 10 - - -

14 Punjab 370 480 565 568 432 707 732

15 Uttar Pradesh 475 640 656 777 575 818 1017

 16 NORTH 1328 1781 2015 2113 1848 2564 2911

17 Gujarat 193 262 337 311 325 297 359

18 Madhya Pradesh 172 245 260 305 318 313 391

19 Maharashtra 480 781 826 788 827 990 1148

20 Rajasthan 11 17 35 18 21 53 57

21 WEST 856 1305 1458 1422 1491 1653 1955

22 ALL INDIA 3063 4184 4694 4874 5038 6160

Notes

1. *Billets : A section of steel used for rolling into bars, rods and sections.
It can be a product of the ingot route, or increasingly today produced
directly by continuous casting
2. **GP/GC sheets and coils:
3. ***TMT: Thermo mechanically treated (TMT) steel, can be described as a
new-generation-high-strength steel having superior properties such as
weldability, strength, ductility and tensility.
4. MT (mt)-metric tonne