|
Godrej, an Indian conglomerate that was started in 1897, was one of the big winners in the days of license raj - prior to liberalization in 1991. Its consumer durables like refrigerators and consumer products like soaps (Cinthol) were seen as premium products aimed at affluent urban consumers.
Then came liberalization and India was opened up like never before. Global consumer products and consumer durables started flooding our market. Samsung, LG, Hitachi and scores of other big brands became accessible to Indians and with larger volumes, unit prices of consumer electronics started coming down. All of this was great news for the urban Indian consumer - but not good news for Godrej & Boyce - manufacturer of Godrej refrigerators, which saw a huge threat to its business model in the new scheme of things.
Focus on the "non-consumer"
The company's management understood that if it was to stay relevant and not fade into history, it would have to change focus. The company realized that it would not be able to compete effectively any longer in the affluent and middle class urban market. However, there was a huge untapped market in what the company defined as the "non-consumer" - the vast majority of rural India which didn't buy refrigerators as they were just too costly for most of them.
With over 80% of rural households still without refrigeration, the company saw a customer segment ripe to capture. The company initially assumed that re-packaging the existing refrigerator models would be sufficient to cater to the rural market but came to a different conclusion after extensive market studies. The needs and challenges of the rural households towards storing food were different from their urban counterparts. Rural households struggled with the need to store food but issues with the lack of constant power meant having a standard refrigerator would not be very viable. The cost of repair was another concern for these households as geographical distance from the nearest appliances store made getting access to repair more expensive. Given the different needs of the rural segment, simply reducing the size and price point was insufficient. Instead the solution had to be more innovative.
Innovation at every step
Unlike their urban counterparts, the rural households did not need to store large amounts of food as they cannot afford to buy in bulk. During power outages, the refrigerator would need a battery to operate. During the summer, it was important to minimize cooling loss when the door was opened. Given these insights, Godrej experimented with many prototypes before finally hitting upon a cooler solution which they named ChotuKool. The product opened at the top and so any cold air loss is prevented. Rather than using a standard compressor, it cooled with solid-state thermoelectric technology and was made of fewer components. Since all the components including the battery were placed in the lid, it could easily be removed for servicing.
With the product design complete, the company was ready to launch. Like with previous product launches, the company initially assumed a big advertising campaign would be needed. However, market studies revealed the purchasing decision of rural households were more influenced by local community and support groups rather than big advertising campaigns. So the company launched the product instead at a village fair attended by over 600 women and support groups. Talking to potential customers at the fair, the company was able to understand the price point that would be attractive and that customers would need financing. Given the distance and sparsity of appliances stores in rural areas, the company realized a traditional distribution chain would not work for this low-margin and low-cost product. After struggling to come up with a viable solution, the company found its solution in a most unexpected corner - the post office.
Unlike the appliance stores, the post office had a wide presence in the rural areas where every village could easily access a local post office. Given their regular interactions with the postman, the company realized villagers would be more receptive for a sales pitch from a familiar face. The company had found itself a solution - turning postal workers into a sales channel and using the post office for its distribution chain - and teamed up with the Department of Posts.
With ChotuKool, Godrej created a new product for a new customer segment with a new distribution channel. ChotuKool won the company the prestigious Edison Innovation Award.
ChotuKool has since then been improved constantly in design and functionality, and now also serves as a snazzy "fridge on the go" for outdoor parties for affluent urban consumers. Fighting against its back to the wall when the winds of liberalization hit its cushy old model, Godrej & Boyce evolved into a nimble innovator, exploiting market niches and creating new markets for its products.
Not an isolated case
Its not just ChotuKool from Godrej & Boyce which showcases the group's innovative ways of adapting to changing circumstances. Godrej's consumer products business also has a string of innovations to its credit - which have enabled the company to open up rural markets and underserved niches in existing markets. Its affordable priced hair colour sachets in a crème base brought high quality hair dyes to rural India. Its Good Knight mosquito repellant in a Fast Card format brought relief from mosquitoes to homes which suffer from erratic electric supply. There's a common thread that seems to run within the Godrej group - understand the rural and semi-urban consumer and offer innovative solutions that cater to their specific needs.
Lessons for our industry
The B-15 market is opening up for mutual funds, for the first time ever. Whether it is fund houses or large distributors or leading IFAs from large cities who are eyeing this emerging market, we will all do well to learn from Godrej's experience. The products, sales process and communication that went into making mutual funds popular among affluent urban savers are not likely to work just the same way in B-15 markets. What is needed is to understand the market, understand what these savers want, and then offer them what they are looking for, through distribution channels that they are most comfortable with. Those who take the trouble of understanding B-15 markets and offer tailored solutions for these markets, are the ones who are most likely to succeed big time as these markets open up more and more to mutual funds in the coming years. A good way to begin is to involve B-15 IFAs extensively in this process of re-imagining mutual funds for B-15 markets, just as Godrej re-imagined refrigerators for rural markets to come up with ChotuKool.
Content is prepared by Wealth Forum and should not be construed as an opinion of HDFC Mutual Fund.
Share this article
|
Wise Advice: Evolve
Godrej & Boyce - makers of Godrej refrigerators which were until liberalization, seen as premium products for affluent urban consumers - found itself pushed against the wall when the winds of liberalization threatened its cushy business model built in the days of the license raj. But how Godrej responded to this change and the process that they went through to come up with a brand new solution for a brand new market segment, offers rich insights for our industry, which is attempting to make deep inroads into the B-15 segment and further into rural India.