Unilever in India: Hindustan Lever's Project Shakti--Marketing FMCG to the Rural Consumer

9-505-056 REV: JUNE 27, 2007

V. KASTURI RANGAN ROHITHARI RAJAN

Unilever in India: Hindustan Lever’s Project Shakti—Marketing FMCG to the Rural Consumer Early in 2005, on a rainy Saturday morning at a beach resort on the outskirts of Mumbai, 35 people filed into a small conference room. Dressed casually, they ranged in age from early 20s to late 40s. They chatted with one another as they took their seats around a conference table, a number of them introducing themselves to the others. They were all part of the Shakti project team, different people from different parts of the country. Project Shakti was a rural marketing initiative of Hindustan Lever Limited (HLL), India’s largest fast-moving consumer goods (FMCG) company and a subsidiary of global consumer goods giant Unilever.1 A few minutes later, Sharat Dhall, head of the project, and his boss, Dalip Sehgal, executive director New Ventures and a member of Hindustan Lever’s board, walked in. Sharat Dhall connected his laptop to the LCD projector and reeled off the statistics, one by one. About 12,000 women entrepreneurs had been appointed, covering nearly 50,000 villages in partnership with nearly 300 NGOs, and most importantly, the initiative had broken even in 2004. Notwithstanding Shakti’s initial success, Dhall and his team knew that important challenges remained. Foremost was the observation made by Sehgal: Shakti is a quintessential win-win initiative and must overcome challenges on a number of fronts. It is a sales and distribution initiative that delivers growth, a communication initiative that builds brands, a micro-enterprise initiative that creates livelihoods, a social initiative that improves the standard of life and catalyzes affluence in rural India. What makes Shakti uniquely scalable and sustainable is the fact that it contributes not only to HLL but also to the community it is a part of. It was clear to Sehgal and Dhall that in the next phase, as they attempted to scale up the project, revenues had to grow exponentially without a proportionate increase in costs. For Project Shakti to truly make a difference, it had to achieve scale. Sehgal had challenged the Shakti team to reach 100 million consumers by 2006. In order to do this, Dhall intended to have a network of 25,000 entrepreneurs. He had reached the halfway mark and now had one year to double his network. Dhall’s charter was to mold a business plan that would make Shakti a viable and sustainable growth engine for HLL in the years to come.

1 Unilever held 51.5% of the Indian company’s stock. Domestic and foreign institutional investors held 14.3% each, and the Indian public held the remainder. ________________________________________________________________________________________________________________ Professor V. Kasturi Rangan and Rohithari Rajan, Market Development Manager, Hindustan Lever, prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2005, 2007 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

This document is authorized for use only in IMBA-EN ENERO 2016 ELECTIVOS - Business at the Bottom of the Pyramid by Prof. M. L?pez Escorial, IE Business School from June 2016 to August 2017.

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Unilever in India: Hindustan Lever’s Project Shakti—Marketing FMCG to the Rural Consumer

Unilever in India:2 Market Power and Rapid Growth Unilever was the world’s largest FMCG company, with a global turnover of roughly US$55 billion in 2004. The Indian subsidiary had revenues of approximately 110 billion rupees that year, or $2.43 billion (conversion rate of $1=Rs. 45), with a gross profit of 46% and net income of 11.4%. Its gross profit margin in 2003 (see Exhibit 1) was about 50% and net income about 17%. The company’s broad product line, covering nearly a thousand SKUs across about twenty categories, included detergents, personal products, beverages and foods. Its market share varied by product category, but overall it was the market share leader in most of the markets it competed in, with an aggregated share around 40% to 45%. HLL’s growth in India was linked closely to political developments in the country, with the regulatory environment in particular significantly impacting business. Between 1947, when India gained independence, and the late 1980s, the Indian economy was heavily regulated and characterized by the “License Raj,” an economic system by which any major investment in the organized sector had to be granted a “government license,” which was not easy to obtain. Successive socialist governments imposed restrictions on the use of capital and limited the private sector’s ability to expand capacity. There were a large number of prohibitive restrictions on foreign direct investment, or FDI, and on private-sector borrowing from abroad. The private sector was not permitted to enter industries that were considered to be of strategic importance, and these industries were reserved exclusively for state-run enterprises. In the early 1990s, as the Indian economy began to open up, the License Raj slowly disintegrated and a new, liberalized economy attracted a large number of multinational companies. Simultaneously, as import restrictions were eased, some of the entry barriers that had shielded HLL from competition were removed. Thus, HLL now faced competition in almost every category, from international as well as local rivals. With an estimated population of 1.02 billion in 2003 (of which approximately 742 million lived in rural areas), India is the world’s second-largest market, in terms of number of people, after China. The country’s per capita income in 2003 was reported at $600 (on a purchasing power parity basis it was estimated at $2,900). While economic growth had been impressive since the mid-1990s, with an average gross domestic product (GDP) growth of about 6% over the last decade, there still remained a considerable chunk of its population below the poverty line (about 250 million in 2003).

Competitive Environment HLL aggressively sought market leadership in a wide range of product categories and across a broad spectrum of price points in each category. For this reason, its competition was never restricted to one or two large players. HLL’s competition took two broad forms. In the lower-price segments, competition came from a large number of relatively unorganized local players. Each of these players 2 Unilever’s entry into India preceded the birth of the merged entity. In 1888, Sunlight soap was first imported through the

port in Calcutta. In 1918, Dutch margarine companies that would later merge into Margarine Unie began selling Vanaspati (hydrogenated vegetable fat) in India. The Hindustan Vanaspati Manufacturing Company was registered in 1931, and manufacturing operations began at a factory in Sewri, near Mumbai, a year later. Lever Brothers India Limited was incorporated in 1933 to manufacture and market soap. In 1935, United Traders was incorporated to market personal products. In the early 1940s, Lever Brothers India acquired its own sales force, and Unilever began to train Indians for managerial positions. By 1955, about two-thirds of the managers in the three companies were Indian. In 1956, the three companies merged to form Hindustan Lever Limited, with 10% Indian equity participation. A number of Unilever brands were launched successfully in India. Sunlight, Pears, Vim, Lifebuoy, Lux, Surf, and others helped consolidate HLL’s position in the market.

2 This document is authorized for use only in IMBA-EN ENERO 2016 ELECTIVOS - Business at the Bottom of the Pyramid by Prof. M. L?pez Escorial, IE Business School from June 2016 to August 2017.


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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 HLL’s brands. In the higher-price segments, competition came from organized national brands. ColgatePalmolive competed with HLL in the oral-care category, where it was the market leader, and also in the personal-wash category. Procter & Gamble, which entered India in 1985, competed with HLL in the hair-care, fabric-wash, and feminine-hygiene categories. Other competitors were the Tata Oil Mills Company (TOMCO) until the early 1990s and Godrej Soaps. TOMCO was owned by Tatas, a family-held conglomerate and one of India’s largest business groups. In 1994, TOMCO amalgamated with HLL, and HLL thereby acquired a number of brands that had once competed with its own. In the 1980s, an entrepreneur in the western state of Gujarat scaled up the launch of Nirma, a brand of low-priced detergent powder. At that time, Nirma was priced at about half of the price of the cheapest available brand. In the prevalent regulatory environment, Nirma benefited from government licensing, excise rebates, and a small-scale industry status. Through a shrewd mix of very competitive pricing, effective advertising, and penetrative distribution through the wholesale channel, Nirma grew rapidly, eating into HLL’s market shares in the laundry business and also entering the personal-wash category.3 By 2004, with sales of nearly $600 million from only a few products, Nirma had emerged as a strong number two behind HLL in many markets. HLL responded to the competition by creating new brands. In response to Nirma, HLL launched two low-priced brands: the fabric-wash brand Wheel in 1987, and the personal-wash brand Breeze in 1991. These franchises were also supported by a completely transformed business model and accompanied by a low-cost supply chain. By the end of 2004, Wheel had become India’s largest laundry franchise. As India embarked on a process of economic liberalization in the 1990s, the entry of multinational FMCG companies as well as the growing presence of local brands imposed severe competitive pressures on HLL. These pressures impacted the company’s sales and growth. Procter & Gamble, one of Unilever’s largest competitors across the globe, entered India in 1985. By 2004, it competed with HLL through a number of brands: Whisper (sanitary napkins), Ariel and Tide (fabric wash), and Pantene and Head & Shoulders (hair care). 4 In 2003, HLL and P&G engaged in a price war, with both companies reducing prices in the fabricwash category. HLL’s margins were affected by these price drops. Top-line growth had been sluggish since 2000, but profits had grown; but by 2003, HLL’s profits were affected. Yet in 2004, HLL responded to competitive threats by initiating further price reductions across categories. Furthermore, HLL responded with a number of initiatives across functions: its portfolio of brands was pruned down to select “power brands,” a channel-based sales system was created, supply-chain efficiencies were captured, and product innovations were launched. But in the long run, senior managers at HLL knew that they had to do what they had done a number of times in the past—create new markets and dominate them.

3 Essentially, Nirma was launched by an entrepreneur who devised a way to synthesize washing powder using much soda

ash, but hardly any electricity. The packaging, advertising and sales channels, too, were kept at low cost. For example, Nirma used a cluster of wholesalers to distribute products rather than relying on sales force. Its overall economic model was so effective that it was able to bring the product to consumers at about one fourth the price of HLL’s leading Surf detergent. 4 P&G operated in India through its Vicks and Clearasil franchise since the 1960s, but it seriously approached the consumer market for soaps and detergents only in the late 1980s.


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For many years, HLL’s FMCG business was organized into four profit centers, each headed by a director. These were: detergents, personal products, beverages, and foods. Exhibit 2 lists the various product categories and key brands in each profit center, as well as their relative size. Exhibit 3 provides the company’s revenue and income trends over the last seven years.

The HLL Sales Organization HLL’s strong, well-established brands were one source of competitive advantage.5 Another source was its local manufacturing capacity and supply chain. A third source of competitive advantage was HLL’s vast sales and distribution system, which ensured that HLL’s reach into Indian markets was greatly superior to that of its rivals. HLL recognized that its sales and distribution system gave it an edge over the competition but also that its rivals would try to match it over time. To maintain its edge, HLL aggressively extended the system more deeply into India, from large to small towns, from urban to semi-urban centers. The unorganized and scattered character of markets in India rendered the task of sales and distribution very different from that in more developed economies. Thousands of independent retail and wholesale outlets, rather than a few large chains, characterized the Indian consumer goods market. Over 4 million outlets in India stocked fast-moving consumer products. For HLL, each of these stores was a distinct customer and had to be addressed individually. Over the years, HLL built up a formidable FMCG sales and distribution system across the country. By 2004, HLL directly serviced over a million outlets across India through a network of over 7,000 stockists.

A Sales Organization Based on Product Categories and Geography See Exhibit 4 for a map of India with its 25 states and the location of HLL’s sales offices. Goods produced in various factories across the country were sent to a depot, or a carrying and forwarding agent (CFA). HLL had at least one depot per state, and more in larger states. The CFA was a third party but not a customer of HLL. It received a servicing fee to stock and dispatch HLL’s products. In each town, a redistribution stockist (RS) was appointed to service all outlets in a town. The RS was HLL’s primary customer. Stockists would order stocks, receive them from the CFA, and then sell them to all outlets in their town. In larger towns, more than one stockist could be appointed to serve different localities. The stockists were expected to sell to all wholesale and retail outlets in the area for which they were appointed. Across its profit centers, HLL owned over 100 brands. Many of these brands had a number of variants, and each variant could have different stock-keeping units, or SKUs. It was virtually impossible for one stockist or one sales force to manage all of HLL’s brands and SKUs. For this reason, each profit center had its own sales force and its own stockists. Thus, in a particular town, HLL could have a number of stockists for various profit centers.

5 Brand management roles were further divided into brand-building and brand-development roles. Brand-building managers were responsible for the top-line growth, profitability, and market shares of their brands. It was their responsibility to allocate resources across advertising, consumer promotions, and trade promotions. In doing so, it was their responsibility to prioritize across SKUs, geographies, population strata, regions, channels, and consumer segments. Managers responsible for brand development focused on product improvement and the development of new products within the brand. On average, each brand had one brand manager for brand building and another for brand development. Larger brands could have a number of managers, while some of the smaller brands had one manager responsible for both.



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HLL had four regional sales offices, one each in Delhi (north), Kolkata (east), Chennai (south), and Mumbai (west). Regional sales offices were headed by a regional manager, or RM. Each profit center also had its own sales force spread across these four regional offices. Exhibit 5 shows the organization of the selling division. In each profit center, a general sales manager (GSM) headed sales for the country. Reporting to him were the four regional sales managers (RSMs) of each of the profit centers. Each RSM headed a team of four to six area sales managers (ASMs). On average, an ASM was responsible for his profit center’s business in his area. ASMs headed sales teams consisting of sales officers (SOs) and territory sales in-charge (TSIs). A TSI typically managed 6 to 10 stockists, and the average sales officer managed seven TSIs.

The Transition to the Channel Approach The sales organization described above was based on geographies and product categories. In the late 1990s, however, HLL realized that this approach had some limitations. At one end, this model was not appropriate for small markets. In many small towns, population and potential business were too small for each profit center to appoint a stockist exclusively to manage its business. In such cases, it made sense for Hindustan Lever to leverage its scale and appoint one stockist common to all businesses. At the other end of the spectrum, recent developments in urban markets made it necessary for HLL to adopt a combined-profit-center approach. In large towns across the country, a retailing revolution was in progress. Self-service stores were changing the way Indian consumers shopped. A number of large chains of retail stores had set up shop.6 The HLL sales force and its existing setup were ill equipped to manage this “modern trade.” One ASM negotiating terms of trade for one profit center with one franchisee of a national retail chain could never be as effective as HLL’s entering into a comprehensive annual contract spanning all product categories and all outlets of the retail chain. Sales through these two channels did not add up to a large share of HLL’s total turnover, but it was clear to HLL’s management that they represented sources of growth. Its new channel-based approach was aimed at addressing each of its customers in the most appropriate manner. HLL redesigned its sales and distribution systems along what was internally called the diamond model. The top end of the diamond represented modern trade encompassed self-service stores and retail chains, and accounted for about 10% of the overall FMCG market. In this segment, it was clear that synergies across profit centers would benefit HLL, and so a modern-trade sales team was created. The team negotiated terms of trade with its customers on behalf of all HLL product categories. In the middle and largest part of the diamond, profit-center-based sales teams continued to cultivate, penetrate, and grow markets.

6 The modern trade food and grocery market was estimated to grow from about Rs. 830 Crores in 2001 to over Rs. 4,000 Crores in 2005, making it a little below 10% of the FMCG market. Multinational giants such as Metro, Dairy Farm, and Shop-rite were already present in India, while retailers such as Wal-Mart, Carrefour, and Tesco were expected to enter if and when the Indian government permitted foreign direct investment in the sector. Foodworld, one of the largest chains of supermarkets in India, had opened its first store in 1996 and had grown to 89 stores across 12 cities. Since 1999, it had operated as a joint venture between Spenser & Co., the original promoters, and the Jardine Matheson Group, a $4.5 billion retail giant. In the last five years, its turnover had grown at a compound annual growth rate (CAGR) of 30% (http://www.rpggroup.com/bussectors/ foodworld/profile.as).


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The bottom end of the diamond represented direct distribution in rural markets and accounted for about 20% of HLL’s business.7 Here too, it was clear that economies of scale could be leveraged, and so a rural sales team was created to address these markets on behalf of all product categories. Thus, in addition to the positions shown in Exhibit 5, RSMs and ASMs for rural and modern trade were created. In 2004, HLL’s various sales teams managed over 7,000 stockists. Exhibits 6 and 7 illustrate retail outlets at urban and rural markets.

Rural Distribution Models Over 70% of India’s 1 billion people reside in rural villages. Per capita income in rural India is approximately 44% of that in urban India. As HLL sought to reach rural markets, it hit two stumbling blocks. The first was size: rural markets were scattered over large areas, and per capita consumption rates were low. Thus, while the aggregate rural potential was tremendous, the potential of each of the 638,000 scattered markets was very low. The second stumbling block was reach—rural markets were not connected to urban centers by air or rail, and road connectivity was poor. Accessing remote markets, even when feasible, meant additional costs. Since the market potential was low to begin with, appointing a local stockist to service these markets was not a viable option. See Table A for distribution of villages in India. Table A

Distribution of Villages In India

Population Less than 200 200-499 500-999 1,000-1,999 2,000-4,999 5,000-9,999 10,000 and above Total

Number of Villages

% of Total

114,267 155,123 159,400 125,758 69,135 11,618 3,064 638,365

17.9 24.3 25.0 19.7 10.8 1.8 0.5 100%

Source: “Selling to the Hinterland”, Pradeep Kashyap, The Businessworld Marketing Whitebook 2003-04

HLL’s approach to rural distribution was governed by the two criteria of accessibility and viability, and different initiatives were pioneered to increase its reach into Indian markets. Table B shows the different models HLL employed to overcome challenges in rural distribution.

7 This represented direct rural distribution. Rural consumption accounted for a much larger share of HLL’s business because of product inflow through indirect channels.



Table B

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Approach to Rural Markets Based on Business Potential and Accessibility Low Business Potential

High Business Potential

Accessible Markets

Indirect Coverage ~ 25% of rural business

Direct Coverage ~ 40% of rural business

Inaccessible Markets

Space for Shakti to operate

Streamline ~ 35% of rural business

Source: HLL. The relative shares of each channel have been disguised to protect business confidentiality.

Direct Coverage The top right quadrant of Table B represents accessible markets with relatively high business potential. In these markets, the rural team appointed a common stockist to service all outlets within the town. Since the stockist was appointed for all businesses, it would be viable in towns too small for each profit center to set up its own stockists.

Indirect Coverage Indirect coverage, or IDC, was rolled out in the 1960s. It targeted retailers in accessible villages close to urban markets. Earlier, these retailers visited urban wholesalers to purchase their requirements on cash. Under IDC, HLL’s retail stockists were assigned a permanent journey plan, a rigorously mapped route that would ensure that all accessible villages in the vicinity were serviced at least once a fortnight. The distributor’s task was to send out stocks in a van to these markets and sell HLL products, usually based on cash. IDC enabled HLL to not only influence brands stocked and purchased by the retailers but also influence the quantities purchased, through the extension of credit or trade discounts. Since HLL was the only FMCG company accessing these markets directly, it gained a significant competitive advantage.

Streamline Launched in 1997, the Streamline initiative targeted inaccessible markets. It utilized the rural wholesale channel to reach markets inaccessible by road. In the streamline model, HLL appointed rural distributors (RDs) who in turn appointed Star Sellers among the wholesalers in neighboring villages. The terms of trade between the RD and a Star Seller were such as to enable the Star Seller to distribute Unilever products in a number of neighboring, satellite markets. A Star Seller in a relatively large and accessible village would purchase stocks from the RD and then distribute those stocks to retailers in smaller villages in the area using local means of transport such as motorcycles, rickshaws, Jeeps, or even bullock carts. Streamline gave HLL another quantum leap in its coverage of rural India. Through streamline, HLL extended its reach to a number of hitherto unviable and inaccessible markets. Each of these initiatives significantly enhanced HLL’s direct reach into rural markets, together enabling it to reach an additional population of about 220 million in 100,000 villages. But that still left over 500,000 villages in the fourth quadrant, representing a population of over 500 million.


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Project Shakti was conceived to reach these consumers.

Project Shakti: The Origins HLL’s New Ventures Division identified rural India as a key source of growth and competitive advantage in the future. It argued that access to rural markets would be the big differentiator among competing FMCG companies, because while growth rates in urban markets would soon slow down as competition heated up and the number of players continued to grow, rural markets and wealth remained largely untapped. HLL had historically enjoyed the greatest reach into rural India. However, its rivals had begun to emulate a number of its rural distribution initiatives, and the advantage it enjoyed was clearly shortlived. Moreover, even though HLL had greater access to rural markets than its competition, its direct reach was restricted to a mere 16% of rural markets. The marketing of its brands, too, was far better in urban than in rural India. Rural India was characterized by poor reach of electronic media and significantly lower literacy levels. Across HLL’s categories, per capita consumption in rural India was far below urban standards, and brand consciousness was even lower. The New Ventures Division proposed that HLL partner with self-help groups to extend its rural reach. Drawing from the Bangladeshi Grameen Bank model, various NGOs, multilateral agencies, government bodies, and public-sector banks had set up self-help groups (SHGs) in rural India. These groups functioned as mutual thrift societies. Ten to 15 women in a particular village would get together and form a group. The group would meet regularly, and each member would contribute a small amount of money toward a common pool. Once the pool attained a threshold, the sponsoring agency would step in and offer micro-credit to one or more members of the group, to be invested in an approved economic activity. The plan itself was simple. HLL would partner with recipients of micro-credit by offering them opportunities for micro-enterprise. The lack of funds was not the only impediment to economic progress in rural India, because even where there were funds, the rural population often faced a shortage of investment opportunities. By promoting micro-enterprise, HLL’s initiative would not only make great business sense but would also have deep social impact. Project Shakti was born in December 2000, in a district called Nalgonda in the southern Indian state of Andhra Pradesh. (See Exhibit 4.) Its business objectives were to extend HLL’s reach into untapped markets and to develop its brands through local influencers. Its social objective was to provide sustainable livelihood opportunities for underprivileged rural women. In many Indian languages, “Shakti” means strength or empowerment. The name was chosen to symbolize the role that women would play in HLL’s new enterprise.

Shakti Entrepreneur: Empowerment of Women HLL partnered with three federations of SHGs, known as MACTS. These federations would purchase products from HLL and then sell them to their constituent SHGs, which would then sell them to outlets in their villages. The MACTS model succeeded in getting HLL products into untapped markets, but the incomes generated were very small. Further, since the “entrepreneurs” were federations of groups, nobody “owned” the enterprise. The business model had to be modified. 8 This document is authorized for use only in IMBA-EN ENERO 2016 ELECTIVOS - Business at the Bottom of the Pyramid by Prof. M. L?pez Escorial, IE Business School from June 2016 to August 2017.


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A member of a SHG in each of 50 chosen villages was appointed as Shakti entrepreneur. These Shakti entrepreneurs borrowed money from their respective SHGs and with that capital purchased HLL products. The entrepreneurs’ job was to sell these products in their villages. There were two advantages to this model. First, since an individual was the entrepreneur, responsibility was not shared among many. Second, the incomes generated, while low if shared by a large group were significant if earned by an individual. The choice of entrepreneur was left to the group to ensure group unity and support. When a Shakti entrepreneur sold to a local outlet, she had to sell at a price that enabled the outlet to earn a viable retail margin when it in turn sold to its consumers. This limited the amount that the Shakti entrepreneur could make. HLL sold its products to Shakti entrepreneurs at some discount relative to general trade, but that discount had to be controlled to avoid channel conflict. The way out was obvious and simple. Shakti entrepreneurs were told to sell not only to the outlets in their villages but also directly to consumers. This had a number of advantages. On the one hand, it allowed the entrepreneur to earn more because she now retained the retail margin in addition to the discount HLL offered her. On the other hand, in selling directly to consumers Shakti entrepreneurs took on a key role of influencers, impacting category and brand awareness as well as usage. HLL’s decision to pilot the model with women was based on a number of factors. Women were the target consumers for the bulk of HLL’s products. Underprivileged rural women constituted the most marginalized group in society. Underprivileged women were also more likely to be committed to Project Shakti, since they were likely to value the additional income more than affluent women. Also, women were likely to have greater access into the homes of potential consumers. Not only that, it was felt that by addressing women, HLL would have greater impact on the entire household, as it would lead to improvements in health and hygiene and education levels. Finally, most men would already be occupied with other employment and would therefore not devote as much time to the activity. HLL’s Shakti team knew that for the project to be a success, it had to make a significant difference to the lives of the entrepreneurs. Average monthly household incomes among the women who became Shakti entrepreneurs were less than Rs. 1,000. The most common source of funds invested in Project Shakti was micro-credit, and repayments had to be in monthly installments that ranged from 0.75% to 2% of principal. For Shakti to impact the entrepreneur’s family, it had to yield a monthly income of at least Rs. 500. Margins in the initial months were low because sales to consumers formed a very low proportion of total sales. On these grounds, the Shakti team decided that Rs. 10,000 had to be the minimum investment made by new entrepreneurs. With an initial investment of this amount, a Shakti entrepreneur could achieve sales of Rs. 120,000 per year and soon start earning a regular income of Rs. 700 per month, of which Rs. 200 would go toward loan repayment. A typical HLL stockist made a 5% margin, and a typical retailer 8%. In the Streamline initiative, HLL offered Star Sellers an additional 2% to offset selling expenses. This additional margin was offered to Shakti entrepreneurs as well, and since most did not avail of credit, they received an additional 1% cash discount. Value-Add and Excise taxes accounted for 12% of the selling price on an average.

Project Shakti: Crossing the Chasm From the Project Team’s perspective, selecting women and declaring them Shakti entrepreneurs was the easy part. The problems began once these women had HLL stocks worth thousands of rupees stacked up in their homes—stocks worth more than their annual household income. Moreover, they were now expected to start paying back the loan they had availed of to buy these stocks. Women who 9 This document is authorized for use only in IMBA-EN ENERO 2016 ELECTIVOS - Business at the Bottom of the Pyramid by Prof. M. L?pez Escorial, IE Business School from June 2016 to August 2017.

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had never undertaken any independent economic activity, had no idea of what they were expected to do, and a number of them already regretted what they had gotten into, and wanted out. To address this, the RSP system was introduced. An RSP, or rural sales promoter, was hired to coach Shakti entrepreneurs and help them create and grow viable businesses. Each RSP worked six days a week and visited two to five villages a day. To keep the selling costs low, HLL had outsourced the administration of RSPs to a third party, but the task of selecting and training the RSPs was effected by HLL. Realizing that the first few months were the toughest, Dhall implemented incentive programs for newly appointed entrepreneurs, rewarding them in cash for visiting a specified number of homes irrespective of the amount sold, offering additional incentives on sales of specific brands especially popular in the region. In addition, he negotiated with banks offering microcredit, ensuring that the first installment toward repayment of loans began after a few months of setup. Dhall realized that his small team was ill equipped to scale up the project. Implementing the project in any new district meant that six key tasks had to be completed. The implementation team had to: •

Arrange government permissions and secure the support of the district administration

•

Identify and seal partnerships with NGOs well established in the region

•

Interact with the mainstream HLL sales force to identify markets that were not under HLL’s coverage and therefore available for rollout of Project Shakti

•

Locate SHGs and convince them that Project Shakti was a reliable, sustainable source of income for their members

•

Appoint the right women as entrepreneurs

•

Ensure a steady supply of products from the local distributor

A number of NGOs and governmental agencies were hesitant to support the project, viewing it as a potentially exploitative attempt of a large multinational. Persuading them took a large amount of time and was not something HLL’s regular sales personnel had any experience in. To overcome these difficulties, HLL identified an implementation partner in the Marketing and Research Team (MART), a rural consulting firm that specialized in developing and implementing rural marketing initiatives for social as well as business organizations. MART took over the task of introducing Project Shakti to new districts. District and state coordinators from the consulting firm would study a new district to understand its potential, examining local prosperity levels, the existence of self-help groups, the presence of NGOs and micro-credit agencies, and HLL’s reach to determine the attractiveness of the district for Project Shakti. The next tasks were to convince governmental and other agencies of the benefits of partnering with Project Shakti and supporting it. Once this was done, the district and state coordinators worked with the local Project Shakti team to begin appointing Shakti entrepreneurs, typically working in a district to appoint 20 entrepreneurs and then moving on to another district. This partnership enabled Project Shakti to expand rapidly across districts and states. By December 2004, 12,151 entrepreneurs covered more than 50,405 villages across 310 districts in 12 states. Not surprisingly, the bulk of Project Shakti sales came from a few key brands. In an effort to reduce the complexity of multiple SKUs, HLL had decided to sell a limited range of its products through the Direct, Streamline, and IDC initiatives. To do so, it had identified 150 SKUs that it would focus on in rural markets. These SKUs were distributed through Project Shakti as well. Of the 46 brand franchises that these SKUs covered, four accounted for 50% of sales. Exhibit 8 lists the brands sold through Project Shakti and the contribution of each to total turnover. Of the various brand 10 This document is authorized for use only in IMBA-EN ENERO 2016 ELECTIVOS - Business at the Bottom of the Pyramid by Prof. M. L?pez Escorial, IE Business School from June 2016 to August 2017.


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franchises sold through Shakti, a large proportion of sales came from the smaller SKUs and particularly from sachets, an innovative packaging solution targeted at low-income consumers. Precisely to address the needs of lower-income consumers, HLL had introduced low-unit-price packs, or LUPs. These were small, low-priced SKUs of leading brands. The development of the sachet revolutionized the FMCG industry. Products that had suffered very low penetration among lowerincome groups were now affordable to these consumers. With the launch of sachets, HLL was able to target a large mass of consumers who had hitherto not been users of the category. By 2004, HLL was selling sachets of shampoo, hair oil, detergent, skin creams, tea, toothpaste, and soap. The pricing of sachets highlighted HLL’s commitment to serving the lower-income segments. First, since each unit contained less of the product, packaging costs incurred per unit were higher than those incurred on the larger SKUs, yet HLL priced the LUPs at a lower price point per unit in order to make it affordable for the consumer. Second, trade margins offered on LUPs were higher than those offered on larger SKUs. This was in line with the objective of tapping into new markets and segments. Higher margins would accelerate movement in the wholesale channel as well as increase stocks at marginal and rural retail outlets. Growth in Project Shakti turnover was a consequence of expansion into new markets and appointment of new entrepreneurs on the one hand, and the organic growth of turnover among existing entrepreneurs on the other. Project Shakti’s turnover in 2004 was four-and-a-half times its turnover in 2003. Exhibit 9 portrays a Shakti entrepreneur, first on the road, and second at her home.

Shakti Vani: The Communicator Another initiative that extended Project Shakti’s impact beyond sales and the entrepreneur, the Shakti Vani program was a branded social communication program targeted at the rural community. A local woman was appointed as a Vani,8 trained and positioned as an expert on matters relating to personal and community health and hygiene. Working to a formal journey plan, she would then cover a cluster of villages, organizing school-contact programs, SHG meetings, and village gettogethers, and use other social means to communicate best practices in the areas of personal health and community hygiene. To make her communication more effective, she was given specially developed aids, such as pictorial literature that could be understood by illiterate people and interactive games that would interest her audience while driving home the message. See Exhibit 10. The Vani experiment was piloted in some districts in Andhra Pradesh, and two other states. HLL’s plans were to recruit and train over 500 Vanis, covering over 20,000 villages by February 2005. The Vani program was implemented on the ground by Ogilvy Outreach, the rural activation unit of advertising agency Ogilvy & Mather. Two Vani programs were run in 2004. These programs covered 10,000 villages each. One of these programs was funded by a “brand,” while the other was funded by Shakti. When a brand independently commissioned a Vani program to serve its communication needs, the costs were accounted for in the brand’s overall budgets. Also, such programs were not restricted to Shakti villages. The stable brands in HLL’s portfolio often budgeted 10% to 15 % of sales in advertising and promotion, and Shakti Vani promised to be cheaper. Moreover, its purpose was to create a consumer for life across several HLL brands. The pilot had been run out of internal budgets, but those could not

8 “Vani” is a Hindi word that means “voice” or “speech.”


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be scaled beyond a few districts. One option was to get HLL’s brands to invest in the program, but Dhall wondered if that could be done while conforming to the original purpose behind Vani. The origins of the program lay in a desire to create a communication program that would spread awareness of health and hygiene practices in rural India. In rural India, penetration and consumption of products such as soap or toothpaste were significantly below urban standards. Growing primary awareness would not only improve the quality of life, in the long run it would also benefit HLL by growing the market for its products.

iShakti: The Portal iShakti was a new Project Shakti initiative that sought to extend the benefits of information technology to rural India. In early 2003, in a small village in the original Shakti province of Andhra Pradesh, a desktop computer had been placed in the home of a Shakti entrepreneur. (See Exhibit 11.) This marked the birth of iShakti, a rural community portal. The objective of this portal was to empower the rural community by creating access to information. The desktop was equipped with dialogue-interactive software developed by the Unilever research team in London. Residents of the village could walk in, register, and get a small identity card with their photo, log-in identification, and password on it. Registered users could log on to the site and access information in content areas including education, career opportunities, agriculture, health, grooming, legal procedures, egovernance, and entertainment. Under each content head, users also had the option of posting any question that the available information did not answer. Once a day, the site would be linked to the Internet by a dial-up connection and updated from a central server. The queries would then be sent to a panel of experts who would answer them, so that the next time the user who had asked them logged in, she would find the answer waiting for her. The users were not charged for accessing information or using the query facility. The iShakti initiative had the potential of bringing the Internet to villages that had never seen a computer. A dial-up connection was the simplest means of connectivity in India, but facilities were poor, especially outside the larger cities. With iShakti, a dial-up link was required only for a few minutes every day. The potential benefits for HLL were equally tantalizing—it was a communication channel, which other media failed to reach. While the possibilities that iShakti hinted at were tantalizing, they posed some tough questions. The first of these concerned how HLL would view iShakti. Before the initiative was rolled out, Dhall had decided that the objective of the initiative would be to provide information to the rural community. But setting up iShakti was an expensive proposition, and Dhall believed that relying on Corporate Social Responsibility grants from HLL would prevent iShakti from being scalable or sustainable. Dhall had to figure out where that money would come from. By the end of 2004, HLL had tied up with AP Online, a partly state-owned e-governance venture. As part of the partnership, 500 iShakti kiosks would be operational by the end of 2005. But Project Shakti would need to scale up faster to achieve its goals. Moreover, not all states were as progressive as Andhra Pradesh in setting up internet connectivity for its villagers.

Scaling Up While Project Shakti strived to create a lean structure, the costs incurred on human resources (including management) seemed to balloon with scale, constituting the bulk of the overheads incurred on Project Shakti in 2004, almost 10% to 15% of Shakti revenues. Added to that was the cost 12 This document is authorized for use only in IMBA-EN ENERO 2016 ELECTIVOS - Business at the Bottom of the Pyramid by Prof. M. L?pez Escorial, IE Business School from June 2016 to August 2017.


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of the Vani and i-Shakti program, running at 3% to 5% of sales. Project Shakti broke even in 2004. With scale-up in progress, these costs would only increase. The team had to figure out some way of doubling the number of entrepreneurs without significantly increasing the number of people who managed them. Project Shakti currently had about 500 RSPs, who managed about 12,000 entrepreneurs. Plans were afoot to hire and train another 500 RSPs in the next two years. Similar scale-up issues arose with respect to the Vani and i-Shakti programs as well. This challenge was made even more complicated by the different challenges the team faced in various states. In Andhra Pradesh, where Shakti was launched, the state government had actively endorsed it, seeing it as a great initiative that would help the rural community. But of the 12 states where Shakti now operated, the Shakti model had received varying degrees of support from the different state governments, with very close cooperation in five of them. A related issue that affected Shakti was the scale of the SHG movement in a state. In a number of districts, implementation teams trying to roll out Shakti found that there were no SHGs with which to partner. Prosperity levels varied widely across different states, and this affected the viability of Shakti entrepreneurs. Closely linked to the prosperity levels in a state was the level of infrastructure, and that impacted accessibility of villages. There were cultural issues to contend with as well. The status of women in rural society differed across states. For example, women in Andhra Pradesh were far more independent than those in some northern states. In some districts, it was almost impossible for a woman to venture out of her home and try to sell products to other homes or to male retailers in the village. Another, more operational impact of cultural differences was on the field force. In each new state in which Shakti was implemented, RSPs who could speak the local language had to be recruited. At least a dozen different languages were spoken across the different Indian states. Very often, wide differences in the dialects prevalent in neighboring districts made it difficult for a rural sales promoter to work effectively across a state. For over a year now, Dhall had been grappling with the challenge of developing self-confidence and enterprise among barely literate underprivileged women in a severely male-dominated society. All too often he had seen newly appointed Shakti entrepreneurs get so demoralized by a few rejections in their early calls that they simply gave up and dropped out. What could he do to build these entrepreneurs’ confidence? More to the point, what could he do to ensure that more and more of an entrepreneur’s calls were productive? Why would consumers in a village buy from the Shakti entrepreneur rather than from a local retailer who had been supplying them for years, stocked a wider range of products and brands, and perhaps most important, extended credit? The Shakti entrepreneur offered personalized service, doorstep delivery, and an assurance of quality, but these were often not enough to induce consumers to pay cash. A few entrepreneurs had begun to pass on some of their earnings to the consumers, and the discounts they offered helped them win over consumers from the local retail trade. Some entrepreneurs had begun to extend credit to regular patrons, and this too helped them win consumers. Another idea that some entrepreneurs had tried was creating a network, passing on a proportion of their margins to a friend or relative in a neighboring village and getting her to serve consumers in her locality. But these ideas were the preserve of top-end Shakti entrepreneurs. The challenge ahead was to get every entrepreneur to understand and implement these or similar ideas. Dhall knew he needed a formal training program to equip the Shakti entrepreneurs with the skills and confidence required to manage a viable business. But administering such a program was a daunting task. He could hardly expect thousands of rural women, many of whom who had never stepped out of their village, to come to a central location for a classroom session. Even if they did, he doubted that a classroom session would be of much use. 13 This document is authorized for use only in IMBA-EN ENERO 2016 ELECTIVOS - Business at the Bottom of the Pyramid by Prof. M. L?pez Escorial, IE Business School from June 2016 to August 2017.

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To Dhall, what made Shakti a unique sales channel, apart from its scale and deep rural reach, was that it reached the final consumer rather than an outlet which would then sell to consumers. In a media-dark region where conventional brand-building efforts were relatively ineffective, Shakti created a vast team of local, credible, one-to-one endorsers. While Shakti faced external challenges, the project team had internal challenges as well. One of these was to get brand managers to invest in the Project. Shakti had access to a network of over 12,000 local influencers in areas with very low media reach. What could the team do to build HLL’s brands in these markets? Brand managers had no idea how large and well connected Project Shakti had become. Dhall had to figure out what it was that Project Shakti could do to build HLL’s brands without compromising its social objectives. He needed to convince the brand managers to pick up much of Shakti’s promotion and brand-building costs.

Creating Impact, Changing Lives What had started out as a niche initiative had now attained scale enough to significantly impact the mammoth HLL business. As Exhibit 3 shows, growth in HLL’s sales had slowed since the mid1990s. For some years now, net profits had increased significantly, fueled by improved efficiencies in the supply chain and by exit from non-core businesses. But in 2004, as a consequence of competitive actions, sales and profits both declined. Project Shakti offered a silver lining. In 2004, Shakti had grown to over 15% of HLL’s rural turnover in the districts where it operated. Obviously pleased with the results, Sehgal put it in perspective: “When a new product launch cracks 1% to 3% of company revenues in one to three years, it gets everybody’s attention. At Shakti, we are almost there, and from here on our path could be exponential.” With over 12,000 entrepreneurs across 12 states and 50,000 villages, Dalip Sehgal’s immediate challenge was to motivate the project team to double its reach to 100,000 villages by the end of 2006. “In the long term,” he urged the eager members of the project team assembled in Mumbai, “Shakti should account for 15% to 20% of company revenues; it should reach 250 million additional consumers through 100,000 entrepreneurs by 2010. That would be a real contribution.”



Exhibit 1

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HLL’s Annual Financials ($US)

Income Statement

Dec 03

Dec 02

Dec 01

Revenue

2,324.2

2,151.6

2,349.1

Cost of Goods Sold

1,181.9

--

1,313.7

Gross Profit

1,142.3

--

1,035.4

49.1%

--

44.1%

635.3

--

631.7

27.4

27.9

--

Gross Profit Margin SG&A Expense Depreciation & Amortization Operating Income

507.0

459.1

403.7

Operating Margin

21.8%

21.3%

17.2%

Non-operating Income Non-operating Expenses Income Before Taxes Income Taxes

0.0

0.0

0.0

21.8

1.9

1.6

485.2

457.2

402.1

96.6

99.9

83.3

Net Income After Taxes

388.6

357.4

318.8

Continuing Operations

388.6

357.4

318.8

0.0

0.0

0.0

388.6

357.4

318.8

Discontinued Operations Total Operations Total Net Income

388.6

365.4

339.6

Net Profit Margin

16.7%

17.0%

14.5%

Source:

HLL.

Exhibit 2

HLL’s Organizations into Profit Centers

Profit Center

Categories

Detergents

Personal Wash Fabric Wash Household Care

Key Brands

2003 Turnovera 100

Lux, Lifebuoy, Dove Surf Excel, Rin, Wheel Vim, Domex

Personal Products

Skin Applications Hair Care Oral Care Deodorants & Talcum Powder Specialty

Fair & Lovely, Pears, Vaseline, Ponds Clinic Plus, Sunsilk, Nihar Pepsodent, CloseUp Axe, Rexona Lakmé

65

Beverages

Tea Coffee

Lipton, Brooke Bond Bru, Deluxe Green Label

28

Foods

Culinary Products Staples

Kissan, Knorr Annapurna

15

Source:

HLL.

aNote: Turnover figures are indexed to detergents turnover.


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Exhibit 3

HLL Sales and Profits Performance, 1994–2004 (Rs. 44 = US$1)

Rs. Millions

140,000 120,000 100,000 80,000 60,000 40,000 20,000 0

Rs. Millions

20,000 15,000 10,000 5,000 0

Source:

Annual Report 2003; company annual results announcement, February 11, 2005.



Exhibit 4

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Hindustan Lever Sales Offices

Headquarters:

Mumbai

Regional Sales Offices:

Mumbai, Chennai, Kolkata, Delhi

Project Shakti:

Shaded areas, with original launch at Nalgonda (Andhra Pradesh)

Source:

HLL.


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Exhibit 5

Organizational Structure of the HLL Sales System

GSM Detergents

GSM Personal Products

GSM Beverages

GSM Foods

Regional Manager, RM

RSM Detergents

Personal Products

RSM

RSM Beverages

RSM Foods

ASM 1 Detergents

ASM 2 Detergents

ASM 3 Detergents

ASM Detergents

Sales Officer 1

Sales Officer 2

Sales Officer 3

Territory Sales In-charge (TSIs): 5 to 7 per Sales Officer

Redistribution Stockists (RSes): 6 to 10 per TSI

Source:

HLL.



Exhibit 6

Source:

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Urban Self-Service Stores, Urban Retail Stores

HLL.


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Exhibit 7

Source:

Rural Retail Stores

HLL.



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Exhibit 8 Brands and Their Contribution to Shakti Turnover Brand Franchise

Category

Wheel Breeze Lifebuoy Rin Surf Excel Hamam Liril Lux Vim Super 501 Rexona Nihar Clinic All Clear Lux Shampoo Sunsilk CloseUp Pepsodent Fair & Lovely Ponds Pepsodent Toothbrush Clinic Plus

Laundry Personal Wash Personal Wash Laundry Laundry Personal Wash Personal Wash Personal Wash Dishwash Laundry Personal Wash Hair Care Hair Care Hair Care Hair Care Oral Care Oral Care Skin Application Skin Application Oral Care Hair Care

Home and Personal Care Taj Mahal Red Label Taaza A1 Super Ruby Bru DGL (Deluxe Green Label) 3 Roses Knorr Annapurna Foods & Beverages Other Brands All PCs

Source: Note:

Tea Tea Tea Tea Tea Tea Coffee Coffee Tea Foods (Salt, flour, etc.)

2003 Share

2004 Share

18% 3% 16% 7% 1% 1% 1% 9% 2% 2% 3% 4% 1% 1% 1% 3% 3% 2% 3% 1% 3%

19% 5% 15% 7% 2% 1% 1% 9% 2% 1% 3% 2% 1% 1% 1% 2% 3% 2% 2% 1% 4%

84%

84%

2% 2% 0% 2% 1% 1% 1% 1% 2% 0% 12% 4% 100%

2% 2% 2% 1% 0% 0% 1% 1% 2% 2% 13% 3% 100%

HLL. These shares are indicative. True shares have been disguised to protect company confidentiality.


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Exhibit 9

Source:

A Shakti Entrepreneur

HLL.



Exhibit 10

Source:

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Shakti Vani: The Communicator

HLL.


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Exhibit 11

Source:

Appearance of iShakti Kiosks

HLL.


Unilever in India: Hindustan Lever's Project Shakti--Marketing FMCG to the Rural Consumer

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