Cost Innovation for Tier 2 / 3 Market penetration.

A case study…

Rural Market – The Growth Story..

Rural India is getting bigger day by day- triggered by growth in the hinterland & smaller cities.

No company can afford to ignore rural India for its tremendous potential.

Eg:

In last 2 years, Consumer durables & electronics witnessed a growth of

30 % in rural vs. 10% in urban markets.

Mobile penetration of over 800 million with over 53 % in rural India.

FMCG Giant HUL- 40 % products are consumed in rural markets.

Moreover Rural markets are less affected by macro economic situations ; as they operate in their small eco system.

Rural Market Drivers

Rising Government investments thru various schemes like MGNREGA.

Schemes under NABARD–support to agriculture & village industries.

Retail chain & companies–guide farmers on sustainable agriculture practices.

Higher Minimum Support Prices (MSP) – ensure better returns to farmers.

In urban-rural clusters– big farmers dispose of portions of their lands to have enough liquidity & higher standard of living.

Special focus by government on education & skill building- Increasing technology awareness among youth. Skills for Job opportunities in BPOs, hospitality & Service sector.

Today Rural India aspire for the same products as used by their Urban counterpart.

Rural Market – Challenges Vs Opportunities

Rural markets are dispersed.

Companies need to develop the understanding of their prospective customers.

Marketers need to understand:

Their local needs & develop appropriate products and services to meet those requirements.

Develop a unparalleled distribution channel to make these products and services available to them at an affordable cost.

How it is done in Maruti Suzuki?

Case study -Maruti Suzuki India Ltd.

As a Passenger Car Manufacturer, Maruti Suzuki provides total mobility related solution to its customers– Not only the vehicle but

Finance to buy the car. Insurance Extended warranty Accessories Service Spares

….and all at the most affordable price.

To ensure this, during the entire ownership cycle, we had to build a responsive channel network.

But building a network involves :

Capital Cost.

Operating Cost.

Promise to our customers - “Lowest Cost of ownership”

Cost vs. benefit

Distribution verticals for the Supply Chain

Distribution

Suppliers Maruti Channel Car Owner

There are 3 verticals to ensure :

Sales to ensure reach to the prospective Car buyers.

Service to ensure reach & accessibility for Car owners.

Parts to ensure reach & availability of Genuine parts.

Distribution verticals for the Supply Chain

Sales Operations

Locations : Urban Cities

Total area: Over 1- 2 acres.

Display the entire range of cars.

One stop shop for all customer’s needs.

Locations : Rural pockets

Total area : Few hundred sq feets.

Space enough to display 2-3 cars – the focus model.

Nearest touch point for rural customers. Basic facilities of Test drive, finance & Insurance..

Sales Operations - network

Sales network as on1st Apr, 2012

More than 1100 sales outlets covering 801 cities.

Concept of E Outlets – to reach in rural pockets.

Resident Dealer Sales Executives (RDSEs) Posted in rural pockets covered by E outlets. Resident of same village–Well versed with the geography & people. Known face in the village. Takes pride in representing the brand Maruti. Operating cost low.

Operates from home.

Service Operations.

Message to customers –

“ Wherever you go, you are not far away from a Maruti workshop”

Building a Service facility involves Cost…

Service Operations- network.

Location : Base City.

Large workshops.

As high as 30-40 bays.

Service & Body shop.

High capital & equipment cost

Location-Rural pockets with no dealer reach /Cities with high load.

A/B/C categories on basis on facilities. Low on investments.

Location- E Outlet

Small set up.

2-3 bay workshop.

Free & paid service.

Minimum tools.

Service Operations- network

Service network as on 31st Jul, 2012

1345 Dealer workshops covering 817 Cities. 1650 MASS workshops in 1097 locations. 601 Cities exclusively served by MASSs. 2995 service workshops covering 1418 cities.

In FY1112-

Inaugurated high altitude MASS at Kaza – Spiti Motors (altitude of 3740 Mtrs (12270 ft) above sea level).

Activated the most remote and farthest workshop Andaman and Nicobar Island

Spare Parts Operations.

“If a car owner in Hubli which is about 2800 kms from Gurgaon asks for

a Oil Filter for his M800 at his favorite workshop, immediately and

at a price he is ready to pay for it.

Right part : M800 Oil filterRight quantity : The quantity I asked for.Right place : Favourite workshop in HubliRight time : Immediately.Right Price : At a price commensurate to the value provided.Right Customer : Deliver to me only.

How to make it possible?

Distribution Channel innovation

Spare Parts Operations.

* As per SIAM.

Channel Pre 2004

Parts & Accessories Division.

Dealer workshop

MASS Retailers

Inhouse Workshop

Garage

After market - End customer- Car service

Single Channel

Channel Post 2004

Parts & Accessories Division

Dealer workshop

MGP Distributors

MASSs Retailers

In house workshop

Garage

After market- End customer- car service

Two Channels

Concept of Retail Outlets

To expand further to potential pockets, retail outlets opened.

Air conditioned Outlets

Unique Buying experience.

Dedicated helpdesk.

Retail outlets in over 170 locations

Concept of Express Outlets

To penetrate market further - Require more touch points.

Challenge : Cost

Solution : Express outlets -Trimmed down version of retail outlet.

Benefits :End customer

Attractive displays.

Distributor – Low investments. Early start of operations. Early paybacks. Low operating cost.

Cost Innovation in the distribution channel only does not suffice.

There has to be innovations across the chain…

Innovations across Supply Chain

Low Inventory holding cost : Just In time (JIT) model Through Technology enabled seamless integration of ERP interfaces.

Automatic replenishment model for channel.

E-enabled procurement model for suppliers.

Low working capital for channel: Reduction of lead time.

Increasing touch points – near to customer.

Regional stock yards – Low transit time & optimised logistics cost.

Suppliers Maruti Channel Car Owner