CASE: Vanraj Mini-Tractors: Is Small Beautiful? Group: The Mighty Marketers

Members: Avanita Somani (32058), Avinash Kumar (32059), Himanshu Bhardwaj (32069)

Rohitash Jain (32088), Salman Haider (32089)

ANALYSIS

The given case is about deciding on the market segment for “Vanraj Mini-Tractors” and thus

selecting the most appropriate market segment. The segmentation can be done on the basis of

the land holding, the type of soil (geographical) and by the type of the crop cultivated. The

focus states for Vanraj Mini- Tractors are Uttar Pradesh, Madhya Pradesh, Gujarat and

Maharashtra. Field trials conducted to check its functionality in black and laterite soils have

provided satisfactory results so segmentation on type of soil (geographical) doesn’t seem

necessary. To solve the dilemma of choosing the right segment for Vanraj we have done cost

benefit analysis from the perspective of small farmers having average land holding size of 1.4

hectare. 90% of tractors are bought on credit availed from banks. Due to restriction in credit

from banks to marginal farmers as their land holdings are less than 3 acres, Vanraj may not

be viable for them. Thus marginal farmers are not part of the target segment. As per case to

target small farmers we need to make them switch from use of bullocks or from the use of

rented tractors to Vanraj.

Following table shows the cost benefit analysis of different alternatives for small farmers.

Table1:

Per Year Bullock (in Rs.) Vanraj (in Rs.) Rent (in Rs.)Initial 27500 190000 0Life span 11 years ( Useful life- 8

years)8 years -

Fuel/Fodder cost Fodder cost: 17500/year*11/8= 24062

Fuel cost=33 liter/acre*2 crops/year*Rs 40/liter*3.458(land size)

= 9129

Rent –(@ Rs. 250 /hr)For 1 acre – 22 hours (2 crops)* 22 hrs*3.45882 (land size)*250(rate)= 38038

Maintenance cost 0 2968 (12.5% for 8 years)

0

Inter-culturing cost 400 man-hours @ Rs. 10/hr for 1 Hectare=400*10*3.458/2.47=5600

(Included in Fuel cost) 0

Interest 19000 (@10 % per year)

0

Total cost/year 29662 31097 38038

From the cost benefit analysis we can conclude that using Vanraj tractor provides clear

advantage over using services of rented tractor by a small farmer. When we compare it with

the use of Bullocks the initial cost of Vanraj may be higher but it has many added advantage

like possibilities of alternative uses of Vanraj adding to revenue generation. It would also

increase efficiency in agriculture operations. Thus for a small farmer it is a better option to

switch to Vanraj from bullocks as well as from the use of service from a rented tractor.

Compared to big tractors Vanraj will be a viable option for small farmers. Currently they are

purchasing big tractors by taking credit from banks but they are not able to meet their break

even hours of operation due to higher fuel consumption and higher initial cost, this is leading

to higher default rates in cases of tractors purchased on credit. Vanraj with advantages of low

fuel consumption and lower initial cost would cater to their needs.

Vanraj can be positioned as a product that will give ownership to small farmers and remove

their dependence on large farmers. This will increase their social status; provide emotional

benefits along with ensuring timely agriculture operations leading to better yield and income.

The big tractors are not utilized to the full capacity and thus are given on rent to the small

farmers thereby generating an extra income for them. Generally, the small farmers don’t buy

the big tractors as they can’t afford to. Instead, they rent these big tractors to serve their

purpose. This would be the point which we would be serving as an incentive for the small

famers to buy Vanraj. This would be more like “Not buying a tractor but buying

Independence”. They would be more autonomous and given the low cost and similar features

of big tractors, it would aptly serve their purpose.

Thus the major objective for M/S Parmal Farmatics should be clearly to target small farmers

and capitalize on first mover advantage as there is no branded player catering to needs of

small farmers. Requirements of marginal farmers match with small farmers, marginal farmers

will present an opportunity for small farmers to rent out services of Vanraj to them which

would give additional revenue to small farmers.

Vanraj tractor’s added features of better maneuverability and control in farm operations make

it suitable for small operational holdings which are emerging as a result of land

fragmentation. Three wheel convertibility and smaller size favor its use in intercultural

operations. Intercultural operations form an important component of Horticulture Farming,

thus Vanraj will have acceptance among horticulture farmers. From the case we can see that

Horticulture segment recorded very high growth in the period from 1991-92 to 2001-02 with

50% increase of land area under fruits and 39% increase of land area under vegetables.

Thus owners of many such farms are Semi-medium, medium and large horticulture farmers

and thus will use Vanraj as an additional tractor specialized for intercultural operations. Thus

the company may look to increase its target segment in future to cater the needs of above

segments of horticulture farmers.

Following table shows the comparative benefit analysis of Big and Vanraj tractors for small,

semi-medium and medium farmers.

Table2:

Assumption: Vanraj tractor can be used up to 5 acres of land.

Small Semi-medium MediumAverage land holding (in acres) 3.458 7.41 9.88Vanraj Fuel= 33 liters/acre

(33*40*3.458*2=9129)(33*40*7.41*2=19562) (33*40*9.88*2=26083)

Big Tractor (For 1 acre= 22 hours)(Consumption=4 liters/hr)(22*4*3.458*40*2=24344)

(22*4*7.41*40*2=52166) (22*4*9.88*40*2=69555)

Interest Excluded Excluded ExcludedIncremental benefit 15215.2 32604 43472

Recommendation:

Vanraj should be targeted for small farmers segment mainly as they provide huge potential

market and M/S Pramal should cash on first mover advantage. Semi medium and medium

farmers should also be considered as they also provide market potential in Horticulture.

Horticulture sector presents market potential for Vanraj. It is concentrated only in few states

like Maharashtra, Gujarat, and Uttar Pradesh and has shown high growth rate.

Annexure 1:

From the point of view of M/s Pramal Farmtracs following is the Break-even point of sales:

For 1st year:

Fixed cost= (12.5+100)/7 = 16.07 lakhs

Contribution: 16.36 lakhs for 300 tractor= 0.0545 lakhs/tractor

Break even sales = 16.07/0.0545 = 294 tractors

(Projected sales are greater than break-even sales)

For 2nd year

Contribution: 17.44 lakhs for 330 tractors = 0.0528 lakhs/tractor

Break even sales = 16.07/0.0528 = 304 tractors

(Projected sales are greater than break-even sales)