Hindustan Lever (A): Leaping a Millennium

Executive Summary Project Shakti has been undertaken by Hindustan Lever and the idea behind the project it to strengthen their distribution network into the rural villages less than 2000 people and which are inaccessible by roads. Following this marketing strategy the company aims to develop new market with existing products. Self-help groups, NGOs, NBFCs have been involved in a simple micro model developed by the company. More than 400 villages have been brought in the ambit of the product by 2002 and at this juncture a reality check is desired by the company in order to be sure whether to go ahead with this simple model on a huge scale. HLL wanted to make its presence felt in the informal sector but reputation of the company may take a big hit in case the company is not successful. This makes reality check on the sustainability of the model indispensable for the company in order to find hurdles that might come up during the implementation stage, solutions to those hurdles, and its effect on companys existing distribution network which is considered the core strength of the business. There is little chance of the model to be a threat for existing distribution network because it is foraying into unexplored territory. Even though profitable in rural areas the model is incapable of competing with extensive distribution networks merely because of scale in which they operate. Some micro management techniques can be used to sort off conflicts between channels and to arrive at compromise between them. This is very important keeping in mind the value addition made by all the channel partners. The other issue with the model is the possibility of self-help groups losing interest and hence posing a major threat in ensuring supply of products to the rural customers. This can be addressed by maintaining high profit margins for the self-help groups and thus keeping them interested. Introduction The company wants to implement Project Shakti on a large scale which it considers the key to its growth by targeting unexplored area like rural villages. The company has given 4 years to the project and now needs to reassess whether to continue with it and its future prospects. HLL is looking to double its turnover in a span of four years and it considered Project Shakti as a critical cog in the wheel. It will create a new market at lower end with existing products and help the company come up with a sustainable model by achieving business growth thorough people growth. The Sustainability Cycle Company had planned to share a symbiotic relationship with self-help groups by letting them access micro credit and making their products available to them, and in turn create a new market for themselves. If the plan kicks of it will lead to new job creation and strengthening of HLLs distribution network to even remotest of locations.

Evaluation Criteria We shall assess the progress of Business Model on the following criterions and later on critically review them. 1. What is the impact of Project Shakti been on Revenues of the company? Has it increased and if yes then by how much? What is the expected Revenue forecast if the project is from the project in the coming years? 2. Has there been there any decrease in sales in Traditional distribution network? This is to understand whether there is a possibility of a channel conflict in future. 3. What is the impact on Brand awareness of the relevant HLL products after the introduction of Project Shakti? 4. If successful what will be the impact on Distribution network and reach of HLL products. 5. What are the actual profit margins for the Self-Help groups and what should be expected profit margins in order to keep them engaged with the model? Increase in Revenue Sales Advantages To be able to successfully target an unexplored area as huge as 1,50,000 villages, will cause positive changes in the financial statements of the company due to the revenues generated and increased market share. Currently HLL has a presence in 300,000 villages and adding another 1, 50,000 to it will immensely boost the figures for HLL and thus making risk taking a very logical and reasonable choice. Disadvantages Profitability of the organization may reduce in longer run keeping in mind the high expected volatility due to the involvement and critical role played by the self-help group in the model. The sales revenue should be high in order to ensure profitability in future. Social welfare is important but the prime motive of any business is to ensure profits. Decrease of Sales in Traditional Business Advantages: Nothing of such indication is reported in the case, thus making it a potential problem. It is a possibility that the star sellers might have a channel conflict but they also have limited reach. Thus if the relationship with existing sellers is maintained and managed this problem can be taken care of.

Disadvantages: Foraying into new market and additional revenue generation will only be effective once the company is able to sustain its traditional business. Channel conflicts can negatively affect the traditional business and if the magnitude is huge then it might not be wise to take up the project. HLLs existing distribution network is very critical to its business and any adverse changes when went unnoticed might prove to be detrimental for the company and shake its existing hard earned setup. Decreasing revenue from existing business can be taken as an indicator of trouble and steps should be taken immediately by the company.

Increase in Brand Awareness Advantages Brand awareness can be measured with the help of MART and can be a useful indicator of the success of the product in the new markets. Once established the brand name along with attractive pricing may attract more customers and combined with the product features can earn some loyal long term customers. Disadvantages Local village customers are more cost friendly than brand choosy and thus increasing brand awareness will be a difficult thing to do for the company. Behavior of rural customers is highly contrasting to urban customers and hence company will have to come up with a brand new marketing strategy for them. Distribution Reach Advantages The results from 400 villages of Nalgonda district have been positive and thus giving all the right signals to the company to stay positive for the project. If implemented the HLL will benefit from the Early Mover Advantage and get a new consumer base. Feedback from these regions will benefit company in understanding their needs and wants coming up with new products specially designed and manufactured for rural customers. Disadvantages In longer run, catering to low volume orders will lead to increase in costs and hence reducing benefits that can be passed on to the SHGs and the customers.

Profit Margins for SHGs Advantages SHGs profit margins were maintained by supplying them at special rates. Though the profit margins might reduce in longer run due to advent of competitors, the company will earn constant revenues due to established brand name and thus it would be profitable for SHGs also to stay with company for longer duration of time. Disadvantages Setting up a new model involves additional costs which might erode the profit margins of SHGs. High profit margins are important to retain SHGs in longer run and provide stability to the business model. In light of fewer profit margins the SHGs might leave and jeopardize the profits and revenue of HLL. Goals : Implementation of Project Shakti on a large scale by giving maximum benefits to SHGs and the eventual customers and that too without any sort of channel conflicts. Action Plan Challenges are present for HLL and the company needs to face it. At the same time it should be ready with a Plan B, in case the model fails. The current decision has caused dissatisfaction amongst the retailers who are a critical part of supply chain, and thus pose a significant problem in itself. Hence it is very important for HLL to find a middle path and in order to satisfy retailers and maintain good relations with them and at the same time penetrate the rural market with the help of Self-help groups. Short Term Plan Channel conflict can be taken care of by eliminating the role of MACT as a middle man. They might try to supply the products to SHGs which shall also enable the company to pass on the profit margin benefits to the end customers rather than the middle man eating it up. The company would be benefitted in the following way by implementing this plan: o Profit margin for SHG will increase and hence helping the company in making SHGs stay with them. o Saved cost can help pass on the benefits to the ultimate customers and thus help in creating a loyal customer base. o Eliminate channel conflicts and allows the SHGs to work as a retail business. It shall also ensure that bulk purchases are made and that products are available as and when required. The retailers will not have to travel to buy HLLs product which is very important for fostering sustainable long term relations. Cash and forwarding Agents can also be eliminated and rural distributors can ensure delivery to SHGs and eventually to the retailers. This will help retailers maintain liquidity by eliminating the need to purchase in bulk. HLL can come up with performance related reward system which shall motivate the sales reps to perform well and bring more and more business for the company.

Long term Plan HLL can come up with a production unit in one of the rural areas from where comes the maximum benefits and the place where it expects maximum revenues from in future. The location choice will depend on the infrastructure/transport facilities and the potential of the area to grow into an Industrial hub. The location should be very strategic from distance point of view, i.e. Distance of the unit from major consumption markets. This will significantly cut down the transportation costs and help increase profits of the firm.

Qualitatively, the decision is in line of companys vision of serving the community by creating jobs and infrastructure in the area chosen.