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Circa 1992. Mr. Ravi Varadarajan, Head of Business Development, Central Marketing
Organization, SAIL, pored over the facts and figures in front of him. Deregulation of
the steel industry had just been announced. News reports were flooding in of how
the news had electrified the business world and SAIL was going to have some stiff
competition from hitherto unknown, but serious players. Though S.A.I.L. had almost
a monopolistic hold over the Indian market with serious competitive threat coming
from just a few companies like the Tata Iron & Steel Company, Jamshedpur (TISCO)
and Jindal Steel, S.A.I.L. realized it should start looking for pre-emptive strategies to
distribute and exploit new markets.
With liberalization came a whole new swarm of big players into the market. Ravi
envisioned that mere pre-emptive marketing strategies might not work in the face
of the floodgates which had been opened. He understood the importance of out-
flanking initiatives in keeping S.A.I.L.’s market share intact against the new
competitive onslaught.
In a bid to understand the demand better in these areas, Ravi got authorization to
explore the non-urban market in India with the help of institutions such as Punjab
Technical University (PTU) and the Institute of Rural Management, Anand (IRMA). As
a result, in 1996 S.A.I.L. made some exploratory steps into non-urban marketing by
forming an Agriculture Segment Development Cell which was instrumental in
getting a higher quality of billets* (see note) developed for making disc harrows
(ploughs) for tractors. S.A.I.L also participated in the popularization of steel grain
bins under the “Save Grain Campaign” in the states of Gujarat and Madhya Pradesh
at competitive rates-the sole objective being to help non-urban consumers and
farmers grasp the long-term benefits of using steel for grain storage compared to
traditionally used materials such as wood, tin or mud.
As Ravi researched available material and the years rolled by, he and others in
S.A.I.L.’s think tank became concerned with the intensification of competition in the
domestic market and the excess supply of steel over available demand. Seeing an
opportunity to highlight the non-urban market as a potential second major market
segment, Ravi stressed on the need for exploring this vast untapped market. Charu
Sharma, Director of Market Research, was co-opted to explore this potential
demand in a more detailed and systematic method and to table her team’s
recommendations to the Marketing Group.
Charu’s team went in for extensive surveys and interviews with local dealers,
grassroots level consumers, NGOs, district officials and the like. It became clear that
the signs were not encouraging. It was true that life in the rural sector had
witnessed a phenomenal increase in agricultural production and productivity in
India with a gradual shift towards the usage of modern agricultural implements.
Rural life had also undergone a significant change due to increased urbanization.
However, such developments were not accompanied by a concomitant rise in
consumption of steel in the non-urban areas as a result of which these vast
potential markets remained undeveloped.
When the preliminary findings were submitted to the Marketing Team, Ravi saw in
the low levels of rural demand a potential opportunity to increase steel consumption
in the non-urban segment. Charu had identified the major reasons for low
penetration in the rural sector as lack of awareness and distorted perception. Steel
was perceived to be a high cost material and not readily available. Another problem
was the wide geographic spread and disparate demographic features of the non-
urban market segment. Ravi felt that he had a challenge on his hands now. What
different marketing approach would be required to translate this potential demand
into actual use? This was the conundrum he had to solve.
However, the second approach had the benefit of targeting first those areas which
had an existing demand for steel but was serviced poorly by secondary producers.
The steel-deficient regional approach was based on the premise that since it was
only a supply side problem, focusing on these areas would bring a quicker solution
to the problem of stagnant or slow demand. Besides, it would help overcome the
huge expenditure needed to create awareness for steel in general & SAIL steel in
particular. He had supporting information to analyze the skewed regional production
and consumption patterns of steel in the non-urban areas as outlined in the tables
in Annexures III and IV.
To guide him in his analysis, Ravi referred to S.A.I.L.’s objectives which had been
identified as part of this alternative market development strategy note. One of
these objectives was: To have at least one dealer in every district of the country i.e.
to cover all 602 districts in the country. Some of the other objectives were:
To reach materials to the dealers from nearest SAIL stockyard at SAIL’s cost.
To provide support to dealers for marketing their product.
A sound, future-oriented retail strategy, Ravi realized, had also become imperative
because there was a huge amount of capex upscaling by S.A.I.L., resulting in a
major capacity growth. In order to hedge against any downturn in industrial
demand, S.A.I.L. wanted to ensure that demand remained largely unaffected in
times of industrial slump. Therefore, a robust, alternative retail distribution strategy
had become important for safe, long-term growth.
As he delved deeper into research done on the subject, Ravi understood that low
awareness, high price, high initial investment and poor availability of steel were
major stumbling blocks in the popularization of steel as a viable alternative to
traditional construction material in the non-urban areas. Communication too posed
a new challenge as the target market had a different demographic and
psychographic profile compared to urban consumers of steel or industrial buyers.
Another issue at hand was the appropriate product mix required for the non-urban
market. Obviously it would differ in terms of both, width and depth, as compared to
an urban approach. Galvanized Plate (GP), Galvanized Coil (GC) and Thermo
Mechanically Treated (TMT) steel (a new-generation-high-strength steel having
superior properties such as weldability, strength, ductility and tensility) seemed to
be the most appropriate products for this new non-urban market. This product mix
was a reflection of the most prevalent demand patterns (grain storage,
construction, making of farm implements, etc.)
Ravi was facing a dilemma of distribution and marketing strategy.
Annexure I
a) Incentive Scheme for Dealers: To encourage dealers who are fulfilling their
commitments, the following consistency (cash) incentives have been introduced
c) Annual Award for Dealers : Top 5 dealers from each region selected on the basis
of factors like fulfillment of annual commitment, improving brand image, consistent
availability of product, adding new customers will be felicitated with awards at the
Annual Dealers’ Conference.
1. Wall Paintings
2. Radio Jingles
Annexure II
Annexure III
All India Production and Consumption: (1998)
Production (P)
Imports Apparent
Year Exports (E)
Secondary
(I) Consumption (P+IE)
Main procedures 1 Total
procedures 2
Note: 1 – SAIL & TISCO
2 – Essar, Jindal, Lloyds, Ispat and others.5
Annexure IV
State And Region Wise Consumption:
(MT)
3 Kerala 3 6 7 8 7 8 9
6 Assam 8 16 18 14 16 24 37
20 Rajasthan 11 17 35 18 21 53 57
Notes
1. *Billets : A section of steel used for rolling into bars, rods and sections.
It can be a product of the ingot route, or increasingly today produced
directly by continuous casting
2. **GP/GC sheets and coils:
3. ***TMT: Thermo mechanically treated (TMT) steel, can be described as a
new-generation-high-strength steel having superior properties such as
weldability, strength, ductility and tensility.
4. MT (mt)-metric tonne