consumer behaivour cases

8/8/2019 Consumer Behaivour Cases

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Coke: Reaping the Benefits of Going Rural

Coca-Cola (Coke), one of the most admired companies in the world, re-entered India

in 1993. It had been ousted in 1977, due to differences with the then Indian

government. Post 1993, Coke tried to establish itself in the Indian market where Pepsi,

which entered India with a joint venture in 1988, had already established its strong

hold. Although the volumes in the soft drink market increased by 76%, from 5670

million bottles in 1998 to 10,000 million bottles in 2002, both the cola giants faced

stagnation in sales.

In 2002, the Rs 55 billion soft drink market in India saw a major shift of strategy by

Coke. The company shifted its focus from the urban consumer market segment, to the

rural landscape. Coke understood that only 26% of the Indian population resided in

urban areas, a region that Coke catered to, until then. Coke wanted to expand its

market to include rural areas that were largely untapped, and therefore, had high

growth potential. The rural consumers in India, consisting of 41% of Indias middle

class and 58% of its disposable income, had been prospering over the years, due to

good harvest.5

However, there were many problems in the rural marketing of soft drinks, the biggest

being in distribution. Rural areas were far off from cities, with poor road connectivity,

making it difficult and expensive to reach these areas. A typical village had around

four to five retail stores with very less space and less capital to buy stocks. Even

electricity supply was poor in these far-flung areas, which would have meant that

villagers would not get chilled Coke.

To tackle these problems, Coca-Cola took several steps- It decided to follow a hub

and spoke distribution strategy. It identified distributors (hubs) in key districts, and

connected villages. These large distributors were supplied the full-transport load of the glass-bottled Coke, from the companys depots in towns and cities. These large

distributors sold the product to small distributors (spokes), who in turn, supplied these

in small quantities to the village retailers in the adjoining villages, on a weekly basis.

Various modes of transportation like handcarts, bullock carts, cycles, and rickshaw

were used for this purpose. The company reached 50,000 new outlets in just two

months in 2002, by increasing the number of distributors. A total of 3,500 new

villages were added to its distribution network in the same period, through theseefforts. The company installed non-electric cooling solutions for village retailers,


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thereby addressing the problem of power cuts.

In 2002, Coke came up with a 200 ml bottle, which was priced at five rupees. This

pricing was almost 50% lesser than the rate at which Coke used to sell earlier. We

have reduced costs by 30-40 per cent per soft drink case over the last three years. Part

of the cost reduction exercise included light-weight bottle and crate introduction,

which helped cut down freight costs...otherwise the five-rupee price point would not

have been successful, said Sanjiv Gupta (Gupta), president, Coca-Cola India, in

2003.6 The high frequency of trips by the small distributor, and the pricing at five

rupees, ensured that the village retailers stocked the product.

Pepsi positioned itself, as an urban focused drink, and this was reflected in its

promotional campaigns, which were youth oriented. In 2002, when Coke lowered its

prices all over India, Pepsi was forced to reduce its prices. Pepsi lowered the prices of

its 300ml glass bottles to Rs 6, from Rs 8. As a consequence of the price reduction,

Pepsis rural consumption increased from less than 10% in 2001 to 10-15% by 2003.

5 Growth in agricultural sector in 2001-02 was 7% while industrial sector grew by only 3% in

the same period.

6 Coke cut costs by 40% per case in last 3 years, www.rediff.com, August 20, 2003

Part B

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The company also increased its rural presence by following the hub and spoke model

used by Coke. It significantly increased the number of distributors, vehicles, and

refrigeration solutions in rural areas, and also added a lot of manpower to focus on

this consumer segment. However, Pepsi continued using its urban focused ads with

just a mention of prices at the end, while Cokes marketing communication clearly

showed that it was targeting rural consumers.

Coke launched its ad campaign of Chota Coke, the 200ml bottle, with Aamir Khan,

in a rural setting. However, the company realized that a large section of its target

consumer segment (rural population) does not have access to television. The company

addressed this problem by promoting itself through rural fairs, weekly fruits and

vegetable markets, and through its packaging, with a focus on communicating the

price. These initiatives yielded good results. Our rural market focus has resulted in a

68 per cent increase, in the number of rural consumers. In fact, in 2003 over the

previous year, 80 per cent of all new consumers of the company are from the ruralmarkets, said Gupta.7 In 2003, more than 30% of Cokes sales came from the rural


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markets, which grew at 37% as compared to 24% in the case of the urban markets.

The stock turn, which was less than four times a year in the case of 300ml glass

bottles, increased to more than 10-14 times a year for its 200ml initiative. In addition,

the companys capacity utilization significantly increased from 50% to 75%.

Coca-Cola believes that rural markets have tremendous potential for growth, in the

future. The per capita rural consumption is 2.8 liters per annum as compared to per

capita national consumption of 7.4 liters per annum, or per capita metro consumption

of 4.9 liters per annum. By 2003, the company had reached 40,000 villages in rural

India.

Questions for Discussion:

1. Compare and contrast Coke and Pepsis rural marketing strategy?

2. Why did rural markets gain importance among cola marketers?

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