RM147-08-010 Developing A Marketing Strategy For A Leading Agrochemical Company: A Case Study on Adoption of Agrochemicals by the Vegetable Growers in Chattisgarh Dr. Sangeeta Sahney*, Ms. Archana Shrivastava** Introduction India’s agricultural production has shown a growth of 2.7% p.a. over the last 40 years, contributing today to one fifth of its GDP. From a mere 52 million tones in 1951-52, the food grain production in 2005-06 has increased to 210 million tones. However, differences in soil fertility and corresponding agricultural growth as well as unreliable weather conditions across the country, have resulted in an overall wide disparity in terms of regional agricultural produce. This has further been worsened by farmer illiteracy, backwardness and poverty. Notwithstanding, an important role in the overall agricultural growth and productivity in India has been due to the agrochemical industry. Through government support and assistance, farmers have been encouraged to adopt better techniques of production, advanced technology, latest machines, improved seeds, fertilizers, chemicals and all this has led to spectacular increases in yield of crops. The agrochemical market in India has grown over the decades, with the farmers having been inclined toward adoption of agrochemicals to protect their crops. Agrochemicals defend crops against insects, pests, disease, and weeds before and after harvesting. They play a major role in improving soil fertility, protecting crop produce and raising productivity. Agronomy revolves around the optimum application of agrochemicals and that in turn greatly influences the production of various crops. The case speaks about an agrochemical company, Krishna Pvt. Ltd., dealing with manufacture and production of agrochemicals and pharmaceuticals. While the company had a history of growth and success and had begun to control a substantial market share of agrochemicals in the country, the year 2000 onwards, witnessed a deterioration of sales. In 2003- 2004, the company decided to concentrate on its core agrochemical business and the years 2005- 2006 saw a turnaround in terms of revenue and profit generation, giving it a second place in the agrochemical market. Krishna Pvt. Ltd., which had by then decided to focus on the untapped rural market in the country saw an opportunity in the vegetable growing belt of the state of Chattisgarh, where the market was lucrative for business. The state government was playing an active role in making available and encouraging the adoption of agrochemicals for its farmers, through financing rural development programs and subsidizing agrochemicals. The company thus, decided to go in for a study of the market. The existing marketing strategies were examined and problem areas identified. The effectiveness of various marketing alternatives in rural markets was studied, and, marketing strategies developed and implemented, that have helped the company to grab a substantial share of the market. Indian Agrochemical Industry Historical Background The Indian agrochemical industry has its roots in the year 1906, when the first manufacturing unit was set up in Ranipet with a production capacity 6000 metric tones. Subsequently, in the forties and fifties, large sized fertilizer and chemical plants were set up in Cochin and Sindri, with a view to establishing a base for mass production, manufacturing and industrialization. A major boost to the agrochemical industry came with the success of the green revolution in the late sixties. The decades beginning the eighties have seen a notable addition to the fertilizer production capacity; India is the third largest producer and consumer of fertilizers in the world. *Assistant Professor, IIT Kharagpur, [email protected] ** Project Assistant, IIT Kharagpur, [email protected] Marketing to Rural Consumers – Understanding and tapping the rural market potential, 3, 4, 5 April 2008 IIMK Presently, there are 63 large size fertilizer units and 79 small and medium scale units in operation in the country manufacturing a wide range of nitrogenous, phosphoric and complex fertilizers. The total installed capacity of fertilizer production in the year 2007 was 120.61 LMT of nitrogen and 56.59 LMT of phosphate. The average per hectare consumption of agrochemicals has increased from 1 Kg. in 1951-52 to 90.04 kg in 1998-99 and steadily rising, leading a considerable rise in agricultural productivity. This level is expected to increase even further with the government of India aiming to double food production by 2010-2012. Changing Trends The Government of India has been consistently pursuing policies conducive to increased availability and consumption of fertilizers in the country. The annual consumption of fertilizers, in nutrient terms (N, P & K), has increased from mere 0.7 LMT in 1951-52 to 203.40 LMT in 2005- 06, while per hectare consumption, which were less than 1 Kg in 1951-52 has risen to the level of 104.5 Kg in 2005-06. The changing global market environment, farmer awareness and knowledge, significant development in research and development, and the role played by the government has greatly affected the agrochemical industry. This has had a positive impact on the growth of the industry. The changing trends may be studied under the following heads: Stakeholder expectations are high and ever changing. Farmers expect ready product information and availability of good quality agrochemicals and accessories at optimum prices. Another pressure has been by the increasing popularity of organic farming; the end consumers of agro products expect transparency of information regarding nutritional value and low residues traceability of chemicals and fertilizers. Governmental and environmental concerns have increased especially on issues of usage of chemicals, disposal of containers, safety in usage and disposal, low residues in soil, ground water safety, and, regulatory compliance related to pollution etc., thereby creating enormous pressures on the agrochemical industry. The answer to this has been largely through research and development in the agrochemical sphere. The agrochemical industry which has until now worked in isolation, is now geared up towards interaction and cooperation with the department of agriculture, fertilizers and irrigation, the department of science and technology, and reputed institutes of science and technology. The government has encouraged technology transfer and absorption, and higher investment in process development and basic research is underway. A high level of automation is expected in agrochemical industry. Old chemicals are being phased out; safer eco-friendly and low dosage molecules are being developed; and, agrochemicals are getting patented, thus providing immense opportunities for growth of the industry at large. Emphasis has to be laid on innovations and consistently maintaining the world class quality. Strategic alliances in production, marketing and ancillary services have further given an impetus especially in the global competitive environment. Older production plants and techniques have been replaced by technologically advanced and sophisticated plants that are easy to manage, cost effective and environmentally less dangerous. An interactive market analysis and planning is also being encouraged. More investments in CRM, with emphasis on data mining and data warehousing for farmer contact, and customer satisfaction are being practiced. Systems and procedures to develop farmer awareness and confidence about newer products and their usage, as 316 Marketing to Rural Consumers – Understanding and tapping the rural market potential, 3, 4, 5 April 2008 IIMK also the accessories that complement and supplement each other are being laid out and followed (See Table I). Table I: Drivers and Challenges to the Agrochemical Industry DRIVERS CHALLENGES Large untapped market: Target pest defiance to agrochemicals: -30% increase in agriculture produce if the right - With continued usage over a period of time, a products could be developed for controlling pests resistance to chemicals may develop; the resultant and diseases for which no solution exists as of now. effectiveness of the agro chemical could result in lost sales, if newer products are not developed and introduced in the market. Innovative markets: Regulatory norms to reduce toxicity: -New uses for existing products have offered - Governmental and environmental concerns attractive market opportunities. Some fungicides towards healthy and safe environment also act as a and insecticides have turned out to be very helpful challenge. as seed treatments to control against soil-borne diseases and insect pests immediately after germination. Some insecticides that were developed for crops have proven very effective for use as flea and tick control agents on farm animals. Low capacity utilization: Under-utilization of resources to produce agrochemical basically because of seasonal demand, unreliable power and cheap imports. High inventory: Seasonal demand and poor management leads to over capacity and high inventory costs. Keeping in view the dates of expiry, the companies often have to follow a policy of end of season sales and this leads to price-cutting and market degradation. Low profit margins: Retailers buy on credit from companies and farmers pay retailers at harvest. This leads to problems in working capital management. Also, with the need to clear up stocks, companies follow a policy of price- cutting. Margins get decreased, and only those players who are proactive and offer novel products remain in strong positions. Environmental pressures: Pollution caused by agrochemicals and fertilizers has been a major cause of concern worldwide. Companies need to comply with the global regulations. The farmers should also be educated on the usage and disposal of such products and their impact on the environment. Other problems typical to industry: The customer segment is geographically dispersed and broad with varying requirements. Regulations and controls with regard to pricing and distribution. The market is subject to seasonal demand and fluctuations. There is no product differentiation and competition is intense. 317 Marketing to Rural Consumers – Understanding and tapping the rural market potential, 3, 4, 5 April 2008 IIMK Krishna Private Limited: Background: Krishna Pvt. Ltd. is one of the leaders in the Indian agrochemical industry with a capacity to produce 12,000 M.T. of technical grade pesticide and 35,000 Tons/Liters of formulations per annum. In 2005, Krishna Pvt. Ltd. earned revenues figuring Rs. 3870 crores and profit after taxes of Rs. 40 crores. The company is also among India's leading producers of urea, ammonia and phosphatic fertilisers. With its vision to be a market leader in whichever market it serves, it has always stressed on innovative business practices and a high performance standard with customer and employee satisfaction as the ultimate goal. Krishna Pvt. Ltd. has a cost effective and competent manufacturing infrastructure across the country. The Krishna Research Center (KRC) situated in Andhra Pradesh has state of art laboratories, and has been successful in launching a number of new generic molecules. Been honored with both national and international awards for developing of new molecules, it has been successful in making its presence felt across the country, with a distribution network that covers 80% of the districts in the country; it has more than 1500 dealers and 30,000 retailers all over the country. The years 2000 onwards, witnessed a deterioration of sales, with the year 2002-2003, recording the highest losses, a figure of Rs. 110 crores for the company. A strategic decision on the part of the company led to concentration on the core agrochemical business alone. The next two years saw a turnaround and the years 2005-2006 saw a revenue generation of Rs. 3870 crores, which has given it a second place in the agrochemical market (See Table II). Table II Krishna Pvt. Ltd. - Association with rural India Pre- 1947 Krishna set up a country-wide trading operation in cotton, jute and other agricultural products. 1948-1970 Krishna started fertilizer manufacture and distribution in India. 1971-2000 Investment was made in modernizing manufacturing locations and the Krishna Research Center was established. Exports were given greater thrust. 2001 onwards Disinvestment of Pharma and Gelatin business. Focus on core business of Agrochemicals. Leading player. Product Line: Krishna Pvt. Ltd. manufactures a wide range of agrochemical products; viz, insecticides like Saksham, T Seeda, Saja, Nasaf and Heera; fungicides like Sintaf, Sintaf Plus, Captain and Fusigrab; and, weedicides like Seize, T Dosti and T Pasinda. Krishna Pvt. Ltd. has at least one brand among the top ten pesticide brands and at least two brands among the top ten fungicide products sold in the country. A comparison with other brands proves that the strength of Krishna lies in the fungicides market. Further, most of the best selling brands of Krishna are very old well established products. Krishna’s strengths lie partly in development but majorly in marketing; being strong with a rich product portfolio, a wide distribution reach and popularity amongst the farmers, it was a leader in the domestic agrochemical market for more that a decade till the merger of Bayer with Aventis (See Table III and IV). 318 Marketing to Rural Consumers – Understanding and tapping the rural market potential, 3, 4, 5 April 2008 IIMK Table III: Relative Strengths: Krishna Pvt. Ltd vs. MNC’s (On a scale from 5 Very Strong -1 Very Weak Company R & D Production Marketing Chemistry Development Tech. Cost Portfolio Fieldwork Distribution Comp. image Bayer 5 4 5 3 5 4 4 4 Syngenta 5 4 5 4 4 5 3 4 Dow 4 2 2 2 2 2 3 3 DuPont 4 3 2 2 2 3 3 3 Krishna 3 5 3 3 5 4 4 5 Table IV: Relative Strengths: Krishna Pvt. Ltd vs. Indian Companies (On a scale from 5 Very Strong -1 Very Weak Company R & D Production Marketing Chemistry Development Tech. Cost Portfolio Fieldwork Distribution Co. Image Gharda 5 3 4 5 4 1 3 3 Cheminova 3 2 4 4 3 2 3 2 Indofil 2 3 3 3 2 3 2 3 Nagarjuna 3 3 3 3 3 2 3 2 Krishna 3 5 4 3 5 4 4 5 3.3 Problems Faced: Chattisgarh: The company decided to target the untapped rural market in the country. One such area was the vegetable growing belt of the state of Chattisgarh. The market seemed to have developed tremendously with the state government playing an active role. Despite its efforts, Krishna Pvt. Ltd. was not able to capture the huge market of vegetables growers in Chattisgarh effectively, one of the very important agricultural states of India with a huge market size of Rupees 8 crores. It had only been able to make its presence felt in this region, and had a small market share of 8 %. The Kolkata zone officials were spending a lot of money as well as time and energy to turn around the position of Krishna in the vegetable market of Chattisgarh but all in vain. The company thus, decided to go in for a study of the market, so as to identify the fundamental issues. 4. Objective of the Study: Because of the problems faced in Chattisgarh, it was essential that a primary research be undertaken at both the farmers and the retailer level to help understand the peculiarities in terms of customer psyche and expectations. Rural markets are unique and marketing strategies need to be customized to the dynamics of forces operating in the market, and so the study became all the more important. The aim of the study was to undertake both primary and secondary research of the vegetable market, competitors and vegetable growers, so as to study, develop and implement market strategies for vegetables growers in Chattisgarh. The objectives of the study are as follows: 1. Studying the farmer profile: a) Ascertaining the uniqueness of farmer profile, and peculiarities in rural buyer behavior. b) Assessing the influence of opinion leaders. 2. Conducting primary research of pesticide market and recommending a tactical plan, for the company to regain its market share: a) Studying the market share, industry players and company strengths at distributor and retailer level. b) Estimating market size, growth patterns, new opportunities and threats. 3. Setting up a new distribution network of Krishna Pvt. Ltd. in Chattisgarh: 319 Marketing to Rural Consumers – Understanding and tapping the rural market potential, 3, 4, 5 April 2008 IIMK a) Studying the distribution network mapping and marketing mix of competitors. b) Analyzing needs served by agrochemical dealers and effectiveness of various marketing mediums in rural markets; and, developing optimum contact strategies as well as an appropriate marketing mix. c) Recommending marketing strategies at field level for farmer individual contact, farmer meeting and promotional campaigns. Methodology of the Study: The study was confined to the vegetable growers of Chattisgarh, with the sample being concentrated around patches of vegetable growers in and around Raipur and Durg. Based on the premise that geographical demarcations could exhibit similarity in the farmer profile and the buyer behavior, a cluster sampling technique was used; within these clusters, a stratified sampling technique was undertaken based on the size of holding and caste demographics. A total of 100 farmers and 30 dealers/retailers were chosen as the sample size (See Table V). Table V Profile of the Sample Classification of Farmer Total Acreage of the % Of this Farmer in the farmer (Acres) sample Small Farmer 0- 5 10 Medium Farmer 5- 30 60 Large Farmers 30 – 60 20 Traders > 60 10 A schedule was prepared that was administered to the farmers and distributors; the questionnaire as a tool to gather data, seemed inappropriate, first, because of the literacy rate of the farmers; second, due to the product complexity and the technical complexity involved. The use of personal interviews while administering the schedule could help (i) in simplifying aspects of the questionnaire; (ii) watching customer’s reactions and personal observations; (iii) getting a deeper understanding of the underlying reasons and effects . Findings: Customer Profile: Farmer Profile: The farmer profile indicated that the farmers have large holdings with an average land holding of 25 acres and median land holdings of 20 acres and are well off comparatively. Cropping and Spraying Pattern: The cropping pattern revealed that the farmers prefer to grow vegetables in comparison to other crops; about 80% of the cultivated area was under vegetables, followed by 15% in maize, fruit and sugarcane and 5% under paddy. The average yield in quintal per acre for the vegetables grown was also high. The number of sprays per crop season amounted to 10-12 sprays, with the spraying frequency being 8–10 days; this varied across the months. 320 Marketing to Rural Consumers – Understanding and tapping the rural market potential, 3, 4, 5 April 2008 IIMK Month Wise % Breakup of Pesticide Consumption 18 16 16 14 14 12 12 10 9 9 8 7 8 6 6 6 5 5 3 4 2 0 Jan Feb M arch April M ay June July August Sep O ct N ov D ec % usage of Total pesticides Fig. I. Month wise breakup of Pesticide Sales Irrigation Facilities: The region is well drained and irrigated, so as to facilitate 2-3 crops in 10-11 months of cultivation. It was found that 86 % of the total vegetable acreage had boring facility; about 60% of the total vegetable acreage had drip irrigation. Cash Credit ratio: For the smaller farmers with land holding of less than 25 acres, the credit ratio is 30 %; these farmers actually felt the need to avail a cash discount benefit and mainly bought on cash. As far as the farmers with land holdings of more than 25 acres was concerned, the credit ratio is 80%; this was primarily due to relationships that they could build with their lenders and suppliers. The net credit ratio is 60%. Innovativeness and product loyalty: The study revealed that the bigger farmers are less brand conscious, and show a low product loyalty. While the farmers were satisfied with their current products, about 70 % of the vegetable farmers were keen in trying out new agrochemical products and techniques to prevent resistance formation. The rest of them waited for the performance to reduce before changing their products/ brands. Customer Buying Behavior: Critical success factors in determining the choice of the product was identified, viz., company name, farmers’ recommendation, dealers’ recommendation, launch of new chemicals and trial pack result. The figure depicts the parameters which were rated in order of importance by the customers’ choice (See Figure II). It was observed that 84% of the farmers were knowledgeable and actually purchase the pesticide based on the technical compounds rather than on the company name and image. As far as source of information is concerned, 40 % of the farmers took advice from the dealers, 95% filed the product literature for future reference, and 15 % of the farmers watched the agri- programmes, like Krishi Darshan on Doordarshan. The farmers also rely on local newspapers and agricultural trade journals for information. 321 Marketing to Rural Consumers – Understanding and tapping the rural market potential, 3, 4, 5 April 2008 IIMK While co-farmer recommendations and experiences play a major role as a determinant of product quality, it was observed that the company officials and the qualified field staff acted as major educators, influencers and persons who were consulted in the purchase decision in fact, the results from the study reveal that the farmers also desired such help from the company; this could take form through meetings, contacts, demonstrations etc. (See Figure 3). The field staffs and field assistants not only campaigned for the products but also educated and guided the farmers all the year round. Village fairs and stage shows are used to display product offerings; video vans are used to screen pictures and documentary films to attract farmers, and educate them on the product and brand offerings and the usage techniques. The farmers were also educated on pests and diseases and the corrective measures that were required to be undertaken. This highlighted the need for appropriate contact strategies between the company and the farmers. The study indicated the importance of farmer meetings and face-to-face contact with company officials as a major educator and influencer for the adoption and usage of chemical products. While 62 % of the farmers came to the dealers’ outlet with a product decision already decided based on preconceptions, the push was required as it led to greater confidence and satisfaction in the minds of the farmer. “(Take in Figure III).” Good Quality Parameter Trial pack result Company 15% name Launch + new 24% Chemical 7% Dealers Farmers Recommendati recommendatio on n 20% 34% Company name Farmers recommendation Dealers Recommendation Launch + new Chemical Trial pack result Fig. II. Good Quality parameters What Does The Farmer Want From Us ? Better Product Better Product literature literature s d an Helpline Helpline Farmer m eFarmer Meetings Meetings D s + Field Contact u VarioDemonstrations Demonsstration Seminar Seminar 0 20 40 60 80 100 % of People Demanding Fig. III. Farmer Expectations 322 Marketing to Rural Consumers – Understanding and tapping the rural market potential, 3, 4, 5 April 2008 IIMK Customer Expenditure: With the seed expenditure/acre/pa and the pesticide expenditure/acre/pa being correlated to each other, Krishna Pvt. Limited also studied the seed expenditure vs. the pesticide expenditure. This could help the company in segmentation on basis of usage rate so as to target the appropriate farmers. It was seen that the increased popularity of the high yielding hybrid seeds is affecting the pesticide industry, with a seed expenditure/acre/pa of Rs. 3000 and a pesticide expenditure/acre/pa of Rs. 10000. The cost of cultivation was calculated; the pesticide expenditure amounts to the second highest component of the total expenditure (See Figure IV). “(Take in Figure IV).” Market Analysis: Product Portfolio: For The Vegetable Growers the product portfolio can be divided into 3 types of products. Type 1 – Products, which are already popular and are used regularly by the vegetable growers Flitox, Sintaf and Dogor. Type 2 – Products which need to be focused since farmers are satisfied with their usage are Srajan , Heera , Vishal , Saksham , Seeda Type 3 – Products of other companies’ with similar technical propositions are used extensively but not the Krishna brands like Prakat, Diotox and Liptane. Market study: The analysis of the market in Chhatisgarh revealed that Krishna Pvt. Ltd. has a strong name and image, with a high recall value, and a mindshare of 55 %. The number of product offerings from Krishna Pvt. Ltd. are few. In spite of this, when asked to name a major player in the market, the farmers named Krishna. This is indicative of the fact that it has a strong name and was popular. However, the major causes of concern for Krishna Pvt. Ltd. in Chhatisgarh are as follows: i) The main dealer Kisan Ratna in Raipur, is weak in selling to the vegetable sector and has a share of 17% as against the more important dealers Krishak Kendra and Nootan Beej Bhandar, who are dealers of Syngenta and Bayer and has a share of 66 % (See Figure V). “(Take in Figure V).” ii) A similar problem exists in Durg, where the dealers of Bayer and Syngenta have a share of 61 % (See Figure VI). “(Take in Figure VI).” Distribution network Analysis: i) Needs served by the Dealer: The main reason for farmers’ adoption of agrochemicals amongst the vegetable farmers of Chhatisgarh, is protection of crops. The dealers provide information about the various product offerings, their constituents and benefits; the usage; the accessories; and, the side effects and results of using such chemicals. They also educate them on issues of safe usage and disposal. Apart from this, the major role played by the dealer was facilities of credit and development of long term relationships. The dealers provide credit facilities, often through mutually agreed upon terms and conditions whereby the farmers are allowed to pay in installments or sometimes even after harvest. The long term relationship that developed between the two, on basis of trust was an important factor affecting both product and store loyalty (See Figure VII). “(Take in Figure VII).” ii Dealer Feedback: The study on the dealers revealed that there was a high degree of discontentment amongst the dealers, issues being: 323 Marketing to Rural Consumers – Understanding and tapping the rural market potential, 3, 4, 5 April 2008 IIMK i) Pricing: The pricing methodology of the company is vague, incomprehensible and non- transparent.; the pricing for each month is announced as late as two weeks every month and that made implementation difficult. ii) Product packages and sizes: There was a complaint from the dealers that smaller packs are always short in supply; this is true even for newer product offerings where trial is an important issue for farmers. iii) Company representative visits: The frequency of visits made by the company officials was found to be satisfactory at the dealer level but at the retailer level it is weak (See Figure VIII). “(Take in Figure VIII).” It was also seen that the dealers preferred to stock, established brands in the market, even if it meant lower margins which they could offset by sales, as brand image in the minds of the farmers is an important parameter. However when the product was not an established brand, then the dealers were more interested in higher margins and returns. Competitor Analysis: Contact Strategies of Competitors: Due to the complexity of the product and its usage, communication with the farmers to create awareness and knowledge becomes essential in the agrochemical industry. Efforts towards effective customer relationship management are undertaken by the players in the industry through contact strategies so as to win the confidence of farmers and develop long-term close relationships. The study revealed that Syngenta, the market leader of agrochemical industry in Chattisgarh has contact strategies that are paramount to its success. Right from the sales executives to sales officers and field staff, every official is proactive and visits 20-35 farmers a month. Syngenta uses advanced technologies through audio visual means; a van with LCD screen to educate farmers on latest agricultural practices and to promote its products is used. The Syngenta India Agro Farmers Club has been formed to facilitate network building amongst farmers who thereby have a platform to share their experiences and increase awareness. Syngenta and Basf have also been organizing annual and biannual informational seminars that serve as a platform for grievance reprisal and to launch of new products. The companies also have an attractive reward system for its retailers, who are thus, always keen to push the product. Suggestions and Recommendations: Contact Strategy: Effective contact strategies to connect with customers and treat them in a special way are of utmost importance as service differentiation can win customers and boost the business of the company (See Table VI). Table VI Recommended Contact Strategies Contact Objectives Frequency Key Notes Strategy Informational Seminar -Communication Platform: -Annual or Biannual with at -Invite knowledgeable Information about the product least 100 – 150 Progressive Experts, Scientists or portfolio, Farmers Professors. -Brand Strengthening, -Cover topics like crop -Mind share for the new products. rotation soil types and micronutrients Field contact by - Field Contact + Regular Advising -2 villages and 10 Farmers / Farmers visited should knowledgeable and qualified - Objective to visit the farm crops, Day; become dependent on people. identify the major pests and -Cycle repeated monthly; brilliance of Krishna for diseases and advise the correct -a total of 10*25 = 250 advice. -Resposibility: Permanent Field pesticide for it. farmers a month and then 324