The shifting sands of rural marketing: 5 lessons in selling rural energy products

In India, a range of Distributed Renewable Energy (DRE) technologies have arisen to test whether clean energy can displace ‘energy staples’ for rural Indians such diesel or kerosene. These DRE devices include clean-cookstoves, solar lighting through lanterns and home systems, solar mobile chargers, renewable power for heaters, chillers, irrigation pumps and gasifiers.  For Anurag Bhatnagar, CEO SEWA, “When you’re talking about a sustainable market, you’re talking about a market that does not depend on grants or subsidies.” Here are some key lessons on what is driving the DRE markets towards sustainability:

#1 Credibility, not price, is a key barrier

“That price is a barrier [for DRE product sales] is a complete myth” says Moulindo Banerjee, CEO of a rural clean cook-stove distributor, Sapient Infotech, “the real barrier is demonstrating a compelling value proposition.” 

As Banerjee explains, about 40% of rural people live hand-to-mouth. While the rest of the rural market has disposable income, rural customers have been burned by poor products and lack of customer support, hence they remain skeptical of DRE technologies.

Banerjee talked about “everything but cook-stoves” during his year-long stay with the people in remote villages of Sunderbans region in West Bengal. Instead, he used the cook-stove for his personal use while in the village which, over time, converted curious observers into paying customers.

Last year, Banerjee set up a breakeven supply chain of chopped firewood to accompany his cook-stove, targeting resource-scarce villages where people were already paying Rs.5/kg for firewood. In addition, Banerjee’s charcoal buy-back scheme enables his customers to receive  on-going revenue of Rs.8 for every kg of charcoal produced from the cook-stove, helping to recover the cook stove purchase price in 3 months. 

This model, where the actual usage of a clean cookstove is incentivized, has enabled Banerjee to secure international carbon credit to subsidize the price of cook-stoves. In addition to the commission for each cookstove, every rural entrepreneur gets a share of the on-going carbon credit earnings over a 10 year period. For 2014, Banerjee has secured carbon funding that will at least double (if not treble) the 4,000 cook-stoves sold last year.  

#2 Distributors/retailers are the eyes and ears in rural India

Indeed, the distributor/retailer networks are the ‘eyes and ears’ in rural areas, ultimately driving stakeholders to offer products that people will buy.

In Gujarat and North East Indian states for example, solar lighting and mobile charging products can sell up to 6x more than clean cook stoves. However, in Maharasthra and West Bengal, grid coverage is almost 90% and there is less market pull for solar products. Instead, greater value is seen in chargeable batteries to offset load shedding, and in solar water heaters, where energy tariffs are expensive. The cook-stoves have typically seen demand in villages where firewood is scarce or where cheap pellets/agri-waste can replace kerosene. SEWA, an NGO focusing on enhancing the earnings capacity for women, disseminates training and essential services across a national network comprising millions of women. For SEWA, the demand for DRE devices is driven by economic value of the product to people’s livelihoods i.e. the need to quickly charge a mobile phone, or increase productivity via solar lighting.

Vibhore Jaiswal, Founder Nav Durga Metal Industries and Ankit Mathur, Founder Greenway Infra are manufacturers who have opted to use local commercial dealer-distributer networks.  Both Jaiswal and Mathur  do not set stringent targets for their distributors/retailers –distributors respond to ‘pull’ for the right product which sets the right inventory for each region. For Nav Durga Metal Industries, now 4-5 years old and based out of Lucknow, NGO and MFI channels hardly account for any sales. Distributers have appointed retailers, who stock these products alongside FMCG and consumer durable products, and await the ‘pull’ from rural customers. Aggregated feedback from retailers and distributers drives many different iterations of DRE product development in timeframes as short as a few months.

#3 Closing a sale is labour intensive: partners essential

“Distribution is [out of control] hard ,” says Ajaita Shah, CEO Frontier Markets. Shah was recently featured in Forbes ’30 under 30’ described by the publication as the world’s ‘brightest young stars’ who are ‘re-inventing the world’. Observes Shah, “[Rural distribution] is very capital intensive and you need to have a lot of people on the ground to engage a customer base that doesn’t understand the concept of solar, so there is a lot more physical hand-holding that happens… By the time you actually convert your customer, you’ve practically spent your entire margin… The way we have mitigated that is by embracing technology and using local agents to create better engagement.”

As volumes increase, the supply chain will begin to pay for itself. The approach is similar: partnerships and product diversification help to establish scale at a district level and to get ‘bulk access’ to the customer base. District level distribution hubs typically service a 20km-40km area. Meanwhile local re-sellers, women networks / NGOs or village entrepreneurs build trust at the last mile and help close the sale.

To keep costs down and minimize transport between district aggregation hubs and villages, local capacity is built for marketing, repairs and maintenance and revenue collection. Another feature which both Mathur and Vibhore have adopted to keep after-sales cost to a minimum is to provide a replacement warranty  while driving down product failure rates to below 1%. Nevertheless, village entrepreneurs or re-sellers are the first point of contact for a wide range of customer support roles. 

Another model has further stripped out costs associated with distribution. Essmart Global, the brainchild of MIT students Diana Jue and Jackie Stenson, is establishing a socially conscious distribution network that merges with existing kirana stores. Their distribution centers are focal points for customer support and marketing. Essmart sales agents are responsible for developing a relationship with local kirana stores to encourage them to buy and stock products from the Essmart product catalogue. While solar products and other DRE devices on the catalogue are still picking up momentum, Essmart helps rural Indians to get access to other essential mainstream products . One sales agent coordinates 100 kirana stores , and with multiple agents at each distribution center, the potential for scalability is huge.

#4 If you create the market, look after it

As Shah warns, saturating markets by creating too many franchises and VLEs than what the present industry is capable of accommodating endangers the livelihoods of rural entrepreneurs. This is harmful to the community and the relationship with customers. Irresponsible market building can jeopardize the rural distributor/marketing infrastructure that companies are trying to set up.

Many socially conscious companies and NGOs have recognized that the sustainability of DRE products lies in their usefulness for enhancing the earnings capacity of the wider community, as small and volatile markets in rural India may suddenly lose out on the ability to pay for consumption of consumer durables.

Experiences of both Sakhi Unique Rural Enterprise (SURE) India and SEWA demonstrate that DRE demand is linked to having a sustainable market which improves rural incomes. For Bhatnagar, DRE devices are offered as part of wider support services and job training provided to women, for example, using solar lights for increasing productivity for women engaged in handicraft and food processing industry.  SURE India, a distributor of Oorja cook-stoves, has begun to provide direct employment to rural Indians by setting up in-house manufacturing for fuel pellets  to supplement cook-stoves and other social products. Bhatnagar and Patil both emphasise that establishing linkages to economic markets and building awareness around what DRE devices can offer is essential.  

One lesson can be gleaned from Frontier Markets. Shah has observed that solar lanterns are a low cost, low risk mechanism of introducing the concept of solar energy to villages. This creates awareness and facilitates buy-in for more sophisticated renewable energy products but small ticket items for re-sellers / entrpreneurs to try out without much risk.

#5 Finance not just the end-users

For those customers who can see a value for the product but cannot afford to pay for the entire price upfront, MFIs are willing to grant loan top-ups or provide small loans for a limited range of products. Many re-sellers allow buyers with a reliable credit history to pay 2 or 3 installments or settle as part of a routine credit account (e.g. food items).  Essmart Global, rather than creating end-user financing, encourages manufacturers to support kirana stores in providing informal credit for high value items, such as solar home systems .

In some cases, supply chain financing makes more sense. Frontier Markets offers a rotational credit line for its dealers after the first billing to help their franchisees stock products for up-to a month. Based on the billing history of their dealers, credit terms can improve from being 50% up front to only 20% upfront or even 0% upfront of the total products stocked. Franchisees are then encouraged to offer end user credit, if required, and hence the onus for collections remains within the local community. 

For Greenway Infra & Navdurga industries, granting credit to traditional distributors, retailers or NGO partners is too risky when the ability of downstream players to pay-back is not always guaranteed.  In such cases, manufacturers play with inventory levels, the timing of payments relative to ordering and dispatch, and grant a 15 day grace period for distributor payments which help adjust the working capital available across the supply chain. 

Many manufacturers and NGOs use demonstrations, village gatherings, and self-groups to confirm end-users of products before placing orders. For example, SURE India has a catalogue for high price tag items which means leads can be generated prior to buying and stocking a high-ticket item.

Smooth sailing ahead?

It is still difficult to break even in this market. For example, even an aspiring rural entrepreneur needs support to invest in retail overhead and products. For a Village level Entrepreneurs, even if selling small ticket items (e.g. lanterns), an initial investment could be north of Rs. 10,000  to cover costs of marketing & training and this money typically needs to be collected from family and friends. Organizations and NGOs who bring entrepreneurs into this ecosystem need to ensure these entrepreneurs do not take on all of the market risk associated with DRE devices. 

Nevertheless, what does it mean to build a market for DRE devices ‘responsibly’? 

It is seen that firms like Frontier Markets and Essmart Global are providing something much more valuable than a typical distribution service – a brand proposition, where rural customers recognize and associate their brand with good product quality, strong after-sales support, and access to a wide range of product options.  Perhaps this is where NGOs who have succeeded in creating a trusted brand over many decades will now reap the rewards, or play an ever-important role as a steward, as more private companies wish to access rural markets. 

Overall, rural customers and an increasing number of manufacturers are responding to a value proposition based on trust, customer service and product quality – something that is crucial to the uptake of DRE devices in India.

Image Credits: Sapient Infotech, Essmart Global, Nav Durga Metal Industries, Engineers of Change, Eliduke