Vodafone says it has the widest presence of exclusive retail in the country, serving over a million walk-ins.
Project Pappu seems to be a rather innocuous name for a flagship strategy, but it is the driving mission for people like Sunil Sood and Sanjoy Mukherji of Vodafone India.
Pappu and his family represent the new India and they are in the 637,000 odd villages. The logic is simple: if tele-density is 163 per cent in the urban cities, it’s a mere 35 per cent in the villages. So the incremental bang for the buck has to come from the hinterland. And once you win their trust, they are stickier than you would think.
In any case for Vodafone, the affable Hutch pug had already set the standard by claiming, “where-ever you go, the network would follow.” The super Zoozoos have since taken over from the Pug, but that template has remained.
The challenges are many. What do you do when you figure out that 92 per cent of the villages have a population of less than 10,000 or that 66 per cent of the rural population is in villages of less than 10,000? Balancing the cost of reaching them and the additional revenues are a tough toss- up.
“The core to our rural focus has been sustained reach. And that’s why network has to be the key. Sales and distribution have to then follow that network. It can’t be the other way round,” explains Sood, who heads Vodafone India’s business operations in west and south.
Vodafone decided to go off the beaten track by tweaking its network coverage and choosing not to follow the conventional route of a linear expansion along the highways. Instead it covered a villager’s “community of interests.” These are the different pockets or milieus he frequents for his various socio-economic needs. “Urban guys think they travel a lot. But a villager and his family travels a lot more. They go to various mandis to sell their produce and visit various feeder markets to buy provisions.
Their children probably travel to another village for school. It’s the same for healthcare services or even a bank,” Sood says. “And they need coverage in each of these locations. Every single village has a unique community.”
So Vodafone decided to cover location after location by first identifying the different communities of interest. Using technology like GIS mapping, and population data as a surrogate, the planning also became easier.
This way, you go as deep as you can. “A village in East UP may have 1250 people. But there’s an 800,000 population within 22 kms. That could be 1,500 villages. And that’s a real community of interest,” says Sood.
Sales and distribution had to then ride piggyback on this network backbone. Again, Vodafone officials found conventional strategies limiting. Most companies kept their distributor in the feeder town where the cell sites (read BTS) came up and he only served that particular town (usually the most populous) and the villages in its peripheries that he could easily access along the highway. But that way, many villages were falling off the sales and distribution radar.
Vodafone chose to reverse that. After being accessible to all those communities of interests, with its network, it had to make its service – mostly prepaid — available near every village Pappu’s house.
So along with the main or the “super” distributor (SD) who remained at the hub, came the “associate” distributor (AD) in a two tier model to increase the presence and relevance. The AD is a key stakeholder. Being a local, he brings familiarity with the local environment.
Analysts partially agree. “Even now, the process of acquisition of a rural customer in telecom largely happens in big feeder towns where choice is more. But for recharge it always helps to have a village presence. That’s where the FMCG distribution model worked,” says Nikhil Sharma, Partner, MART, a rural marketing consultancy. The only difference for Vodafone has been that they have been doing everything on their own.
| PROJECT PAPPU’S RETAIL FOOTPRINT | |||||
| Vodafone | Airtel | Tata Indicom | Reliance ADAG | Idea Cellular | |
| Experience stores Mini stores | 465 | 681 | 348 | 217 | 369 |
| (Urban and rural) | 7125 | 1151 | 2497 | 1827 | 1105 |
| Total | 7590 | 1832 | 2845 | 2044 | 1474 |
| Source: Vodafone | |||||
So how do the numbers work out?
An SD visits an AD at least two to three times a week. The AD then typically “handles” 4-7 cell sites on an average. And a single site covers a radius of 4.5 kms. Most ADs need a catchment area of 30,000 to break even.
The mandate is simple: For every 1000 people, Vodafone connections or top up recharges must be available in 1.3 outlets. There will be one distributor sale executive for every 60 outlets. Currently there are over 11,000 such indirect channel partners. Out of that around 8,454 are ADs. The ADs now also offer one stop service as 85 per cent of them own a low cost Vodafone Service Centre. These 1500 sq ft “Laal Dukaan” or Red Shops with visible Vodafone branding offer one stop solutions to all telecom needs at the village doorstep. “ Such brick and mortar presence in a village increases your reliability. The AD invests Rs 35,000-Rs 50,000 per shop but we assist his entrepreneurial venture,”says Sood.
There are 6,000 such Laal Dukaans dotted all over rural India, catering to 59 million villagers – that’s 40 per cent of Vodafone’s total subscriber base of 146 million. When clubbed with urban stores, Vodafone now has the widest presence of exclusive retail in the country, serving over a million walk-ins (see chart)
But why have the main distributors allowed their margin to be sliced up further among the ADs? Usually the margin from the distributor to the retailer is 4.5 per cent, and the more the stakeholders, the more the claimants. “ADs are saving the main distributor’s expenses to cover all the difficult villages. His costs are going down and that’s why he’s willing to share,” explains Sood.
Costs are minimal for the company as well. “If we were using urban infrastructure in rural markets, it would have been very different. But we are using a local. The margins and ARPUs are lower, but the stickiness of the customer tends to be more. So the revenues per subscriber improve,” Sood says.
But with an unbeatable infrastructure, why is there still a sizeable gap between Vodafone and the market leader Airtel? It’s for historical reasons, the officials argue. “Majority of the gaps are in the seven circles where Vodafone launched only in 2008-09. Here, the gap in subscribers is close to 25 million. But in our legacy circles like Gujarat, UP East or West or West Bengal, we are closing in or are the leaders already,” said an official who did not want to get quoted.
The Zoozoos are surely sweating it out in the rural sun.
