Chotukool from Godrej

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4 Chotukool from Godrej^*

Marketing Challenges at the Bottom of the Pyramid

In 2005, Sunder Raman Gopalan, Innovator and Vice President of Corporate Development at Godrej & Boyce Mfg Co. Ltd,¹ on completion of his 25 years work at the Indian conglomerate, told his Chairman, Jamshyd Godrej: ‘I think I want to do something different now.’² At that time, he had no concrete idea about what he wanted to do, and in which arena, or for whom? For him, the true reward of his hard work would come when he would hear the words: ‘Chotu, thanda leke aa’³ (Chotu, bring some cold drink) in a rural household. His mind was set to do something for the rural population of India, something that could solve the problems of villagers. In 2007, he started pursuing his dream, first by himself and then with some staff members. In September 2008, he unveiled the working prototype of a mini-fridge by including inputs of many rural women.⁴ The project was completed in 2009.⁵ Thus Chotukool, a mini-fridge for the poor, was born.

The product named ‘Chotukool’ was finally launched in March 2010,⁶ leveraging the distribution strength of Department of Post Office (DoP),⁷ microfinance institutions (MFIs)⁸ and self-help groups (SHGs).⁹ Chotukool (little cool in Hindi) is an affordable, portable, low-energy-consuming refrigerator that can work with a battery, an inverter, solar energy 12 V DC, or 230 V, 50 Hz main line AC voltage. It is compact, has a capacity of 30–40 litre, is lightweight and comes in vibrant colours such as Candy Red.¹⁰

If you are making a product for bottom-of-the-pyramid (BoP) consumers, it is not only about being cheaper; there are many other basic problems in BoP markets that need to be addressed, such as low literacy levels, little access to conventional communication media such as cable TV and newspapers, as well as logistical costs and other distributional challenges. How does one design products that people really need? How does one’s product meet the norms of social and environmental sustainability? Is the product non-hazardous, clean and simple to use?¹¹ Keeping these points in mind, Sunder Raman Gopalan hoped to overcome these market challenges and make it big. After visiting many locations in rural India, and with the help of some women in these areas, Chotukool was launched at an end price of ₹ 3,790. It boasted of being the cheapest refrigerator ever made, with a capacity of 30 litres, weight of 7.8 kg, power of 55 W, with dual power supply (230 V AC, 50 Hz and 12 V DC) and, most importantly, working without any compressor.¹²

CHOTUKOOL: THE PRODUCT

Chotukool, co-designed with rural women, is the latest symbol of frugal innovation based on product simplification that suits the requirements of the large low-income markets of India’s BoP consumers. Other than being a symbol of frugal innovation, Chotukool also boasts of being an embodiment of co-creation with consumers. For example, candy red colour was chosen due to the overwhelming response of over 600 women for choosing the colour of the mini-fridge. The product is a top-loading, compact and portable cooling solution with no compressor. Instead, it has a cooling chip along with a fan, which is a mechanism similar to that being used to cool computers. It works along the principles of solid-state cooling, which has no refrigerant gas.¹³ Given the power shortage in rural areas, Chotukool can operate on battery, inverter or on solar energy. Its high-end insulation allows the content stored inside to stay cool for hours without any backup power. The operational cost of Chotukool for consumers is low too, as it consumes half the power consumed by regular refrigerators. A consumer price of ₹ 3,790 also makes it very affordable for villagers in India and for other South Asian countries as well. Chotukool has only 20 parts, compared to 200 parts in any normal refrigerator.¹⁴ However, its maximum capacity is 40 litre, which is one-fifth the capacity of regular refrigerators. The mini-fridge opens at the top to conserve cold air. At the lid joint, the product can be dismantled into two detachable parts. A power socket is connected to the lid, next to the two axial fans that dissipate heat from inside.¹⁵ The top view of Chotukool resembles a smiley face: the two axial fans are like its two eyes; the regulator below and between the axial face is like its nose and the opener is like its lips. It maintains the right humidity and temperature at 10–12°C, and generally below 20°C, and below ambient temperature. It also has a switch to go into sleep mode to conserve energy.¹⁶

Being a compressor-free mini-fridge, Chotukool uses thermoelectric cooling technique based on a concept called the Peltier effect,¹⁷ named after its French discoverer. In this thermoelectric phenomenon when an electric current is applied to the junction of two different metals, one end of that junction grows hotter and the other end cooler.¹⁸ Mainly due to these reasons, the average electricity bill for running Chotukool is only around ₹ 60–70 per month.¹⁹ All this (and maybe more to come in the future) from a century-old Indian conglomerate, Godrej & Boyce.

Godrej & Boyce belongs to the Godrej Conglomerate. The Godrej family founded their businesses in late 1897 as India’s largest safe-locker dealer, and soon grew into a conglomerate in businesses such as real estate, fast-moving consumer goods (FMCG), industrial engineering, appliances, furniture, security and agriculture care. Today, Godrej as a conglomerate encompasses Godrej Industries, Godrej InfoTech, Godrej & Boyce, Godrej Hershey Food & Beverages, Godrej Agrovet and Godrej’s Udhyanchal School as part of the Godrej Group with revenues of $2.6 billion (in 2010),²⁰ growing 25–30 per cent annually. The organization has received the ‘Corporate Citizen of the Year’ Award from The Economic Times. The Brand Trust Report published by Trust Research Advisory ranked Godrej in the 22nd position. Godrej Security Solutions, one of the divisions of Godrej & Boyce Manufacturing Company, is planning to invest ₹ 200–250 million on research and development (R&D) in the next financial year.²¹ Backed by strong R&D, Godrej & Boyce wants to fulfil their business mantra of being present in areas ranging from high-tech engineering to consumer products.²² The Chotukool initiative came forward as part of the social entrepreneurship drive under the corporate social responsibility²³ umbrella. With the help of these entrepreneurship plans and with the right kind of support and encouragement, the firm is hopeful to see a huge growth in momentum in the next three to five years, specially in the rural areas.

CHOTUKOOL: AN EXAMPLE OF DISRUPTIVE INNOVATION

Over a hundred Chotukools are being tried and tested in Osmanabad district, a small town in the Marathwada region of Maharashtra.²⁴ Chotukool has done to the refrigerator market what Tata Nano is to the car market. Chotukool, the product, is itself a disruptive innovation. Disruptive innovation, a term coined by Clayton Christensen, a Harvard academic, describes the process by which a product or service takes root initially in simple applications, at the bottom of a market, and then relentlessly moves ‘up market’.²⁵ It can discover unexplored consumers, give them a variation of an existing product, and thereby even change the way the existing product is made.²⁶ It helps in creating a new market, and value network, and eventually goes on to disrupt an existing market, and value network. The way it was co-created with village women, through several rounds of alterations based on their feedback, and the manner of educating the rural population about Chotukool is yet another innovation.

CO-CREATION OF VALUE AT BOP

In September 2008, when the first prototype of Chotukool was unveiled, villagers started working with executives from Godrej & Boyce to give them some idea on the design, colours and other basic features such as number of racks.²⁷ It is difficult for consumers living in remote villages to understand the need for such products and accept it easily, so a team of executives from the company and some villagers who were working with them interacted with all kinds of people—educated, uneducated and semi-urbanite—before the launch of Chotukool. Finally, taking the inputs from the villagers into account, they created a product which could be used by anyone, from an uneducated person to a highly sophisticated urbanite.²⁸ This seemed to be a shining example of co-creation of value between producers and consumers at the BoP, or an example of product designing process using a democratic perspective. After its completion, the company constituted a team to sell it, naming the team as ‘entrepreneurs’.²⁹ Initially, training was given to entrepreneurs, and then they all went from door to door to sell the little fridge. Exhibition of the mini-fridge was carried out in the villages, explaining to consumers the features and benefits and demonstrating how products such as milk and soft drinks could be stored. The company also uses a micro entrepreneurship model whereby villagers earn money for distributing Chotukool. Each entrepreneur gets their commission on the sale of each Chotukool. For example, Rukmini Adsule (a lady from Osmanabad district, a small town in Maharashtra)³⁰ earns ₹ 3,000 a month as commission on the sale of Chotukool.

TARGET MARKET

The main target market for this product consists of BoP consumers who do not use or even know about a refrigerator. For the rural areas, the product is also a source of income for them. The company wants to target two categories in rural India—rural households and rural shopkeepers. It wants to provide cool comfort, convenience and social status to rural India.³¹ The company has also been facilitating loans and easy finance schemes through micro-finance firms. The intended uses of Chotukool for commercial and household purposes may be as follows:

Chotukool is very useful for local vendors at street corners to store cold drinks, water packets and bottles.³²
To keep tobacco leafs cool for a longer time.
To keep flowers and garlands fresh. The florist can now save 3.5 kg per day by using Chotukool.³³
To preserve fishes and to sell them for longer periods of time.
Mumbai Dabbawalas can also use it by putting one bigger dabba (Chotukool is bigger compared to other dabbas) in their trolleys and can distribute cold water and soft drinks to their daily customers.
Source of income for distributors (postman³⁴ and sakhi³⁵) and mediators between Godrej & Boyce and consumers, as they get their commissions, and concessions based on the number of products sold.
It can also be used as a second fridge at home instead of big 200 litre refrigerators, to avoid going to the kitchen every time for cold water, especially at night.
It can be used for picnics and transported in cars.

The operational cost of Chotukool is low as it consumes a fraction of the power consumed by regular refrigerators. In case of power shutdown, it can be run on inverter or batteries. Moreover, it has high levels of insulation which will keep it cool for long hours without use of electricity.

DISTRIBUTION

More than 100 prototypes of the product are being tried and tested in Osmanabad district. The way it was co-created with village women, through several rounds of alterations based on their feedback, is another feature that can aid distribution in the villages. In addition, the manner in which it will be distributed—with the help of the post office, MFIs and SHGs—sold and serviced is even more innovative. In India, right now, Chotukool is available in rural and semi-urban areas of Maharashtra, Goa and Gujarat (starting from 1 October 2011, in all three postal headquarters—Ahmedabad [North Gujarat], Vadodara [South Gujarat] and Rajkot [West Gujarat])³⁶ and there are plans to expand it to Karnataka and Tamil Nadu also. One of its manufacturing plants is in Pune, Maharashtra. Not only are rural people fortunate to buy such a product (it may also be a money generator for them), but intermediaries may also join in selling the product.

Godrej & Boyce is using very different methods for selling the product, such as the use of post offices. In rural areas, letters are still used as means of communication, given the low penetration of the Internet. Every single house is covered under the post office network; the postman also knows the address of all the houses in his area. India Post is a network which reaches every person in India. The company has thus tied up with the postal department to sell the product in rural areas across the country.³⁷ Pune (Maharashtra), Chennai (Tamil Nadu), Ahmedabad (North Gujarat), Vadodara (South Gujarat) and Rajkot (West Gujarat)³⁸ are the postal centres currently being used to sell the mini-fridge. In Chennai, India Post and Godrej & Boyce have partnered in building a socially responsible business,³⁹ as 7,500 families have become owners of Chotukools seeded through India Post–Godrej partnership in Chennai region.⁴⁰ The company has set a target of selling at least 10,000 Chotukool units by the end of 2012 in Maharashtra.⁴¹ Sales during the period, 1 October 2011–19 November 2011, suggest that Vadodara sector tops the list with a sale of 644 pieces, covering areas such as Anand, Bardoli, Bharuch, Kheda, Navsari, Panchmahals, Surat, Vadodara East, Vadodara West and Valsad. In the Vadodara sector, Panchmahals tops with a sale of 392 pieces while Ahmedabad had sold around 129 pieces and Rajkot had sold only 11 pieces, said Senior Superintendent Post Officer M. I. Patel, Surat circle.⁴²

Based on the price of ₹ 3,790 in Pune,⁴³ Chennai and Gujarat region,⁴⁴ the Department of Post gets ₹ 250.⁴⁵ Godrej & Boyce offered a discount of ₹ 300 to the employees of India Post valid up to 31 October 2011, whereby any employee could buy one Chotukool for personal usage. The commission payable to DoP will remain the same as ₹ 250. This resulted in a discounted price of ₹ 3,490 for the employees of India Post. The actual price for the common public remains ₹ 3,790.⁴⁶

Another method used by Godrej & Boyce is in villages where only villagers are involved; there are no outsiders or postman. Sunder Raman Gopalan says, ‘We have to understand the nuances and the needs of customer segments within’. He believes that the BoP is not a monolithic market. Other product companies such as Hindustan Unilever (HUL) and BP Energy also sell their products in the BoP market, and Godrej & Boyce is following a similar method.⁴⁷

Swayam Shikshan Prayog, a self-help group (SHG) and an NGO-MFI have come together to form a business model where any woman can earn a livelihood by selling products for companies such as HUL, and BP Energy. This group created an entirely new company called Sakhi Retail Co., where there are about 850 women called sakhis (female friends) who are also stakeholders. To form that company, each woman has to contribute ₹ 10,000 or the equity stake and takes on the role of an entrepreneur in her village (micro entrepreneurship as discussed earlier). A woman (sakhi) earns more than ₹ 2,000 per month as a commission on sales of various products such as Chotukool of Godrej & Boyce, Oorja (stove) of BP Energy and Pureit (water purifier) of HUL.⁴⁸

In Vashi village of the Marathwada region (Maharashtra), there is a young woman named Shantipriya Gavali who is leading the drive for innovation. She is part of an SHG, created and run by Swayam Shikshan Prayog. She is one of the 101 retailers of Godrej & Boyce across 77 villages (data as on 11 July 2009) where the product is being sold. Shantipriya says with pride: ‘With two growing kids, there is pressure on the household to increase income. In three months, I have already sold six Chotukools.’ She sells Chotukool to the village members, by making them aware of all its features and benefits. She has a flip-chart in which she draws all things related to Chotukool, and knocks on many doors everyday to sell it. She has even managed to convince Godrej & Boyce to reduce Chotukool’s price from ₹ 3,700 to ₹ 3,200 (in Maharashtra state). She gets a commission of ₹ 150 on every Chotukool. Sakhi Retailers also earn ₹ 100. By setting this example, Godrej has joined hands with MFIs to create a new distribution eco system.⁴⁹

COMPETITION

Before Chotukool, there were already many mini-refrigerators such as DC Marine Fridge & Freezer-DC-40Y, Model DC-42 and DC-50F from Colku Industrial Co. Ltd in China.⁵⁰ When compared to Chotukool, input power requirement is much lower for Chotukool than for the other three. Because input power of other fridges is more, power consumption is also more. They also do not have any kind of end insulation which can cool them after power cuts. Chotukool weighs 7.8 kg, while DC-40Y weighs 14 kg, DC-42 weighs 18.5 kg and DC-50F weighs 19 kg. Moreover, despite its low weight, Chotukool has a higher capacity and volume compared with these models. Chotukool can work on 230 V, 50 Hz AC and 12 V DC both, but DC-42 and DC-50F can work only on 12 V/24 V DC. Chotukool can work on inverter and batteries and for 2–3 hours on the same temperature after power cut, but others cannot. (See Exhibit 4.1 for a comparison between Chotukool and these models.)

FMCG GROWTH IN RURAL INDIAN MARKET

India’s population has risen by 181 million from 2001 to 2011. In 2001, it was 1,028.7 million and in 2011 it was 1,210.2 million according to provisional data of Census 2011 released on 31 March 2011.⁵¹ Out of these, 833 million or 68.84 per cent, are in rural areas, while 377 million are urbanites (see Exhibit 4.2).

India has always been termed as an agrarian economy. The rural market is the platform for FMCG companies for future growth, especially the BoP markets. But they need to be really innovative if they want to tap its true massive potential in the rural market. There are over 7 million outlets in rural areas compared to just 4 million in urban; so there is huge opportunity. Rural India today contributes over 54 per cent to India’s GDP. In rural areas, FMCG players have already seen this opportunity. After the success of Indian Tobacco Company’s (ITC) e-Choupal and HUL’s Project Shakti, other companies such as Godrej too want to develop their markets here.⁵²

According to Nielsen, India’s rural FMCG market will grow to $100 billion by 2025.⁵³ Studies have shown that more than half of the largest FMCG companies are now concentrating more on rural markets instead of urban areas, with favourable results. FMCG sales are growing nearly twice as fast in rural India compared to urban India in both penetration and frequency.⁵⁴ Godrej & Boyce’s innovations, such as its nano-refrigerator Chotukool targeted towards the rural markets, are also expected to boost the demand for other FMCG products. For example, the penetration of bottled soft drink has increased from 8 to 11 per cent in rural areas, and 36 to 39 per cent in urban areas from January to July 2010 to January to July 2011 (seeExhibit 4.3). Sales of Thumbs Up (manufactured by Coca-Cola) grew by 37 per cent in 2010 as against 18 per cent in the previous year.⁵⁵ ‘Coca-Cola India’ Company has the highest share of about 32 per cent in the Indian soft drink market (see Exhibit 4.4). All the above facts show that as future growth of soft drinks happens in the rural markets, there would be an associated requirement for something to cool it. So rather than spending money on expensive 200 litre refrigerators, street corner shopkeepers in villages can easily buy affordable Chotukools and can serve cooled soft drink, water bottles/pouches and other products to their customers. Similarly, other FMCG companies such as Amul, a growing company in rural areas, have many outlets in villages. Amul has many products which can be preserved in Chotukool, such as butter milk, cheese, ghee, paneer, dahi and ice cream, and can fuel growth of demand for these products piggy-backing on the penetration of Chotukool in these areas.

MARKETING CHALLENGES

The main target of Chotukool is BoP and rural markets. Many of these customers are illiterate or semi-literate. As of 2011, the literacy rate in India is 74 per cent of the total population. In rural areas, 68.91 per cent are literate while in urban areas, 84.98 per cent are literate. Rural areas have seen more growth in literacy compared to urban areas in the period 2001–11 (see Exhibit 4.5). Marketplace literacy is also an factor which can affect the sale of products in rural or urban areas. Given this backdrop, the marketing mix needs to be attuned to the requirements of the target market. Companies also need to be careful in the way they sell, distribute or communicate their propositions to these consumers. Some of the low-literate consumers engage in an array of coping and stigma management strategies to participate as effective consumers. Such coping strategies range from pre-shopping planning to post-shopping planning; in between, they have more complex strategies. To add to this disadvantage, they also do not have full access to information. These consumers can understand pictorial thinking, simple pictures shown using a chart and avoid where concrete reasoning is required. Use of brand pictures is also more prevalent than the use of brand names. Chotukool can also face these problems because of lack of marketplace literacy in these markets among consumers. In rural areas, the method of publicity and communication must be understood better. Until now, Chotukool did not have any television commercial advertisement on any media, though televisions and the Internet are now available in many villages. Use of the Internet in rural areas is increasing rapidly (see Exhibit 4.6). As recent examples of companies approaching BoP has shown, sometimes the product can fail badly. If Godrej does not get its marketing strategy aligned to the realities of rural and BoP markets, then it may face a situation similar to what Tata Motors faced with Tata Nano. However, in a country where one third of all food is lost to spoilage (according to the United Nations Commission on Sustainable Development), and where refrigerator penetration is less than 18 per cent (according to the Consumer Electronics and Appliances Manufacturers’ Association), Godrej is in a very enviable position today!