Strategic Innovation: Hindustan Lever Ltd.

At the intersection of two nameless dirt paths in a small town outside of Bangalore, India, the sharp smell of dung hangs in the air. Uniformed schoolchildren race about, and women from neighboring villages flood the pathways carrying jute sacks bulging with weekly groceries. The makeshift market place, or haat, is a flood of color -- blue tarp, coal-black machetes, green vegetables, pastel underwear -- and a loud cacophony of voices and competing claims.

"More washes!" "More suds!" So declares a "hawker," or a sometime sales rep from Hindustan Lever Ltd., the local subsidiary of Dutch giant Unilever, the world's largest consumer-products manufacturer. The rep makes his case with a microphone and a truck well stocked with detergents, soaps, and toothpastes. His rival, standing a few feet away and armed with a megaphone, pitches Lever knockoffs. "Costs less!" "Cleaner wash!" The spirited volley of pitches in Kannada, the local language, attracts a jostling crowd.

Welcome to the new frontier of global capitalism, the spot where state-of-the-art marketing meets the dirt road. The typical family in this town earns 4,800 rupees (about $103) a year from raising crops and from working occasional jobs in the city. Most wash their clothes and their bodies in nearby ponds or at community water taps. If soap is used at all, it's usually whichever brand is cheapest -- and people tend to use that soap for everything: their bodies, their hair, and their garments. In this country, the notion of brand and brand loyalty is fleeting, to say the least.

But Hindustan Lever, in ways at once ingenious, dogged, and culturally sensitive, is changing all of that. Over the past two decades, the company has built a remarkable distribution system that moves its soaps and detergents to every corner of India. Now it has started to leverage that valuable infrastructure to expand its reach to a huge and overlooked group of consumers: the rural poor. "Everybody wants brands," argues Keki Dadiseth, 55, who is in charge of home- and personal-care products worldwide and who is also a director of Hindustan Lever. "And there are a lot more poor people in the world than rich people. To be a global business and to have a global market share, you have to participate in all segments."

M. (Venky) Venkatesh, 42, is one of Hindustan Lever's field generals in this campaign. He is regional sales manager for a chunk of India (total population: more than one billion) that is home to more than 200 million people -- as many as reside in Russia and the Ukraine combined -- comprising some 150,000 villages. His mission: to sell Lever products to rich and poor alike.

Venkatesh takes that mission seriously. A 20-year Lever veteran, he still spends two days a week visiting stores and markets across his region. When he spots Lever products hidden behind another brand in a storefront, he walks in and rearranges the display. He smells soaps to make sure that the scent is fresh. Thanks to the spreadsheet on his IBM Thinkpad, he can recite the demographics for every village on his itinerary -- from the number of bank deposits above a certain amount to literacy rates. In two years, his team has driven Lever products into 47% of the state of Karnataka, up from 30%. "Rural consumers want value, not just volume," Venkatesh says.

Venkatesh strikes up a conversation with Mahaboobjan, an open-shirted man selling incense from a weathered wooden cart at the haat. Mahaboobjan has been peddling his wares in the region for 20 years. His long-standing relationships with customers position him as a reliable expert and adviser to local villagers. Venkatesh asks him what he thinks of the pitch being delivered by the Lever hawkers on the truck.

Mahaboobjan grabs the microphone. In classic salesman's patter, he begins talking about Lux, the soap that film stars use, and about the power of Wheel detergent. He keeps up a barrage of conversation to drown out an amplified tape recording used by the rival selling knockoffs. The market is transformed as villagers flock to the Lever truck. In less than an hour, Mahaboobjan sells soap to 15 customers, nearly half of that morning's sales. Venkatesh offers him a hawker's position on the spot.

The moral of the story? Even the poorest of the poor, when given a choice, can be choosy about brands. In a nation where more than one-third of rural consumers watch TV (everything from Ally McBeal to religious soap operas), and even more visit commercial centers, people aren't naturally inclined to settle for throwaway versions of the real deal -- if the companies that make the real deal bother to explain the difference. If you only have two rupees (about four cents) to spare, you want value for your money -- and quality products for your children. Casting a glance at the Wheel knockoffs in the market, a silk sari-clad woman named Maryamma sneers, "Only village people buy duplicates. I want the real thing."