Strategic Innovation: Hindustan Lever Ltd.

Rich Company, Poor Customers

How far should a giant company go to understand poor customers in faraway markets? How does such a company manage to sell its product profitably to hundreds of millions of people, dispersed and isolated, with hardly any disposable income to spend? How does it develop brand loyalty in markets where, for generations, people have chosen to buy the product that was cheapest or the items that a store actually had in stock -- if they bought anything at all?

These are not questions that occupy the minds of high-level strategists and marketers at most powerful global companies. They are too busy trying to sell high-priced, high-profit products to middle-class customers in the richest countries. Hindustan Lever, the largest consumer-goods company in India, has embraced a different strategy. It sells everything from soups to soaps by going wherever its customers are, whether it's the weekly cattle market or the well where village women wash their clothes. Why bother? Because it is the smart (and the right) thing to do. Poor people, the company's executives believe, can become just as discerning about brands as rich consumers. And if brands exist as a store of value -- a promise about a product's distinctive qualities and features -- then offering poor consumers a real choice of brands means offering them a slightly better quality of life. Marketing well-made products to the poor isn't just a business opportunity; it is a sign of commercial respect for people whose needs are usually overlooked.

To be sure, plenty of companies peddle low-quality products at cheap prices to maximize their profits. But that's not the Unilever model. Poor countries, it believes, may hold the key to the company's long-term prosperity. Unilever (annual revenues: $43 billion) anticipates that by 2010, half of its sales will come from the developing world, up 32% from its current sales. Hindustan Lever is the model and the engine for that shift. India's rural people, who comprise 12% of the world's population, present a huge untapped market. What the company is developing now are the strategies and tactics to reach that market, even as its competitors waver in their commitment.

It is a crucial growth opportunity for Hindustan Lever, perhaps the most effective way for it to retain its number-one position in consumer goods. The company reported continuous sales growth in India for three decades. Then, late last year, sales were nearly flat and actually declined in some categories. "Given the large scale of the company," says M.S. Banga, 46, chairman of Hindustan Lever, "our biggest challenge is to keep growth rates where they are."

That's why every Lever management trainee begins his or her career by spending six to eight weeks in a rural village, eating, sleeping, and talking with the locals. Marketing executives make frequent two-day visits to low-income areas. Why all of this trouble? "It's important to ensure that our sales guys are connecting with our consumers," says Banga, whose tenure with the company began in a village. "Once you spend time with consumers, you realize that they want the same things you want. They want a good quality of life."

Indeed, Lever recognizes that meeting the demand of poor consumers isn't just about lowering prices. It's about creativity: developing products and processes that do more with less. Hindustan Lever creates markets where most companies see only problems. Somehow, this company of 36,000 employees -- a notorious bureaucracy -- nurtures a willingness to constantly redefine markets, marketing, and brands. Its growth in rural India is a case study in strategic reinvention.

Reinvention I: Change Who Does the Selling

On November 28, 2000, in a meeting hall in Nalgonda in the southern state of Andhra Pradesh, Hindustan Lever assembled a group of about 150 women. The women had come by bus or by train, some at the company's expense, from 50 villages with fewer than 2,000 residents. Many were illiterate, agrarian workers who were hard-pressed even to say which products Hindustan Lever makes. They wanted to start a business, and the program's name -- Shakti, or strength -- validated their bold decision.

The women belonged to self-help groups that ran microcredit operations. Each of them had saved money from their daily wages or crop sales and were committed to finding ways to make their collective savings grow. So Lever pitched to them what seemed like an exciting proposition: If they used some of their savings to buy the company's products at cost, they would learn how to sell them to their friends and to other community groups and how to sell them at a profit. Amway and Avon had already pioneered a similar strategy for the middle class in urban India. But for Hindustan Lever, the direct-sales model was a huge departure from stratified distribution channels and highly trained sales reps.