“3-in-1 Ram Baan” By VOP (Victory Over Pests)
On their retirement, most people are anxious how they will be spending their time afterwards. But Dr Naresh Dalal is different. At 55 he has taken an early retirement from the position of the Vice President of R&D at Zitena Corporation and is enthusiastically looks forward to his own business. Zitena is an international company in the business of Crop protection and sold products and services for controlling insects, weeds and diseases. Dr Naresh speaks about his retirement;
“Surprisingly I do not feel like a 55 year old on his way to a peaceful retirement after serving the company for 30 years; I actually feel like a 25 year old man with a promising and a full life is ahead of him. I was an employee all my life but now I am getting a chance to start on my own - without having to start from a scratch. My childhood friend from Ahmedabad already has a company called Kirti Engineering Works which manufactures farm accessories and implements. Now we have decided to form a Joint Venture called “Victory Over Pests” (VOP) wherein I will own 60% of the equity and Kirti will own the rest. For the last 5 years I have been working on developing a unique pesticide and now, with a single minded focus, I can bring out the product within 6 months. I am going to call my product “3-in-1 Ram Ban” . My friend Jayesh Patel’s company Kirti Engineering is capable of distributing my product all over India and his company. If my calculations are right, I will make more money in the next 3 years than what I did in the last 30! I am really excited – and cannot even wait for a day!”
Within a month of forming VOP, everyone began asking how much the company would sell. This figure was needed internally as well as externally. It was considered necessary for various uses like ordering equipment, designing plant layout, deciding location and facilities for sales and distribution, size and the type of manufacturing and selling organization needed, and for securing long term and short term loans from banks. In fact everyone wanted this figure.
Naresh confided in his friend after a month;
“I am basically a technical person and do not know how the marketing people generate this number but I am absolutely astonished by what my informal interactions show. There is such a wide variation! I do not know whether I will be rich or end up in a dog house. The estimates range from people who say 3-in-1 Ram Ban is very expensive and no one will buy it in a poor country like India. On the other hand some others say that the scope for pesticides in tremendous in India, the market would be 5 Lakhs tones soon - and Ram Ban being a far superior product to the existing products - should easily get 10% of the market – and that means a sale of 50,000 tonnes or Rs 6000 Crores!”
The information available on this matter is in the appendices :
1. A note on the Indian pesticides industry
2. A transcript of conversation between Naresh to Jayesh
3. A report from a sales executive who went to conduct a survey of the sales potential
How much do you think the company will sell?
Appendix 1 : A Note On The Indian Pesticides Industry
1. Agriculture is an important sector of the Indian economy and has the responsibility to feed a population of over 115 Crore people. To achieve this, in the face of diminishing cultivable land is not a simple task. The government of India has divided the food-security task into four components (1) Use of high yielding variety of seeds (2) Balanced use of fertilizers (3) Judicious use of quality pesticides (4) Educating the farmers in using modern techniques.
2. India loses 18% of its crop to pests and this massive loss can be reduced due to use of pesticides. Pesticides reduce crop losses, earn more for the farmers, improve agriculture productivity and reduces soil erosion. Even from the GDP perspective the pesticide industry is important because its size is 80000 Tons in volume, and Rs 7000 Crores in value. India is 2nd in Asia and 12th globally in the size of the industry. The industry in India is fragmented and has 40 large manufacturers of molecules and about 400 formulators.
3. The experts say that the industry has tremendous scope and could easily be 530,000 Tons if India achieves usage comparable to the rest of the world. Indian farmer uses only 300 grams per square foot annually against the world average of 500 grams. Also it was known that out 2 crore farmers in India only 50 Lakh farmers used pesticides on their land.
4. This state of affairs is driven by fragmented land parcels, dependence on monsoons and lack of irrigation, and the low awareness among the farmers about the benefits of using of pesticides. India being a tropical country, 66% consumption is for crawling pests – insects.
5. Globally, GM (genetically modified) seeds are used for commercial crops like cotton, maize, soybean etc which use less insecticides. It is felt that the product mix in India is likely to move towards the global product mix and this would see increase in the use of herbicides & fungicides.
6. List of major agro chemical companies (further information on their websites)
1. Aero Agro Chemical Industries
2. Aimco Pesticides
3. Cheminova India Ltd
4. Devidayal Agro Chemicals
5. Gharda Chemicals Ltd
6. Godavari Fertilisers and Chemicals Ltd.
7. Gujarat Agrochem Limited
8. Gujarat Insecticides Limited (GIL)
9. Indo-American Hybrid Seeds (India) Pvt. Ltd
10. Indofil Chemicals Co
11. Isagro(Asia) Agrochemicals Pvt.Ltd
12. J.P.Pharma
13. Jayant Aagro Organics Ltd
14. Nagarjuna Fertilizers and Chemicals Limited
15. Nath Seeds Limited
16. National Organic Chemical Industries Ltd
17. Rallis
18. Syngenta India Ltd
19. The Calcutta Chemical Company Limited.
20. The Dharamsi Morarji Chemical Co. Ltd
21. United Phosphorus Limited (UPL)
Compiled by Sangeeta of Kirti Engineering , Executive Assistant for Mr Jayesh Patel
Appendix 2 : Conversation Between Jayesh and Dr Naresh
This conversation took place at Mumbai’s airport hotel just before Mr Jayesh Patel decided to enter into partnership with Dr Naresh Dalal.
Naresh began; “Ever since I remember I always wanted to be in my own business in the Indian pesticides market. I always wondered how I – with my limited means – would enter this competitive market and slowly came to the conclusion that a superior product will be a good route”
Jayesh asked; “is it because R&D is your strength?”
Naresh replied; “yes that is one of the reasons. The second reason being that the benefits of a better product are easily visible to a potential customer and thus he can be easily convinced”.
Jayesh was curious to know what the product Naresh had developed was.
Naresh explained; “It took me a long time to come to the position I am now in front of you. It took me several years in laboratory and field tests. On the way, I published several research papers and also got three process patents. In fact I would not have got my Ph D without this quest for the magic molecule.”
Naresh continued to explain his invention; “Under the term pesticides there are many classes of chemicals which are sold separately: insecticides which act on insects, herbicides which act on weeds and fungicides which act on fungal growths. My invention is that I have been able to come out with a single chemical which acts on all three - at a price which is only a fraction higher than what they pay now. This 3-in-1 concept will be like a magic wand for the farmer.
Jayesh asked; “what will be the price of 3-in-1 Ram Baan?”
Naresh explained the pricing thus, “The price that a farmer is currently paying is Rs 900/kg. My price will be only Rs 1200/kg! You will ask why I used the word “only”? The reason is that there are many benefits which, taken together, are far more than the price of Rs 1200/kg. Firstly, it does the work of three different chemicals: ounce by ounce it saves chemical. Secondly, it saves the number of times the farmer has to apply pesticides to his crop and thus his time. Thirdly, the requirements of water go up when you apply pesticides or fertilizers every time : when you apply pesticide less number of times, the less water you need. This should be a big advantage as water gets more expensive and difficult to come by. Fourthly, the less the chemicals you apply to the soil, the more the crop is likely to pass the muster as “organic produce” which fetches a higher price and less is the chance of chemical-induced long term soil degradation.”
Jayesh asked; “3-in-1 Ram Baan indeed seems to be a boon to the Indian farmer”
Naresh added; “There is one caveat however. 3-in-1 Ram Baan uses a molecule which works under some strict soil moisture conditions. If this is not done, the crop is likely to get damaged. The users need to receive 30 minutes training of using the DIY ( Do It Yourself) soil moisture testing kit, reading off when and how much dosage of 3-in-1 Ram Baan is to be administered.”
Soon after this conversation, Mr Jayesh Patel proposed to his board of directors the idea of setting of a JV with Dr Naresh Dalal.
Appendix 3 : A Sales Executive’s Report from the Field
Inter-Office Memo
To Mr Jayesh Patel
From Jamshed Billimoria, Area Manager , Kirti Engineering
Background
You had instructed me to spend two weeks in the market to study the potential for 3-in-1 Ram Baan type of product by looking at how the farmers purchase and use the pesticides in their farms. Accordingly I spent time in 3 major markets of pesticides in India Tamil Nadu in South, Gujarat in West and UP in North. I spent 4 days in touring interior areas around Madurai in Tamilnadu, Baroda in Gujarat and Varanasi in UP. I stayed in these towns and made it a point to visit at least 3 villages in each area during the day. I went by bus to understand the people. Within each town, I visited farmers, the head of the village, progressive farmers if any, and the dealers in / near the village who deal in fertilizers. I also visited the depots and distributors who supplied to these dealers – all such distributors happened to be in the main cities. I had hoped to do much more work than what I did because I was under the impression that most of our own Kirti dealers would know this market well but they did not. But they did give me the introduction to the local retailers and this helped.
My Observations
1. The retailers who carry pesticides seem to be specialized and also carry all types of agricultural consumables and inputs like fertilizers, seeds, gunny bags, ropes etc. Other dealers do not carry pesticides because, being toxic, a special license is required to stock and sell it and hence many dealers are not interested in stocking it.
2. Normally retailers in such products are situated in one of the villages among a cluster of 4-5 villages and my observation is that there is one such retailer within 2-3 hours of walking distance from any village in a given “catchment area”.
3. These retailers get their supplies by placing orders telephonically on the distributors who are in district headquarters or big cities nearby. Normally their orders get fulfilled within 2 days. If large, a special tempo carrier is sent. If small, the distributor loads the material on top of a public transport bus and asks the retailer to get it unloaded when the bus reaches the town. The dealers have a “running account” with these distributors and settle their accounts once a month.
4. The normal margin of the distributor is 8% and is 14% to the retailer. In addition the average of promotional discounts of various kinds is 4%.
5. There seems to be ample scope for business because there are still many farmers – particularly poor marginal farmers with small land parcels who work the land themselves – who do not use chemical pesticides and fertilizers at all. They are poor and use traditional methods. I would say more than 75% of the farmers in a village fall in this category. For improving the quality of soil they burn dried leaves and drift wood. They plough the land using bullock carts. They do de-weeding by their own hand and they use Neem leaves for pesticidal properties.
6. A relatively new, but a major trend, is the sharp decrease in the availability of farm workers on a daily wage basis. Workers who used to be available earlier on a daily basis are preferring to work in stable jobs provided by various poverty alleviation schemes run by the governments and NGOs where a minimum wage as per state law is guaranteed. Therefore, many farmers, who hired such workers for a few days every month for pesticide-application and de-weeding operations, are now finding it difficult to get workers. This has created a class of contractors who provide a complete service for controlling pests and weeds. The farmers handle sowing and watering and the rest are handled by the contractors who, due to the aggregation of the demand, can afford to employ their own workers on a full month salary basis. Depending on the size of the farm and work involved a fixed contract fee is agreed between the farmer and the contractor. My estimate is farmers who give out contracts are nearly 35% of all the farmers.
7. This however does not apply to the upper crust of the farmers who own huge land parcels and can afford to keep salaried workers of their own on a full time basis and also employ modern methods. Many of them have such large input requirements that they do not buy from the local retailers but from the district or state level distributors.
8. While organized companies in agricultural input business do advertise in these villages through wall paintings, shop paintings, posters; my observation is that most farmers select their brand or the type based on word-of-mouth among the local level community. To them, seeing is believing. Many dealers mentioned that many times people waited for someone to take a lead and try out new things. Once the results were good and visible, many were willing to purchase the same input the next time around.
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Teaching Note
“3-in-1 Ram Baan” By VOP (Victory Over Pests)
Case written by Prof S K Palekar for class use
Begin by asking the class what is the case trying to teach ? There will be all kind of answers which the teacher should summarize as
INTRODUCTION : LEARNING OBJECTIVES
1) 3 approaches to 2 important questions : How much it will sell ? at what price it will sell ?
a) Statistics ( cannot be used by Dalal ) (useful only after a product exists for some time )
b) Experiential / Test Market ( cannot be used by Dalal) Not yet ready with product / mix
c) Build a model based on competition sales ( but competition is not comparable )
d) Build a strategic model ( what drives the sale – can you measure the drivers )
2) Useful in 2 special situations
a) When conceptualizing a product
b) When debugging a sales problem : why sale is not coming ?
3) Learn CVG Model : Sales = F ( Market, Value Proposition, Go-To-Market)
4) Learn about the drivers
a) “Market”
b) “Value Proposition”
c) “Go-To-Market”
BEGIN THE CLASS DISCUSSIONS
Ask each group to identify 3 factors which will increase Dalal’s sales and 3 which will hinder the sales. When the answers come, the teacher writes them in 3 columns without naming them such that the factors fall into one of the 3 drivers and after the discussion is over he writes the headings : “Market”, “Value Proposition”, “Go-To-Market”. This introduces the model
Sales = f ( Market , Value Proposition, Go-To-Market )
MARKET ANALYSIS
· Different customers want different things but you need to aggregate them
· I like to use the word aggregation (bottom-up) than segmentation (top-down) process
· How Many different types of customers are there ? ( Creative Segmentation )
· Market size : mass, regional, niche
1) “On the way from the maker to the user”
a) Dealers - Purchasers – Influencers – Users – Payers
2) In this case “can they get labor to work for them for pesticide application?”
a) 75% farmers : 1.5 Crores : NO : because they cannot afford
i) These are Non-Customers
ii) The existing product does not create a value proposition for them
iii) These farmers are not even hunting for a solution
b) 15% farmers : 0.3 Crores : give contracts : farms too small – cannot get labor
i) They are payers but not users or purchasers ( Contractors use and purchase )
ii) The existing product – does it create value for either the farmer or the contractor ?
iii) The contractors may be hunting for a solution but not an expensive one
iv) The farmers can be made to ask for the new product but they are not hunting. Developmental and educational communication is possible.
c) 5% farmers : 0.1 Crores : farms large enough : can get labor : can buy from dealer
i) They can buy an expensive product but requires education
d) 5% farms : 0.1 Crores : large farms : buy from the company
i) They are the educated ones prone to using modern methods.
ii) This is the low hanging fruit – but can they be approached by Keerti’s dealers?
Overall it would seem that such a great product may not be salable at all !!
Explain why there is a PLC : people get educated, access develops, VP improve.
Start of PLC is due to early adopters. Peak of PLC is due to competitors.
Then the customers leave and the competitors too leave.
Competitors. Collaborators. Eco system.
VALUE PROPOSITION
Let us see for whom our new product make a difference ? what are they used to ? are we better than what they are used to ? Discuss what could be the value proposition for
1) Dealers – which segment
2) Contractors – which segment
3) Farmers – which segment
Let the class used to the format
1) Who is the target audience ? ( Express such that Value Proposition is self explanatory )
2) What are they doing now ?
3) What is our offer ?
4) How is it better ?
Please note that the Value Proposition is not always made centrally and delivered through Go-To-Market plans. Many times the Go-To-Market strategy itself adds value and creates a Value Proposition.
GO TO MARKET
1) Key Question : Who is hunting for whom ?
a) You are hunting for the customers : B2B markets : OEM sellers ( GO TO MARKET ).
This calls for “sales funnel approach”
Prospecting à Contacting à Presenting à Closing à Transacting.
This calls for “sales funnel approach”
Prospecting à Contacting à Presenting à Closing à Transacting.
b) Customers are hunting for you ( COME TO MARKET ).
This calls for a “distribution approach” : 1 tier, 2 tier, 3 tier.
This calls for a “distribution approach” : 1 tier, 2 tier, 3 tier.
2) Key Question : Readiness status?
a) Urgency ? ( active and felt pain ) ( need to achieve, avoid, fix )
b) Authority / Budget / Task exists ? ( it means purchase is planned )
c) Risk
d) Problem : unknown, undefined, tentatively defined, firmly defined
e) Solution : unknown, searching, in consideration set, choice, satisfied, habituated
3) Key Question : Reach and Engagement
a) Reaching of your product
b) Reaching of your message
c) Reaching of your support and service over PLC
d) Presence of competitors, co
CONSUMER BEHAVIOR
This is the best time to tell students why consumer behavior is very important
B2C BEHAVIOR
n 5 stages
o Problem recognized à info search à formulate and evaluate alternatives à purchase decision à post purchase behavior
n Psychological
o Motivation : an internal “trigger”
o Maslow : Physiological, safety, belonging, recognition, actualization
o Steered by a series of perceptions regarding what is right
o Influenced by personality, social groups, culture, values
o Influenced by past experiences
n Buyer “readiness scale”
o Total à Aware à considered à chosen à action
o Choice : category, brand, variant, dealer, quantity, timing, scheme, payment method, delivery
B2B BEHAVIOR
n Differences
o Professional , knowledgeable, organized buyers
o Long sales cycle, Derived demand, large order sizes
n Straight repeat buy, modified re-buy, new buy
n DMU / Buying Center
o Initiator, user, influencer, decider, approver, buyer, gatekeeper, auditor
n Process
o Need recognition à need description à specs
o Vendor search à solicit proposal à select vendor
o Set up process à performance review
n Actions
o Key Accounts à Customer Relationships Management
n Transactions à share à joint development à partners
Experience of teaching the case on 26th July to B31C2
Only 2 groups could present.
Group 1 used a top-down approach and simply said that the 50% of the existing market will be captured and arrived at a very optimistic figure of 5000 tonnes. They took 50% of future potential size. When asked why 50%, they did said it is because there is a good distribution system of Keerti (without realizing that it is actually a poor system because it distributes farm equipment and not pesticides). They also said it is because they will give a huge credit to the distributors (which is infeasible : first because no one will give that much working capital and secondly because the delinquency will be high). It seems that they considered the customer to be the distributors because both these answers show this to be the case. They did not realize that the distributors are “buyers for their customers” and since the demand for an expensive product does not exist, the distributors will not be very effective in selling the product. For such “new” products requiring education to create the need and the training to tell customers how to use the product. Although they showed an awareness of training, they did not address how it will get done and who will do it. Because of this they planned to go all India in one swoop without realizing it will be difficult.
Group 2 used a bottom-up approach and built the sales forecast from the farmer level considering land size and usage. They realized the importance of selling only where the training can be given and planned to go only to 3 states. They again made the mistake of assuming that distribution system of Keerti is good without realizing that it is actually a poor system because it distributes farm equipment and not pesticides. They also made explicit arrangements for usage-training because they planned to teach the kids of the farmers. Their focus on the customers was clear but the distribution system was not aligned. They also had a good idea of converting distributors into contractors – but will they convert? What is the synergy ?
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Revolutionary New Pesticide “3-in-1 Ram Baan”
Launched by the company VOP (Victory Over Pests)
DIGEST
For a new product there is no historical data and one needs to arrive at the sales forecast from the first principles. This case is about what are these “first principles”. At a generic level(Similar to Michael Porter’s generic value strategies), the sales forecast is based on the following 3 principles (1) Chosen set of customers (2) Chosen value Proposition for such customers (3) Go-To-Market strategy for taking the Value Proposition to the chosen set of customers. All 3 are interdependent and must be in alignment with each other to produce revenue in a profitable way. Many times the mistake is that the value proposition is developed by the innovation team with one set of customers in mind, in reality the revenue potential is actually with a different set of customers, and the promotion, selling and servicing is aimed at another set of customers.
DIFFERENCE BETWEEN INDUSTRY AND MARKET
Each of these two words take you along a different journey:
1. The “industry sector view” ( Industry defined as an “aggregations of all sellers”) leads you to see “pesticide market being 80000 tonnes” - encourages you to see the opportunity in terms of “types of products” i.e. insecticides, herbicides and fungicides – which will bring you to begin thinking of how much share you can get for a particular product type – and finally what % share you will get - with what kind of pricing and advertising. You may arrive at a sales forecast this way but for your key assumptions (e.g. % customers who will get converted) you will not have any basis for your assumptions.
2. The case advocates taking the “market segment view” ( Market segment defined as an “aggregation of customers with similar types of needs and behavior”) leads you to see the opportunity in terms of “types of customers” – which will set you thinking what type of custom you are likely to attract based on your intended positioning – and finally, depending on the size of your chosen customers (Target Audience) and the attractiveness of your positioning vis-à-vis your competitors (or vis-à-vis what they are doing now), you will be in a far better position to make the sales forecast.
Based on this model the following can be said about the sales forecast
1. More the sales forecast – the more the Target Audience size (Chosen Customers).
2. More the market share – the stronger the Value Proposition (Positioning )
3. More the revenue – the more the access / engagement with the Target Audience
CONVERT THE INDUSTRY VIEW INTO MARKET VIEW
For this you must view the 80000 tonnes as the ocean consisting of individual drops (farmers). The key lies in asking yourself whether all these farmers behave in the same way ( How they come to market?) and you will immediately begin seeing the many different parameters you can use to segment the market – rich/poor – large/small land – district towns/rural – growing rice/wheat – who have access to bank loans and who don’t have - etc. Which is the right way to segment ? The answer lies in asking two questions
1) First question is “What parameters matter to the farmers” ? What marketing mix parameters you should use to position yourself (POS and POD) - you will immediately begin to see different segments.
2) Second question is grouping of farmers having similar behaviors or needs (segmentation) which enables you to take better action? If a parameter does not help in taking action, it is useless. From the perspective described in the class it turns out that “having the ability to employ specialized labor for pesticide application to the crop” is the best variable. 3 segments automatically emerge:
(1) Self application – poor farmers
(2) Contracted application – better off farmers
(3) Ability to employ full time labor – rich farmers
APPLICATION OF OUR MODEL
1) Self application – they cannot even afford Rs 900/kg product – our Rs 1200/kg cannot be easily accepted. They have no budget, they may not be literate enough to understand the usage of the kits. It will need a lot of time and money to cultivate this segment. It will probably take years for the effort to fructify.
2) Contracted application – the customer here is not the farmer at all but the contractor. There is no data available regarding what are the needs of these “customers”. It seems that the contractors may not like to renegotiate the contracts with the farmers and ask for a price increase. (That’s the typical contractor behavior … how they come to market!)
3) Farmers who can employ full time labor – they have the need but not used to buying expensive products which require scientific testing and hence may not have the budget for this product. And, even if they have, it seems they will buy straight from the company depot and not from the retailers of Kirti Engineering.
Conclusion : The product may not sell at all – in spite of being a great technical breakthrough.
Reason - Whether a product is good or bad is defined only in the context of who is it for – who is the Target Audience. Dr Naresh Dalal invented it with no clear Target Audience in mind and he will pay for this fundamental mistake of not positioning the product before he developed it.
Further Exercise : Given the above analysis, what kind of product should have been developed? How it should be taken to market?
Note : Product Positioning was covered earlier under Tan Dan Steel Case
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