Inthree is a rural distribution company based out of Chennai, it claims to sell over 7-8 lakh units of various durable items in rural areas. In an interview with EC’s Mohd Ujaley, its founder and CEO Ramachandaran Ramanathan says, “There is huge potential in rural areas but customer acquisition, cash collection and logistics are equally very challenging.”
Edited Excerpts:
Your company is selling consumer durables items in rural areas. How has been the progress in last one year?
We have been in the business for over 6 years now and have sold around 7-8 lakh units of various durables in the rural areas. We quickly realised that the issues of the rural areas largely relate to customer acquisition, cash collection and logistics. We decided that we should churn the ocean, which is what rural market typically is. We ride on the infrastructure of various non -traditional channels in rural areas. These included department of Post, NGO network, micro finance network, agribodies. Typically these are all aggregators of products. One of the key issues in fulfilling the rural customers is credibility. They are aspirational and they are very varied. So what our channel partners brought to the table is huge amount of credibility because they were serving in some kind to these customers. Also, as an organised players they were able to aggregate demand which means our cost of customer acquisition came down. They could also collect cash from the customers on our behalf in a transparent way. So it was always cash in advance rather than cash on delivery which could have been dicey for us.
What kind of products are more in demand and given the fact that logistic management is a huge challenge in rural area, how do you ensure to fulfil the demand?
As I told you that the rural customer is aspirational. They watch the same TV ads as we do in the metros, so they are fully aware of the brands like Whirlpool, Samsung, Panasonic and others. The interesting customer psyche that we are riding on in terms of our product strategy is that we have a mix of brands and semi-brands and hopefully private labels later on. There are certain products where the customer will not compromise on brands such as consumer durables like TV, refrigerator and washing machines etc. But there are certain categories like cookware, induction stoves and apparel, where brands are not relevant.
Initially, we thought that we will use the traditional network before we could create our own agent. We also quickly realised that the mobile phone plays a huge part so we have a boon box apps. This app is available only for the channel partners and agents. We also have order taking mechanism from the mobile phone app itself but depending on the connectivity either it can sync with the server or they can use the computer in the branch office and log into boon box portal which is a complete automated system channel wise. We are also very close to completing a module which works on a SMS basis so they can take orders communicated through SMS.
The mobile phone app serves as the e-catalogue so the members of the various organisations who are our channel partners and agents. They actually flip through the e–catalogue and show it to people. Now this triggers an impulse to buy. So when this gets shown by a person who brings a lot of credibility, somebody who is known to them then issues like can I trust him, can I pay the money in advance, will I get the product in time become fairly irrelevant. So our marketing is entirely done in the mobile and it is really our tool.
Due to tight monetary policy and inadequate focus of government on social welfare schemes, the purchasing power in rural area has gone down. Has it impacted your business also?
I have slightly different opinion on this. There may be some stress on demand due to the factors that you mentioned but the market is really very huge. And, for the large number of people, it is for the first time that a store is coming to their doorstep. For example, we launched in mid-march and within a month we were able to sell about 250 refrigerators. Therefore, we see huge demand. Even in a states like Tamil Nadu government gives free TV, people sell it and buy a good LED TV for themselves. So actually even if purchasing power goes down, typical of what Adam Smith says in terms of allocation of scarce resources, So actually what is happening is that from an urban psyche we tend to be judgmental about what they should be buying. There has been a purchasing power that has been built up in the rural in the last 5 years, when rural actually started getting employment. So I don’t know if purchasing power has come down. But definitely people are buying different products in different areas.
Do you notice any variation in the market from state to state?
There are variations not just in state to state but district to district. That is why we are very clear that going through channel partner is the way forward. Currently we are aiming to get into southern state and dominate it in-depth upto village level. We will first focus on the district that has more purchasing power and later on we will go to other districts.
What are the major challenges do you face in rural areas?
There are two key challenges–logistic and cash on delivery. Both are very cumbersome. Of all the products, about 70% of the product on cash on delivery are returned. Therefore, we are not interested in taking unnecessary risk. We can take risk in business development but not burning cash. Also, cash collection is another challenge but we have been able to manage it quite beautifully because of our channel partners. As far as logistic is concerned, it is a nightmare, the only organisation that can deliver till the village is India Post. In order to overcome these challenge we use well known courier companies and also there are few popular local agencies, so we get their service in local geography.
On the issue of cash on delivery, will the payment bank be of any help?
May be, because mobile payments are definitely the way to go. Right now there is more hype but it is definitely the way forward. I am hopeful that big players like Reliance and SBI will be able to bring technological innovation to streamline things.
