CASE: Vanraj Mini-Tractors: Is Small Beautiful?

Group: The Mighty Marketers

Members: Avanita Somani (32058), Avinash Kumar (32059), Himanshu Bhardwaj (32069)
Rohitash Jain (32088), Salman Haider (32089)

ANALYSIS
The given case is about deciding on the market segment for Vanraj Mini-Tractors and thus
selecting the most appropriate market segment. The segmentation can be done on the basis of
the land holding, the type of soil (geographical) and by the type of the crop cultivated. The
focus states for Vanraj Mini- Tractors are Uttar Pradesh, Madhya Pradesh, Gujarat and
Maharashtra. Field trials conducted to check its functionality in black and laterite soils have
provided satisfactory results so segmentation on type of soil (geographical) doesnt seem
necessary. To solve the dilemma of choosing the right segment for Vanraj we have done cost
benefit analysis from the perspective of small farmers having average land holding size of 1.4
hectare. 90% of tractors are bought on credit availed from banks. Due to restriction in credit
from banks to marginal farmers as their land holdings are less than 3 acres, Vanraj may not be
viable for them. Thus marginal farmers are not part of the target segment. As per case to
target small farmers we need to make them switch from use of bullocks or from the use of
rented tractors to Vanraj.
Following table shows the cost benefit analysis of different alternatives for small farmers.
Table1:
Per Year
Initial
Life span

Bullock (in Rs.)

27500
11 years ( Useful life- 8
years)
Fodder cost:
17500/year*11/8= 24062

Vanraj (in Rs.)

190000
8 years

Rent (in Rs.)

0
-

Fuel cost=
33 liter/acre*2
crops/year*Rs
40/liter*3.458(land
size)
= 9129

Maintenance cost

Inter-culturing cost

400 man-hours @ Rs.

10/hr for 1 Hectare
=400*10*3.458/2.47=5600

2968 (12.5% for 8

years)
(Included in Fuel cost)

Rent
(@ Rs. 250 /hr)
For 1 acre 22 hours
(2 crops)* 22
hrs*3.45882 (land
size)*250(rate)=
38038
0

Fuel/Fodder cost

Interest
Total cost/year

29662

19000 (@10 % per

year)
31097

0
38038

From the cost benefit analysis we can conclude that using Vanraj tractor provides clear
advantage over using services of rented tractor by a small farmer. When we compare it with
the use of Bullocks the initial cost of Vanraj may be higher but it has many added advantage
like possibilities of alternative uses of Vanraj adding to revenue generation. It would also
increase efficiency in agriculture operations. Thus for a small farmer it is a better option to
switch to Vanraj from bullocks as well as from the use of service from a rented tractor.
Compared to big tractors Vanraj will be a viable option for small farmers. Currently they are
purchasing big tractors by taking credit from banks but they are not able to meet their break
even hours of operation due to higher fuel consumption and higher initial cost, this is leading
to higher default rates in cases of tractors purchased on credit. Vanraj with advantages of low
fuel consumption and lower initial cost would cater to their needs.
Vanraj can be positioned as a product that will give ownership to small farmers and remove
their dependence on large farmers. This will increase their social status; provide emotional
benefits along with ensuring timely agriculture operations leading to better yield and income.
The big tractors are not utilized to the full capacity and thus are given on rent to the small
farmers thereby generating an extra income for them. Generally, the small farmers dont buy
the big tractors as they cant afford to. Instead, they rent these big tractors to serve their
purpose. This would be the point which we would be serving as an incentive for the small
famers to buy Vanraj. This would be more like Not buying a tractor but buying
Independence. They would be more autonomous and given the low cost and similar features
of big tractors, it would aptly serve their purpose.
Thus the major objective for M/S Parmal Farmatics should be clearly to target small farmers
and capitalize on first mover advantage as there is no branded player catering to needs of
small farmers. Requirements of marginal farmers match with small farmers, marginal farmers
will present an opportunity for small farmers to rent out services of Vanraj to them which
would give additional revenue to small farmers.
Vanraj tractors added features of better maneuverability and control in farm operations make
it suitable for small operational holdings which are emerging as a result of land
fragmentation. Three wheel convertibility and smaller size favor its use in intercultural
operations. Intercultural operations form an important component of Horticulture Farming,
thus Vanraj will have acceptance among horticulture farmers. From the case we can see that

Horticulture segment recorded very high growth in the period from 1991-92 to 2001-02 with
50% increase of land area under fruits and 39% increase of land area under vegetables.
Thus owners of many such farms are Semi-medium, medium and large horticulture farmers
and thus will use Vanraj as an additional tractor specialized for intercultural operations. Thus
the company may look to increase its target segment in future to cater the needs of above
segments of horticulture farmers.
Following table shows the comparative benefit analysis of Big and Vanraj tractors for small,
semi-medium and medium farmers.
Table2:
Assumption: Vanraj tractor can be used up to 5 acres of land.
Average land
holding (in
acres)
Vanraj
Big Tractor

Interest
Incremental
benefit

Small

Semi-medium

Medium

3.458
Fuel= 33 liters/acre
(33*40*3.458*2=9129)
(For 1 acre= 22 hours)
(Consumption=4 liters/hr)
(22*4*3.458*40*2=24344
)

7.41
(33*40*7.41*2=19562)

9.88
(33*40*9.88*2=26083)

(22*4*7.41*40*2=52166
)

(22*4*9.88*40*2=69555
)

Excluded

Excluded

Excluded

15215.2

32604

43472

Recommendation:
Vanraj should be targeted for small farmers segment mainly as they provide huge potential
market and M/S Pramal should cash on first mover advantage. Semi medium and medium
farmers should also be considered as they also provide market potential in Horticulture.
Horticulture sector presents market potential for Vanraj. It is concentrated only in few states
like Maharashtra, Gujarat, and Uttar Pradesh and has shown high growth rate.

Annexure 1:
From the point of view of M/s Pramal Farmtracs following is the Break-even point of sales:
For 1st year:
Fixed cost= (12.5+100)/7 = 16.07 lakhs
Contribution: 16.36 lakhs for 300 tractor= 0.0545 lakhs/tractor
Break even sales = 16.07/0.0545 = 294 tractors
(Projected sales are greater than break-even sales)
For 2nd year
Contribution: 17.44 lakhs for 330 tractors = 0.0528 lakhs/tractor
Break even sales = 16.07/0.0528 = 304 tractors
(Projected sales are greater than break-even sales)