Creating Differentiation in Rural Markets - A case study

Bharat Petroleum Corporation Limited (BPCL) is a Fortune 500 company and a leading Navratna
Public Sector Company with pan India presence, engaged in Refining, Marketing and Distribution of
Petroleum products. The company deals with a host of petroleum products including gasoline,
diesel and kerosene, liquefied petroleum gas, automotive and industrial lubricants, fuel oils and
aviation fuels. Further, it also distributes petroleum products through a widespread retail network
base.

BPCL operates through two reportable segments, namely Downstream Petroleum and Exploration
and Production (E&P). In the downstream oil marketing sector, BPCL has a strong market share in
Petrol sales specifically in urban markets and Second highest Market share in Diesel sales all over
India. It has been a pioneer in this market with several retail initiatives such as

1. It was the first company to introduce loyalty program called Petro cards in India
2. It introduced the ‘Pure for Sure’ – a fuel Quality & Quantity assurance program
3. It came out with “Speed’ – the first premium fuel in the country
4. The launch of “In&Out” - the largest chain of convenience stores in India has seen
tremendous response from customers
5. One of its latest initiatives has been “Ghar” brand of retail outlets on highways for truckers
and travelers

In recent years, the company has seen a fundamental shift in the consumption patterns and
believes that rural markets will provide the next wave of growth due to the following reasons:

 Substantial increase in the purchasing power of the rural communities

 On account of green revolution, the rural areas are consuming a large quantity of
industrial and urban manufactured products
 Growth rates better than urban economy
 Consistency of YOY growth which has not been impacted by the global economic downturn
 Saturation of the urban markets
The economic, financial and demographic data supporting this hypothesis are as follows:

 Rural population accounts for almost 70% of the total population of India
 The main contribution from rural areas is Agriculture which contributes 18% to the total
GDP and also responsible for feeding about 50% of the total population of India
 The annual income for a rural household on an average is about Rs 40,000 p.a. which is
roughly half of the annual average income for an urban household
 There are approximately 6.5 lakh villages in India amongst which there are 60,000 villages
with a population of greater than 5000
 In 50 years only, 40% villages have been connected by road, in next 10 years another 30%
would be connected; more than 90% villages are electrified, though only 44% rural homes
have electric connections
 Rural telephone density has gone up by 300% in the last 10 years
 Contribution to GDP from the rural sector has been consistently hovering around 40% of
the total GDP of India
 The rural consumer market, which grew 25 per cent in 2008, is expected to reach US$ 425
billion in 2010-11 with 720-790 million customers, according to a white paper prepared by
CII-Technopak, in November 2009. The figures are expected to double the 2004-05 market
size of US$ 220 billion
 Estimated annual size of the rural market –

FMCG Rs. 65,000 Crore

Durables Rs. 5,000 Crore
Agri-Inputs (including tractors) Rs. 45,000 Crore
2 / 4 Wheelers Rs. 8,000 Crore

 Social indicators have improved a lot between 1981 and 2009 –

 Number of "pucca" houses doubled from 22% to 41% and "kuccha" houses halved
(41% to 23%)
 Percentage of BPL families declined from 46% to 27%
 Rural literacy level improved from 36% to 59%
 Of the 6.0 lakh villages, 5.22 lakh have a Village Public Telephone (VPT)
 41 million Kisan Credit Cards have been issued (against 22 million credit-plus-debit
cards in urban), with cumulative credit of Rs. 977 billion resulting in tremendous
liquidity
 42 million rural households (HHs) are availing banking services in comparison to 27
million urban HHs
 Investment in formal savings instruments is 6.6 million HHs in rural and 6.7 million HHs
in urban
In addition to the above pointers the government has been actively promoting investments in rural
area and has come up with various new schemes for the upliftment of the rural infrastructure as
well the standard of living of the people in these areas.

 This year rural economy received the highest allocation of funds in the annual budget that
would be implemented to create opportunities in education, employment, housing,
healthcare, farm subsidies and many more.
 The Union Budget for 2010-11 has hiked the allocation under the National Rural
Employment Guarantee Act (NREGA) by 144% to Rs 39,100 Cr in 2010-11.
 There has been a 59 % increase in fund allocation to Pradhan Mantri Gram Sadak Yojana at
Rs. 12,000 Cr
 A 63% increase in fund allocation to Indira Awaas Yojana at Rs. 8,800 Cr

The holistic picture of rural India clearly points to the fact that if BPCL can understand the dynamics
of the region, it can gain a valuable advantage over its competitors.

The key sectors in the rural areas which are on the rise are:

 Rural Retail Industry

 Telecommunication Industry
 Healthcare Industry
 Indian rural Automobiles
 Financial & Banking

The major trends in oil retailing in the rural sector are:

 Focusing on the rural market to ensure an increase in their market share, especially for
diesel.
 Introduction of Innovative ideas to capture the needs of the customer. There has been a
transformation of rural outlets as centers for availability of quality fuels at doorsteps of
rural consumers & to meet needs of retail, automobile, financial & agri products with tie-
ups

However these business models have seen limited success during actual implementation phase
due to a gap between the planned strategies and the actual deliverables that have emerged after
execution. Since BPCL is a relatively new player in this upcoming market it has to be cautious and
learn from the mistakes that its competitors have committed and paid for heavily.
The Challenge – Conquering New frontiers
The teams have to develop a business model for BPCL for venturing into rural markets. Following
are the areas that the teams need to consider while creating a business model for entry into rural
markets:

 Identification of a target rural customer: The teams are expected to conduct a survey to
understand the rural consumer and determine the right segment to target. The socio
economic conditions of the market should be considered before launching any product.
 Understanding the needs and aspirations of the rural customer: The rural customer has
evolved significantly and has aspirational needs and demands that need to be understood
clearly. The context in which the products/services are used might be different in different
areas. The demand of diesel or petrol in rural India is highest for agricultural related
activities, whereas in urban areas, the demand is highest for transport use. Understanding
such consumption patterns is essential for the oil marketing companies and will be an
important parameter of judgment for the teams.
 Develop the best USP for BPCL which should be customer centric: The features of the
product/service should be designed keeping in mind how the experience can be more
satisfying to the final customer.
 Creation of a business model considering tie-ups and brand associations: The teams have
to come up with innovative ideas and explore possibilities of tie ups and associations to
satisfy the needs of the customers which have been identified through the survey
questionnaire.
 Leveraging existing network of BPCL: The Company already has a rural retail network of
fuel stations catering to diesel needs of farmers and other rural consumers which operate
under the existing brand and have only basic facilities like dispensing units, sales units,
toilets and air. The teams need to provide a branding strategy for these fuel stations and
how they can be utilized to reach out to the consumer and generate revenue for the
company.

Your team has been given the mandate by BPCL to assist in creating a sustainable business model
for extending their business in rural market.
Rules:

1. All team members must register at http://prerana.nitie.org

2. Each team can have a maximum of two members

3. A student cannot be a member of more than one team

4. Both members of the team must be from the same institute

5. There is no restriction on the number of teams from a college

6. The entry must be sent to launchpad@prerana2010.com

7. The length of the case solution must not exceed 2000 words all inclusive

8. Solution format: Font Size – 12, Font Type – Times New Roman, 1.5 line spacing and the file
should be a Microsoft Word Document/PDF

9. All terms and abbreviations used should be mentioned clearly under ‘Glossary’ on a
separate sheet of paper.

10. The file must be named as launchpad_teamname_institute name

11. The email subject line must be launchpad_teamname_institute name

12. The body of the mail and the first page of the entry must contain the team name, team
members, registration ids, contact details and institute name

13. All subsequent pages should contain only the registration IDs of all the team members in
the header section.

14. The names of the team members or the name/logo of their institute should not appear
anywhere in the body of the document

15. Please read the case study carefully for detailed instructions and deliverables

16. Short listed students will be intimated by email and on the website

17. Finalists will be reimbursed two-way sleeper class railway fare for the shortest route
between your institute and NITIE

18. The decision of the organizers of the contest and the panel of judges will be final and
binding on all contestants
Deadlines:

1. Entries must reach us by 15th October 2010, 23:59

Prizes:

1. 1st Prize - `30,000

2. 2nd Prize - `15,000

Contacts:

1. Latika Bhujle – 09820280308

2. Vaibhav Gupta – 09833728369

3. Shobhana Raja – 09769651899