Rohit Adya: We are taking Vodafone vans into rural villages and educating the rural consumer on how mobility can improve the economic way of life
Rohit Adya has spent four years with Vodafone Essar, the company that used to be Hutchison Essar until Vodafone took control at a cost of almost $19 billion in early 2007.
He's CEO of the company's operations in Uttar Pradesh, India's largest state and the fifth largest territory in the world by population.
The operation that Adya runs now has seven million subscribers and annual revenues of around 20 billion rupees ($45 million).
Can you start by talking about Vodafone Essar's experience in moving from urban to rural markets, especially the challenges of moving beyond the 'hygiene' factors of coverage and quality in rural areas?
Adya: Beyond the early challenges of rolling-out network across such a vast state, we recognised that the real difficulties would relate to distribution and service delivery.
While the FMCG [fast moving consumer goods] industry had deep experience in pushing into rural India, even the FMCG players had struggled to develop an effective and profitable model to reach the most isolated rural consumers.
We also understood that the consistency of brand and service experience beyond the fundamentals of network coverage and quality would be very important, but there were few examples of industries that had been able to truly drive wide reach while at the same time delivering brand consistency.
We saw reach of communication as a huge challenge, where you do not even have penetration of cable or satellite to educate consumers about your products and services. And, of course, you cannot forget that many of the people living in the rural areas of the state have very low incomes making affordability a real issue.
We recognised that in the face of significant challenges, the key would be to build a scalable approach at low-delivered cost.
How did you go about building a distribution approach for rural Uttar Pradesh?
Adya: We have developed effective rural distribution that is based on exclusive distributors who manage a number of base station sites. Under the distributors are associate distributors who are also exclusive — typically the "son of the soil" who is an established businessman with a good standing.
These distributors and ADs serve the retailers in their areas who are non exclusive — multi-brand retailers or MBOs.
Distributors and associate distributors are trained through a series of modules on commercial operations and brand standardisation.
This is a hub and spoke model that is immensely scalable. We used intensive distribution of SIMs and paper recharge coupons to ensure that these are available at the farthest point — primarily to ensure the customer, being a first time user, wants to physically purchase and use the service which the retailer is required to assist.
Through our distribution model we have been able to deliver products that are affordable and able to meet the small budgets of rural consumers.
We call our rural recharge products "small" or "chhota", and started with small denomination "chhota recharge" vouchers before scaling-up the uptake of electronic recharge.
We also recognised that rural consumers could not always access a retailer 24/7, so we introduced a recharge "credit" that enabled customers to SMS to a number to get an electronic credit of up to 11 rupees that they would pay upon next recharge.
Through these initiatives we demonstrated mobile telecommunications was affordable and that we care for and trust our customers.
In partnership with our distributors and associate distributors we are also taking Vodafone vans into rural villages, and educating the rural consumer on how mobility can improve the economic way of life.
We have created several generations of short audio-visual films, in which a villager becomes an entrepreneur within the village and has created a small company through his access to communication. These short films are shown at market days and other gatherings of local communities and have helped build a lot of awareness about our services and the benefits that they bring to local villagers.
Delivering network coverage and quality has not become less of a priority and it still remains an important differentiator. But we have recognised that coverage and quality mean very little if you cannot drive availability and awareness of your products and services.
But of course availability and awareness will also become increasingly common as other operators push into rural areas, so we have recognised the need to move to the next level.
Beyond network coverage and distribution reach, what are your priorities for rural areas? What will be the differentiators for Vodafone in the future?
Adya: We believe that the service experience will be just as important for rural consumers as it has proven to be for urban consumers in both developed and developing markets.
In alignment with this belief we have set up 700 Vodafone mini-stores of approximately 100 square feet [nine square metres] across Uttar Pradesh staffed by trained Vodafone service executives to deal with common customer service enquiries such as lost or damaged SIM card, questions about tariff offers, or billing queries.
By mid 2008 we aim to be within 15 kilometres of any rural village of 3,000-5,000 population, and the goal is to deliver service centre reach within 10 kilometres, and then 5 kilometres by the end of 2009.
In many rural markets automation is not yet understood by the customer, and hence the need to have the reassurance of face-to-face service across the counter.
We must remember that for many of these consumers this is one of the first service-oriented relationships that they have entered into, so there is a high level of education taking place.
Our experience tells us that having a branded customer care experience builds confidence in the Vodafone brand, and allows the rural consumer to experience the brand beyond simply talking on his or her mobile or sending SMS.
It also provides a very powerful tool for educating consumers about new products and services that might be of value and which are often poorly communicated through traditional multi-brand retailer outlets — an experience that even operators in developed markets have discovered.
How are the mini-stores managed?
Adya: The mini-store is manned by a Vodafone trained service executive who has been through a 25-day training course at our academy.
The service executive has a WAP-enabled handset that enables instant service delivery in the field — SIM exchange, reversing debits, giving a view of account usage and so on.
Every mini-store has a public phone connected directly to a call agent, and the care agent can facilitate the enquiries and offer recommendations on the best deals available.
This is an automated process generated from our CRM on the best loyalty offers. This is all about building brand experience, and increasing awareness of services and new services that require demonstration and experience.
The focus of the mini-store is for the AD to build a stronger service delivery of the brand, and to strengthen loyalty and customer experience. We have also demonstrated that the AD can increase revenues from value-added service, multimedia and handset sales.
These mini-stores are building a database of 3,000-4,000 customers per month, which is a powerful opportunity for local promotions and activities. The brand experience is also important, leading to referrals and word-of-mouth.
Service has obviously been a priority, but can you also talk about how Vodafone has worked to increase mobile penetration in rural areas beyond shared-phone use towards individual ownership and usage of mobile?
Adya: Despite the fact that we have been successful in driving affordability of usage through low-denomination vouchers and electronic recharge, handset affordability has remained an issue for the rural customer.
Buying an entry level handset at 1,500-2,000 rupees a year back, or 1,200-1,500 ($27-$34) today is still a significant payment and this has resulted in many rural consumers only being able to access telecommunications through a payphone or shared mobile phone.
So while many rural consumers had SIM cards and a mobile number, this did not necessarily equate with increased individual usage.
SIM ownership in the absence of phone ownership also creates a whole series of service challenges such as lost and damaged SIMs — challenges with maintaining minimum recharge values and SIM validity.
To address the challenge of handset affordability in November 2007 we introduced the Vodafone Magic Box handset to focus on a bottom-up rather than top-down approach.
We were able to bring the Magic Box branded handset to market at 1,000 rupees together with a SIM connection, three-month validity card and some special recharge offers on talk time and VAS — there was no subsidy.
Importantly, the handset also came bundled with easy access to Vodafone's VAS platform.
Our insights told us that the rural poor cared greatly about handset brand, but we also came to understand that at the heart of brand preference was an association with quality and reliability. Hence we worked on those insights and brought to our consumers a high quality device, and a device with our own Vodafone brand with two years' free replacement warranty.
To back it up we set up a very robust replacement network through the Vodafone mini-stores. The promise of the Vodafone brand, replacement warranty and the service delivery through the Vodafone mini-stores were strong factors that resulted in record sales of the handset within months of launch. The objective was to provide an affordable handset with a brand commitment at the doorstep.
We understand that we have to co-exist with the big handset vendors, but in this situation we believed that we could bring a better value proposition to market at lower cost. We will continue to work with handset vendors across segments, but we believe that there is a huge opportunity to co-exist.
Following the success of the Magic Box we launched the Music Box, a colour handset with radio, in January 2008, and we will continue to introduce higher-level models so that people can move up the curve with functionality.
VAS is still at an early stage, but we see a real promise and an opportunity that will become the next thing to evolve in the coming six to eight months. We are building the platform through our mini-stores, and we will leverage this to continue education and awareness.
Your mini-store concept obviously represented an important service evolution for the industry, but the market reality is that multi-brand retailers will continue to have a very important role to play in rural distribution. How have you gained the support of multi-brand retailers in an increasingly competitive environment?
Adya: The mini-store presence of 700 is a strong statement, and our direct service executives engage with customers in the area of operation to localize brand promotions. The communication of our Magic Box and Music Box communicates benefits, and creates a pull in the market. This is complemented with our push, creating demand through retail. The retailer must respond to this demand, even if he has an incentive to push another brand.
We have initiatives in the market where we train and support the retailers, and also have certain preferred retailers who support and work with us on such initiatives. The objectives of our retailer training activities are to maximize gross service revenue through institutionalized professional sales management to the last mile.
This approach delivers multiple benefits including reduction in attrition at the front-line level, emotional connect with the trade staff, superior service delivery and improved visibility and merchandising.
We are building a strong presence in the retail market, and the retailer knows that there is a service promise and feels proud in selling a brand like Vodafone.
Finally, what are your objectives for the coming year?
Adya: The most important objective for the year ahead is to continue taking this opportunity to the market in a wider way – penetrating it to the furthest reaches of the market and ensuring the brand experience. We see that the service experience will be the key differentiator. GTB
Jamie Anderson is adjunct professor of strategy at the TiasNimbas Business School, Tilburg University, the Netherlands