Case 20 A Tale of Tiles – Cases in Rural Marketing

CASE 20

A Tale of Tiles

Tiles India Ltd. (TIL) is a well known company manufacturing floor and wall tiles. It saw opportunity in the vast low income housing commitment of the government and embarked on the manufacture of low priced tiles. TIL has got a break when its indigenous low cost tiles received a big order from Maharashtra government when it was engaged in rural reconstruction after the earthquake at Latur. Now TIL is wondering how to expand its market all over India.

PRODUCT

The tiles are scratch proof and fire resistant. The ISI certification, testifies its quality. The main competition for this is from the locally manufactured terracotta tiles, which are not scratch proof and are fire resistant only upto a certain level of temperature. The tiles of TIL have another advantage, they could be reused even if there was a fire accident. TIL tiles come in two standard sizes; Large (10 inches X 10 inches) and small (5 inches x 5 inches). The local tiles are, however, of small size only.

PRICE

The large tiles of TIL were priced at Rs. 7.00 and small tiles at Rs. 4.50. The local tiles were priced at Rs. 3 only. The company decided that the target profit be Re.1 per piece irrespective of the size. Taking into consideration the margins necessary to meet distribution costs, the prices are fixed at Rs. 4.50 and Rs.7 per small and large piece respectively. The cost-revenue data are as given below:

Selling Price

4.50

7.00

Manufacturing Cost

1.12

4.18

Target Profit

1.00

1.00

Marketing Costs

2.38

1.82

TARGET MARKET

The potential buyers of the company include the middle and upper income groups in villages. Another important segment is the government and institutions as the tiles are cost effective and good in quality, they may be preferred for rural housing as well as institutions like hospitals, schools, etc.

DISTRIBUTION

The company is planning to distribute the tiles through company stockist. The retail outlets can be those which sell cement and hardware. Figure. 1 depicts the distribution.

Fig. 1 Distribution Channel

The only snag in the distribution is the volume of purchase. The optimum lot which may consist of tiles of any size is 10,000 units. For this lot, the transportation cost works out at Rs. 0.01 per tile upto 100 kms of distance from the stockist. Even though the stockist clubs several orders during delivery, the transportation costs are charged based on lot size of the order, which will be higher when the order is less than optimal lot. A small order as such results in cost disadvantage to the retailer. Since the manufacturers of local tiles are small scale operators, there are no stockists and delivery facilities. Retailers have to make their own arrangements and bear the cost of damages if any in transit.

Promotion

Promotion is limited to wall paintings and POP material at the outlet of company stockists.

Problems

The irritants in the way of expansion of sales are:

  1. The company tiles and the local tiles are of the same colour making identification difficult for the rural consumer.
  2. The rural consumer, not able to differentiate between the products is wondering why he should pay more for a similar product.
  3. The transportation costs are high for the rural retailer as his requirements are never large (10,000 units). Besides this, the retailer has to meet his operating costs. Put together, the costs may result in losses for the retail outlet as the end prices are fixed and retail margins are low.

With these problems, the penetration of the tiles of TIL has been low.

QUESTIONS
  1. Do you advise the company to lower the price to expand sales?
  2. What kind of promotion strategy do you advocate?

Credits

V. Shanti Latha, Doctoral Research Scholar, School of Business Management Sri Venkateswara University, Tinipathi. Shantimouly@yahoo.com.