Expert Answer:W11498 Godrej Chotukool: A Cooling Solution for Ma

  

Solved by verified expert:Read Godrej Chotukool: A Cooling Solution for Mass Markets case in your course pack.Use the readings, presentations, and your analysis of the case to write a two page brief that answers the following questions. You are restricted to a 2 page (1½ -spaced) response. Use 12 point Times Roman font size with one inch margins all around. Do not do any additional research on the company. Confine your analysis and to your reading of the case and the articles assigned.What are the critical success factors for this product to succeed?What challenges do you foresee for Godrej as it takes Chotukool to various geographical markets across the country?
Note: You will find it useful to review the readings from Week 3 that pertain to emerging markets before analyzing this case.
Submit your assignment to the Turnitin dropbox located in the assignments area.NOTE: Follow up answers to this assignment will appear the following day. Please review the follow up to this case.
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W11498
GODREJ CHOTUKOOL: A COOLING SOLUTION FOR MASS
MARKETS
Charles Dhanaraj, Balasubrahmanyan Suram and Prasad Vemuri wrote this case solely to provide material for class discussion.
The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have
disguised certain names and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2011, Richard Ivey School of Business Foundation
Version: 2014-01-08
G. Sunderraman, vice-president of corporate development at Godrej & Boyce (G&B), and his team were
putting the final touches on a presentation to the company’s board concerning the launch of the
company’s latest innovation targeted for rural India. Chotukool1 was an unconventional cooling solution
for the mass markets that could operate on 12-volt battery power, priced at ₹23500, which was slightly
above 50 per cent of the price of the lowest cost refrigerator available in the market. Test marketing in
select areas had generated a lot of consumer interest as well as publicity for the product. The national
launch scheduled for March 2010 was just two weeks away. The team was meeting with Jamshyd Godrej,
chairman of the board, to brief him on some new developments and some of the difficulties encountered
in the distribution channels. They were weighing in on a novel community-based distribution model as
well as some operational challenges.
INDIAN REFRIGERATOR INDUSTRY
The Indian refrigerator market was valued3 at ₹40 billion in 2010. Despite the fact that refrigerators had
immense utility, the penetration level of the product was below 18 per cent in the urban market and two
per cent in the rural markets compared to 40 per cent for TVs4. A refrigerator was perceived as a nonessential product in rural areas; a problem further compounded by affordability constraints as well as
irregular availability of electricity subject to voltage fluctuations in these areas. Prices for home
refrigerators varied from ₹7,000 rupees to more than ₹70,000. See Exhibit 1 for the market shares of the
all the major players in the Indian refrigerator market for the years 2006-2010.
Refrigerators were approximately 16 per cent of the consumer durables market in India that was valued at
around ₹250 billion, growing at 7-8 per cent annually5 (See Exhibit 2 for select consumer durables market
data over 2005-2010). The urban market was growing at an annual rate of 7- 10 per cent, the rural
1
Chotu means “little” in Hindi.
Indian rupee.
3
Firstcall Research Report, August 27, 2010.
4
Ibid.
5
Ibid.
2
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segment was growing at 25 per cent annually. The National Council for Applied Economic Research
(NCAER), a policy think-tank, classified the Indian consumer market into five socio-economic segments,
ranging from the destitute to the highly affluent (See Exhibit 3). These segments differed considerably in
their consumption behavior and ownership patterns across various categories of goods. These classes
existed in urban as well as rural households with possibly different patterns of consumption for similar
income households in urban and rural areas.
GODREJ & BOYCE
Godrej & Boyce Manufacturing Company Limited was the holding company of the Godrej group, a ₹170
billion conglomerate based in Mumbai, India, which started with the manufacture of high quality locks in
1897. The group’s lawyer-turned-locksmith founder, Ardeshir Godrej, was a well-recognized inventor
and a visionary. His brother, Pirojsha Godrej, had the capability to manufacture these inventions. Over the
years, the company had diversified and grown to fifteen diverse business divisions offering consumer,
office, and industrial products and services across India and the globe. 20 per cent of its business was
done overseas with presence in more than 60 countries. The portfolio of Godrej & Boyce comprising 15
business divisions is provided in Exhibit 4.
Genesis of Disruptive Innovation at Godrej and its Journey
A meeting of chairman Jamshyd Godrej and a well-known Harvard professor, Clayton Christensen, in
Boston in summer 2006 kicked off G&B’s journey in disruptive innovation. Chairman Godrej recalled:
As Professor Christensen was sharing his thoughts, I could instantly see a huge potential
in deploying the disruptive innovation idea in a developing economy like India. More
than 60 per cent of the people in India do not own a TV; more than 80 per cent of the
people do not own refrigerators; 50 per cent of the population earns less than $26 per day!
Can disruptive innovation improve their lives? So, I invited Professor Christensen to
India to educate Indian businesses about the concept of disruptive innovation and impart
process skills.
In July 2006, Christensen conducted a two-day seminar for 300 senior executives from leading Indian
companies. More than 30 participants from Godrej took part in the seminar. G.Sunderraman, who at that
time was the head of sourcing and supply chain at the appliances division of G&B, recalled:
It was an impressive seminar. But, there were no Indian examples! My concern was how
to put the concept to use in India? Our chairman asked Prof. Christensen to work with
some Indian companies and develop pilot projects. We were one of the first ones to sign
up!
The participants from Godrej subsequently worked in teams, selecting eight ideas with the help of
Innosight, a consultancy firm founded by Prof. Clayton Christensen. A focused team worked for more
than a month and developed business plans for these ideas. In January 2007, Christensen returned to
Godrej to witness the presentations of these eight teams to Godrej’s senior management. After day-long
deliberations among senior leaders, four ideas were shortlisted for piloting. “Chotukool” was one of them.
Sunderraman, who later became the vice-president of corporate development, recalled:
6
All currency is in U.S. dollars unless otherwise stated.
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I was growing sceptical about exclusively fighting for a share in the narrowly defined
traditional market, particularly when the penetration rate was a mere two per cent in rural
markets and 18 per cent in urban markets of India for refrigerators. My ambition was to
match the number of refrigerators with that of TVs (which had achieved a penetration of
about 40 per cent) in India. But, I perceived a strategic dilemma: whether to continue the
conventional business model targeting the existing markets or to simultaneously adopt an
unconventional business model aimed at addressing the latent mass markets in parallel?
In interacting with the chairman’s office, Sunderraman felt that the management was supportive of a
radical idea. He put together a small team of three people to pursue the idea. Sunderraman was convinced
a novel combination of existing resources and technologies would be sufficient rather than an invention
from scratch. Nonetheless, some amount of experimentation was still needed. At the end of five months
of work, the team thought that they had a great business opportunity and they could foresee a huge
potential market. The team presented the business case for Chotukool to the chairman on May 19, 2007.
The Journey of Chotukool—Field Studies
June 2007 marked the beginning of this project when the first business case for Chotukool was prepared.
Instead of cutting costs out of an existing cooling solution, G&B started with a clean slate. The team
spent time in people’s village huts and closely observed their product usage and lifestyle patterns to figure
out the needs of such consumers. The team noticed most Indians in rural areas purchased groceries every
day and did not make any bulk purchases. For these rural communities, a cooling solution that could hold
just a few items would be an optimal design. Such studies with rural and urban non-consumers of
refrigerators brought out significant inputs for the design of Chotukool. A few critical comments the team
received in this regard included the following:
I don’t feel the need for a refrigerator. I use an earthen pot to cool water; I buy vegetables
for immediate consumption and boil milk to avoid it from getting spoilt. In India, a
refrigerator costs around ₹8000-10,000. In addition, it has a running expense too which
will upset my monthly budget. I don’t have the space to keep it in my tiny house.
To me, a refrigerator should cost around ₹2500 and running it should be affordable. How
will I service it if needed? My neighbour had to shell out ₹2500 for servicing it and an
additional ₹300 to transport it to a service centre. I face load-shedding of six-eight hours
every day, how will the product work?
All the feedback indicated a cooling solution was an aspirational product but beyond their budget. A huge
market opportunity existed below the 100 litres category at a price point much lower than ₹7000, which
was the lowest price of a conventional cooling solution. The insight triggered the disruptive innovation
team at Godrej to take the idea forward. The team undertook several field studies using interviews,
observations, photographs, etc. for key insights to flesh out the new product idea. Sanjay Lonial, the
innovation leader for Chotukool, shared some of these insights:
Rural customers want to store food and milk and chill drinking water. They don’t need
ice that much, so a 180-litre fridge is not required. The ₹3500 Chotukool meets their need
and also has a low running cost.
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The next stage involved sharing consumer insights picked up from the field with the company’s R&D
team to generate prototypes. Subsequent usage of these prototypes by prospects led to a few more insights
as observed by Lonial:
Some users who had bought Chotukool were using the product not only at home but also
to make money. The tiny fridge was helping owners of roadside kiosks, wayside grocery
stores and flower vendors to sell additional items like cold water. In the countryside,
villagers—the potential buyers—would also act as marketers, earning commission on
each unit sold.
Lonial summarized the overall experience of this research:
It was a huge year-long effort. Not all answers were still clear! But we now know, in
innovation, there are no ready answers! We had to find them by systematic exploration
and experimentation.
GODREJ CHOTUKOOL
Product Design
In the design of Chotukool, the team ensured it could survive power surges and outages common in the
countryside. It was designed to run on a battery or an inverter. In fact, erratic power supply had been one
of the major reasons for the evolution of Chotukool. It had no compressor—making it possible to produce
a noise-free and easy to maintain product.
Contrary to the regular method of cooling by compressor—common to every domestic fridge—
Sunderraman opted for a technique known as thermoelectric or Peltier cooling in the prototype.7 In some
Western countries, small thermoelectric fridges were used as beer coolers at barbecues. Though these
were perceived as expensive, the entry of many models from China was driving the prices down.
Sunderraman commented:
Thermoelectric cooling has been around for decades. Designing the Chotukool wasn’t
rocket science. But this is the first time thermoelectric cooling has been applied to a lowcost solution. Innovation need not always involve sparkling new technologies. The most
creative aspect of innovation lies in repurposing an existing technology well enough to fit
the needs of the people who need it most. However, using it for bigger fridges would be
like fitting a two-stroke engine onto a Mercedes-Benz.
G&B had an independent start in the development of the Chotukool prototype. The portable cooling
solution reflected the migratory lifestyles of villagers and the space constraints in rural households. The
number of parts was reduced from a typical 200 to 20. It was a top open design, 1.5 feet tall and two feet
wide, weighing around 7.8 kg with a capacity of 30-40 litres and it ran on 12 volt battery. The 30 litre
version was priced at ₹3,000 and the 45-litre one at ₹3,500. Based on customer feedback, the company
7
Named after the French discoverer, Peltier cooling (thermoelectric cooling) applies an electric current to the junction of two
well-chosen metals; one end of that junction grows hotter, the other end cooler. The Peltier effect states that if there is an
electric current flowing through a joint of dissimilar metals, one side of the joint becomes hot and the other side becomes
cold. In other words, the conductor now works as a heat pump, which can transfer heat from the cold side to the hot side.
This was discovered by Jean Charles Athanase Peltier in 1834. Brittannica Online Encyclopedia,
www.britannica.com/EBchecked/topic/449424/Peltier-effect, accessed November 3, 2011.
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undertook several innovations to keep the price low and continuously worked on its design to make the
product look pretty and aspirational.
Manufacturing
The manufacturing unit was located in Satara, Maharashtra, India, and made a few thousand units a
month. It is based on Chotukool’s technology core—Peltier cooling. The thermoelectric module used in
the Chotukool contained an array of thermocouples connected electrically in series and thermally in
parallel. The semiconductor material used in the module was bismuth telluride. The module ran on a
voltage of 12V DC and an electric current of 4 to 5A. The maximum achievable temperature difference
between the hot and the cold side was 70 degrees Celsius while heating. In the cooling mode, it produced
a difference of around 20-22 degrees C, between ambient and cold chamber temperature.
The manufacturing process was fairly simple in comparison to the manufacture of traditional
refrigerators. The cooling module consisted of the thermoelectric chip in close thermal contact on one
side with heat sink and the other side with “cold side” heat transfer aluminum finned block. The finned
aluminum heat sink was cooled by a fan similar to the one used in desktop PCs. The cold side heat
transfer block too had a small fan throwing cold air into the cooling chamber for circulation. With
insulated closed ducting the entire cooling module was housed in the lid of the Chotukool. The storage
chamber was a simple insulted container made out of outer casing and inner cavity, with insulation
material between the two.
The manufacturing involved the plastic injection molding of the inner and outer casings of the body and
the inner and outer casings of the lid. The next step involved the foaming where two chemicals were
poured in the cavity between the two casings to solidify into a rigid insulation structure. The third step
was the assembly of cooling module as explained above. The product was supplied with 12V DC power
through power packs similar to the charger used in the laptops. The finished product was then tested for
performance in usage simulation chamber at around 40° C. The tested product was packed and labeled
after adding accessories like shelf, separator and power pack.
Chotukool had the advantage of simplicity due to its technology as well as design structure. The entire
assembly of 20 odd key parts was carried out with about 10 to 12 persons in a very small space. In a
conventional refrigerator, the compressor used for cooling has more than 60 parts machined and matched
to very close tolerances. The refrigerator, together with compressor and other cooling system components
like condenser and evaporator (over 150 components), was assembled in long moving conveyors. Often
more than 100 odd persons worked in such assemblies.
Distribution: Community-based Model
With 69 per cent of the total population of India of approximately 1.2 billion residing in villages, it was
certainly a market that presented abundant opportunity for G&B. India had 640,867 villages.8 However,
with only 40 per cent of these villages connected by road, one of the major obstacles to distribution and
penetration in rural India was the lack of basic infrastructure, such as roads, water supply, electricity and
telecommunications. Working around these constraints added to the financial burden of companies trying
to make inroads into rural India. Further, over 94 per cent of India’s total retailers belonged to the
unorganized sector that was constituted by traditional formats of low-cost retailing, such as local kirana
8
2011 Indian census data.
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(corner) shops, owner-manned general stores, convenience stores, hand carts and pavement vendors.
Organized retailers faced stiff competition from over 13 million kirana stores that secured the loyalty of
customers through free home delivery and credit sales.9
There were very few companies that had been able to tackle these issues successfully and make their
presence felt across multiple geographies. For instance, Hindustan Unilever Limited (HUL) had been able
to make its branded products available in 6.3 million retail outlets in India by implementing its alternate
distribution strategy “Project Shakti.” Launched in 2001, Project Shakti involved working with self-help
groups (SHGs) to educate and train rural women to become micro-distributors or sales persons called
shakti ammas. These women served as direct-to-home distributors of HUL products in rural markets that
would otherwise be difficult to access through traditional networks. The shakti distributors accounted for
nearly 15 per cent of HUL’s sales in rural India. Started as a pilot in 50 villages of the Nalgonda district in
Andhra Pradesh, the success of the project led HUL to expand it to 15 states, with 37,000 female
distributors covering 100,000 villages10.
Right from the beginning, G&B also had a community-led distribution model in mind for Chotukool. The
model took shape as the company joined hands with non-governmental organizations, self-help groups,
and micro-finance institutions. In February 2008, after conversations with different NGOs, they finally
went with Swayam Sikshan Prayog (SSP) which had an excellent record in the community and had
developed trust with the villagers. Around February 2009, there were meetings with villagers which
helped arrive at external design features such as preferred colours (e.g., candy red).; In 2 …
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