Tractor Dynamics

Originally written on Nov 16, 2017

Practically every retail finance company out there is carving out “exclusivity” image which signifies customer friendliness. The “Experience” of buying or availing credit has been key. While some like the State Bank of Travancore ( Currently SBI ) believed in the “personal touch”, HDFC believed in “Speed” and “Reliable Funding”, ICICI banked on “Technology”, SBI (in its pre-merger avatar ) believed in “ Rate and Loan Offerings “, and still many others like KMBL / Axis / Yes bank relied on ethos that was more like the “Helping Hand” ( “We are there for you” Philosophy ! ).

Not to be left behind, NBFCs too clambered the ladder, choosing one of these models or a combination to carve out “Exclusive” perception on offerings.

The common strain that ran through all of these MODELS, was “Timing” and  “Customer Service”. All attempts made out were to tie regulatory requirements while cutting short in the processing time. Remember the last time you ordered something online and the joy we experienced receiving a good product in the comfort of your home ? Did we realize that this timing and customer service taking our expectations to the next level ? – exclusivity has evolved. Gone are the days when location of a store mattered. We enter the virtual world !

I remember reading an article in the RURAL and MARKETING magazine, where it talked about penetration of mobiles / smartphones / laptops into the RURAL Markets. Then there were discussions on forums about mapping TECH POINTS in villages. SREI called this SAHAJ. ICICI used to call it DISHA. I’m sure each organization has a tech carrier to carry and market their products.

While I stood awe struck and amazed at the wonderful world around me change, I observed certain patterns that were hard to miss and yet were nerve centers and haven’t undergone any change.

 Paradigm 1 - MONEY BEGETS MONEY

Aadhar never was sought after by the masses, until it became essential and impacted their lives. It also has to do with the mindset.

The “Impact” factor is key in ensuring the success of the model.

Same way, the best way to ensure good collections / recoveries in an evolving finance market is to keep hitting at GREED and HOPE of the customer. This is the IMPACT area. All models keep satisfying the customers, his needs and / or his ego. If these are kindled positively, collections is never a pain. Only when the money cycle stops does the reality begin to decend.

Many financiers are still in the state of elevated TRISHANKU SWARG ( A Virtual Heaven) that they have created for the customer.

For a guy who uses Power Tiller, a constant upgrade is possible through finance availability. Many a time, we keep harping on the woes of farmers, and about their dependence on weather / rain. Many a government has granted subsidies and waivers, and yet the sale of tractors continues.

This is done by constantly upgrading the customer. While he shuns an 1 / 2 / 3 year old tractor, there is another strata of people who eagerly look forward to upgrade and in fact pay advance to dealers to get them a “good” used vehicle.

PARADIGM 2 - POWER OF TECHNOLOGY AND MARKETING

The essential truth of the farming technology in terms of HP has always remained constant. Upto 45 Hp, usage is likely to be AGRI. Greater than 45 Hp, the use is likely to be Commercial (Other than AGRI). Yet many of us would have heard our dealer executives pitching most of the leads, mentioning the same as AGRI Customers.

“Agriculture” is a magic word and is used synonymously with Tractor and Tractor Implements. 

There was a point in time when 25 – 30 Hp ruled the roost, and it went up all the way upto 70 Hp and slid back to the 32 – 45 Hp. It has done a full circle.

Every year sales strategy changes and in the name of “NEW TECHNOLOGY”, the marketing teams get the farmer to scale up or scale down, based on his current level.

These are like allopathic medicines. Many of us have used and known these drugs - Aspirin, Disprin, Brufen,Voveran. These were later categorized as "Banned" drugs. Yet you walk

across to your regular drug store, you're sure enough to find VOVERAN with prefixes and suffixes. The prefixes and suffixes make the difference.

The essence is –

1. A Model when it released in the market has 2 outcomes - Success (OR) Failure. The attempt is always create more Successes and correct the Failure to make them Successes.

2. The process of converting from Failure to Success involves pulling out of the failure model and bringing in an alternative, until it is accepted. This process is sometimes iterative.

3. Once a model is accepted, creating Variety within the model is Quintessential. A Litter of Sub-Models and Variants are born. The dealers milk it further by designing their own combination within a sub-model for differentiation from competition in their geographies.

4. Keeping the pace of TECHNOLOGY at a faster pace than the farmer's ability to comprehend is key to this mix working its wonders.

   
   

The dynamics of Technology and Marketing is a subject by itself !

PARADIGM 3 - COLLECTION MODELLING

Gone are the days when procuring funds was a constraint ! Today, the efficiency of any financier in the rural space is determined by his / her ARREARS table.

All our Rural Brethren are largely wired to be true by intent, until the subject of OPPURTUNITY COST presents itself in front of them. Any farmer will try to squeeze out the maximum gain there is to be derived from the money in hand. When the farmer has money – investment options open up at the cost of paying up his / her installment. The Theory held here is that the money made from rotation / circulation of money through unorganized money lending, will far offset the costs of penalties.

Hence the key to the RURAL CHANNEL FINANCING is in properly designing a collections mechanism, which will ensure installments receivable are indeed received !

Once this model succeeds, it feeds faith to the manufacturer to launch newer models and the financier to expand his horizons.

PARADIGM 4 - CUTTING COSTS BUILDS LOYALTY

L&T, SHRIRAM, KOTAK…. Are some breeds of Financiers who understood, that the apparent triangle of Rural Retail Finance involving Farm Equipment was actually a pyramid with one hidden dimension – dealer empathy / relationship.

So what did they do differently ? In the entire circle of farm equipment purchase, starting with testing the waters with hiring and then progression towards USED vehicles and the later confidence to take up a new vehicle. The dealer and the customer are most vulnerable in this transition from operational phase to growth phase. This is a time from costs rise.

PARADIGM 5 - THE SAGA OF ARM-TWISTING

Days in SHG lending, we used to be concerned about local money-lenders, pawn brokers charging exorbitantly from Below Poverty Line borrowers (BPL), who had little recourse to any form of Credit. These customers used to and still keep falling prey to lending at very high rates.

In the days of the current world, this pattern has caught on between corporates too. Manufacturers turning a blind eye towards unfair modes adopted by their sister concerns and finance wings in getting market share. One may feel the dealer has choices. The reality is that the dealer is many a time arm-twisted in to a situation where he / she has to acquire funds from coercing channels, in anticipation that their business returns would compensate. Yet, what we all forget is that the end effect is that the customer / purchaser / farmer buying the equipment bears the brunt.

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We have tried changing the front facia, we have adopted technology, we have changed the customer experience. Yet all of this is woven around these patterns. These are popular handles. In a year which still faces hardships of receivables and cash cycles, the tractor market rides a boom on a single factor such as weather and rains.

Simple Check - Interactions with the dealers would definitely bring this information to the fore. Whatever the process, whatever the modality of service, these factors / patterns remain constant, irrespective of the manufacturer or the financier.

So will the tractor sale in itself spur growth ?