Vanraj Tractors free essay sample

- VANRAJ MINI-TRACTORS - The case depicts the dilemma of a decision-maker Mr Trivedi who has to select an appropriate segment for marketing the 10 horsepower (HP) Vanraj Mini tractor in the states of Gujarat, Madhya Pradesh, Maharashtra and Uttar Pradesh. The four segments identified for Vanraj tractors: small and marginal farmers, large farmers, industries, and horticulture farmers. Vanraj was economical and could perform almost all the functions of a big tractor at lower costs serving multiple purposes and uses. It provided added and immense advantage over the existing Chinese made mini-tractors and bullocks used by small farmers and the existing market players catered to the larger farmer segment considered lucrative and substantive in nature with a higher level of mechanization. India has emerged as the world’s largest market for tractors and the small and marginal farmers are dominant in terms of numbers but no player currently serving this segment. Mr Trivedi found a huge market potential in the small and large farmer segment as they had a latent demand and believed that this segment was the most appropriate target market for Vanraj but the other board members advised him to consider and study the feasibility and profitability from the other identified segments before deciding to freeze a particular target segment. We will write a custom essay sample on Vanraj Tractors or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Decision Problem 1. Selecting an appropriate target segment for Vanraj among the 4 identified segments. 2. Determining the appropriate price level for Vanraj to be sold in the selected segment. Analysis Vanraj was designed for agricultural and transportation purposes with a robust and versatile technology. The segment demarcation and selection is crucial as the overall marketing strategy will get modified wherein each segment has a completely different industry structure and competitive environment. Vanraj was design to address most of the problems faced by small and marginal farmers which no other big tractor was able to do. This had led Mr Trivedi to believe in its perfect fit to the needs of this particular segment of farmers. STATE| ANNUAL SALES (in units)| Gujarat| 17345| Maharashtra| 28443| Madhya Pradesh| 15288| Uttar Pradesh| 54392| Table 1: Average past sales of tractors in respective states The high fragmentation of agricultural landholdings with 82% held by small and marginal farmers with an increasing role of mechanization to increase foodgrain production provided a boost to tractor sales in India over the last two decades. The size of landholding did not inhibit the use of tractors and with declining size of landholdings per farmer; the big tractors were not economically viable for use in such farm sizes. The issue was that horsepower of tractors was increasing and size of landholding was declining which led to the exclusion of the small and marginal farmer segment from the purview of tractor companies. Demographic segmentation Small and marginal farmers| Large farmers| * Large in number * Small landholding (average 1. 4 to 0. 4 hectares) * Engaged in subsistence farming * Uneconomical for farm mechanization| * Small in number * Large landholdings (average 3 hectares) * Engaged in commercial farming hence earning high income * High levels of farm mechanizations| Geographic segmentation Northern India (UP)| Western and Southern India (Gujarat, Maharashtra MP)| * Soil is alluvial and fertile * Requires lower horsepower tractors * Area under horticulture farming 1066 (‘000 hectares)| * Harder laterite and black soil * Requires higher horsepower tractors * Area under horticulture farming 1550 (‘000 hectares)| Breakeven analysis Actual production of the ‘Vanraj’ varies from 300 to 480 across the seven years. The cost of production also varies from Rs. 471. 84 lakhs to Rs. 758. 76 lakhs. The average cost of production per tractor thus comes around Rs. 1. 58 lakhs. Considering profit after tax, dividend, depreciation and contingent expenses the net cash accrual for first to second year ranges from Rs. 7. 1 lakhs to 9. 5 lakhs. The overall profit comes to 7. 1-9. 5%. The sales realization against 300-480 tractors will range from Rs. 570 lakhs – 912 lakhs from the first to the seventh year. Thus, the price of ‘Vanraj’ mini tractor can be fixed at Rs. 1. 9 lakhs. The breakeven sales at 100% capacity can be Rs. 11. 40 Millions. Segment I: Small and marginal farmers In India, small farmers traditionally relied upon bullocks for all their agricultural needs. Therefore, the main competitor for Vanraj Mini tractor were bullocks rather than other Chinese make mini tractors which were not suitable for Indian trying conditions. | Bullocks (2 no. )| Vanraj| Other small tractors| Initial cost| Rs 0. 027m| Rs 0. 19m| Rs 0. 16m| Life span| 8-9 years| 8-9 years| 6-7 years| Other cost(fuel or fodder costs)| Fodder = Rs 17500*11 yrs = Rs 192500| Fuel = 950 hrs*1. 5l/hr*Rs 3. 3/litre*8 = Rs 376200| Rs 376200| Maintenance costs| Nil| 15% of selling price = Rs 0. 03 m| 40% of selling price = Rs 0. 6 m| Total cost incurred (for 8 year usage)| Rs 2,19,500| Rs 5,96,200| Rs 5,96,200| Challenges Though, using mechanized equipment rather than bullocks would increase efficiency in agricultural methods, total cost incurred on Vanraj mini is 3 times more when compared with total cost incurred on bullocks. The technical factor of maneuvering across a small landholding po ses some problem. The vagaries of monsoons coupled with fluctuating crop production may encourage farmers to hire big tractors whenever the need arises instead of owing a tractor which may end up becoming a liability for the marginal farmer. Hence, it is not economical for small farmers. It is more economical for farmers to hire a big tractor which can supplement the existing bullocks. This way they would be saving time and work  more efficiently. Hiring charges = Rs 250/hr; usage = 950 hrs per year; total yearly cost = Rs 237500 if replaces bullocks fully. Thus if a farmer is totally dependent on hiring, Vanraj may be a profitable option for him but as per Indian context, hiring provides farmer with the flexibility and also one cannot be sure about the number of such farmers. The market segment analysis for the tractors reveals the following facts: TRACTORS MARKET SEGMENT Segment| Sales Distribution (in %)| Price (millions) (subsidy Rs 30k for 30 HP)| Growth rate (overall 30%)| Consumption| 50 HP| 4. 5| | 17. 88| | The cost of tractors is varying from Rs. 0. 10 Million to Rs. 0. 40 million and above. ‘Vanraj’ proves to be the better choice as compared to its Chinese counterparts on account of better reliability and performance. Hence even if it is priced a little higher people would still prefer it if they are made aware of the long term benfits. Its advantage over bigger tractors in terms of better manoeuvrability and easy access to small corners of land makes it quite a handy asset to posses. Thus, the price of ‘Vanraj’ tractor fixed at Rs. 0. 19 million seems justified and appropriate. Table 2: Driving factors for use of mini tractors for farmer segment States| Area under Fruits (ha) (year 2001-02)| Area under vegetables (ha) (year 2001-02)| Marginal farmers (year 2000)| Small farmers (year 2000)| Large farmers (year 2000)| Gujarat, MP, Maharashtra, UP| 1066. (10% increase)| 1548. 9 (10% increase)| 25415| 9681| 10472| If we combine the marginal small farmers we will find that the total number of farmers in this category comes out to be around 35096. Moreover this is the untapped section of the market. Since the installed capacity is only 600 tractors per annum. The company can supply around 4350 tractors. Moreover since the farmers are economically ill equipped they can form a group and buy a tractor for thei r common purpose. With the various problems which crop up now and again in case of the 3 competitors and also Chinese made Mini Tractors (10 HP segment) or along with the newly entering HMT(18-25 HP segment) ‘Vanraj’ can pounce upon this opportunity as it has the many advantages over the other Big Tractors like low cost, fuel efficiency, availability of spares, easy maintainability, high manoeuvrability and compatibility with various farming implements and since the tractor market is always served by the bank loans, impetus can be provided so as to become a frontrunner in this segment. Segment II – Horticulture Department The big tractors are unwieldy in negotiating their way through the small gap between the lanes in horticulture farms. Vanraj’s small turning radius and mini-size would make it easy to maneuver it through the small lanes of horticulture farms. The three-wheel convertibility option available in Vanraj would be of great use in interculture operations in Horticulture farms. * Savings on initial cost:  Vanraj Mini tractor price= Rs 0. 19 million. Least price of a Big Tractor= Rs 0. 4 million Savings= Rs 0. 05 million * Savings on fuel Cost:  Vanraj Mini Tractor consumption= 1. 5 litre/hr  Average consumption of a big tractor= 4 litre/hr  Savings in fuel= 2. 5 litre/hr * Saving in fuel cost = 2. 5*33 = Rs 82. 5/hr Estimation of market potential in horticulture segment Percentage change in area from 1991-92 to 2001-02 (approx. ) | Area under fruits(%)| Area under vegetables(%)| Maharashtra| 128| 67| Gujarat| 76| 103| Uttar Pradesh| -5| 35| Madhya Pradesh| -28| -23| The above table signifies a very significant growth in area under horticulture in the period from 1991-92 to 2001-02. In fact the total land under Horticulture in the yaer 2001-02 was around 2615. 6 hectares. As horticulture and plantations are practiced by relatively well off persons and also in comparatively bigger areas they can go for â€Å"Vanraj† tractors wherever feasible rather than spending on the bigger tractors. Thus there is immense potential in the horticulture segment. Recommendations Although Mini Tractors had just 1% share of the tractor segment, it was estimated that the small farmers still using bullocks formed a larger part of untapped market. * The small farmer segment offers a huge potential and can be marketed by highlighting and communicating the intrinsic benefits of Vanraj in economic and technical terms. * Horticulture sector presents a niche market for Vanraj. It is concentrated only in few pockets of  states. Hence, Vanraj marketing should focus o n such areas to fully tap the market potential. * Area under Horticulture saw a decrease in states like Madhya Pradesh. Hence, Vanraj should interact with farmers in this region, find out the reasons and give them proper advice and hence should try to create a market for them. Conclusion The horticulture segment and small and marginal farmer segments could be easily tapped as both segments required value for money which was offered by the Vanraj tractor as compared to other mini or big tractors. [ 1 ]. More than 30 HP tractors are referred to as big tractors and less than 20 HP tractors are referred to as mini-tractors in our case analysis.