emerging face of rural indian markets

8/8/2019 Emerging Face of Rural Indian Markets

1/11

EMERGING FACE OF RURAL INDIAN MARKETS

Faculty Associate, Icfai Business School, Bangalore, Sri Krishna Avenue, No. 64, 13th Cross, 6th Main,J. P. Nagar, 3rd Phase, Bangalore - 560 078, Tel : 26582279 / 26593416, E-mail :

[email protected], [email protected]

Purba Basu

Days have gone when only a selected household consumed branded goods, whether its tea or jeans and a

rural consumer had to go to a nearby city to buy ``branded products and services". Earlier bigcompanies flocked to rural markets to establish their brands. But today, rural markets are critical for

every marketer - be it for a branded shampoo or an automobile. In earlier days the marketers

thought van campaigns, cinema commercials and a few wall paintings would suffice to entice ruralfolks under their folds. Thanks to television, today a customer in a rural area is quite literate about

countless products that are on offer in the market place. An Indian farmer going through his daily

tasks wearing jeans may sound idiotic. Not for Arvind Mills, though. When it launched the Ruf &

Tuf kits, it had created quite a sensation among the rural within few months of their launch. RuralIndian market and the marketing strategy have become the latest marketing buzzword for most of

the FMCG majors. The rural India has a plethora of opportunities all waiting to be tiedtogether.

Many of the FMCG companies are busy formulating their rural marketing strategy to tap the chance.To name few companies showing deep interest in rural India, there are HLL, Marico industries,

Colgate-Palmolive and Britannia Industries etc. Titan, the company, which expects about 17 per

cent growth to sell six million watches during 2003-04, is also planning to reposition its Sonatabrand for the vast rural market. Rural market, thus, is gaining more and more importance over the

years. The Coca Company by introducing 200 ml pack and its strategy of laying emphasis on the

rural market resulted in increasing sales volume. Services like cellular and insurance are alsospreading their hands into rural markets. Cell-phone operators like Escotel Mobile Communications

Ltd., a joint venture between Hong Kong based investment firm First Pacific and New Delhi-basedEscorts Ltd., are finding new customers all over rural India. Fishermen in coastal Kerala in the

South India use the phone service to find the best prices for their catch, a practice that can earn themup to 50% more. Escotel now controls 14% of India's non-metro cellular market, providing service

to 500,000 subscribers in 3,240 towns and villages.

Why Rural India?

70 % of Indias population lives in 627000 villages in rural areas. 90 % of the rural population isconcentrated in villages with a population of less than 2000, with agriculture being the main

business. This simply shows the great potentiality of rural India in bringing the needed sales

volumes and helps the FMCG companies to bank upon the volume driven growth. This brings aboon in disguise for the FMCG Company who has already reached the plateau of their business

curve in urban India. As per the National Council for Applied Economic Research (NCAER) study,

there are as many 'middle income and above' households in the rural areas as there are in the urban

areas. There are almost twice as many 'lower middle income' households in rural areas as in theurban areas. At the highest income level there are 2.3 million urban households as against 1.6

million households in rural areas. According to the NCAER projections, the number of middle and

high-income households in rural India is expected to grow from 80 million to 111 million by 2007.In urban India, the same is expected to grow from 46 million to 59 million. Thus, the absolute size

of rural India is expected to be double that of urban India.


2/11

Marketing Strategies for Rural Indian Markets

"The real strength two to five years from now lies in rural markets"

Pradeep Tognatta, Former Vice President, LG

Multinational corporations are fanning out into the countryside, where 70% of India's population--some700 million people--still lives. The effort to reach those consumers represents one of the largest

marketing efforts in Asia, a push led by such firms as Coca-Cola, Samsung, and Honda. These

giants are lured to the countryside for a very simple reason. The economic growth in India'sagricultural sector in last year was over 7%, compared with 3% in the industrial sector. This implies

a huge market potentiality for the marketer to meet up increasing demand. Factors such as village

psyche, strong distribution network and market awareness are few prerequisites for making a dent inthe rural markets.

The rural psyche

The keep-it-cheap-and-simple sales strategy carries over to bigger sales ticket items for rural marketers.

After a decade of experimentation, the companies have settled on a strategy: Think small, and keep

the product simple. The model is of the stolid Anglo-Dutch conglomerate Unilever Group, whichhas enjoyed a century-long presence in India through its subsidiary Hindustan Lever Ltd. It was

Hindustan Lever that several years ago popularized the idea of selling its products in tiny packages.

Its sachets of detergent and shampoo are in great demand in Indian villages. Britannia with its lowpriced Tiger brand biscuits has become some of the success storyin rural marketing. The strategy

revolves around what attracts the rural customers to a product. For e.g. packaging, the rural

customers are generally the daily wage earners and thus they dont have the monthly incomes liketheir urban counterpart has .So it makes sense, packaging in smaller units and lesser-priced packs to

increase their affordability. Color that attracts them is also important. Convenience is the other keyword. Here Colgate is the apt example. First of all it made sachets as was required by their incomestreams. Secondly since many households dont have proper bathroom and only have a window

similar things so it made sense to cap these sachets for convenience of storage while use.

Distribution channel

Recent study on buying behavior of rural consumer indicates that the rural retailers influences 35% of

purchase occasions. Therefore product availability can affect decision of brand choice, volumes andmarket share. Some of the FMCG giants like HLL took out project streamline to significantly

enhance the control on the rural supply chain through a network of rural sub-stockiest, which are

based in the villages only. Apart from this, to acquire further edge in distribution, HLL has started aproject called Shakti in partnership with Self Help groups of rural women. In the service sectors

also, many banks, Mutual Funds Company and other financial institutions are opening their

branches in rural area, only to tap those untapped customer by making the services available at theirdoor steps. Private and foreign banks are tying up with nationalized banks to reach rural people. For

example, very recently, HDFC Mutual Fund and Union Bank have put their hands together to co-

promote HDFC Standard Life Insurance and New India Assurance in the rural areas. This alliance

with UBI will help HDFC to enhance accessibility of their products by UBIs huge network,especially in the rural and semi urban markets across India


3/11

Awareness

Another important tool to reach to the rural audience is through effective communication. A rural

consumer is brand loyal and understands symbols better. This also makes it easy to sell goods thatlook alike. The rural audience has matured enough to understand the communication developed

for the urban markets, especially with reference to FMCG products. Television has been a major

effective communication system for rural mass and, as a result, companies should identify

themselves with their advertisements. Advertisements touching the emotions of the rural folks, it isargued, could drive a quantum jump in sales. There is a need to differentiate the brand according to

regional disparities. The differentiation may not necessarily be in terms of product content. It mayalso be in terms of packaging, communication or association with the brand. The brand has to be

made relevant by understanding local needs. Even offering the same product in different regions

with different brand names could be adopted as a strategy. At times it is difficult to pass on an

innovation over an existing product to the rural consumer unlike his urban counterpart-likeincreased calcium or herbal content or a germ-control formula in toothpaste.

Strategies for increasing the buying power of Rural Indian Customers

From the above discussion, it is clear that the Indian rural market right now is the best trading ground forboth Indian and multinational corporations. The burgeoning, untapped market is stretching thelength and breadth of the Indian subcontinent. Traditionally, disposable income is perceived as the

one critical factor that drives consumer demand. However, household income is no longer the single

most important factor in determining the demand for high value as well as fast moving consumergoods. Factors such as availability of cheap finance, and easy way of accessing ones own funds are

few that are controlling consumer demand today. In recent days, the top three income groups -

middle, upper middle, and high - have grown from 10% in 1986 to 20% of the population and

covers over 52 million families. The number of high-income households is growing very rapidly,more so in the rural areas. The most encouraging sign aboutthe Indian rural market is that it has

buyers who have tremendous purchasing power, and they remain largely untapped. For easy access

of ones own funds, ICICI bank has developed a low cost Automated Teller Machine (ATM)designed for rural areas and aimed at increasing micro finance in rural India. To arrange easy

finance for rural consumers, companies are nowadays tying up with banks and financial institutions.

The Indian car giant Maruti Udyog, to cater to rural areas, has entered into a strategic alliance withSBH which has wide presence in the rural areas of Andhra Pradesh, Maharashtra and Karnataka.

FMCG giant Hindustan Lever Ltd has targeted reaching 100 million rural consumers through its

women focused rural marketing initiative Project Shakti with the help of State Bank of India for

providing micro-finance.

Role of NGOs in improving the quality of life in rural India

Non Government Organizations (NGOs) in India are playing a passive role to the government as anintermediary agent, rather than as institutional reformers in the rural India. However, the serving

self-help groups (SHGs) in rural areas, promoted by NGOs, are emerging as a successful means ofimproving the socio-economic conditions of rural families with very little administrative expenses.

Banks with the help of NGOs and SHGs by a small amount of credit can reach out to the needy,

without having a fear of loans becoming non-performing assets. Some NGOs have been successfulin creating awareness among illiterate rural women and enabling them to improve their socio-

economic conditions. Few NGOs have taken steps to empower women. These organizations have

accomplished the task what the State-sponsored poverty alleviation programs could not achieve

through concessional credit and sumptuous subsidy.


4/11

Taking IT to rural Indian Markets

The Indian policy makers have identified the different regions as the priority areas for launching science

and technology based poverty eradication program using ICT in a significant way. The micro creditsupported micro enterprise revolution triggered by SHGs has provided with a hope that a new deal

can be extended to the self-employed. For SHGs to become sustainable SHGs, it is essential that

forward linkages with markets and backward linkages with research institutions and data

management centers are established. ICT has a major role in sustaining and extending this self-helprevolution. Further more, there is a need for developing a master plan coupled with a business plan

for extending the benefits of ICT to all the 600,000 villages in India by 2007, which marks the 60thanniversary of our independence. The master plan should help to link technology-knowledge-rural

women and men in a symbiotic manner. The investment needs will have to be estimated and

business plans prepared. A National Alliance for ICT for Poverty Eradication may be established

for launching the Every Village a Knowledge Centre movement. Such an alliance should includethe private sector, cooperatives, NGOs, R&D institutions, womens associations, mass media and

appropriate government agencies.

Learning from past experience in rural areas, the Indian policy makers have found a need for increasing

Indias competitiveness in domestic software applications. Government projects mainly providestatic information. What is needed by rural families is dynamic information relating to weather,

markets, health and other day-to-day information needs. So, internet, cable TV, local vernacular

press and the All India Radio, community radio stations and ham radio will be of immense help incommunicating up-to-date information. NABARD has been operating a program in Himachal

Pradesh with support from the Rural Infrastructure Development Fund (RIDF). This program has

helped to promote both e-governance and e-commerce. There is a similar initiative in Uttaranchalwith the help of IIT, Roorkee. Scope for using RIDF in other States should be explored. This will

help to convert the concept of every village a knowledge centre into reality.

Future ahead

The marketers who understand the rural consumer and fine tune their strategy are sure to reap benefits in

the coming years. In fact, the leadership in any product or service is linked to leadership in the ruralIndia except for few lifestyle-based products, which depend on urban India mainly. Definitely there

is lot of money in rural India. But there are hindrances at the same time. The greatest hindrance is

that the rural market is still evolving and there is no set format to understand consumer behavior.Lot of study is still to be conducted in order to understand the rural consumer. Only companies

with deeper pockets, unwavering rural commitment and staying power will be able to stay longer on

this rural race.


5/11

Opportunities and Challenges

This chapter captures situations that refl ect the growing interest and enthusiasm of business towards rural

markets. Opportunities in the rural market are examined in the light of intense and growing

competition in urban markets. The market opportunities are clearly perceived through a comparisonof consumption patterns for durables as well as non-durables between the rural and urban markets.

Identifying opportunities and clarity in decision-making requires an unambiguous defi nition of

rural marketing. Rural marketing and rural markets are conceptualised to clearly distinguish them

from urban marketing and urban markets. Limitations in the approach used for identifying the ruralmarkets are also examined.

THE ROAD MAP

Indias vast rural market offers a huge potential for a marketer facing stiff competition in the urban

markets. The rural market environment is very different from the familiar surroundings of the urbanmarket. Rural consumers have customs and behaviour that the marketer may fi nd diffi cult to

contend with.

The understanding of Indias rural markets is an important objective of this book. The other major

objective is to comprehend infl uences on this market with emphasis on understanding con-sumerresponse to marketing decision variables. The third object-ive of the book is to develop appropriate

methods to research rural markets.Appropriate research methods are important in the context of therural market for two reasons: (a) the consumers ability to discriminate varies; and (b) the referencepoints used by rural consumer differ from those of the urban consumers. The research methods to

measure perception, attitudes and behaviour in rural markets vary from the approach used in

researching urban markets. Research methods unsuitable in rural markets create a distorted picture

of the consumer and result in failure of market-ing efforts.The opportunities in the rural market aredemonstrated by comparing consumption levels in urban and rural markets for different product

categories. Their volumes and growth show the importance of this market. Understanding

demographic pro-fi les of consumers and their response to brand offering is a useful approach toanalyse the rural market. A large number of caselets in the book capture the consumer response to

brand offering. The need for appropriate methodology for researching consumersis demonstrated by

non-applicability of the urban referencepoints and measures in the context of rural markets.Literature available on rural development provides alternative methods toresearch rural markets.The understanding of the rural consumers is utilised in decision-making situations. Organising the

chapters according to marketing decision variables provides the focus on decision-making. Thecritical aspect of reaching the consumer with the message and the product offered is examined in

great detail. Short cases and data illustrated later in this book pro-vide the decision-maker with

important criteria for evaluation of options in these markets. The infl uence of consumer percep-

tions on product design in different productmarket situationsis identifi ed. Consequently, the


6/11


7/11

200304 42,000 2.9

200405 75,000 78 4.0200506 163,000 117 6.4

The bank has a presence in 220 districts and plans to increase it to 450 districts by 2008. The marketing

effort has innovations in distribution, product design and technology (Banerjee, 2006).

REASONS FOR THE INTEREST

There are quite a few reasons for the growing interest in rural markets. A very straightforward reason isthe growth of these markets, as in the case of the television market (see Box 1.2)

The Growing Rural Market for Television

The Consumer Electronics and TV Manufacturers Association ex-ecutive expects a growth rate of 25 per

cent for television in the rural markets compared to 5 per cent growth in the urban markets. Market

research fi rm Francis Kanoi said in a report (on consumer electronic market growth andprojections) that the top seven metros contributed 24.1 per cent of total sales in 2002, followed by

towns with a population of over 1 million, where 12.0 per cent of the sets werebought. Theremaining 63.1 per cent of sales in 2002 came from citiesand smaller regions with a population ofless than 1 million. For the year 2004, metro sales were expected to be 22.6 per cent and for the

smaller regions the share was expected to be 64.3 per cent. According to LGs Singh, Electrifi

cation of villages and an increase in awareness among the people, a good harvest and a boomingecon-omy will help drive growth. The rural market should see a growth that is three to four times

that in the urban markets. The potential is high as the penetration levels are low, and hence our

efforts towards creating a bigger market here, said Devender Saini, Senior Product Manager

(Television), Philips India Ltd. If we look at the penetration levels in rural markets, it is less than10 per cent. This is lower than the all-India average of 21 per cent and the urban markets which are

at 35 per cent to 40 per cent(Ghosh and Verma, 2003).

The growth in the television market is also because of the low penetration levels of the product in therural market. A number of products exhibit a growth rate of more than 10 per cent in the rural

market (see Table 1.1).

TABLE 1.1Growth in Rural Markets by Product Categories

Product Category Growth (%)

After shave lotions 51.9Jams/Jellies 37.8

Butter/Margarine 36.4 Napkins 32

Acne preparations 28.3Sanitary napkins 24.6

Air fresheners 24.5

Phenyls 20.8

Packaged atta 17.3Perfume/deodorant/cologne 16.3


8/11

Shampoo 14.2

Hair dyes 14.1Hair remover 11.0

Source: Dobhal, 2005

The vast untapped potential, increasing income and purchas-ing power, improved accessibility and the

increasing competition in urban markets make rural markets an attractive destination for jadedmarketers of products and services. Entry into rural markets reduces the risk of depending only onthe urban market.

Untapped Potential

Rural markets offer a great potential for marketing branded goods and services for two reasons:

The large number of consumers: A pointer to this is the larger volume sales of certain products in rural areas as compared to sales of the same products in urban areas.

Largely untapped markets: The penetration levels for many products are low in rural areas.

Market Size, Penetration and Potential

The estimated size of Indias rural market stated as a percentage of world population in 2007 is 12.4 per

cent (GeoHive, 2007; Central Statistical Organisation, 2003). This means that 12.4 per cent of the

worlds consumers live in rural India. In numbers, this

'Thanda' Goes Rural

In early 2002, Coca-Cola India (CCI) (Refer Exhibit I


9/11

for information about CCI) launched a new

advertisement campaign featuring leading bollywoodactor - Aamir Khan.

The advertisement with the tag line - 'Thanda Matlab

Coca-Cola4'was targeted at rural and semi-urban

consumers. According to company sources, the idea

was to position Coca-Cola as a generic brand for colddrinks.

The campaign was launched to support CCI's rural

marketing initiatives. CCI began focusing on the ruralmarket in the early 2000s in order to increase volumes.

This decision was not surprising, given the huge size of the untapped rural market in India (Refer Exhibit

II to learn about the rural market in India). With flat sales in the urban areas, it was clear that CCI would

have to shift its focus to the rural market. Nantoo Banerjee, spokeswoman - CCI, said, "The real market inIndia is in the rural areas.

If you can crack it, there is tremendous potential."5

However, the poor rural infrastructure andconsumption habits that are very different from those

of urban people were two major obstacles to cracking

the rural market for CCI.

Because of the erratic power supply most grocers in

rural areas did not stock cold drinks. Also, people inrural areas had a preference for traditional cold

beverages such as 'lassi'6 and lemon juice.

Further, the price of the beverage was also a majorfactor for the rural consumer.

Coca Cola India's Thirst for the Rural Market

CCI's Rural Marketing Strategy

CCI's rural marketing strategy was based on three A's - Availability, Affordability and Acceptability. The

first 'A' - Availability emphasized on the availability of the product to the customer; the second 'A' -

Affordability focused on product pricing, and the third 'A'- Acceptability focused on convincing thecustomer to buy the product.

Availability

Once CCI entered the rural market, it focused on

strengthening its distribution network there. It realized

that the centralized distribution system used by thecompany in the urban areas would not be suitable for

rural areas.
http://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst.htm#bot4%23bot4http://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst.htm#bot4%23bot4http://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst.htm#bot5%23bot5http://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst.htm#bot6%23bot6http://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst.htm#bot6%23bot6http://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst-Marketing.htmhttp://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst.htm#bot4%23bot4http://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst.htm#bot5%23bot5http://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst.htm#bot6%23bot6http://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst-Marketing.htm


10/11

In the centralized distribution system, the product wastransported directly from the bottling plants to retailers

(Refer Figure I). However, CCI realized that this

distribution system would not work in rural markets, as

taking stock directly from bottling plants to retailstores would be very costly due to the long distances to

be covered.

The company instead opted for a hub and spoke distribution system (Refer Figure II). Under the hub andspoke distribution system, stock was transported from the bottling plants to hubs and then from hubs, the

stock was transported to spokes which were situated in small towns. These spokes fed the retailers

catering to the demand in rural areas.

CCI not only changed its distribution model, it alsochanged the type of vehicles used for transportation.

The company used large trucks for transporting stock

from bottling plants to hubs and medium commercial

vehicles transported the stock from the hubs to spokes.

For transporting stock from spokes to village retailers

the company utilized auto rickshaws and cycles.Commenting on the transportation of stock in rural

markets, a company spokesperson said, "We use all

possible means of transport that range from trucks,auto rickshaws, cycle rickshaws and hand carts to even

camel carts in Rajasthan and mules in the hilly areas,

to cart our products from the nearest hub."7

In late 2002, CCI made an additional investment of Rs 7 million (Rs 5 million from the company and Rs 2million from the company's bottlers) to meet rural demand. By March 2003, the company had added 25

production lines and doubled its glass and PET bottle capacity.8...

Affordability

A survey conducted by CCI in 2001 revealed that 300 ml bottles were not popular with rural and semi-

urban residents where two persons often shared a 300 ml bottle. It was also found that the price of Rs10/-

per bottle was considered too high by rural consumers...

Acceptability

The initiatives of CCI in distribution and pricing were

supported by extensive marketing in the mass media aswell as through outdoor advertising.

The company put up hoardings in villages and paintedthe name Coca Cola on the compounds of the

residences in the villages.

Further, CCI also participated in the weekly mandies
http://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst-Marketing.htm#bot7%23bot7http://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst-Marketing.htm#bot8%23bot8http://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst-Marketing.htm#bot7%23bot7http://www.icmrindia.org/casestudies/catalogue/Marketing/Coca%20Cola%20India%20Thirst-Marketing.htm#bot8%23bot8


11/11

by setting up temporary retail outlets, and also took

part in the annual haats and fairs - major sources ofbusiness activity and entertainment in rural India...

Future Prospects

CCI claimed all its marketing initiatives were very successful, and as a result, its rural penetration

increased from 9% in 2001 to 25% in 2003. CCI also said that volumes from rural markets had increasedto 35% in 2003.

The company said that it would focus on adding more

villages to its distribution network. For the year 2003,

CCI had a target of reaching 0.1 million more villages.

Analysts pointed out that stiff competition from

archrival PepsiCo would make it increasingly difficult

for CCI to garner more market share.

PepsiCo too had started focusing on the rural market,due to the flat volumes in urban areas.

Like CCI, PepsiCo too launched 200 ml bottles priced

at Rs. 5. Going one step ahead, PepsiCo slashed theprice of its 300 ml bottles to Rs 6/- to boost volumes in

urban areas...

emerging face of rural indian markets

Documents