rural marketing notes first lecture1

7/28/2019 Rural Marketing Notes First Lecture1

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CHAPTER 1: Introduction To Rural Marketing

1.1 Definitions

Marketing:Identifying needs of customers and potential customers, providingproducts/services that satisfy these needs and developing efficient processes orsystems to deliver your product/service to the market when, where and howconsumers want it.

Rural marketing:Can be defined in terms of the location (villages) and occupation (mainly farming)A large variety of transactions are considered a part of rural marketingThese are marketing of:

1. Agricultural inputs like fertilizers. Pesticides, farm equipment.

2. Products made in urban centers and sold to rural areas like soaps,toothpastes, TVs etc.3. Products made in rural areas sold to urban centers like khadi cloth,

handcrafted products etc.4. Products made and sold in rural areas like milk and milk products. Locally

manufactured toothpowder, cloth etc.

*We are going to concentrate only on point numbers 1. And 2.

Types of rural markets

RURAL To URBAN

RURAL

FromU

RBAN

*We are concentrating on Block 3

1 2

3 4(FMCGs, durables

Services, Agricultural-

Inputs)


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Definition of a Rural Area (by planning commission, Insurance RegulatoryDevelopment Association {IRDA}):

That which is not urban Population of less than 5000

At least 75% of the male workforce is engaged in agricultural activities Absence of a municipality/ corporation Density of population is less than 400 per sq km

It is important to remember that a definition for a rural area does not exist, so thedefinition that is used is the exact opposite, of the definition of an urban area.

1.2 Rural Population

Population of India Rural v/s Urban

PopulationInCrores

%Tototal

PopulationInCrores

%Tototal

PopulationInCrores

%Tototal

PopulationinCrores

%Tototal

Year 1971 1971

1981 1981

1991 1991

2001 2001

Rural 43.9 80 50.2 76.3 64.1 76 74 73

Urban 10.91 20 15.62 23.7 20.3 24 29 27

Total 54.8 100 65.82 100 84.4 100 103 100

A perspective:

Total world population: 6 BillionRural population in India: 740 million, which is 12.6% of world population.Urban population in India: 290 million, which is 4.4% of world population.

1.3 Hurdles and constraints vis--vis marketing

1.3.1 Deprived people and deprived markets:The number of people below the poverty line has not decreased in anyappreciable manner. Thus, poor people and consequently under developedmarkets characterize rural markets. A vast majority of rural people is traditionbound and they face problems like inconsistent electrical power, scarceinfrastructure, and unreliable telephone system, politico-business associationsthat hinder development efforts.

1.3.2 Lack of Communication Facilities:Even today most villages in the country are inaccessible during the monsoons.

Moreover 3 lakh villages in the country have no access to telephones. Othercommunication infrastructure is also highly under developed.


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1.3.3 Transport: Many rural areas are not connected by rail transport.

50% of the roads have been poorly surfaced and majority are severelydamaged by the monsoons

The use of bullock carts is inevitable even today Camel carts are used in Rajasthan and Gujarat in both Rural and Urban

sectors Out of the 15 million carts 12 million are estimated to be in the rural areas

transporting as much as 6 billion ton KM of freight per year

1.3.4 Many Languages and Dialects:The number of recognized languages is 16; the dialects are estimated to beabout 850. The languages and dialects vary from state to state, region to regionand probably from district to district. Since messages have to be delivered in the

local language it is difficult for marketers to design promotional strategies foreach of these areas. Facilities such as phone, telegram and fax are lessdeveloped in villages adding to the communication problems faced by marketers.

1.3.5 Dispersed Markets:Rural populations are scattered over a large land area. And it is almostimpossible to ensure the availability of a brand all over the country. 7 Indianstates account for 76% of the countries rural retail outlets. District fairs areperiodic and occasional in nature. Manufacturers and retailers prefer suchoccasions as they allow greater visibility and capture the attention of the targetaudience for larger spans of time. Advertising in such a highly heterogeneous

market is also very expensive.

1.3.6 Low per capita Income:Even though about 33% to 35% of the GDP is generated in rural areas it isshared by 74% of the population. Moreover demand in rural markets depends onthe agricultural situation, which in turn depends upon the monsoons. Thereforethe demand is not stable or regular. Hence, the per capita income is low inVillages compared to urban areas.

1.3.7 Low levels of Literacy:The levels of literacy are lower compared to urban areas. This again leads to aproblem of communication in these rural areas. Print medium becomesineffective and to an extent irrelevant since its reach is poor.

1.3.8 Prevalence of spurious brands and Seasonal Demand:For any branded product there are a multitude of local variants, which arecheaper and hence more desirable. Also due to illiteracy the consumer canhardly make out a spurious brand from an original one. Rural consumers arecautious in buying and their decisions are slow they generally give a product atrial and only after complete satisfaction do they buy it again.

1.3.9 Different way of thinking:


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There vast difference in the lifestyles of the people. The choice of brands that anurban customer enjoys is not available to the rural customer, who has usually 2 3 choices. As such the rural customer has a fairly simple thinking and hisdecisions are still governed by customs and traditions. It is difficult to make themadopt new practices.

1.3.10 Distribution problem: Effective distribution requires village level shopkeeper, taluka level

wholesaler/ dealer, district level stockist/ distributor and company owneddepot at state level.

So many tiers increase the cost of distribution.

Rural markets typically signify complex logistical challenges that directlytranslate into high distribution costs.

Also there is relatively slower growth of demand and lack of adequateinstitutional mechanism for retail operations.

Bad roads, inadequate warehousing and lack of good distributors pose as themajor problem to marketers.

Area Under Cultivation

70% for food crops- Food security- 50% retained for self consumption by farmer

30% for non- food crops (cotton, sugarcane etc.)

- Entirely marketed- Generates disposable income

The above pattern shows that the Indian farmer is extremely food securityoriented and is not willing to allocate more than one-third of his land to growingcash crops, which generates additional income for him. Whereas in countries ofAmerica and Europe the farmers use most of their land for cash crops and hencethey have greater incomes.

Monsoon and Food grain Production

Year Rainfall (% of normal) Food-grain output (milliontones)

1992 93 1791993 100 1841994 110 1911995 100 1801996 103 1991997 102 1921998 105 203

1999 96 2092000 92 196


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2001 98 2122002 (drought year) 81 184It is observed that in the drought year along with low rainfall food grain outputhas also decreased.2003-projected 96% rainfall, the normal figures are between 98% and 102%

Grain Pain:- Public investment in agriculture has been stagnant for the past 10 years- Indian farmers are grappling with problems of declining soil fertility and

water salinity and the rise of complex pest pathologies.

Poor agricultural growth leads to:- Fall in rural incomes- Higher food prices reduce consumers purchasing power- Even Non-agricultural GDP falls (due to last years drought, non-farm GDP

decelerated)

1.4 Characteristics of rural markets

Out of the total 6,30,000 villages in India less than 500 people live in 50%of these villages

40% (300 mn) live in 7% (50,000) villages

Only 1% (6300 villages) have more than 5000 people

Owner/ farmers constitute 34% of the house hold sectors in rural India andthey account for 65% of TV purchases

Even though literacy levels are on the rise in rural India it is of limited

meaning in terms of marketing as by definition literate people can only signtheir names

Economic Status The average household income of the urban population (Rs.36,000p.a) is

thrice that of the rural (Rs.12,000p.a). According to NCAER (National Council of Applied Economic Research)

the lower income group (1,40,000) will double in 2006-2007

The aspirants, lower middle and middle class are the largest segment and

are the largest base for durables and FMCG goods The well off segment like the wheat farmers in Punjab are as of today a

negligible base The destitute i.e. the lowest income group have a very low purchasing

power. % Of per capita expenditure on food in the rural area is 61% as compared

to urban which is 50% For other items it is:FMCG 15% (URBAN) 10% (RURAL)Durables 5% 3%


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Demand The demand for goods is irregular as it is seasonal and agriculture

dependant It depends on the harvest periods. Their cash flows are better after

harvest. It is festival and marriage linked. For e.g. The demand for sweets would go

up during Durga pooja in villages in Bengal. Companies like Heinz usefestivals to sponsor pandals at various pooja sites and indirectly promotetheir products.

1.5 Changing Scenario

The table below is indicative of a move from an agrarian to a service economy:

Component 1981 1992 1995 2000Agriculture 38% 32% 29% 26%Industry 21% 27% 29% 22%Services 41% 41% 42% 52%

Aspirations to improve lifestyles with increased purchasing power and

disposable incomes Growth in demand for durables, services Bank branches, schools, primary health centers at nodal points Government focus on rural development (outlay of Rs.45,000 cr in 9 five-

year plan from Rs. 14,000 cr. In 7th five year plan) Rural markets growing at five times the rate of urban market especially

category III durables. Marketers efforts New employment opportunities (IRDP :Integrated rural development

program, Banks) Green, white revolution, WTO removals of quantitative restriction for

exports of food produce. Improved penetration of mass media has resulted in creation of awareness

among rural consumers. (Press, TV, hoardings, radio etc.)

Increased Food grain Production

Green revolution Scientific methods, increased crop yields 200 million tones if food grains P.a. Increased exports of Indian agricultural produce because of WTO support Increased rural purchasing power

Government Initiatives


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Self sufficiency (Operation Flood, white revolution; blue revolution) Integrated Rural Development Programme (IRDP); TRYSEM (Training

Rural Youth for Self-Employment); REP (Rural Electrification Programme) REP gave impetus to consumer durables industry, it also aims at having

electricity in almost all villages by 2010

PSU and Co-op banks lend farmers (with Kisan credit card by Canara &Andhra bank, a person can borrow up to 50,000 with these credit cards.)

Co-operatives and corporate support

Amul, Campco (initiated co-operative movements) Contract Farming: companies give High Yielding Variety HYV seeds and

tied up with farmers to cultivate crops and sell them back to the company.

$ 2billion World Bank loans in this fiscal year

The World Banks first loan of $ 150 million for 2003-04 will go to theAndhra Pradesh rural poverty reduction project it is expected to benefit2million Households.

District poverty initiative started in 2000 includes an expansion of thegeographical area from six districts to the entire state and a sharper focuson poorer and more vulnerable rural consumers for sectors like power,road, and poverty reduction.

1.6 Distinctive features of rural markets vis--vis urban markets

Features Rural UrbanDemand pattern Seasonal UniformSpread Scattered ConcentratedLiteracy level Low ModeratePer Capita Income Low ModerateAwareness of needs | Not entirely known KnownInfrastructure Poor ModerateSources of information,communication

Word of mouth personal/direct selling, TV, radio,

unconventional media

All

Supply Erratic, untimely TimelyProduct info guidance Needed AdequateConsumer Protection No awareness Increasing awareness

1.7 Are Rural markets an opportunity?

Green revolution has highly increased the disposable income of farmers,there are many farmers in high income group

Purchasing power has increased tremendously (Administered price

mechanism APM) ensures that the farmers get the correct/fixed prices fortheir produce through the government.(usually for cash crops) In addition


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to this when the farmer wants to buy inputs like fertilizers, the govt. gives itto him at a fixed price.

Vast size- Majority of Indias population still lives in villages (DemandBase)

A growth rate of 3-4% adds 1 million rural consumers every year

Steep rise in support price of paddy, wheat 10 consecutive good monsoons (except 2001-2002) so increased income

1.8 Rural Demand Pattern

Rural product portfolio

Category I II III (Items costing morethanRs.6,000)

Pressure cookers 2 in 1 (mono_ CTV (S)Pressure pans 2 in 1 (stereo) CTV (R)Mono cassette recorders B & W TV (S) VCRsBicycles B&W TV (R) VCPsWrist watches (mech) Instant geysers ScootersWrist watches (Quartz) Storage geysers MopedsRadio/ transistors Sewing machines MotorcyclesElectric Irons Vacuum cleaners RefrigeratorsCeiling fans Mixer/ grinders Washing machinesTable fansSOURCE: NCAER (Economic Times)

CTV sales 65% in rural India Rural share of durables about 60% (esp. bicycles, wrist watches, radios/

transistors) Share of category I is declining and II and III is increasing. Purchase of goods under category III has increased by 25 % over the

previous year, category II has increased by 15% and category I by 3%

Preference for brands

Segment % ofconsumers whopreferred brandeditems

< 40% 40 80% >80%

Necessity/popular

Coconut oil Iodized salt Toilet soaps

Tea Washing powder Washing cakes AnalgesicsBiscuits ToothpasteBlues (neel) Razor blades


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Premium Refined oil Hair oils ShampooBulbs Batteries

Rubs, balmsSkin creamToothbrushes

AntisepticsChyavanprashDigestivesMosquitorepellentsShaving creamsTube lights

Of The 740 Million rural consumers realistically about 200 million have thepropensity to spend. However, it is claimed that disposable incomes in

higher income classes in rural areas is higher than in urban areas sincemany services such as housing, health and education (leaving qualityissues aside) cost far less.

rural marketing notes first lecture1

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