Chapter III

RURAL MARKETING OPPORTUNITIES AND

CHALLENGES FOR FMCG

3.1 STUDY OF RURAL MARKETS OPPORTUNITIES & CHALLENGES

There was a time when the term Marketing simply presupposed exclusively
urban markets. Marketers were preoccupied with their strategies targeting purely urban
markets. However, in recent times marketers have found a new shine in rural markets
mainly because of two reasons: 1. urban markets have become increasingly saturated to
the level of surfeit and hence the creation of demand for the existing product is extremely
difficult and 2. The impact of globalization is increasingly felt in the villages and
marketers want to capitalize on the surging opportunities due to changing life styles of
the rural people.
Another factor that has given impetus to the rural marketing is the recent
development of improved infrastructure. On account of government initiative, transport
and telecommunication have improved to a great extent in rural areas. This has removed
the traditional hurdles of inaccessibility and inadequate facilities associated with rural
marketing.
Of course, it does not mean a rosy path all the way. The marketer has to overcome
many a hurdle to taste the fruits of success from the rural market. It is not possible to get
results overnight. Stumbling blocks such as vast and not so easily accessible scattered
market, constraints on infrastructure front, lack of transport, field staff, pricing,
promotional and distribution challenges further aggravated by unpredictable monsoon,
monsoon dependent agriculture, incidence of poverty are some of the daunting challenges
posed by the rural markets.

46

Hence the study of rural market for the purpose of research requires study in
detail both the opportunities and challenges and to find out ways and means to take
advantages of opportunities and to work out to meet challenges so that, marketing in rural
areas can be both mutually beneficial to the people and the corporate and the Indian
Economy.
3.2 OPPORTUNITIES
From the days of the British who set their feet on the Indian soil as mere traders
under the banner of East India Company to this day of MNCs and FIIs who come in
droves and hordes, flocking India, one common feature that attracted everyone to our
country is ~ Opportunity. Our country with its vast, varied and diversified regions,
cultures and people is a source of perennial opportunities. Yes ~ India continues to be the
wonder land of not only mystic charms but also a source of myriad opportunities with
about six lakh villages and seventy percent of our population living in rural areas, rural
markets offer vast scope for marketers.
According to the national council for applied economic research (NCAER) the
official collector of data on India, Indias rural majority today accounts for more than
US $100 billion in consumer spending making them by far the biggest buyers in the
country and contributing significantly to Indias Gross Domestic Product1. This is
despite the fact that more than 390 million people in India mostly the landless labourers,
peasants, and marginal farmers continue to live at less than $1 (one) a day. Other factors
that drive marketers towards rural sector are:

47

3.3 LARGE POPULATION BASE

As stated earlier, India has over six lakh villages spread across its length and
breadth. These villages are home to 70% of total population of the country. There are 206
million households translated into a population of 712 million. This chunk of market is
largely untapped and under tapped. As the size of one state of our country is much bigger
than a small European nation, the market potential of India offers immense scope for
FMCG products. Out of one billion people in 2000 about 180 million are below the age
of 20 years. These young population forms the core market for FMCG products.
3.4 FAVOURABLE RURAL MARKET DEMOGRAPHICS
The following table is showing details of rural population on the basis of sex and
also the components of work force of the total rural population. Also the table shows
student population ratio (per 1000) age wise and worker population ratio (per 1000) age
wise. It amply confirms the scope of rural market. Further, occupational distribution per
1000 will give a fair explanation about the bright future for rural marketing and rural
sector will prove to be a bonanza for MNCs marketing FMCG products.

48

Table 3.1 Rural Market Demographics

S.

Aspect

Male

Female

Total

1.

Population (000)

367,240 344,640 711,880

2.

Work force (000)

271,370 121,820 393,190

3.

Student population ratio (per 1000)

No.

Age wise

4.

15-19

413

259

20-24

86

29

15-19

503

304

20-24

844

409

25-59

970

550

60+

639

218

All ages

531

299

0. Agriculture, forestry and fishing

531

749

1. Mining and quarrying

2-3. Manufacturing and repair services

115

102

Worker population ratio (per 1000)

Age wise

5.

Occupational distribution (per 1000)

4. Electricity, gas and water

49

5. Construction

0.3

6. Trade, hotels and communications

57

17

7. Transport, storage and communication

131

43

52

16

87

79

8. Finance, insurance, real-estate and business

services
9. Community, social and personal services

Source:

Krishnamacharyulu

C.S.G.

&

Ramakrishnan

Lalitha,

Rural

Market

Demographics, Rural Marketing Text and Cases, Page 66, 2006.

3.5 INCREASING PURCHASING POWER OF RURAL POPULATION
With favourable rural market demographics, showing significant percentage of
working population and student population, coupled with improved agricultural output,
there has been perceptible and significant improvement in the income level of rural
population leading to increased purchasing power. According to a Mckinsey survey
conducted in 2007, the rural India market would grow almost four times from its existing
size in 2007, which was estimated at US $ 577 billion2.
3.6 FAVOURABLE OCCUPATIONAL PROFILE OF RURAL CONSUMERS
A recent article in Economic Times by Rajesh Shukla gives vivid picture of rural
consumers in their rich variety. He states that It is for the marketers to discover the
50

potential of the untapped consumer base that the rural market presents and harness it with
a winning combination of strategies3. The following table gives details of estimated total
households, average household income vis--vis share of rural households with rural
urban income ratio. It also shows the share of rural to total stock in terms of percentage
with regard to certain FMCG goods.
Table 3.2 Occupational Profile of Indian consumers
Salary

Self-

Labour Self-

earners

employed in

employed in

non-

agriculture

Others Total

agriculture
Estimated

37.9

35.1

66.8

59.4

6.3

205.6

1,10,344

95,020

30,957

55,653

75,468

65,041

46%

78%

97%

51%

70%

0.571

0.721

0.599

0.839

0.542

total
households*
Average
household
income**
Share of rural 39%
household
Rural-urban

0.905

income ratio

51

SHARE OF RURAL TO TOTAL STOCK (%)

30

30

54

93

35

46

Refrigerator

21

19

37

86

28

29

Cell phone

23

22

40

91

31

33

Colour
television

*Million **Rs. per annum

Source: Rajesh Shukla, See rural consumers in rich variety Economic Times Nov 30,
2009, P.13
The picture presented above is a tiny glimpse into rural consumer behaviour. The
rural household data provides clear insight into the changing dynamics of the rural
market. It is a clear reflection of the growing consumer base of rural sector. The bottom
of the pyramid presents bountiful fountain of opportunities.
3.7 INCREASING CONSUMPTION PATTERN
As a corollary of increasing purchasing power of the rural population and
improved occupational profile, the rural consumption pattern is growing at an
encouraging pace and unlike urban markets the disposable income in rural markets is also
on the increase. The following table shows that consumption patterns in the industrially
developed and literate states are slightly higher above average, than the states that lack
basic infrastructure and literacy.

52

Table 3.3 per capita Household Expenditure (in Rupees)

Level

No.

States

Expenditure

High

Punjab

614

Kerala

604

Haryana

546

Rajasthan

452

Gujarat

416

Andhra Pradesh

386

Maharashtra

384

West Bengal

382

Orissa

381

Tamil Nadu

381

Uttar Pradesh

373

Karnataka

365

Assam

338

Madhya Pradesh

326

Bihar

289

(Above Rs.382)

Average

(Rs.382)

Low
(Below Rs.350)

Source: National Sample Survey (January June 1990), Facts for you, March 2000.

53

Added to the above data, the following figures with comparison of rural Vs urban
goes to prove that consumption pattern of rural sector compares favourably for the rural
marketers and the scope for rural marketing is ever increasing.
Table 3.4 Consumption Pattern
Routine & Non routine Rural households

Urban/nonfarm

expenses (% of income)

households

Food

expenditure

for 80%

salary earning households

Non food expenditure

66%

Rs.25,000/annum

Rs.15,000/annum

Rs.26,000/annum

Rs.16,000/annum

Source: Economic Times, Nov. 30, 2009, P.13

Rural consumers spend around 13% of income, the second highest after food
(35%) on fast moving consumer goods as per RMAI study. The FMCG industry in India
was worth 16.03 billion in august 2008 and the rural market accounted for a robust 57%
share of the total FMCG market in India. For instance, Godrej Consumer Products
intends to increase revenue from rural areas from 38% to 55% in the next three years by
increasing its distribution network substantially4.
The National Sample Survey consumption data pertaining to Monthly Per Capita
Expenditure (MPCE) for three years from 2004-05 to 2006-07 indicates improvement in
consumption pattern of rural sector across all MPCE level. This is a favourable indication
of poverty reduction and the inclusive nature of growth as consumption has improved
across the entire distribution in 2005-06 &2006-07. Tables 3.5 & 3.6 show different
54

consumer products and their growth rate in rural vis--vis urban sectors in terms of value
and volume.
Table 3.5 Rate of growth of FMCG products in rural /urban sectors
Growth
Product

Rural (%) Urban (%) Value/volume

Shampoos

14.2

10.1

Value

Shampoos

14.3

5.2

Volume

Tooth paste 10.5

6.5

Value

Tooth paste 8.2

2.6

Volume

18.2

Value

Hair oils

18.7

Source: Ratna Bhushan FMCG companies saying mera bharat mahan The Economic
Times, Nov 19, 2009, P.4 ratna.bhushan@timesgroup

55

Table 3.6 All India percentage of rural population by MPCE levels

MPCE level

% population below the level

(Rs.)

2006-07

2005-06

2004-05

(at current prices)

235

1.2

2.0

2.8

270

3.2

4.5

6.1

320

7.5

11.4

14.4

365

12.7

18.7

23.9

410

20.8

27.9

33.9

455

29.1

36.5

43.6

510

39.0

46.6

54.4

580

50.3

58.9

65.3

690

64.9

72.3

77.5

890

80.3

86.1

88.8

1155

90.6

93.2

94.7

Source: NSS Report No.527: Household Consumer

Expenditure in India, 2006-07.

56

Further, a recent research by A.C. Neilson on the growth of key FMCG sectors
during April September 2009 confirms the fact of the increasing consumption trend of
rural sector5. As per the report, the rural markets outgrew urban markets.
3.8 CONSISTENT RURAL DEMAND
A comparison on the market growth rate also shows that the rural sector has a faster
growth rate than the urban markets. The faster growth rate is more evident for FMCG
categories.
The table below shows that there is a consistent demand for the various FMCG
categories. The demand for the household care stood consistently 92 % since 2004 and
the demand for personal care stands at 98% and food and beverages at 93%. The statistics
is an encouraging sign for the marketers to firm up their strategies for the rural sector.
Table 3.7 Rural Tools
RURAL TOOLS
Category

Market penetration in (%)

2004

2005

2006

2007

Detergent/soap

93

92

92

92

Washing

95

96

96

97

House hold care

powder/liquid

57

17

20

21

21

Toilet soap

98

98

98

99

Shampoo

68

77

80

83

and 84

85

85

86

64

71

71

72

Tea

92

93

93

93

Coffee

14

15

15

15

Milk food drink

97

98

98

Insecticide
Personal care

Hair

oil

dressings
Skin cream
Food and Beverages

Oil/ghee/vanaspati 98
HH

Universe 136043 138682 141321 143855

(000s)

Source: Business Standard, Ruchita Saxena December 27, 2007 and http://www.businessstandard.com/india/news/rural-market-for-fmcgupswing/308846/

58

According to a report in Economic Times dated 10/03/2006, FMCG market will

grow 60% in 5 years resulting in more than 10 to 12% of annual growth. Again as per
the ASSOCHAM report also rural and semi-urban population of 180 million people look
for FMCG products. Another report from Equitymaster.com dated 21/02/2008 says that
FMCG market turns around 700 billion rupees and contribution of rural market is 34%.
From 2002, particularly between 2004 and 2007, Indian economy was upswing and the
outlook was bright. Markets for FMCG products were high with growing income level.
Even after the great recession hitting major economies of the world (when stock
markets started its rollercoaster slide from February 2008 in India), our economy
withstood the onslaught of global recession to a significant level particularly the rural
India with its dependence mainly on traditional avocations of agriculture and other allied
small ventures. Hence, the rural economy was not affected as much as urban economy.
3.9 GOVERNMENT SUPPORT FOR RURAL INDIA
The primary objective of the successive governments is to give a thrust to rural
economy by supporting agriculture and rural sector. Year after year, budgets provide for
adequate funds to rural sector and marginal farmers. Industries based on agricultural
products were getting a boost.
3.10 SOCIAL SECTOR EXPENDITURE
There is an increased trend in Social Sector Expenditure. This is designed to bring
those below the poverty line to effect an all around growth. With this in view, the
Government is targeting various social sectors such as, public health, family welfare,
education, employment, housing, drinking water, road and telecommunications. The
59

Central Government Expenditure on social services including rural development (plan &
non - plan) has increased from 11.23% in 2002-03 to 19.44% in 2008-096
3.11 ECONOMIC SURVEY 2008-09
The Government has also launched ambitious schemes for rural development like
Bharat Nirman scheme launched in 2005-06. This scheme aims at building infrastructure
and basic amenities in rural sector specifically targeting:
1) rural housing
2) irrigation potential
3) drinking water
4) rural roads
5) electrification
6) rural telephony
Further, other schemes targeting rural sector are:
1) Pradhan Mantri Gram Sadak Yojana
2) Indra Awas Yojana
3) National Rural Employment Guarantee Scheme (NREGS)
4) Swarna Jayanthi Gram Swarozgar Yojana (SJGSY)
5) Swarna Jayanthi Shahari Rozgar Yojana (SJSRY)

60

These schemes have accelerated the development pace of rural poor and a
perceptible improvement is visible. This has greatly helped in spurring the demand for
FMCG goods among the rural poor.
3.12 BUDGET 2005-2006
*

Increased customs duty of imported refined palm oil to 75%.

Excise duty on dairy machinery reduced.

Excise duty on preparation of meat, poultry and fish halved to 8%.

3.13 BUDGET 2007-2008

*

Farm sector given top priority.

Custom duty on food processing machinery reduced from 75% to 5%.

Excise duty on retail sales of biscuits of 50 kilograms or less fully exempted.

Venture capital investments in dairy/dairy products given a boost. They would

get a pass-through status without going through the cumbersome procedural
aspects.

3.14 BUDGET 2008-2009

This budget has given a big boost to agriculture by waiving agricultural loans to
marginal farmers, landless laborers and agriculturist with holding of less than 5 acres.
Besides cooperative loans granted by cooperative societies and land mortgage banks were
also waived. These measures spurred the growth of rural economy.

61

3.15 NATIONAL RURAL EMPLOYMENT GENERATION GUARANTEE

SCHEME
In addition to the budgetary support, the government has introduced schemes
such as National Rural Employment Generation Guarantee Scheme which guaranteed a
minimum number of days of employment in a year with wages of not less than Rs.80 per
day which ensured rural population to have a guaranteed income. [Now the wages have
been hiked to Rs.100/- per day with effect from 1.1.2010.] As FMCG products and
packages are affordable at just Rs.1 or Rs.2 or Rs.5 per package of shampoo, soap, paste,
creams etc., the demand for these FMCG products are always high from even wage
earners of NREGS. In view of the above factors, the level of income of rural population
and consequently the purchasing power has been increasing and this has driven the
growth rate of demand for these FMCG products.
3.16 DEVELOPMENT OF TIER 2 & 3 CITIES
Another factor contributing to the increased purchasing power of rural population
is due to geographical locations. Many of the villages are situated in the periphery of tier
2 and tier 3 cities and towns with concentration of industries such as textiles, knitting,
manufacturing. These industries require a large workforce, skilled, semi-skilled and even
unskilled, which is drawn from villages adjacent to these cities.

These provide

employment to these workforces on a continuous basis.

A shining example is Tirupur. This city being the nerve centre for manufacturing
and exporting of garments and hosieries require a large number of work forces skilled,
semi-skilled and unskilled for its innumerable knitting and dyeing factories and also other

62

allied industries. The adjacent villages supply the required work force. On account of
employment provided by these industries there is a visible sign of prosperity among the
villages surrounding Tirupur and these villages offer a good market for not only FMCG
products but also even for other luxury items.
As a result of such employment and consequent earnings and increased
purchasing power of these laborers who reside in villages and commute to adjacent cities
for employment, there is a need for them to maintain a certain standard of living.
Moreover, by virtue of their employment in these tier 2 cities, they come in contact with
latest trends and fashion designs that easily reach these satellite cities from metros. It is
no wonder that there is a craze and urge on the part of these villagers to be on par with
city guys. These factors evidently fuel the demand for the latest FMCG products which
are perceived as style statement.
3.17 AVAILABILITY OF BANK LOANS
The presence of a large number of branches of nationalized banks in rural India
has helped the rural population to avail of farm loans and other small loans at much
cheaper interest rates. Influenced by the policies of the government, these banks were
granting even consumer loans for purchase of consumer goods. These measures have
resulted in increased money supply and consequent increased purchasing power of the
rural population which fueled demand for FMCG products.
3.18 SELF HELP GROUPS
The government also encourages formation of self help groups of individuals who
contribute a certain sum of money to a form of corpus so that the group and individuals
63

could start a small venture of business with the help of bank loans and government
subsidy. They use the funds for these businesses from manufacturing and selling hand
made toys to preparation of other home made items such as pickles and curry powder etc.
In fact under the scheme any venture on earth worthwhile could be launched and carried
out successfully.
The Government helps liberally by way of release of subsidies and banks also
play a significant role by granting loans to these self help groups. The loan amount
depends on the nature of business and corpus created by the self help group. Women in
rural villages have been empowered due to this unique scheme. Many women in rural
India are economically well off after this scheme has come into vogue. In fact, many
MNCs have started enlisting the help of these SHGs to market their FMCG products. It is
no exaggeration to state that Self Help Groups particularly women Self Help Groups have
given a new dimension to the changing face of Rural India.
To quote one example, a unique scheme called `Project Shakti, promoted by the
largest fast moving consumer goods company Hindustan Unilever Limited was launched
in the year 2001 in the Nalgonda district of Andhra Pradesh. The scheme provides the
critically needed additional income to rural women and their families by training them to
become an extended arm of the companys operation by its linkage with the Self Help
Groups. The company gets access to the markets in rural areas in India and thereby
reaches the Bottom of the Pyramid markets7.

64

3.19 IMPROVED INFRASTRUCTURE AND COMMUNICATION

Other important reasons for the spur and growth of rural markets are improved
infrastructure, better communication facilities; reach of TV in every nook and corner of
the country, improved literacy rate of rural population, awareness about the products
especially products of sanitary, healthcare and personnel care.
On account of popularity of TV and telecommunication network improvement,
the reach and the consequent penetration has improved a lot. This has resulted in
increased advertisement budget of FMCG companies targeting rural markets. There has
been an increase of 20% in advertisement budget in the first 9 months of fiscal 20072008. Improved literacy rate in rural India has helped in building a culture of brand
preferences and a trend of brand loyalty triggering the growth rate of demand for
particular brands of FMCG products.
All the above factors have contributed to the phenomenal growth of rural market
for FMCG products and made FMCG industry a sunshine industry. Moreover, the urban
market has become congested with too many competitors. Also the markets have reached
a near saturation point. The only way for existence is application of Darwins principle
Survival of the fittest. Big fish eat the small ones
Thus, FMCG industry is the fourth largest sector with a market size of over
Rs.60, 000 crores generating more than 5% of total factory employment8.
The plethora of opportunities for FMCG products of MNCs in rural sector
discussed above would have given a fairly clear picture of the rural markets in India. The
government schemes enumerated above have helped the lot of the rural folks to a
65

significant extent which in turn helped them to live a better standard of living and thereby
creating a market for the FMCG products.
3.20 CHALLENGES
Having seen the opportunities that rural markets presented to the FMCG, it is
imperative to study the challenges of the rural marketing to have proper perspective of
the subject. As there are two sides to every coin, there are, of course, advantages and
impediments. It is not all the way a rosy path for the marketers. The following are some
of the challenges that the rural sector pose:
3.21 SCATTERED MARKET
There are about 75 crores rural consumers living in approximately mind boggling
number of 6, 38, 365 villages spread over 32 lakh square kilometer areas. 23% of these
villages that is about 1, 45, 098 villages have population of 200 to 500. The task of
reaching the last Indian villager by the marketer is indeed a formidable task. The
scattered villages with sparse population make viability aspect in terms of cost of
transport and inventory cost very prohibitive. Added to this, there is another dimension.
That is, there are 20, 000 ethnic groups speaking 24 languages and 1642 dialects9.
Thus the vast population base cited as an opportunity in the foregoing pages may
seem to be a little puzzling. But one can take comfort from the fact that 13% villages
have 50% rural population possessing 60% of wealth. But still there is no denying the
fact that it is a stumbling block for the marketer to market in rural sector.

66

3.22 INFRASTRUCTURE CONSTRAINTS

Though there has been improvement in infrastructure in rural areas, still there is
much to be done and it takes quite an effort to reach the last Indian. It is indeed a
formidable task. The accessibility is a greater challenge to the marketer given the
infrastructural constraints as Indias numerous villages are spread over millions of sq. km
and reaching them in a cost effective manner is a challenge to the marketers.
3.23 BOTTLENECKS IN TRANSPORT
The road and rail connectivity to the majority of villages still require to be
improved. There are now many villages particularly in hilly regions not having any
transport facilities and they depend on bullock carts and even boats.
In this context, it would be worthwhile for the marketers of FMCG products who
would like to overcome the problem of seemingly inaccessible rural market, to give a
serious thought to a feasibility study by the MART for HLL. It reveals that there are
about 4,00,000 mobile traders (who personally carry and sell cosmetics and toiletries
door to door in the villages). A significant percentage of these traders are willing to stock
the branded products provided they get right margins. It means the FMCG marketer has
an opportunity of reaching 75 lakh rural households, twice a week. 50% of these traders
in the north are women10. To translate the above in terms of business opportunity will be
quite significant. Thus, what appeared as a challenge can really be converted into
opportunity.

67

3.24 LACK OF BASIC FACILITIES

As per census of India 1991 that about 91% of households in Indian villages did
not have toilet facilities11. One has to keep in mind that these households having not even
toilet facilities are to be targeted for marketing the FMCG products. A person who is
grappling with problem of meeting his basic needs will hardly be receptive to the idea of
buying a FMCG product.
3.25 PROBLEMS PERTAINING TO 4PS OF MARKETING
Designing Rural Specific Products
Companies that are keen about rural markets have to seriously get their acts
together to bring out exclusive products for rural markets. It is a big challenge for
companies to bring exclusive products. Not many have done it. But, in the long run
companies simply can not ignore this issue. Some progressive companies like LG
electronics, HCL and Godrej have already made products that are rural specific taking in
to account the background of rural markets. Foreseeing the demand for CTVs in rural
India, in1998, LG had launched a colour TV Sampoorna. The Company introduced
Sampoorna CTVs with Hindi, Tamil, Marathi and Bengali on-screen display, as most of
the consumers in the rural markets were not familiar with English12. Mere change in the
pack size is not the solution, which seems to have been the most popular product strategy
with most companies.

68

3.26 STANDARDIZATION OF PRODUCTS

There is a tendency among MNCs (with a few exceptions) to standardize their
products without taking into account personal preferences of respective regions. Our
country has diverse cultures with different taste and varied preferences. In not targeting
specific ethnicity on Indian society, MNCs are possibly losing huge opportunities to the
next level of popularity. Like spices wafer variant for Tamilians are Andhraities, like
Anchor tooth paste changed the paradigm for social targeting by introducing 100%
vegetarian tooth paste in the early 2000s13.
The MNCs should constantly innovate with imagination with focused attention to
not only explore new rural markets not explored before, but also to retain the markets
they had already captured. In effort to meet the specific needs of different ethnicities will
go a long way in enabling the MNCs to further the reach of their products even to the
remotest corner of rural India. As rightly pointed out by the CEO and global chairman of
Pepsi Co, Indra Nooyi, you have to crack solutions right for India, right for its people
and right for its farmers14.
The above observation of Indra Nooyi made on 12th Nov. 2009 is in right
consonance with her companys strategy as appeared in Business Line as early as
200315. It only strengthens the fact that different consumers have different needs and
different tastes.
3.27 PRICING
Price is the only element in the marketing mix that brings revenue to the
company Kotler
69

It is big challenge for companies to come out with a perfect pricing strategy for
the rural markets. One can not equate the affordability levels of urban consumers with
rural consumers. So, a different pricing strategy is a must for companies that are serious
about business in rural markets. When companies fight out with each other at a time
where margins are really thin, it is a big challenge for companies to price their products
less and still stay afloat.
3.28 DISTRIBUTION CHALLENGE
As discussed above infrastructure is the biggest problems in reaching the rural
consumer. FMCG require intensive distribution. The fact that companies have to keep the
price also low and be accessible at an affordable price and pace is a greater challenge
than serving an urban consumer. A few companies like the HUL and ITC have come up
with innovative marketing strategies which include an intelligent way of distributing
products, are a sure way of getting success in rural markets.
A shining example is ITCs scheme of e-Choupal. It is an innovative way of
reaching the farmers at their usual meeting place, bringing them tangible and useful
services to the farmers and in the process marketing the companys products. It offers
farm related services like training, soil testing, product quality certification, medical and
clinical services, and cafeteria and fuel stations. e-Choupal synergies the back-end
supply chain needs and the front-end consumer engagement needs in rural India as costeffective and differentiated backend supply chain16.

70

3.29 PROMOTIONAL CHALLENGE

It is observed that MNCs do not adopt advertisement strategies specifically
targeting the rural markets. The medium of advertisement plays an important role in
boosting sales of their products in certain regions.

Conventional medium of

advertisement may not be effective in respect of all regions, particularly rural markets.
MNCs are slowly waking up to the realty as not many of them have started using
advertisements in visual media such as T.V. rather than in newspapers whose reach in
rural areas is poor.
The National Readership Survey finds that reach of the mass media is very
poor. While the press reaches only about 23% of rural consumers T.V. reach about 36%
and cinema 26%17.
Even in T.V. advertisement in respective regional languages will be more
effective rather than in English or Hindi. As per one recent study T.V. craze is quite
strong as people from southern states roughly spend 2 hours and 50 minutes per day and
that in Northern states the average view time per day is 2 hours 20 minutes18.
Again if the MNCs want to keep their communication with rural consumers in
respect of their products effective through television channels they have to give
advertisements repeatedly. This repeat exposure is a must. Further the gap between
exposures should not be long otherwise the message will lose its edge. These factors
make rural communication more expensive.

It has to go through all the time

consuming stages of creating awareness, altering attitudes and changing behaviour19.

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3.30 CLUTTER OF BRANDS

There is a trend now to have too many brands in each category of consumer items.
For instance, the shampoos category offers a choice of 18 brands and in the soap category
there are 30-plus brands. Though compared to advanced western market where the
shampoo category has about 70 brands and soap category boasts of 140 brands, the
number of brands offered in India is relatively small, still it is much on the higher side.
The high clutter market after a certain limit confuses the rural consumer instead of
offering him choice. MNCs should take care to see that the rural consumer is not
confounded by too many brands.
3.31 SPURIOUS BRANDS
Another challenge that MNCs face while marketing FMCG products in villages is
the large scale presence of spurious brands imitating the popular brands. According to a
study by A.C. Nielsen that FMCG segment alone incurs a loss of about Rs.1800 crores
due to counterfeit products. Due to lack of awareness and also such counterfeit product is
much cheaper. The villager is tempted to buy these products and in the bargain both the
consumer and the genuine producer lose20.
3.32 REGIONAL BRANDS
At all rural places for all FMCG companies if there is something in common that
is the problem of local brands. Regional brands are extremely popular with rural folks
even though there is very less to choose between in terms of price between the national
brand and the regional brand. For any company it is a big challenge to make their way

72

through in the rural markets. The rural people have a lot of trust and loyalty with regard
to regional brands.
3.33 CONSTRAINTS IN MANAGING RURAL SALES FORCE
Rural marketing techniques are different from urban market techniques. Rural
marketing require non conventional means of sales promotion. The rural consumer is
different from urban consumer in his approach, outlook and attitude. It requires special
skills to understand the psychology of rural consumer, to talk to him in his own language
and to convince him. Hence, rural salesman requires intense specialized training. In this
context MNCs have to deploy additional resources towards training and maintaining their
sales force. This involves additional expenditure which may not yield immediate results.
Urban marketers and advertising professionals shall require a totally different mindset if
they are to succeed in the rural markets21.
3.34 VAGARIES OF MONSOONS
Our agriculture even today is a gamble on monsoons. In fact, policy makers are
all on tenterhooks from the month of June every year, anxiously awaiting the arrival of
monsoon. Failure of monsoon will turn the entire economy topsy-turvy. Our monsoon
pattern also displays a peculiar pattern of cyclical droughts and floods interspersed with
good monsoons. The farmer is at a disadvantage on both counts as too much and too little
rain spoils the crop. The recent spells of floods in 2009 in Andhra Pradesh and Karnataka
have devastated the crops and the livelihood of the people living in rural areas. The
growth rate of agriculture for the second quarter of 2009 is just 0.9% and it may be even
worse in the third quarter when the impact of shortfall of major kharif crops will be felt22.

73

As our rural economy is closely interlinked and dependent on agriculture, the

failure of monsoon would directly impact agriculture production. This will have chain of
adverse reactions affecting not only our farmers but also traders, banks and other
intermediaries. Ultimately, the entire economy gets affected resulting in all around
depression under the circumstances, rural markets can not be exceptions and naturally
will have to suffer. The number of suicides of farmers in Maharashtra, Andhra Pradesh
and in other states stand in contrast to the number of Indians appearing in Fortune 500.
The sword of Damocles of monsoon failure is always hanging over our rural sector.
3.35 INFLATIONARY TRENDS
While on the one hand the economy is reeling under the impact of global
recession, slump in demand and unemployment there is strange phenomenon of
increasing prices of essential articles, particularly food items. The prices of essential
commodities have sky rocketed making them beyond the reach of common man,
particularly in villages. The food inflation rose to a 10 year high at 19.95% for the week
ending 5th December, 200923.

The following figures throw light on the galloping

inflation of food articles.

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Chart 3.1 Wholesale Price Index

Base: 1993-94=100

Primary Articles
(Weight: 22.02%)
300

271.1

284.4

285.5

Nov 28
2009

Dec 5 2009

248.3
200
Dec 6 2008

Oct 10
2009

Figures for Nov. 28 and Dec. 5, 2009 are provisional

Source: The Hindu December 18, 2009 (p15)
The inflationary trends of food items is definitely impacting the demand for fast
moving consumer goods in rural areas as the common man in rural villages is mostly
concerned with meeting his basic needs and only after satisfying his basic needs will he
ever venture to look for his higher needs.
3.36 INCIDENCE OF POVERTY
It is indeed a paradoxical situation where we find a peculiar scenario in villages
where we see prosperity on the one side and poverty on the other side. On the one hand
the rich land lords prosper and splurge on luxury goods and on the other hand an
overwhelming majority is living in poverty and penury unable to make their both ends
meet. The following report issued by the Planning Commission shows that the incidence
of poverty is more in rural areas than in urban segment:

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Table 3.8 Incidence of poverty (per cent)

Sl. No.

Category

1993-94

2004-05

By Uniform Recall Period (URP) Method

1.

Rural

37.3

28.3

2.

Urban

32.4

25.7

3.

All-India

36.0

27.5

Source: Planning Commission

Economic Survey 2008-09 (p 260)
According to another expert committee set up by the Planning commission which
has revised rural poverty levels in India in 2004 -2005 from 28.3% to 41.8%24.
In spite of development schemes of the government and seemingly improved
conditions of people, still there is a wide gap between the haves and have-nots and it is a
fact that our landless labourers, peasants and marginal farmers still live on less than $1 a
day. With such a gloomy scenario presenting in rural areas, it is indeed an uphill task for
marketers of FMCG of MNCs.
3.37 MIGRATION OF RURAL POPULATION
The vagaries of monsoons in the villages have had another effect on its people.
On account of uncertainties of employment in agriculture whenever the monsoon fails,
the agricultural workers and marginal farmers migrate to cities and bigger metros in

76

search of employment and mostly they end up as construction workers in bigger cities.
This phenomenon has greatly affected the prosperity of the rural villages and
consequently the demand for FMCG also slumps. The schemes of the Government
particularly schemes such as NREGS which guarantee employment have now slowed
down the trend of migration among the rural people to cities. The delivery systems of
these schemes require improvement and transparency in order to ensure that benefits
these schemes reach the deserving.
3.38 WTO AND WORLD BANK PRESSURES
On account of increasing influence of WTO policies thrust on us, in spite of many
objections, free trade policy has come into vogue. It has facilitated relaxations in import
restrictions especially agricultural products. For instance, the large influx of fruits such
as apples, oranges from Australia and USA has resulted in our products inability to
compete with imported products. This puts our farmers in a disadvantageous position and
naturally when our farmer suffers loss; our economy will suffer irreparable loss. To add
fuel to fire, while developing nations are forced to restrict their farm subsidies by the
World Bank, they are unable to have any say with regard to major powers such as USA,
whose farmers are being heavily supported by hefty subsidies.
With large scale economies of farming, wide use of sophisticated machinery and
equipment further aided by their government in the form of high level of subsidies, they
are able to sell their agricultural products at much cheaper rates than our farmers. This
has adversely affected our rural economy and in turn their purchasing power and
consequently the demand for FMCG products are also affected.

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3.39 COMPETITION
Competition has two aspects; one is competition among the FMCG producers.
On account of cut throat competition, undercutting of prices, margins on FMCG products
have eroded considerably. This has ultimately affected the growth of FMCG sector.
Another aspect of competition is in the form of cheap labor available in China. As a
result of cheap labor and competitive cost, they are able to compete aggressively in
textile, knitting and other allied industries and quote much lesser prices for their products.
On the other hand, our industries saddled with high input cost, affected by power
cuts and other problems are facing a losing battle. As a chain effect, production falls,
employment level falls and our rural population living in peripheral villages and
depending on these industries face unemployment, layoffs, lower wages and hence lower
consumption. The cascading effect is reflected in the declining demand for FMCG
products.
3.40 GLOBAL RECESSION
As the recent recession is all encompassing and all pervading throughout the
entire world, it has not left out our economy also. Though this global recession has not
affected our economy to the alarming level, but still it has caused enough damages in the
form of growing unemployment, reduced level of industrialization, lower consumption
and lower demand. This has evidently affected our villages also.

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3.41 ANALYSIS OF BOTH OPPORTUNITIES AND CHALLENGES

In the foregoing pages, a detailed study of opportunities and challenges has been
done. Now that an analysis of opportunities and challenges is essential to find out
whether, those challenges could be overcome and also to explore whether the
opportunities can be harnessed to meet the challenges.
One of the formidable challenges that the rural market poses is the vast and
scattered markets which are lying in the farthest nook and corner not easily accessible.
This challenge is now being effectively met with by some of the following strategies.
MNCs are adapting themselves to the realities of markets. For example a Pune
based firm Rural Relations helps MNCs with its bases set up in rural areas
Maharashtra, M.P., Gujarat, Rajasthan and U.P. It uses different marketing aids for
promoting sales such as video on wheels Bazaar/Haat Day Promotion, direct contact
programme and house to house sampling. It ahs helped HUL, Protector & Gamble, Tata
tea, and Marico. PR aims to reach villages with a population of 2000 10, 00025.
Another challenges faced by the companies is lack of data & information at the
right time to enable decision making process easier for companies. To obviate this
difficulty, the concept of data warehousing is catching up in India with many companies
opting for it. The technology has capability to turn data into information that disseminates
and analyses for enabling decision making process. Data warehouse is a combination of
professional consultancy services and processing information. In India, FMCG
companies and automobile companies have set up full scale datawavehouse26.

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Yet another innovation to tackle the challenges is by establishment of e-choupal

initiative by ITC. It offers research based studies on rural market behaviour. e-choupal
project employs people at grass roots level to study the market and have access to
information on real time basis. Simultaneously, it helps farmers in giving information
regarding the correct timing of sales of their produce and weather forecast etc27.
One more factor that has by now well established in the rural sector is Project
Shakti by HULs smart way of reaching one million home directly covering 62,000
villages across 12 states through women entrepreneurs.
The above steps taken by MNCs have to a considerable extent, met the challenges
of lack of effective rural sales force, inaccessibility of the markets, lack of marketing
tools of data collection etc.,
One important drawback of MNCs marketing in rural areas is that, they just
standardise their products and try to market the same irrespective of the taste, suitability
and utility of the product from the rural consumer point of view.
These grievances are being addressed by the MNCs. For instance, Godrej has
redesigned the refrigerator to suit the rural consumer, in terms of functionality based on
the feedback from rural consumer. The nano fridge named as Chotukool is designed to
cool down to 28 degrees inside below the outside temperature as against the normal
standard of 20 degrees below outside temperature. 30 liters version is priced at Rs.3000/and 45 liters is priced at Rs.3500/-. It runs on 12 volt battery. It will not make ice and
runs on cooling chips instead of compressor28.

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Further, MNCs have honed their skills to promote multi functionality products
comprising personal care and household care segments. Now consumers prefer
performance products that would not only clean but also take care of the body. The
concept of multi functionality soap with benefit agents like skin care, anti-ageing, antiwrinkle, moisturising, anti-tanning etc has caught the fancy of consumers and MNCs are
fine tuning to the needs of rural consumers29.
One more common perception of rural marketing is associated with monsoon
dependent agriculture. Its fate clings to agriculture. This factor is true to a certain extent.
However Government is taking care to stimulate farm growth and its policy package for
farmers for increasing rural income is expected to boost growth in the FMCG sector. This
is surely of result of the study of Industries in FMCG goods by Federation on Indian
Chambers of Commerce and Industry (FICCI) 30.
Another challenge as attributed by marketer is, rural poor is very much price
conscious and they generally do not go for products on account of higher prices of the
product. However, a study made by National Council for Applied Economic Research,
Delhi, as early as 1996, covering 820 villages across 410 districts and 99169 households
in rural India apart from cities, shows that it is consumption and not income which
differentiates consumer segments. Also high income households are growing much faster
in rural India31.
If this is the picture obtained in 1996, another study made in 2006 by A.C.
Neilson shows that FMCG market is on the rise in 2006, the growth rate in rural areas

81

crossed 18010 and companies are focusing on the premium segment. The growth is
sharper in branded categories like biscuits, Indian snacks and refined oil32.
Another report Fortune India (Sep. 15, 2005) estimates that FMCG sector
would touch Rs.1,00,000 crore by 2010. And the revival is attributed to the growth in
economy and increasing purchases by rural consumers33.
Another redeeming feature to boost up rural market is the setting up of The Rural
Marketing Agencies Association of India (RMAAI) in Mumbai. This association would
develop rural marketing and act as rural marketing specialist. It was also felt that
advertisement expenditure in rural sector would have to be increased as presently (in
2004) only Rs.500 crores was allotted to rural advertisement as against a total of Rs.11,
000 crores for the Country34.
Yet another hurdle for the rural marketer is fake brands. It was estimated that 5%
to 8% of FMCG market are spurious. According to study by A.C. Neilson that
Government of India is losing Rs.850 crores in taxes and duties on account of this
problem. Particularly rural consumers are fooled by counterfeiters who resort to similar
packaging, colour and graphics to pass off their products as high-end well known brands.
To prevent this menace, the Industry has set up a Brand Protection Committee under
the Federation of Indian Chambers of Commerce and Industry to help fight the problem
of spurious brands35.
However in spite of negative portrayal of rural markets by skeptics, studies prove
otherwise. It points out that rural markets are growing at five times the rate of urban
markets in India. Rural market accounts for 59% of washing soaps, 58% of dry cells and

82

40% of packaged tea of the Indian market. It was estimated that just 1% rise in the rural
income translates into a huge buying power of Rs.10, 000 crores. The marketer needs to
redefine product price, place and promotion to suit rural markets36.
Other factors that are impeding rural sectors growth such as competition, global
recession etc., it is observed that these impediments have been fairly tackled on account
of the initiatives taken by Indian FMCG companies. As per the report of Business Line
July 16, 2010, HULs target to reach out 50,000 to 60,000 villages with its experimental
and educational campaigns for its brands37.
FMCG giants ITC and HLL are competing with each other to gain an upper hand
in FMCG market in rural sector. The market Capital of HLL grew by 38% as on
21.12.2005, whereas ITCs market capital grew by 68%. ITC is showing more promise
with its foray in rural retail through Coupal Sagars38.
It is also heartening to note that FMCG consumption pattern of rural masses is
catching up with that of urban consumers. According to a survey conducted by A.C.
Neilson ORG-MARG, there is little difference in the consumption pattern of toilet soaps,
biscuits, washing powder, and packaged tea between urban and rural consumers39.
Observation made by the participants of a Seminar, Going Rural: The New
Market Mantra, in New Delhi sum up the prospects of FMCG scenario. It is observed
that rural market is the key to survival. The main constrains to rural market growth are:
Cluttering, cut throat competition cutting into one anothers market share and lowered
margins. Products and packages showed suit the capacity and needs of daily wage earners
of villages. Coca Cola could increase rural market penetration from 13% in 2001 to 25%

83

in 2003 by increasing the outlets from 80,000 to 1,60,000 and by reducing the average
price of its products from Rs.10/- to Rs.5/-. Rural markets account for 30% sales in terms
of volume and 80% of new consumers40.
Thus after analyzing the challenges vis-a-vis opportunities, it is quite evident that
opportunities far outweigh challenges and the silver line is that our government, our
policy makers, business class, industrial tycoons strive to come out of this vicious cycle.
Unlike in the west where financial giants crumbled as a pack of cards, where
governments helplessly watched the situation getting out of control, our industries, our
economy and particularly our public sector banks have weathered all the storms and
withstood the onslaught of the "slings and arrows" of outrageous recession.
It is hoped that with government measures and recent RBI guidelines giving
much incentives in the form of interest concession, lower SLR & CRR and special
packages to agricultural sector, our economy will be back on the rails of progress and
prosperity. This will evidently help our rural sector greatly and will ultimately help them
have a better standard of living so as to spur the demand for FMCG products from rural
sector.
As Oscar Wilde rightly said that an optimist is one who sees an opportunity in
every calamity and the pessimist is one who sees a calamity in every opportunity, it is for
the MNCs to take positive cues to make the best of available opportunities amidst bumps
of stumbling blocks. It is very much like the old story of two salesmen of shoes going to
Africa and each one having diametrically opposite views about the prospect of selling
shoes in Africa. Ultimately, it boils down to the practice of following the basic business

84

principles. These principles are to know your adversary, know your audience, and know
your customer41.
The words of C.K. Prahalad will be apt and appropriate in this context: India is a
laboratory for learning how to be competitively efficient rather than complaining about
the difficulty of the Indian market. If we approach it as active laboratory of innovation
and understanding of cost and quality management or price performance management
then we can leverage it in other parts of the world42.

85

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89