Rural Marketing: Challenges, Opportunities

& Strategies
Wednesday, May 26, 2010
By Ruchi Katiyar

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Rural marketing is confused with agricultural marketing.

"The future lies with those companies who see the poor as their customers."
-C. K. Prahalad
Addressing Indian CEOs, Jan 2000.

Concept

In recent years, rural markets have acquired significance, as the overall growth of the economy
has resulted into substantial increase in the purchasing power of the rural communities.

On account of green revolution, the rural areas are consuming a large quantity of industrial and
urban manufactured products. In this context, a special marketing strategy, namely, rural
marketing, has emerged. But often, rural marketing is confused with agricultural marketing - the
latter denotes marketing of produce of the rural areas to the urban consumers or industrial
consumers, whereas rural marketing involves delivering manufactured or processed inputs or
services to rural producers or consumers.

What Makes Rural Markets Attractive?

Rural market has following attributes and the following facts substantiate this: -

742 million people

Estimated annual size of the rural market -

FMCG Rs. 65,000 Crore

Durables Rs. 5,000 Crore

Agri-Inputs (including tractors) Rs. 45,000 Crore
2 / 4 Wheelers Rs. 8,000 Crore

In 2001-02, LIC sold 55% of its policies in rural India.

Of two million BSNL mobile connections, 50% are in small towns / villages.

Of the 6.0 lakh villages, 5.22 lakh have a Village Public Telephone (VPT).

41 million Kisan Credit Cards have been issued (against 22 million credit-plus-debit cards in
urban), with cumulative credit of Rs. 977 billion resulting in tremendous liquidity.

Of the 20 million Rediffmail sign-ups, 60% are from small towns. 50% of transactions from
these towns are on Rediff online shopping site.

42 million rural households (HHs) are availing banking services in comparison to 27 million
urban HHs.
Investment in formal savings instruments is 6.6 million HHs in rural and 6.7 million HHs in
urban.

Opportunities

1. Infrastructure is improving rapidly -

In 50 years only, 40% villages have been connected by road, in next 10 years another 30% would
be connected.

More than 90% villages are electrified, though only 44% rural homes have electric connections.

Rural telephone density has gone up by 300% in the last 10 years; every 1000+ pop is connected
by STD.

Social indicators have improved a lot between 1981 and 2001 -

Number of "pucca" houses doubled from 22% to 41% and "kuccha" houses halved (41% to
23%).

Percentage of BPL families declined from 46% to 27%.

Rural literacy level improved from 36% to 59%.

Low penetration rates in rural areas, so there are many marketing opportunities -

Durables Urban Rural Total (% of Rural HH)

CTV 30.4 4.8 12.1
Refrigerator 33.5 3.5 12.0

FMCGs Urban Rural Total (% of Rural HH)

Shampoo 66.3 35.2 44.2
Toothpaste 82.2 44.9 55.6
Marketers can make effective use of the large available infrastructure -

Post Offices 1,38,000

Haats (periodic markets) 42,000
Melas (exhibitions) 25,000
Mandis (agri markets) 7,000
Public Distribution Shops 3,80,000
Bank Branches 32,000

Proliferation of large format Rural Retail Stores, which have been successful also -

• DSCL Haryali Stores

• M & M Shubh Labh Stores
• TATA / Rallis Kisan Kendras
• Escorts Rural Stores
• Warnabazaar, Maharashtra (Annual Sale Rs. 40 crore)

Rural Consumer Insights

• Rural India buys -

Products more often (mostly weekly).

Buys small packs, low unit price more important than economy.

In rural India, brands rarely fight with each other; they just have to be present at the right place.

Many brands are building strong rural base without much advertising support.

Chik shampoo, second largest shampoo brand.

Ghadi detergent, third largest brand.

• Fewer brand choices in rural areas; number of FMCG brand in rural is half that of urban.
 • Buy value for money, not cheap products.

Some Myths

Myth 1: Rural Market is a Homogeneous Mass

Reality: It's a heterogeneous population. Various Tiers are present depending on the incomes like
Big Landlords; Traders; Small Farmers; Marginal Farmers: Labourers; Artisans. State wise
variations in rural demographics are present viz. literacy (Kerala 90%, Bihar 44%) and
population below poverty line (Orissa 48%, Punjab 6%).

Myth 2: Disposable Income is Low

Reality: Number of middle class HHs (annual income Rs. 45,000 - 2,15,000) for rural sector is
27.4 million as compared to the figure of 29.5 million for urban sector. Rural incomes CAGR
was 10.95% compared to 10.74% in urban between 1970-71 and 1993-94.

Myth 3: Individuals Decide About Purchases

Reality: Decision making process is collective. Purchase process - influencer, decider, buyer, one
who pays - can all be different. So marketers must address brand message at several levels. Rural
youth brings brand knowledge to Households (HH).

Why Different Strategies?

Rural markets, as part of any economy, have untapped potential. There are several difficulties
confronting the effort to fully explore rural markets. The concept of rural markets in India is still
in evolving shape, and the sector poses a variety of challenges. Distribution costs and non-
availability of retail outlets are major problems faced by the marketers. The success of a brand in
the Indian rural market is as unpredictable as rain. Many brands, which should have been
successful, have failed miserably. This is because most firms try to extend marketing plans that
they use in urban areas to the rural markets. The unique consumption patterns, tastes,

and needs of the rural consumers should be analyzed at the product planning stage so that they
match the needs of the rural people.

Therefore, marketers need to understand the social dynamics and attitude variations within each
village though nationally it follows a consistent pattern. The main problems in rural marketing
are: -
Understanding the Rural Consumer

Poor Infrastructure

Physical Distribution

Channel Management

Promotion and Marketing Communication

Dynamics of rural markets differ from other market types, and similarly, rural marketing
strategies are also significantly different from the marketing strategies aimed at an urban or
industrial consumer.

Strategies to be Followed

Marketing Strategy

Marketers need to understand the psyche of the rural consumers and then act accordingly. Rural
marketing involves more intensive personal selling efforts compared to urban marketing. Firms
should refrain from designing goods for the urban markets and subsequently pushing them in the
rural areas. To effectively tap the rural market, a brand must associate it with the same things the
rural folks do. This can be done by utilizing the various rural folk media to reach them in their
own language and in large numbers so that the brand can be associated with the myriad rituals,
celebrations, festivals, "melas", and other activities where they assemble.

Distribution Strategy

One of the ways could be using company delivery van which can serve two purposes - it can take
the products to the customers in every nook and corner of the market, and it also enables the firm
to establish direct contact with them, and thereby facilitate sales promotion.

However, only the bigwigs can adopt this channel. The companies with relatively fewer
resources can go in for syndicated distribution where a tie-up between non-competitive
marketers can be established to facilitate distribution. Annual "melas" organized are quite
popular and provide a very good platform for distribution because people visit them to make
several purchases.
According to the Indian Market Research Bureau, around 8000 such melas are held in rural India
every year. Rural markets have the practice of fixing specific days in a week as Market Days
(often called "Haats') when exchange of goods and services are carried out. This is another
potential low cost distribution channel available to the marketers. Also, every region consisting
of several villages is generally served by one satellite town (termed as "Mandis" or Agri-
markets) where people prefer to go to buy their durable commodities. If marketing managers use
these feeder towns, they will easily be able to cover a large section of the rural population.

Promotional Strategy

Firms must be very careful in choosing the vehicle to be used for communication. Only 16% of
the rural population has access to a vernacular newspaper. So, the audio visuals must be planned
to convey a right message to the rural folk. The rich, traditional media forms like folk dances,
puppet shows, etc., with which the rural consumers are familiar and comfortable, can be used for
high impact product campaigns.

Some Live Examples

One very fine example can be quoted of Escorts where they focused on deeper penetration. They
did not rely on TV or press advertisements, but rather concentrated on focused approach
depending on geographical and market parameters like fares, melas, etc. Looking at the 'kuchha'
roads of village, they positioned their bike as tough vehicle. Their advertisements showed
Dharmendra riding Escort with the punch line 'Jandar Sawari, Shandar Sawari'. Thus, they
achieved whopping sales of 95000 vehicles annually.

HLL started 'Operation Bharat' to tap the rural markets. Under this operation, it passed out low-
priced sample packets of its toothpaste, fairness cream, Clinic plus shampoo, and Ponds cream to
twenty million households.

ITC is setting up e-Choupals, which offers the farmers all the information, products and services
they need to enhance farm productivity, improve farm-gate price realization and cut transaction
costs. Farmers can access latest local and global information on weather, scientific farming
practices as well as market prices at the village itself through this web portal - all in Hindi. It also
facilitates supply of high quality farm inputs as well as purchase of commodities at their
doorstep.

BPCL introduced Rural Marketing Vehicle (RMV) as their strategy for rural marketing. It moves
from village to village and fills cylinders on the spot for the rural customers. BPCL considered
low-income of rural population, and therefore introduced a smaller size cylinder to reduce both
the initial deposit cost as well as the recurring refill cost.
Conclusion

Thus, looking at the challenges and the opportunities, which rural markets offer to the marketers,
it can be said that the future is very promising for those who can understand the dynamics of
rural markets and exploit them to their best advantage. A radical change in attitudes of marketers
towards the vibrant and burgeoning rural markets is called for, so they can successfully impress
on the 230 million rural consumers spread over approximately six hundred thousand villages in
rural India.

Importance of Rural Market

The main reason why the companies are focusing on rural market and developing effective
strategies to tap the market potential can be identified as:

Large population: Approximately 75% of India’s population resides in around 6,38,365

villages of India spread over 32 lakh square kilometer.41% of India’s middle class resides in
rural areas.

Higher purchasing capacity: Purchasing power of rural people is on rise.

Market growth: Market is growing at a rate of 3-4 % per annum adding more than one million
new customer every year.

4. Development of infrastructure: Government is taking a number of initiatives and

investing towards development of infrastructure facility and public service projects in
rural India, which includes construction of roads, electricity connection, telephone
connection.
 4. Thus more number of rural people will start enjoying facilities like television, internet
access, electricity connection, improve roads and better public transport system.

Some of the facts that will highlight the potentiality of rural market:

• According to a study by the Chennai based Francis Kanoi marketing planning services,
estimated annual size of market is

FMCG - Rs. 65,000 crore

Consumer durable - Rs. 5000 crore
Agri inputs (eg tractor) - Rs. 45,000 crore
2/4 wheelers - Rs. 8,000 crore
Total - Rs. 1,23,000 crore

• In 2001-02
• LIC sold 55% of its policies in rural India
• 50% of BSNL mobile connection sold are in small towns/villages
• 41 million Kisan credit card issued (as against 22 million credit plus debit card in urban)
•

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Indian Rural Market

The Indian rural market with its vast size and demand base offers great opportunities to
marketers. Two-thirds of countries consumers live in rural areas and almost half of the national
income is generated here. It is only natural that rural markets form an important part of the total
market of India. Our nation is classified in around 450 districts, and approximately 630000
villages, which can be sorted in different parameters such as literacy levels, accessibility, income
levels, penetration, distances from nearest towns, etc.

Few Facts

70 % of India's population lives in 627000 villages in rural areas. According to the NCAER
study, there are almost twice as many 'lower middle income' households in rural areas as in the
urban areas.
At the highest income level there are 2.3 million urban households as against 1.6 million
households in rural areas.

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.

Opportunity

The above figures are a clear indication that the rural markets offer the great potential to help the
India Inc which has reached the plateau of their business curve in urban India to bank upon the
volume-driven growth.

The Indian rural market with its vast size and demand base offers a huge opportunity that MNCs
cannot afford to ignore. With 128 million households, the rural population is nearly three times
the urban.

As a result of the growing affluence, fuelled by good monsoons and the increase in agricultural
output to 200 million tonnes from 176 million tonnes in 1991, rural India has a large consuming
class with 41 per cent of India's middle-class and 58 per cent of the total disposable income.

The importance of the rural market for some FMCG and durable marketers is underlined by the
fact that the rural market accounts for close to 70 per cent of toilet-soap users and 38 per cent of
all two-wheeler purchased.

The rural market accounts for half the total market for TV sets, fans, pressure cookers, bicycles,
washing soap, blades, tea, salt and toothpowder, What is more, the rural market for FMCG
products is growing much faster than the urban counterpart.

Features of Indian Rural Markets

Large and Scattered market:
The rural market of India is large and scattered in the sense that it consists of over 63 crore
consumers from 5,70,000 villages spread throughout the country.

Major income from agriculture:

Nearly 60 % of the rural income is from agriculture. Hence rural prosperity is tied with
agricultural prosperity.

Low standard of living:

The consumer in the village area do have a low standard of living because of low literacy, low
per capita income, social backwardness, low savings, etc.

Traditional Outlook:
The rural consumer values old customs and tradition. They do not prefer changes.

Diverse socio-economic backwardness:

Rural consumers have diverse socio-economic backwardness. This is different in different parts
of the country.

Infrastructure Facilities:
The Infrastructure Facilities like roads, warehouses, communication system, financial facilities
are inadequate in rural areas. Hence physical distribution becomes costly due to inadequate
Infrastructure facilities.

Challenges before the Indian FMCG Sector

& Designing a Blueprint for Future
Tuesday, May 18, 2010
By Amritanshu Mohanty

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A few FMCG companies have already outsourced manufacturing to some degree - including
Sara Lee, Nike and several beverage companies

Markets all over the world have been on a roll in 2003 and the Indian bourses are no exception
having gained almost 60% in 2003. During this period, while there are sectors that have
outperformed this benchmark index, there are also sectors that have under performed. FMCG
registered gains of just 33% on the BSE FMCG Index last year.

At the macro level, Indian economy is poised to remained buoyant and grow at more than 7%.
The economic growth would impact large proportions of the population thus leading to more
money in the hands of the consumer. Changes in demographic composition of the population and
thus the market would also continue to impact the FMCG industry.

Recent survey conducted by a leading business weekly, approximately 47 per cent of India's 1 +
billion people were under the age of 20, and teenagers among them numbered about 160 million.
Together, they wielded INR 14000 Cr worth of discretionary income, and their families spent an
additional INR 18500 Cr on them every year. By 2015, Indians under 20 are estimated to make
up 55% of the population - and wield proportionately higher spending power. Means, companies
that are able to influence and excite such consumers would be those that win in the market place.

The Indian FMCG market has been divided for a long time between the organized sector and the
unorganized sector. While the latter has been crowded by a large number of local players,
competing on margins, the former has varied between a two-player-scenario to a multi-player
one.

Unlike the U.S. market for fast moving consumer goods (FMCG), which is dominated by a
handful of global players, India's Rs.460 billion FMCG market remains highly fragmented with
roughly half the market going to unbranded, unpackaged home made products. This presents a
tremendous opportunity for makers of branded products who can convert consumers to branded
products. However, successfully launching and growing market share around a branded product
in India presents tremendous challenges. Take distribution as an example. India is home to six
million retail outlets and super markets virtually do not exist. This makes logistics particularly
for new players extremely difficult. Other challenges of similar magnitude exist across the
FMCG supply chain. The fact is that FMCG is a structurally unattractive industry in which to
participate. Even so, the opportunity keeps FMCG makers trying.

At the macro-level, over the long term, the efforts on the infrastructure front (roads, rails, power,
river linking) are likely to enhance the living standards across India. Till date, India's per capita
consumption of most FMCG products is much below world averages. This is the latent potential
that most FMCG companies are looking at. Even in the much-penetrated categories like
soaps/detergents companies are focusing on getting the consumer up the value chain. Going
forward, much of the battle will be fought on sophisticated distribution strengths.

Structural Analysis Of FMCG Industry

Typically, a consumer buys these goods at least once a month. The sector covers a wide gamut of
products such as detergents, toilet soaps, toothpaste, shampoos, creams, powders, food products,
confectioneries, beverages, and cigarettes. Typical characteristics of FMCG products are: -

1.The products often cater to 3 very distinct but usually wanted for aspects - necessity, comfort,
luxury. They meet the demands of the entire cross section of population. Price and income
elasticity of demand varies across products and consumers.

2.Individual items are of small value (small SKU's) although all FMCG products put together
account for a significant part of the consumer's budget.

3.The consumer spends little time on the purchase decision. He seldom ever looks at the
technical specifications. Brand loyalties or recommendations of reliable retailer/ dealer drive
purchase decisions.

4.Limited inventory of these products (many of which are perishable) are kept by consumer and
prefers to purchase them frequently, as and when required.

5.Brand switching is often induced by heavy advertisement, recommendation of the retailer or

word of mouth.

Distinguishing features of Indian FMCG Business

FMCG companies sell their products directly to consumers. Major features that distinguish this
sector from the others include the following: -
1. Design and Manufacturing

1. Low Capital Intensity - Most product categories in FMCG require relatively minor
investment in plan and machinery and other fixed assets. Also, the business has low working
capital intensity as bulk of sales from manufacturing take place on a cash basis.

2.Technology - Basic technology for manufacturing is easily available. Also, technology for
most products has been fairly stable. Modifications and improvements rarely change the basic
process.

3.Third-party Manufacturing - Manufacturing of products by third party vendors is quite

common. Benefits associated with third party manufacturing include (1) flexibility in production
and inventory planning; (2) flexibility in controlling labor costs; and (3) logistics - sometimes its
essential to get certain products manufactured near the market.

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