Rural Marketing

Rural Marketing

Atul Atre Private circulation

Only for my students at Sadhana Institute of management 2012 batch

Where is the glamour?

GLAMOUR IS HERE

Companies go for rural but few MBAs fit for job: Pradeep Kashyap, MART CEO

What is your take about the current scenario of Rural Marketing in India? How should corporate and young MBAs

contribute to it?

Rural now accounts for over 50 per cent of the country’s market for FMCGs, durables, services and agri-inputs.

It is therefore not only the largest segment but also growing at a higher rate than the urban market.

But there is not enough understanding of rural consumer behaviour, environment and needs.

There are also huge gaps in availability and authenticity of data on rural markets.

Corporate need to focus their efforts on developing rural markets and setting up robust distribution and promotion systems to cater to the growing demand.

Students need to look at rural markets as a challenging and exciting opportunity for applying their minds and knowledge to innovating solutions for rural consumers.

Rural is where the action is, where new knowledge and innovations are getting created, so students should not look at rural as an unglamorous market.

What are the career opportunities in Rural Marketing today? There are various career opportunities in rural marketing

today. Most of the companies are looking at the rural opportunity

seriously and there are not many young MBAs who have knowledge of rural markets.

In fact, in placement interviews companies are giving preference to students who had rural marketing as an elective course.

FMCG sector offers the best career opportunity in rural markets, but manufacturers in consumer durables are also looking at tapping the growing rural demand.

It is, however, the services sector that will open the largest opportunity to young MBAs in the coming years.

Private education, vocational skills, private healthcare, telecom and life insurance are emerging sectors in rural markets and are expected to grow at very high rates in the coming years.

Where they want to go?

WHERE ACTION IS ITS MOST HAPPENING PLACE FOR WE, THE MARKETER

Rural is

OOH

Mumbai, 17 July: Out of Home has undertaken the rural OOH (out of home) campaign for the world’s third largest cola brand, Royal Crown Cola (RC Cola).

The brand which has been introduced in India is trying to position itself as refreshment with distinctive flavours.

A research suggests that there is an untapped potential in the rural areas that will fuel quick growth in the coming years.

The per capita soft drinks consumption in rural areas is only 2.8 litres, compared with 7.4 litres nationally. However, RC Cola has renewed its focus on the rural market in India and believes that there is huge opportunity with vast growth potential in these markets.

RC Cola is targeting small towns such as Churu, Bharatpur and Sikar.

“The campaign is designed so as to create distinction between RC Cola and other league players in the market,” Mr Khattar added.

Harayali kissan bazzar • The concluding session at Delhi leg of ‘Pitch CMO Summit 2011’ on Friday,

brought many fresh consumer insight from rural India, as Nirmallya Roychowdhury, Head - Brand & Marketing, Hariyali Kissan Bazaar, spoke on various challenges that a marketer faces while retailing to rural consumers.

• He began by drawing parallels between the consumer behaviour in rural and urban.

• “Rural consumers are not very different from the urban. They have the same level of aspiration as their urban consumers have. They want the same comfort, they want the similar experience, and they have the same levels of expectations.

• The only difference is that rural consumers are highly value-conscious. They count every rupee they spend,” he said.

• “We tap the rising aspirations of these price sensitive consumers by offering them variety and convenience,” he said, adding that the rural retails stores have an edge as consumers get a chance to ‘touch and feel’ the product which otherwise is not permissible in other kirana stores.

An Overview

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

Go Rural

"The next wave of growth in subscriptions will come from semi-urban and rural areas. Today, the penetration of mobile phones in urban areas is already 100 per cent while in rural areas it is only 23 per cent," it said.

Hamara Bajaj Jan 2011

MUMBAI: Bajaj Auto is going at full throttle to challenge market leader Hero in rural and semi-urban markets that account for more than half of two-wheelers sold in the country. The country’s second largest two-wheeler maker has appointed 135 dealers in small towns and mini metros, where it had only 25 dealers, and will offer special finance scheme for rural customers even if they have no bank account. “We are reinventing our marketing and distribution strategy to keep up our growth momentum,” said Bajaj Auto motorcycle business president S Sridhar. “The key lies in addressing a bigger market,” he added.

Hamara Bajaj Jan 2011

Bajaj Auto is also considering a seasonal collection strategy for rural areas, Sridhar said. This would mean that instead of monthly installments , rural customers can time their loan repayment to crop cycle, which is 2-3 months for rice and wheat. Experts feel that the rural initiative will make an immediate impact on the company’s business. “Bajaj Auto will be able to improve its market share to more than 30% with the rural push,” said Fortune Financials analyst Mahantesh Sabarad. “But the rising input cost will put pressure on margins,” he added.

Go rural

While there is a general tendency to equate rural India to Below Poverty line market, here are some of the consumption numbers that will blow your mind

• 46% of the soft drinks sales happen in the rural areas.

• Rural India accounts for 49% of motorcycle sales.

• Rural India accounts for 59% of Cigarettes sales.

• 53% of FMCG sales happen at Rural India.

• Talcum powder is used by more than 25% of rural India.

Go rural

Close to 10% of Maruti Suzuki’s sales come from the rural market.

Hero , on its part, had 50% of its sales coming from rural market in FY’09.

Rural India has a large consuming class with 41% of India’s middle-class and 58% of the total disposable income accounting for consumption.

By 2010 rural India will consume 60% of the goods produced in the country.

In 20 years, rural Indian Market will be larger than the total consumer markets in countries such as South Korea or Canada today, & almost 4 times the size of today’s urban Indian market.

Can you dare to ignore this market?

Facts and figures

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.

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

The major problems faced are:

· Underdeveloped People and Underdeveloped Markets: The number of people below poverty line has not decreased in any appreciable manner. Thus underdeveloped people and consequently underdeveloped market by and large characterize the rural markets. Vast majorities of the rural people are tradition bound, fatalistic and believe in old customs, traditions, habits, taboos and practices.

· Lack of Proper Physical Communication Facilities: Nearly fifty percent of the villages in the country do not have all weather roads. Physical communication of these villages is highly expensive. Even today most villages in the eastern parts of the country are inaccessible during the monsoon.

· Media for Rural Communication: Among the mass media at some point of time in the late 50's and 60's radio was considered to be a potential medium for communication to the rural people. Another mass media is television and cinemas. Statistics indicate that the rural areas account for hardly 2000 to 3500 mobile theatres, which is far less when compared to the number of villages

Availability · The first challenge is to ensure availability of the product or service. India's

627,000 villages are spread over 3.2 million sq km; 700 million Indians may live in rural areas, finding them is not easy. However, given the poor state of roads, it is an even greater challenge to regularly reach products to the far-flung villages. Any serious marketer must strive to reach at least 13,113 villages with a population of more than 5,000.

Marketers must trade off the distribution cost with incremental market penetration. Over the years, India's largest MNC, Hindustan Lever, a subsidiary of Unilever, has built a strong distribution system, which helps its brands reach the interiors of the rural market. To service remote village, stockiest use auto-rickshaws, bullock-carts and even boats in the backwaters of Kerala.

Coca-Cola, which considers rural India as a future growth driver, has evolved a hub and spoke distribution model to reach the villages. To ensure full loads, the company depot supplies, twice a week, large distributors which who act as hubs. These distributors appoint and supply, once a week, smaller distributors in adjoining areas. LG Electronics defines all cities and towns other than the seven metros cities as rural and semi-urban market. To tap these unexplored country markets, LG has set up 45 area offices and 59 rural/remote area offices

Why companies go Rural?

"RURAL MARKETS ARE LIKE A GOLD MINE WHICH ARE PAVED THORNS“

In the present scenario, companies operating in India will have only two options either to go Global or go Rural. The cost of going global is very high, and difficult to gauge markets in other countries. It's better to target the rural market as it is growing by the day.

Rural India is emerging as a large market for number of goods and services — financial services, healthcare, education, telecommunication... the list seems to be endless. Today rural markets are critical as urban markets for marketers.

Go rural: Here are some of the reasons Urban Markets are Getting Saturated There is cut- throat competition in urban markets, with a wide variety of choices

in products. It's becoming difficult for existing companies to maintain their mark shares in urban markets.

For example, it is reported that there are around 86 branded cosmetic soaps in the urban market! So there is no point for a new company to enter the urban market. The rural markets provide better opportunities.

A Huge Untapped Market With only around 100,000 of the 638,667 villages tapped so far, there is hi

potential and market areas. With a rural population of more than 700 million, a huge market.

Rising Disposable Incomes Good monsoons during the past 10 years have raised farmers' incomes. Non

farm sectors now account for almost 50 percent of total rural incomes. It is market that corporate cannot afford to ignore. Take a look at this example of I growing purchasing power of rural consumers: of the 100 cars sold by Mercedes Benz India Ltd (MBIL) during the past two years (Mercedes SL Class, cost more than Rs 1 crore), around 60 were purchased in rural India. Another reason for the rising disposable incomes of villages is that agricultural income is not taxed.

Go rural: Here are some of the reasons

Remittances Many households in rural India have one of their family

members abroad, most in Gulf countries. People working there send their savings to their families in India. Also large remittance are send by people working in urban area and supporting families in rural area.

Impact of media : With advent of TV and mobile, there is

huge impact on life of rural people. Impact of the Media The growing reach of the electronic media has created a huge

change in the lifestyles of rural consumers because of TV programs like soaps and other serials. Rural people are spending more on lifestyle products like lipsticks. Revlon, for instance, sells more lipstick in the rural market than in urban areas (last year's rural sales were Rs 25 crore; only Rs 12 crore came from the urban market).

SYLLABUS AND REFERENCES

Syllabus: Course Contents

1. Introduction to rural marketing: Definition: rural marketing and agricultural marketing, myths about rural market, challenges in rural marketing mix, evolving rural consumer.

2. Rural marketing environment : Demographic, Physical, social and cultural, political and economic

3. Rural consumer behavior : Rural consumer behavior model and factors influencing consumer behavior, Rural buyer decision process

4. Rural market STP: Bases for segmenting rural market, targeting and positioning

5. Rural Marketing mix strategies: -Product strategies- Product concept and classification of rural products -Pricing strategies- pricing and price setting strategies -Distribution- distribution channels and distribution models in rural market -Communication strategies Challenges, Developing effective rural

communication 6 Rural services marketing : Telecom, finance and healthcare 7 Marketing in small towns 8 Future of rural marketing

Books / Enhanced reading

Text Books:

Rural marketing :Pradeep Kashyap -second edition: Pearson India

Rural marketing: Text and Cases, Krishnamacharyulu, Pearson India

Rural marketing: Targeting the Non Urban Consumer, Velayudhan Sanal Kumar

Enhanced Reading:

1: Various articles published on Rural market in India by Rama Bijapurkar

2: “The Fortune at the Bottom of the Pyramid” by C.K Prahalad:

Stree Shakti

Started by Hindustan Lever to market their product

in rural India

Empowerment of women in rural India

Reaching to Rural India

Giving them quality products

One of the best blend of marketing with social

responsibility

DEFINITIONS AND SCOPE

Definition

Rural marketing is the process of developing , pricing ,promoting, distributing, rural specific goods and services leading to exchange between urban and rural markets which satisfies consumer demands and also achieves organizational objectives

Urban

Urban Rural

Rural

Rural Rural

FMGC, Durables, Fertilizers, pesticide

Seeds, fruit , vegetable, milk

Agri tools, handy crafts, local services

Definitions Rural Marketing

Broadly rural marketing incorporates the marketing of agricultural products, rural industries products and services of many kind. The trade channels for different types of commodities available in rural areas are private, cooperatives, processors, regulated markets and state agencies. In no sense, a social cluster or village economy as at whole can, be developed without effective and efficient rural marketing.. Rural marketing constitutes the nerve centre of rural development activities.

Rural marketing is a two way marketing process. The content now encompasses not only marketing of products which flow to rural areas, but also products which flow to urban areas from rural areas. So a broad definition of rural marketing is concerned with the flow of goods and services from urban to rural arid vice-versa. In addition, it also include the marketing in the rural areas.

Defining Rural India

Organization Definition Limitations

NSSO ( Census)

Population density < 400 / Sq Km

75 percent of the male working population is engaged in agriculture

No Municipal corporation / board

rural not defined

Planning Commission

Towns upto 15,000 population are considered rural

Town characteristics not defined

Cont’d

LG Electronics All places other than the 7 metros

Only clarifies what are the cities

NABARD All locations with a population upto 10, 000 considered “ rural”

Village & town characteristics not defined

Sahara Commercial establishments located in areas servicing less than 1000 population

Population characteristics unknown

Source: The Rural Marketing Book- Text & Practice, Kashyap. P and Raut. S ( 2007)

Rural markets

From Wikipedia,

Rural Markets are defined as those segments of overall market of any economy, which are distinct from the other types of markets like stock market, commodity markets or Labor economics. Rural Markets constitute an important segment of overall economy, for example, in the USA, out of about 3000 counties, around 2000 counties are rural, that is, non-urbanized, with population of 55 million. Typically, a rural market will represent a community in a rural area with a population of 2500 to 30000.

Defintion

Rural market

As per census

Any habitation with a population density of less than 400 people per square km where at least 75 % male are working in agriculture and there is no municipality or board as rural habitat.

As per this definition more than 80 crores people out of 120 crores populations falls in rural category

Phases in Rural Marketing

Sr. No Time Frame Key Events & Trends

1 Phase One( Pre 1960’s) Marketing rural products in rural and urban areas

Agricultural inputs in rural areas

“Agricultural marketing”

Farming methods were primitive and mechanization was low

Markets unorganized

Cont’d

2 Phase Two ( 1960s to 1990s) Green Revolution

Companies like Mahindra and Mahindra, Sri Ram Fertilizers and IFFCO emerge

Rural products were also marketed through agencies like KVIC

3 Phase Three( 1990s to Present) Demand for consumables and durables rise

Companies find growth in urban markets stagnating or falling

DEFINITION OF AGRICULTURE MARKETING

• Agri input • Seeds

• Fertilizers

• Farm equipment

• Farm services

• Water

• Power

• Climate control

• Consultations

• Pesticides

• Land

Agri output

• Food

• Processed and semi processed food items

• Fruits / vegetables

• Live stock ,chickens and eggs

Agricultural marketing

Major inputs and outputs are still controlled by government and government sponsored agencies

Due to high level of illiteracy and socio economic backwardness of majority of farmers, this market is extremely volatile. Major problems exploitation by middlemen, dependence of irregular monsoon coupled with traditions, extreme poverty, changes in regulations due to WTO reforms.

Land is critical resource. This is highly fragmented for large scale farming on economic scale. Most land depends on rain.

Seasonality , perish ability , low level of infrastructure , ware housing and food processing has resulted into chaotic conditions.

Manufacturing cycle is more or less fixed due to nature and cannot be varied in short or medium run.

Due to contract farming, organic farming , there is bright scope for agri marketing in new era.

Agricultural marketing

Agriculture marketing

Agricultural marketing covers the services involved in moving an agricultural product from the farm to the consumer. Numerous interconnected activities are involved in doing this, such as planning production, growing and harvesting, grading, packing, transport, storage, agro- and food processing, distribution, and sale. Such activities cannot take place without the exchange of information and are often heavily dependent on the availability of suitable finance.

Marketable Surpluses

The concept of marketable surpluses is very important for the development of markets. Marketable surplus is different in different commodities. Marketable surplus is a surplus which is available for sale after meeting i) family needs ii) seed requirement iii) kind wages iv) gifts to relatives and friends etc. In the case of food grains surpluses are generally low. They vary from zero (with small and marginal farmers) to 70-80 percent with large farmers and in surplus areas. In general marketable surpluses in food grains are in the range of 45 to 50%. In cash crops and in those commodities which are raw materials of industry, surpluses are 80-100 %. In fruits and vegetables, which are grown on commercial scale, surpluses are above 90%. Thus, for the commodities which have large surpluses markets have to be well-organized and efficient ones.

Agriculture marketing Agricultural marketing involves in its simplest form the buying and selling

of agricultural produce. This definition of agricultural marketing may be accepted in olden days, when the village economy was more or less self-sufficient, when the marketing of agricultural produce presented no difficulty, as the farmer sold his produce directly to the consumer on a cash or barter basis. But, in modem times, marketing of agricultural produce is different from that of olden days. In modem marketing, agricultural produce has to undergo a series of transfers or exchanges from one hand to another before it finally reaches the consumer. The National Commission on Agriculture, defined agricultural marketing as a process which starts with a decision to produce a saleable farm commodity and it involves all aspects of market structure of system, both functional and institutional, based on technical and economic considerations and includes pre and post- harvest operations, assembling, grading, storage, transportation and distribution. The Indian council of Agricultural Research defined involvement of three important functions, namely (a) assembling (concentration) (b) preparation for consumption (processing) and (c) distribution.

Text book definition

Acharya has described, in a dynamic and growing agricultural sector, the agricultural marketing system ought to be understood and developed as a link between the farm and the non-farm sectors.

A dynamic and growing agricultural sector requires fertilizers, pesticides, farm equipments, machinery, diesel, electricity and repair services which are produced and supplied by the industry and non-farm enterprises.

Agri input Marketing

Agri output Marketing

A g r i c u l t u r a l m a r k e t i n g

Comparison of Industrial,

consumer and agriculture market

Note on Rural marketing

• Based on the basic definitions and extension of definitions of rural and agriculture marketing there is a overlap between scope of rural and agriculture marketing

• On basic definition rural marketing covers marketing and product and services to rural consumers .These include personal consumers such as people staying in rural area ( consisting of farmers, self employed peoples and professionals, people working in government schemes and operations and other companies) and B2B consumers such farmers, cooperative s and government and other business and traders.

Note on Rural marketing

• As more than 60 % persons are directly connected with

farming personal consumers and business consumers

are farmers.

• Hence there is a overlap between rural marketing and

agriculture marketing as far as agriculture inputs are

concerned.

• Agriculture output marketing is generally known as

agricultural marketing that consist of marketing of

surplus farm produce to personal consumers, middlemen

and business consumer mainly processing industries,

cooperatives and Government agengies.

Comparison rural and agricultural marketing-

definition Rural Overlap Agricultural -output

• According to Thomsen,

the study of agricultural

marketing comprises all

the operations, and the

agencies conducting

them, involved in the

movement of farm-

produced foods, raw

materials and their

derivatives, such as

textiles, from the farms to

the final consumers, and

the effects of such

operations on farmers,

middlemen and

consumers.

• This definition does not

include the input side of

agriculture.

According to extended

definition

Agricultural marketing

can be defined as

comprising of all

activities involved in

supply of farm inputs

to the farmers and

movement of

agricultural products

from the farms to the

consumers

Hence supply to farm

input is common

between rural and

agri marketing in

broad sense

Rural marketing is the

process of developing ,

pricing ,promoting,

distributing, rural

specific goods and

services leading to

exchange between

urban and rural

markets which satisfies

consumer demands

and also achieves

organizational

objectives

Comparison rural and agricultural marketing-

definition Rural Agricultural

Types

Urban

Urban Rural

Rural

Rural Rural

Farmers/

agri

producers

Middle

Men/processing

companies

consumers

rural/urban/

export

Comparison rural and agricultural marketing-

definition Rural Agricultural

• Products

Agri products and livestock, grains, fruits ,

milk , vegitable

Products

Urban to rural: FMGC, Durables, Fertilizers, pesticide

Rural to urban :Seeds, fruit , vegetable, milk

Rural to rural: Agri tools, handy crafts, local services

Comparison rural and agricultural marketing-

definition Rural Agricultural

Types of consumers ( B2B)

• Middlemen

• Government

• Cooperatives

• Processing units

Characteristics

• Well informed

• High buying power

• Organized

Types of consumers ( B2C and

B2B)

• Rural personal consumers

• Government

• Cooperatives

• Farmers

Characteristics

• Low literacy

• Ill informed

• Tradition bound

• Low buying power

Comparison rural and agricultural marketing-

definition Rural Agricultural

Promotion

Person to person

Prices

Controlled by buyers

Place

Mandis and whole sale markets

Government agencies

Cooperatives

Promotion

Through media

Mela and haat

Person to person

Price

Higher prices

Prices affected by low buying power

and availability

Place

Though temporary outlets

Shops

FEATURES RURAL MARKETING

Characteristics of rural market

Diverse nature : more than 6 lakh villages with different types of culture and communities, social interaction pattern

Urban market saturation : Urban and rural middle class households is around same while lower middle class households are double

High end urban 2.3 million rural 1.6 millions

Rising disposable income

Rising literacy level ( around 50 % more than 12 crores)

Communication technology such as TV, Cables, DTH, Computer, internet , phones

Changing patterns of rural demand

• Increase production of food grains

• Increase in export

• Better banking facilities

• Company advertisements

• Government policies white revolution

• Government employment schemes

• Impact of economic liberalization on socio political systems

• Credit cards to farmers

• Cooperative support

Rural consumer

1) Low literacy level ( 45 % rural 52 % urban)

2) Low income level

3) Location pattern Scattered

4) Reference group : Health workers, Doctors, panchayat members , traders, Cine and TV personalities

5) Occupation: Mainly farming, Government schemes, services

6) Media habits : Local celebrations and traditional festivals, TV/Cinema, Now mobile phones

7) Other variables: Culture , language, traditions, caste , religion, social customs, social inhibitions and rigid behavior, social class

SIGNIFICANCE

Corporate Sector

With 12.2% of the world’s population, rural India represents the single largest potential market. It accounts for 53% of FMCGs and 59% of durables sale in India. The rural market has therefore become vital for the growth of most companies.

Characteristics of rural market

Diverse nature : more than 6 lakh villages with different types of culture and communities, social interaction pattern

Urban market saturation : Urban and rural middle class households is around same while lower middle class households are double

High end urban 2.3 million rural 1.6 millions

Rising disposable income

Rising literacy level ( around 50 % more than 12 crores)

Communication technology such as TV, Cables, DTH, Computer, internet , phones

Significance In recent years, rural markets have acquired significance in

countries like China and India, as the overall growth of the economy has resulted into substantial increase in the purchasing power of the rural communities.

On account of the green revolution in India, 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 taken shape.

Sometimes, rural marketing is confused with agricultural marketing – the later 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.

The scenario of India and China, there is a picture that comes out a huge market for the developed products as well as the labor support. This has led to the change in the mindset of the marketers to move to these parts of the world.

Also rural market is getting an importance because of the saturation of the urban market. As due to the competition in the urban market, the market is more or so saturated as most of the capacity of the purchasers have been targeted by the marketers. So the marketers are looking for extending their product categories to an unexplored market i.e. the rural market.

This has also led to the CSR activities being done by the corporate to help the poor people attain some wealth to spend on their product categories. Here we can think of HLL (now, HUL) initiatives in the rural India. One of such project is the Project Shakti, which is not only helping their company attain some revenue but also helping the poor women of the village to attain some money which is surely going to increase their purchasing power. Also this will increase their brand loyalty as well as recognition in that area.

Similarly we can think of the ITC E-Chaupal, which is helping the poor farmers get all the information about the weather as well as the market price of the food grains they are producing. In other view these activities are also helping the companies increase their brand value.

So as it is given above the significance of the rural market has increased due to the saturation of the urban market as well as in such conditions the company which will lead the way will be benefited as shown by the success of HUL and ITC initiatives.

Significance

Facts and figures

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

GDP GDP at PPP $4.046 trillion (2010 est.) country comparison to the world: 5 $3.736 trillion (2009 est.) $3.478 trillion (2008 est.) note: data are in 2010 US dollars

GDP (official exchange rate):

$1.43 trillion (2009 est.)

GDP - real growth rate:

8.3% (2010 est.) country comparison to the world: 7 7.4% (2009 est.) 7.4% (2008 est.)

GDP - per capita (PPP):

$3,400 (2010 est.) country comparison to the world: 164 $3,200 (2009 est.) $3,000 (2008 est.) note: data are in 2010 US dollars

GDP - composition by sector:

agriculture: 16.1% industry: 28.6% services: 55.3% (2009)

Population rural and urban

Rural population

S No. State / UT Persons Males Females

1 India@ 742,490,639 381,602,674 360,887,965

Urban population

S No. State / UT Persons Males Females

1 India@ 286,119,689 150,554,098 135,565,591

Number of villages

S.No State / UT

Number of inhabited villages Number of un-inhabited villages

Number of villages

1 India* 638,596 593,731 44,865

S.No. State/UT 1991 2001 Decennial Growth

Rate of Population (per cent) 1991-2001

Rural Urban Total % of Rural

to Total

Rural Urban Total % of Rural

to Total

Total Rural Urban

All-India 628.70

217.60 846.30 74.33 742 285 1027 72.25 21.54 17.90 31.20

Source: G O I, Census of India 2001, Provisional Population Totals, Paper-1 of 2001,

Registrar General, India.

Table 1.2: Rural and Urban Population : State-wise- 1991 & 2001

(Number in Millions)

S.No. Size of Village in terms of

Population 1961 1971 1981 1991 2001

1. Less than 200 3.83 2.68 1.78 1.69 1.24

2. 200 – 499 12.55 9.91 7.49 7.78 5.92

3. 500 – 999 18.33 16.45 14.21 16.76 14.18

4. 1000 – 1999 19.80 19.90 19.25 25.74 24.69

5. 2000 – 4999 17.22 18.68 20.09 29.80 32.22

6. 5000 – 9999 5.05 5.94 6.90 11.21 13.22

7. 10000 & Above 2.80 4.07 4.56 7.03 8.54

8. Rural population as

percentage of total population

82.03 80.09 76.66 74.27 72.18

Table 1.8 (a) : Distribution of Rural Population by

Size of Village in India : 1961 to 2001

(%)

Source: CSO, Selected Socio-Economic Statistics India, 2006.

Go rural: Here are some of the reasons Urban Markets are Getting Saturated There is cut- throat competition in urban markets, with a wide variety of choices in products. It's becoming

difficult for existing companies to maintain their mark shares in urban markets. For example, it is reported that there are around 86 branded cosmetic soaps in the urban market! So there

is no point for a new company to enter the urban market. The rural markets provide better opportunities.

A Huge Untapped Market With only around 100,000 of the 638,667 villages tapped so far, there is hi potential and market areas.

With a rural population of more than 700 million, a huge market. Rising Disposable Incomes Good monsoons during the past 10 years have raised farmers' incomes. Non farm sectors now account for

almost 50 percent of total rural incomes. It is market that corporate cannot afford to ignore. Take a look at this example of I growing purchasing power of rural consumers: of the 100 cars sold by Mercedes Benz India Ltd (MBIL) during the past two years (Mercedes SL Class, cost more than Rs 1 crore), around 60 were purchased in rural India. Another reason for the rising disposable incomes of villages is that agricultural income is not taxed.

Remittances Many households in rural India have one of their family members abroad, most in Gulf countries. People

working there send their savings to their families in India. Also large remittance are send by people working in urban area and supporting families in rural area.

Impact of media : With advent of TV and mobile, there is huge impact on life of rural people. Impact of the

Media The growing reach of the electronic media has created a huge change in the lifestyles of rural consumers

because of TV programs like soaps and other serials. Rural people are spending more on lifestyle products like lipsticks. Revlon, for instance, sells more lipstick in the rural market than in urban areas (last year's rural sales were Rs 25 crore; only Rs 12 crore came from the urban market).

LIMITATIONS

The major problems faced are:

· Underdeveloped People and Underdeveloped Markets: The number of people below poverty line has not decreased in any appreciable manner. Thus underdeveloped people and consequently underdeveloped market by and large characterize the rural markets. Vast majorities of the rural people are tradition bound, fatalistic and believe in old customs, traditions, habits, taboos and practices.

· Lack of Proper Physical Communication Facilities: Nearly fifty percent of the villages in the country do not have all weather roads. Physical communication of these villages is highly expensive. Even today most villages in the eastern parts of the country are inaccessible during the monsoon.

· Media for Rural Communication: Among the mass media at some point of time in the late 50's and 60's radio was considered to be a potential medium for communication to the rural people. Another mass media is television and cinemas. Statistics indicate that the rural areas account for hardly 2000 to 3500 mobile theatres, which is far less when compared to the number of villages

Availability · The first challenge is to ensure availability of the product or service. India's

627,000 villages are spread over 3.2 million sq km; 700 million Indians may live in rural areas, finding them is not easy. However, given the poor state of roads, it is an even greater challenge to regularly reach products to the far-flung villages. Any serious marketer must strive to reach at least 13,113 villages with a population of more than 5,000.

Marketers must trade off the distribution cost with incremental market penetration. Over the years, India's largest MNC, Hindustan Lever, a subsidiary of Unilever, has built a strong distribution system, which helps its brands reach the interiors of the rural market. To service remote village, stockiest use auto-rickshaws, bullock-carts and even boats in the backwaters of Kerala.

Coca-Cola, which considers rural India as a future growth driver, has evolved a hub and spoke distribution model to reach the villages. To ensure full loads, the company depot supplies, twice a week, large distributors which who act as hubs. These distributors appoint and supply, once a week, smaller distributors in adjoining areas. LG Electronics defines all cities and towns other than the seven metros cities as rural and semi-urban market. To tap these unexplored country markets, LG has set up 45 area offices and 59 rural/remote area offices

Problems in Rural marketing • Deprived people and markets most people fatalistic, bound by

traditions, superstations , cast system, poor infrastructure and power shortage,

• Political influence: few people have strong control over village market

• Physical communication here technology is helping but still in adequate

• Transport • Language and dialects • Dispersed markets • Fragmented markets • Low per capita income • Spurious brands • Seasonal demand • Multitier distribution in effective • Narrow consumption basket

Constraints

• High distribution cost

• High initial market development expenditure

• Low inventory holding capacity of village traders

• Infrastructure bottlenecks

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.

Rural marketing strategy

Rural marketing strategy

Designing STP and 4 Ps for rural marketing

• Hero Honda

• Axe

• Mobile

• Mobile service

• Luxury cars

• TV serials and reality show

• Colgate

• Pepsi

• Mineral water

• Jeans for women

4 P AND 4 A

4 P and 4 A Introduction For transforming a marketing strategy into a marketing

programs, the marketer needs to decide on the marketing mix that is required to pursue the marketing objectives in the rural market.

The Marketing mix is a crucial element of any marketing plan as it offers marketers a mix of products, services and prices, utilizes a promotion mix of advertising, sales promotion, direct marketing and personal selling to reach the target customers through distribution channels.

The 4 Ps (product, price, place and promotion) of the marketing mix remain the same, both in urban and rural markets.

However, marketers need to meet the challenges of availability, affordability, acceptability and awareness (the so-called 4 As) of products and services that are peculiar to rural markets.

Marketing Mix Challenges

The 4 Ps of Marketing: A re-look from the rural perspective

The choice of strategy depends on the organization's ability to meet the consumers' needs effectively. This requires delivering value to the consumers by developing suitable products at a price they are willing to pay and at a place where they can conveniently purchase the products.

The basic marketing-mix tools remain the same both in rural and urban markets, but it is the challenges of the 4 As that compel the marketer to revisit the marketing tools when he ventures into rural markets.

4 Ps (Tools) 4 As (Challenges)

Product Acceptability

Price Affordability

Place Availability

Promotion Awareness

Availability The first challenge is to ensure the availability of the product

or the service. India's 638,000 villages are spread over 3.3 million sq. km.; 742 million Indians may live in rural areas but finding them is not easy. However, given the poor state of roads, it is an even greater challenge to send products to far-flung villages on a regular basis. Any serious FMCG marketer must strive to reach at least 20,000 villages with a population of more than 5,000 in the first stage and try to enhance coverage to another 87,000 villages in the 2,000-5,000 population. Marketers must trade off the distribution cost with incremental market penetration. Over the years, India's largest FMCG company, Hindustan Lever Limited (HLL), a subsidiary of Unilever, has built a strong distribution system that helps its brands reach the interiors of the rural market. To service remote villages, stockiest use auto-rickshaws, bullock carts and even boats in the backwaters of Kerala.

Availability

Thanda matlab - Coca cola

Coca-Cola, which considers rural India as a future growth driver, has evolved a hub-and-spoke distribution model to reach villages. To ensure full loads, the company depot supplies, twice a week, large distributors who act as hubs. These distributors appoint and supply, once a week, smaller distributors in adjoining areas. LG Electronics defines all cities and towns other than the seven metro cities as rural and semi-urban markets. To tap these unexplored country markets LG has set up 45 area offices and 59 rural/remote area offices.

Affordability

The second challenge is to ensure affordability of the product or service. With low disposable incomes, products need to be affordable to rural consumers, most of whom are daily wage earners. Some companies have addressed the affordability problem by introducing small unit packs. Godrej recently introduced three brands of Cinthol, Fair Glow and Godrej in 50-gm. packs, priced at Rs. 4-5, meant specifically for Madhya Pradesh, Bihar and Uttar Pradesh—the so-called BIMARU states.

Hindustan Lever, among the first MNCs to realize the potential of India's rural market, has launched a variant of its largest-selling soap brand, Lifebuoy, at Rs. 2 for 50 gm. The move is mainly targeted at the rural market. Coca-Cola has addressed the affordability issue by introducing the returnable 200-ml. glass bottle priced at Rs. 5. The initiative has paid off. Eighty per cent of new drinkers now come from the rural market. Coca-Cola has also introduced Sunfill, a powdered soft-drink concentrate. The instant and ready-to-mix Sunfill is available in a single-serve sachet of 25 gm. priced at Rs. 2 and a multi-serve sachet of 200 gm. priced at Rs. 15.

Videocon's 'washer', a washing machine without a dryer launched specifically for the rural market, has become a phenomenal success, priced at Rs. 3,000, it has registered 100 per cent growth in the last three years. The success of this model points to the willingness of villagers to upgrade to branded, over locally made products, provided the price is affordable.

Acceptability

The third challenge is to gain acceptability for the product or service. Therefore, there is a need to offer products that suit the rural market. One company that has reaped rich dividends by doing so is LG Electronics. In 1998, it developed a customized television for the rural market and christened it Sampoorna. It was a runway hit, selling 100,000 sets in the very first year. Because of the lack of electricity and the absence of refrigerators in rural areas, Coca-Cola provides low-cost ice boxes, that is a tin box for new outlets and a thermocole box for seasonal outlets.

Insurance companies that have tailor-made products for the rural market have performed well. HDFC Standard Life topped private insurers by selling rural policies worth Rs. 3.5 crore in terms of total premium collection in 2003. The company tied up with non-governmental organizations and offered reasonably priced policies in the nature of group insurance covers.

Awareness

With large parts of rural India inaccessible to conventional advertising media—only 41 per cent of rural households have access to television—building awareness is another challenge. Fortunately, the rural consumer has the same likes as the urban consumer—movies and music— and for both the urban and the rural consumer, the family is the key unit of identity. However, the rural consumer's preferences and activities differ from those of his urban counterpart. Outings for the former are confined to visiting local fairs and festivals and television viewing is confined to the state-owned channel Doordarshan. The consumption of branded products is treated as a special treat or indulgence.

Hindustan Lever relies heavily on its own company-organized media. These are promotional events organized by stockiest. Godrej Consumer Products, which is trying to push its soap brands into the interior areas, uses radio to reach the local people in their own language.

Awareness

Coca-Cola uses a combination of television, cinema and radio to reach 53.6 per cent of rural households. It doubled its spend on advertising on Doordarshan, which alone reaches 41 per cent of rural households. It has also used banners and posters and has tapped all the local forms of entertainment. Since price is a key issue in rural areas, Coca-Cola advertising stresses its 'magical' price point of Rs. 5 per bottle in all media. LG Electronics uses vans and road shows tc reach rural customers. The company uses local-language advertising. Philips India uses wall writing and radio advertising to drive its growth in rural areas.

Awareness

Thus, it requires a well-crafted plan to meet these challenges in rural markets. Leveraging opportunities and overcoming impediments is going to require a well-outlined strategy that can ride alongside the incremental improvements that are bound to take shape, as the rural imperative reaches critical mass.

Companies like Hindustan Lever, Marico, Colgate-Palmolive, etc. that have been able \ address these challenges successfully, are reaping benefits in rural markets.

The table shows the companies in different product categories that are addressing rural challenges of the 4 As, through marketing strategies built around the 4 Ps.

MYTHS VS REALITY

Rural myths

Rapid urbanization

Urban population is increasing just by .75 % in 2010 compare 2.2 % in 1980

Over a period the trend is likely to reverse.

Rural myth

Rural India is agrarian economy

2010 farm sector 40 % non farm sector 60 %

2020 farm sector 30 % non farm sector 70 %

Quotable quotes

•The future lies with those companies who see the poor as their customers.

C K Prahalad

•To get rich, sell to the poor.

Pradeep Kashyap

Rural a Homogeneous Mass

The reality

•Heterogeneous population

•16 languages

•State wise variations in rural demographics

•Literacy (Kerala 90%, Bihar 44%)

•Population below poverty line (Orissa 48%, Punjab 6%)

Big Land Lords

Traders & Small Farmers

Marginal Farmers

Labourers & Artisans

Disposable Income is Low The Reality Number of middle class Households (annual income Rs 45,000-

2,15,000) Rural 15.6 Million Urban 16.4 Million Per Capita Annual Income Rural Rs 9,481 (Punjab-Rs 16.5 K, Haryana-Rs 14.8 K) Urban Rs 19,407

Individual Decide About Purchases

The Reality

•Decision making process is often collective

•Purchase process-influencer, decider, buyer, one who pays can all be different.

•Marketers must address brand message at several levels

•Rural youth brings brand knowledge to House Hold

Evolving rural customer

No more poverty stricken illiterate stereotype

Now more literate and value driven

Rural youth is changing and aspiring for urban products and services

Younger persons are more literate hence play major role in family decision making

Women as decision maker in purchase of household items

Marketer should create awareness and excitement of the product to new generation rural populations

Exploding middle class in rural India

200 million mobile connection and still counting

Faster growth consumer durable 25 % against 10 % urban

11 % cars are sold in rural India

42000 rural supermarkets haats exceeding US combined retail chain stores

56 % of total income

64 % of total expenditure

33 % of saving

60 % exposed to mass media

Exploding middle class

Population Per day income

Rs 250 Rs 50-250 per day

Less than Rs 50 per day

2010 80 million 50 million 350 million 400 million

2020 90 million 150 million 500 million 250 million

Exploding middle class

Poverty alleviation programs by government

Rural employment guaranty schemes

Government spending for rural to cross Rs 500 billion in Bharat Nirman

In next ten years 100 % road connectivity

80 % pucca houses

50 % mobile

100 % increase in food production bringing large chunk of money into hands of aspiring rural population

Rural economy to catapult India go fifth largest economy in the world

SUMMARY

Changing patterns of rural demand

• Increase production of food grains

• Increase in export

• Better banking facilities

• Company advertisements

• Government policies white revolution

• Government employment schemes

• Impact of economic liberalization on socio political systems

• Credit cards to farmers

• Cooperative support

Problems in Rural marketing • Deprived people and markets most people fatalistic, bound by

traditions, superstations , cast system, poor infrastructure and power shortage,

• Political influence: few people have strong control over village market

• Physical communication here technology is helping but still in adequate

• Transport • Language and dialects • Dispersed markets • Fragmented markets • Low per capita income • Spurious brands • Seasonal demand • Multitier distribution in effective • Narrow consumption basket

Constraints

• High distribution cost

• High initial market development expenditure

• Low inventory holding capacity of village traders

• Infrastructure bottlenecks

Rural marketing strategy

Planning stage

1. Profile of rural market

2. Profile of rural consumer

3. Consume behavior study

4. STP

Execution and implementation stage

1. Rural Product

2. Price

3. Distribution and Sales force management

4. Communication

Feedback stage

1. Monitoring of rural strategy

2. Feedback and control

Rural marketing strategy

Rural marketing strategy

Designing STP and 4 Ps for rural marketing

• Hero Honda

• Axe

• Mobile

• Mobile service

• Luxury cars

• TV serials and reality show

• Colgate

• Pepsi

• Mineral water