Emerging Face of Rural Indian Markets

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EMERGING FACE OF RURAL INDIAN MARKETS Faculty Associate, Icfai Business School, Bangalore, Sri Krishna Avenue, No. 64, 13th Cross, 6th Main, J. P. Nagar, 3rd Phase, Bangalore - 560 078, Tel : 26582279 / 26593416, E-mail : [email protected], [email protected] Purba Basu Days have gone when only a selected household consumed branded goods, whether its tea or jeans and a rural consumer had to go to a nearby city to buy ``branded products and services". Earlier big companies flocked to rural markets to establish their brands. But today, rural markets are critical for every marketer - be it for a branded shampoo or an automobile. In earlier days the marketers thought van campaigns, cinema commercials and a few wall paintings would suffice to entice rural folks under their folds. Thanks to television, today a customer in a rural area is quite literate about countless products that are on offer in the market place. An Indian farmer going through his daily tasks wearing jeans may sound idiotic. Not for Arvind Mills, though. When it launched the Ruf & Tuf kits, it had created quite a sensation among the rural within few months of their launch. Rural Indian market and the marketing strategy have become the latest marketing buzzword for most of the FMCG majors. The rural India has a plethora of opportunities all waiting to be tiedtogether. Many of the FMCG companies are busy formulating their rural marketing strategy to tap the chance .To name few companies showing deep interest in rural India, there are HLL, Marico industries, Colgate-Palmolive and Britannia Industries etc. Titan, the company, which expects about 17 per cent growth to sell six million watches during 2003-04, is also planning to reposition its Sonata brand for the vast rural market. Rural market, thus, is gaining more and more importance over the years. The Coca Company by introducing 200 ml pack and its strategy of laying emphasis on the rural market resulted in increasing sales volume. Services like cellular and insurance are also spreading their hands into rural markets. Cell-phone operators like Escotel Mobile Communications Ltd., a joint venture between Hong Kong based investment firm First Pacific and New Delhi-based Escorts Ltd., are finding new customers all over rural India. Fishermen in coastal Kerala in the South India use the phone service to find the best prices for their catch, a practice that can earn them up to 50% more. Escotel now controls 14% of India's non-metro cellular market, providing service to 500,000 subscribers in 3,240 towns and villages. Why Rural India? 70 % of India’s population lives in 627000 villages in rural areas. 90 % of the rural population is concentrated in villages with a population of less than 2000, with agriculture being the main business. This simply shows the great potentiality of rural India in bringing the needed sales volumes and helps the FMCG companies to bank upon the volume –driven growth. This brings a boon in disguise for the FMCG Company who has already reached the plateau of their business curve in urban India. As per the National Council for Applied Economic Research (NCAER) study, there are as many 'middle income and above' households in the rural areas as there are in the urban areas. There are almost twice as many 'lower middle income' households in rural areas as in the urban areas. At the highest income level there are 2.3 million urban households as against 1.6 million households in rural areas. According to the NCAER projections, the number of middle and high-income households in rural India is expected to grow from 80 million to 111 million by 2007. In urban India, the same is expected to grow from 46 million to 59 million. Thus, the absolute size of rural India is expected to be double that of urban India.

Marketing Strategies for Rural Indian Markets "The real strength two to five years from now lies in rural markets" Pradeep Tognatta, Former Vice President, LG

Multinational corporations are fanning out into the countryside, where 70% of India's population--some 700 million people--still lives. The effort to reach those consumers represents one of the largest marketing efforts in Asia, a push led by such firms as Coca-Cola, Samsung, and Honda. These giants are lured to the countryside for a very simple reason. The economic growth in India's agricultural sector in last year was over 7%, compared with 3% in the industrial sector. This implies a huge market potentiality for the marketer to meet up increasing demand. Factors such as village psyche, strong distribution network and market awareness are few prerequisites for making a dent in the rural markets. The rural psyche The keep-it-cheap-and-simple sales strategy carries over to bigger sales ticket items for rural marketers. After a decade of experimentation, the companies have settled on a strategy: Think small, and keep the product simple. The model is of the stolid Anglo-Dutch conglomerate Unilever Group, which has enjoyed a century-long presence in India through its subsidiary Hindustan Lever Ltd. It was Hindustan Lever that several years ago popularized the idea of selling its products in tiny packages. Its sachets of detergent and shampoo are in great demand in Indian villages. Britannia with its low priced Tiger brand biscuits has become some of the success storyin rural marketing. The strategy revolves around what attracts the rural customers to a product. For e.g. packaging, the rural customers are generally the daily wage earners and thus they don’t have the monthly incomes like their urban counterpart has .So it makes sense, packaging in smaller units and lesser-priced packs to increase their affordability. Color that attracts them is also important. Convenience is the other key word. Here Colgate is the apt example. First of all it made sachets as was required by their income streams. Secondly –since many households don’t have proper bathroom and only have a window similar things so it made sense to cap these sachets for convenience of storage while use. Distribution channel Recent study on buying behavior of rural consumer indicates that the rural retailers influences 35% of purchase occasions. Therefore product availability can affect decision of brand choice, volumes and market share. Some of the FMCG giants like HLL took out project streamline to significantly enhance the control on the rural supply chain through a network of rural sub-stockiest, which are based in the villages only. Apart from this, to acquire further edge in distribution, HLL has started a project called Shakti in partnership with Self Help groups of rural women. In the service sectors also, many banks, Mutual Funds Company and other financial institutions are opening their branches in rural area, only to tap those untapped customer by making the services available at their door steps. Private and foreign banks are tying up with nationalized banks to reach rural people. For example, very recently, HDFC Mutual Fund and Union Bank have put their hands together to copromote HDFC Standard Life Insurance and New India Assurance in the rural areas. This alliance with UBI will help HDFC to enhance accessibility of their products by UBI’s huge network, especially in the rural and semi urban markets across India

Awareness Another important tool to reach to the rural audience is through effective communication. A rural consumer is brand loyal and understands symbols better. This also makes it easy to sell goods that look – alike. The rural audience has matured enough to understand the communication developed for the urban markets, especially with reference to FMCG products. Television has been a major effective communication system for rural mass and, as a result, companies should identify themselves with their advertisements. Advertisements touching the emotions of the rural folks, it is argued, could drive a quantum jump in sales. There is a need to differentiate the brand according to regional disparities. The differentiation may not necessarily be in terms of product content. It may also be in terms of packaging, communication or association with the brand. The brand has to be made relevant by understanding local needs. Even offering the same product in different regions with different brand names could be adopted as a strategy. At times it is difficult to pass on an innovation over an existing product to the rural consumer unlike his urban counterpart-like increased calcium or herbal content or a germ-control formula in toothpaste. Strategies for increasing the buying power of Rural Indian Customers From the above discussion, it is clear that the Indian rural market right now is the best trading ground for both Indian and multinational corporations. The burgeoning, untapped market is stretching the length and breadth of the Indian subcontinent. Traditionally, disposable income is perceived as the one critical factor that drives consumer demand. However, household income is no longer the single most important factor in determining the demand for high value as well as fast moving consumer goods. Factors such as availability of cheap finance, and easy way of accessing ones own funds are few that are controlling consumer demand today. In recent days, the top three income groups middle, upper middle, and high - have grown from 10% in 1986 to 20% of the population and covers over 52 million families. The number of high-income households is growing very rapidly, more so in the rural areas. The most encouraging sign aboutthe Indian rural market is that it has buyers who have tremendous purchasing power, and they remain largely untapped. For easy access of one’s own funds, ICICI bank has developed a low cost Automated Teller Machine (ATM) designed for rural areas and aimed at increasing micro finance in rural India. To arrange easy finance for rural consumers, companies are nowadays tying up with banks and financial institutions. The Indian car giant Maruti Udyog, to cater to rural areas, has entered into a strategic alliance with SBH which has wide presence in the rural areas of Andhra Pradesh, Maharashtra and Karnataka. FMCG giant Hindustan Lever Ltd has targeted reaching 100 million rural consumers through its women focused rural marketing initiative ‘Project Shakti’ with the help of State Bank of India for providing micro-finance. Role of NGOs in improving the quality of life in rural India Non Government Organizations (NGOs) in India are playing a passive role to the government as an intermediary agent, rather than as institutional reformers in the rural India. However, the serving self-help groups (SHGs) in rural areas, promoted by NGOs, are emerging as a successful means of improving the socio-economic conditions of rural families with very little administrative expenses. Banks with the help of NGOs and SHGs by a small amount of credit can reach out to the needy, without having a fear of loans becoming non-performing assets. Some NGOs have been successful in creating awareness among illiterate rural women and enabling them to improve their socioeconomic conditions. Few NGOs have taken steps to empower women. These organizations have accomplished the task what the State-sponsored poverty alleviation programs could not achieve through concessional credit and sumptuous subsidy.

Taking IT to rural Indian Markets The Indian policy makers have identified the different regions as the priority areas for launching science and technology based poverty eradication program using ICT in a significant way. The micro credit supported micro enterprise revolution triggered by SHGs has provided with a hope that a new deal can be extended to the self-employed. For SHGs to become sustainable SHGs, it is essential that forward linkages with markets and backward linkages with research institutions and data management centers are established. ICT has a major role in sustaining and extending this self-help revolution. Further more, there is a need for developing a master plan coupled with a business plan for extending the benefits of ICT to all the 600,000 villages in India by 2007, which marks the 60th anniversary of our independence. The master plan should help to link technology-knowledge-rural women and men in a symbiotic manner. The investment needs will have to be estimated and business plans prepared. A National Alliance for ICT for Poverty Eradication may be established for launching the Every Village a Knowledge Centre movement. Such an alliance should include the private sector, cooperatives, NGOs, R&D institutions, women’s associations, mass media and appropriate government agencies. Learning from past experience in rural areas, the Indian policy makers have found a need for increasing India’s competitiveness in domestic software applications. Government projects mainly provide static information. What is needed by rural families is dynamic information relating to weather, markets, health and other day-to-day information needs. So, internet, cable TV, local vernacular press and the All India Radio, community radio stations and ham radio will be of immense help in communicating up-to-date information. NABARD has been operating a program in Himachal Pradesh with support from the Rural Infrastructure Development Fund (RIDF). This program has helped to promote both e-governance and e-commerce. There is a similar initiative in Uttaranchal with the help of IIT, Roorkee. Scope for using RIDF in other States should be explored. This will help to convert the concept of every village a knowledge centre into reality. Future ahead The marketers who understand the rural consumer and fine tune their strategy are sure to reap benefits in the coming years. In fact, the leadership in any product or service is linked to leadership in the rural India except for few lifestyle-based products, which depend on urban India mainly. Definitely there is lot of money in rural India. But there are hindrances at the same time. The greatest hindrance is that the rural market is still evolving and there is no set format to understand consumer behavior .Lot of study is still to be conducted in order to understand the rural consumer. Only companies with deeper pockets, unwavering rural commitment and staying power will be able to stay longer on this rural race.

Opportunities and Challenges This chapter captures situations that refl ect the growing interest and enthusiasm of business towards rural markets. Opportunities in the rural market are examined in the light of intense and growing competition in urban markets. The market opportunities are clearly perceived through a comparison of consumption patterns for durables as well as non-durables between the rural and urban markets. Identifying opportunities and clarity in decision-making requires an unambiguous defi nition of rural marketing. Rural marketing and rural markets are conceptualised to clearly distinguish them from urban marketing and urban markets. Limitations in the approach used for identifying the rural markets are also examined. THE ROAD MAP India’s vast rural market offers a huge potential for a marketer facing stiff competition in the urban markets. The rural market environment is very different from the familiar surroundings of the urban market. Rural consumers have customs and behaviour that the marketer may fi nd diffi cult to contend with. The understanding of India’s rural markets is an important objective of this book. The other major objective is to comprehend infl uences on this market with emphasis on understanding con-sumer response to marketing decision variables. The third object-ive of the book is to develop appropriate methods to research rural markets.Appropriate research methods are important in the context of the rural market for two reasons: (a) the consumers’ ability to discriminate varies; and (b) the reference points used by rural consumer differ from those of the urban consumers. The research methods to measure perception, attitudes and behaviour in rural markets vary from the approach used in researching urban markets. Research methods unsuitable in rural markets create a distorted picture of the consumer and result in failure of market-ing efforts.The opportunities in the rural market are demonstrated by comparing consumption levels in urban and rural markets for different product categories. Their volumes and growth show the importance of this market. Understanding demographic pro-fi les of consumers and their response to brand offering is a useful approach to analyse the rural market. A large number of caselets in the book capture the consumer response to brand offering. The need for appropriate methodology for researching consumersis demonstrated by non-applicability of the urban referencepoints and measures in the context of rural markets. Literature available on rural development provides alternative methods to research rural markets. The understanding of the rural consumers is utilised in decision-making situations. Organising the chapters according to ‘marketing decision variables’ provides the focus on ‘decision-making’. The critical aspect of reaching the consumer with the message and the product offered is examined in great detail. Short cases and data illustrated later in this book pro-vide the decision-maker with important criteria for evaluation of options in these markets. The infl uence of consumer perceptions on product design in different product–market situations is identifi ed. Consequently, the

concepts and the framework developed are relevant for marketing decisions.The use of the existing network of channel members in rural markets is the key to connecting with the rural heartland. Haats and melas, which are unique to rural markets, supplement the re-tailer route to rural markets. The interaction between consumers and these unique institutions provides information for use in marketing decisions. The marketing strategy is examined in thecontext of the competitive situations in the rural market. Com-petition is categorised into (a) generic competition, (b) competi-tion with the unorganised sector, (c) new entrants, and (d) meetingthe challenges created by imitations. The challenges faced by the marketer in these competitive situations lead, at the same time, to the opportunities available in rural markets. CORPORATE INTEREST INRURAL MARKETS When rural customers discover the new and exciting choice of brands available in urban markets, a demand for these brands is created in rural areas. Marketers have entered the rural markets by extending the distribution of their existing offering or developing a separate marketing strategy for the rural markets. When Titan, the watch manufacturer, found rural consumers purchasing their Sonata brand of quartz watches, they formulated a marketing strategy tailored to the requirements of the rural market.There is an increase in the launch of new products and brands in rural areas. In many product categories like cigarettes, biscuits, soaps, etc., specifi c brands are developed only for rural markets. The rural market, in both durables and non-durables, can be developed through new products and suitable positioning (see Box 1.1) 22 Rural Marketing BOX 1.1Increasing Importance of Rural Markets  Insect repellant major Godrej Sara Lee plans to double sales in the rural market by the end of the fi nancial year 2006–07. The com-pany sees saturation of demand for their product in the urban markets and growth is expected from rural markets. An innovative approach to the rural market is to drive the growth strategy. The company brought in single-coil sachets of Good Knight for rural markets. It also created communication for targeting rural areas. Distribution to rural markets is planned through the Godrej group’s rural outlets ‘Aadhaar’, ITC’s e-Choupal and Reliance’s rural retail network (Sangani, 2006). K.V. Kamath, MD and CEO of ICICI Bank (India’s second largest bank), has identifi ed rural markets as one of the key drivers of revenue growth. The rural markets provide opportunity, as banks are yet to serve a large part of that market. As much as 58 per cent of rural households do not have a bank account and only21 per cent have access to credit from a formal source. The Deputy Managing Director of ICICI Bank, Nachiket Mor, is in charge of the rural marketing effort. In six years the bank’s rural portfolio went up from nothing to Rs 163,000 million. Portfolio of ICICI Bank in Rural Market
Year Portfolio in Rural Market (Rs Million) Yearly Growth (%) Share of Total ICICI Bank Assets (%)

2003–04 42,000 2004–05 75,000 2005–06 163,000

– 78 117

2.9 4.0 6.4

The bank has a presence in 220 districts and plans to increase it to 450 districts by 2008. The marketing effort has innovations in distribution, product design and technology (Banerjee, 2006). REASONS FOR THE INTEREST There are quite a few reasons for the growing interest in rural markets. A very straightforward reason is the growth of these markets, as in the case of the television market (see Box 1.2) The Growing Rural Market for Television The Consumer Electronics and TV Manufacturers Association ex-ecutive expects a growth rate of 25 per cent for television in the rural markets compared to 5 per cent growth in the urban markets. Market research fi rm Francis Kanoi said in a report (on consumer electronic market growth and projections) that the top seven metros contributed 24.1 per cent of total sales in 2002, followed by towns with a population of over 1 million, where 12.0 per cent of the sets werebought. The remaining 63.1 per cent of sales in 2002 came from citiesand smaller regions with a population of less than 1 million. For the year 2004, metro sales were expected to be 22.6 per cent and for the smaller regions the share was expected to be 64.3 per cent. According to LG’s Singh, ‘Electrifi cation of villages and an increase in awareness among the people, a good harvest and a booming econ-omy will help drive growth. The rural market should see a growth that is three to four times that in the urban markets’. ‘The potential is high as the penetration levels are low, and hence our efforts towards creating a bigger market here,’ said Devender Saini, Senior Product Manager (Television), Philips India Ltd. ‘If we look at the penetration levels in rural markets, it is less than 10 per cent. This is lower than the all-India average of 21 per cent and the urban markets which are at 35 per cent to 40 per cent’(Ghosh and Verma, 2003). The growth in the television market is also because of the low penetration levels of the product in the rural market. A number of products exhibit a growth rate of more than 10 per cent in the rural market (see Table 1.1). TABLE 1.1Growth in Rural Markets by Product Categories Product Category After shave lotions Jams/Jellies Butter/Margarine Napkins Acne preparations Sanitary napkins Air fresheners Phenyls Packaged atta Perfume/deodorant/cologne Growth (%) 51.9 37.8 36.4 32.3 28.3 24.6 24.5 20.8 17.3 16.3

Shampoo Hair dyes Hair remover 11.0 Source: Dobhal, 2005

14.2 14.1

The vast untapped potential, increasing income and purchas-ing power, improved accessibility and the increasing competition in urban markets make rural markets an attractive destination for jaded marketers of products and services. Entry into rural markets reduces the risk of depending only on the urban market. Untapped Potential Rural markets offer a great potential for marketing branded goods and services for two reasons: The large number of consumers: A pointer to this is the larger volume sales of certain products in rural areas as compared to sales of the same products in urban areas. Largely untapped markets: The penetration levels for many products are low in rural areas. Market Size, Penetration and Potential The estimated size of India’s rural market stated as a percentage of world population in 2007 is 12.4 per cent (GeoHive, 2007; Central Statistical Organisation, 2003). This means that 12.4 per cent of the world’s consumers live in rural India. In numbers, this

'Thanda' Goes Rural In early 2002, Coca-Cola India (CCI) (Refer Exhibit I

for information about CCI) launched a new advertisement campaign featuring leading bollywood actor - Aamir Khan. The advertisement with the tag line - 'Thanda Matlab Coca-Cola4' was targeted at rural and semi-urban consumers. According to company sources, the idea was to position Coca-Cola as a generic brand for cold drinks. The campaign was launched to support CCI's rural marketing initiatives. CCI began focusing on the rural market in the early 2000s in order to increase volumes. This decision was not surprising, given the huge size of the untapped rural market in India (Refer Exhibit II to learn about the rural market in India). With flat sales in the urban areas, it was clear that CCI would have to shift its focus to the rural market. Nantoo Banerjee, spokeswoman - CCI, said, "The real market in India is in the rural areas. If you can crack it, there is tremendous potential."5 However, the poor rural infrastructure and consumption habits that are very different from those of urban people were two major obstacles to cracking the rural market for CCI. Because of the erratic power supply most grocers in rural areas did not stock cold drinks. Also, people in rural areas had a preference for traditional cold beverages such as 'lassi'6 and lemon juice. Further, the price of the beverage was also a major factor for the rural consumer. Coca Cola India's Thirst for the Rural Market CCI's Rural Marketing Strategy CCI's rural marketing strategy was based on three A's - Availability, Affordability and Acceptability. The first 'A' - Availability emphasized on the availability of the product to the customer; the second 'A' Affordability focused on product pricing, and the third 'A'- Acceptability focused on convincing the customer to buy the product. Availability Once CCI entered the rural market, it focused on strengthening its distribution network there. It realized that the centralized distribution system used by the company in the urban areas would not be suitable for rural areas.

In the centralized distribution system, the product was transported directly from the bottling plants to retailers (Refer Figure I). However, CCI realized that this distribution system would not work in rural markets, as taking stock directly from bottling plants to retail stores would be very costly due to the long distances to be covered. The company instead opted for a hub and spoke distribution system (Refer Figure II). Under the hub and spoke distribution system, stock was transported from the bottling plants to hubs and then from hubs, the stock was transported to spokes which were situated in small towns. These spokes fed the retailers catering to the demand in rural areas. CCI not only changed its distribution model, it also changed the type of vehicles used for transportation. The company used large trucks for transporting stock from bottling plants to hubs and medium commercial vehicles transported the stock from the hubs to spokes. For transporting stock from spokes to village retailers the company utilized auto rickshaws and cycles. Commenting on the transportation of stock in rural markets, a company spokesperson said, "We use all possible means of transport that range from trucks, auto rickshaws, cycle rickshaws and hand carts to even camel carts in Rajasthan and mules in the hilly areas, to cart our products from the nearest hub."7 In late 2002, CCI made an additional investment of Rs 7 million (Rs 5 million from the company and Rs 2 million from the company's bottlers) to meet rural demand. By March 2003, the company had added 25 production lines and doubled its glass and PET bottle capacity.8... Affordability A survey conducted by CCI in 2001 revealed that 300 ml bottles were not popular with rural and semiurban residents where two persons often shared a 300 ml bottle. It was also found that the price of Rs10/per bottle was considered too high by rural consumers... Acceptability The initiatives of CCI in distribution and pricing were supported by extensive marketing in the mass media as well as through outdoor advertising. The company put up hoardings in villages and painted the name Coca Cola on the compounds of the residences in the villages. Further, CCI also participated in the weekly mandies

by setting up temporary retail outlets, and also took part in the annual haats and fairs - major sources of business activity and entertainment in rural India... Future Prospects CCI claimed all its marketing initiatives were very successful, and as a result, its rural penetration increased from 9% in 2001 to 25% in 2003. CCI also said that volumes from rural markets had increased to 35% in 2003. The company said that it would focus on adding more villages to its distribution network. For the year 2003, CCI had a target of reaching 0.1 million more villages. Analysts pointed out that stiff competition from archrival PepsiCo would make it increasingly difficult for CCI to garner more market share. PepsiCo too had started focusing on the rural market, due to the flat volumes in urban areas. Like CCI, PepsiCo too launched 200 ml bottles priced at Rs. 5. Going one step ahead, PepsiCo slashed the price of its 300 ml bottles to Rs 6/- to boost volumes in urban areas...

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