A Presentation on Rural Marketing

Submitted to, Prof. Kamal K. Gupta Submitted by,

Bulbul Sharma Tanvi Gupta
Table of Contents
 Meaning of Rural Marketing  Reasons For Rural Market Attractiveness o o o o o Rural Population Expansion of middle class Improvement in social indicators Improvement in infrastructure Low penetration rate

 Myths about Rural Market

 Challenges and strategies o Availability o Affordability o Acceptability o Awareness

 Case studies o LG o ITC e-Choupal

 Conclusion

Gone are the days when a rural consumer went to a nearby city to buy``branded products and services". Time was when only a select household consumed branded goods, be it tea or jeans. There were days when big companies flocked to rural markets to establish their brands. Today, rural markets are critical for every marketer - be it for a branded shampoo or an automobile. Time was when 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 myriad products that are on offer in the market place.

What is Rural marketing?
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 Market Attractive?
 Rural Population:

The Indian rural consumer lives in over 600,000 villages across the country and they account for over 70% of the population of the country. For several product categories, rural markets account for well over 60 per cent of the national demand.  Expansion of middle Income household:

As per 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. According to a 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.  Improvement in Social indicators

Number of "pucca" houses doubled from 22% to 41% and "kuccha" houses halved (41% to 23%) and the Percentage of BPL families declined from 46% to 27%. Rural literacy level improved from 36% to 59% from 1981 to 2001.  Improvement in Infrastructure:

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.  Low penetration rate:

Low penetration rates in rural areas, so there are many marketing opportunities Durables CTV Refrigerator Urban 30.4 33.5 Rural 4.8 3.5 Total (% of Rural HH) 12.1 12.0

FMCGs Shampoo Toothpaste

Urban 66.3 82.2

Rural 35.2 44.9

Total (% of Rural HH) 44.2 55.6

Myths about Rural Market:
Myths1: 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%). Myth2: 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 199394.

Myth3: 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).

Challenges and Strategies for Rural Marketing:

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 more daring MNCs are meeting the consequent challenges of availability, affordability, acceptability and awareness (the so-called 4 As)


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, stockists use autorickshaws, 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.

Affordability The second challenge is to ensure affordability of the product or service. With low disposable incomes, products need to be affordable to the rural consumer, most of whom are on daily wages. 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 realise 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 markets. Coca-Cola has also introduced Sunfill, a powdered soft-drink concentrate. The instant and ready-tomix Sunfill is available in a single-serve sachet of 25 gm priced at Rs 2 and mutiserve sachet of 200 gm priced at Rs 15. 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 which has reaped rich dividends by doing so is LG Electronics. In 1998, it developed a customised TV 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 refrigerators in the rural areas, CocaCola provides low-cost ice boxes — a tin box for new outlets and thermocol box for seasonal outlets. The insurance companies that have tailor-made products for the rural market have performed well. HDFC Standard LIFE topped private insurers by selling policies worth Rs 3.5 crore in total premia. The company tied up with non-governmental organisations and offered reasonably-priced policies in the nature of group insurance covers. Awareness Brand awareness is another challenge. Fortunately, however, the rural consumer has the same likes as the urban consumer — movies and music — and for both the urban and rural consumer, the family is the key unit of identity. However, the rural consumer expressions differ from his urban counterpart. Outing for the former is confined to local fairs and festivals and TV viewing is confined to the state-owned Doordarshan. Consumption of branded products is treated as a special treat or indulgence. Hindustan Lever relies heavily on its own company-organised media. These are promotional events organised by stockists. Godrej Consumer Products, which is trying to push its soap brands into the interior areas, uses radio to reach the local people in their language.

Coca-Cola uses a combination of TV, cinema and radio to reach 53.6 per cent of rural households. It doubled its spend on advertising on Doordarshan, which alone reached 41 per cent of rural households. It has also used banners, posters and tapped all the local forms of entertainment. Since price is a key issue in the rural areas, Coca-Cola advertising stressed its `magical' price point of Rs 5 per bottle in all media.LG Electronics uses vans and road shows to reach rural customers. The company uses local language advertising. Philips India uses wall writing and radio advertising to drive its growth in rural areas. The key dilemma for MNCs eager to tap the large and fast-growing rural market is whether they can do so without hurting the company's profit margins. Mr Carlo Donati, Chairman and Managing-Director, Nestle, while admitting that his company's product portfolio is essentially designed for urban consumers, cautions companies from plunging headlong into the rural market as capturing rural consumers can be expensive. "Any generalisation" says Mr Donati, "about rural India could be wrong and one should focus on high GDP growth areas, be it urban, semi-urban or rural."

Case Studies
Established in 1997, LG Electronics India Pvt. Ltd., is a wholly owned subsidiary of LG Electronics, South Korea. In India for a decade now, LG is the market leader in consumer durables and recognized as a leading technology innovator in the information technology and mobile communications business . LG found the untapped potential in the rural market in India and to encash the opportunity it comes with rural marketing strategy. The company's top brass was debating how to reach out to rural India. At one level, the company figured it needed new cheaper products to lure the rural buyer. At another level, it figured that more offices in smaller towns and cities were the need of the hour. LG moved quickly on both fronts.

A). Availability – Place 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. The company has also taken initiatives like A) 65 Remote Area Offices under the branch offices that are empowered to directly link to the central billing system for orders. B) 230 service centers. C) 2,600 mobile authorized service personnel for villages having below10,000 residents. All these moves are part of LG's efforts to push turnover to a whopping Rs7,000crore (Rs70 billion) by year-end. B). Affordability – Price LG India has taken full advantage of a booming demand for colour TVs in rural India by launching Sampoorna, a color TV whose operations booklet was in the Devnagari script. For this model, LG also introduced technology that provided better a reception in low signal locations—which is a common problem in rural areas. Today, LG claims that Sampoorna series accounts for about 30 per cent of its color TV volumes. In 1998, LG launched its first low priced TV for rural consumers ➢ Sampoorna- Rs.3000

➢ Cineplus- RS 4900 C). Acceptability – Product LG Electronics. In1998, it developed a customized TV for the rural market and christened it Sampoorna. It was a runway hit selling 100,000 sets in the very first year. 1. Product localization is the key strategy used by the LG 2. LG came out with Hindi and regional language menus on its TVs. 3. Introduced the low-priced “Cineplus” and “sampooma” for the rural market. 4. LG was the first brand to introduce gaming in TVs in continuations of its association with cricket LG introduce cricket game in CTVs D). Awareness- promotion The word of mouth is an important message carrier in rural areas. Infect the opinion leaders are the most influencing part of promotion strategy of rural promotion efforts. The experience of agricultural input industry can act as a guideline for the marketing efforts of consumer durable and nondurable companies. Relevance of Mass Media is also a very important factor. Some of promotional strategies used were Exhibitions, road shows, Mobile Vans.

ITC e-Choupal
ITC is one of India's foremost private sector companies with a market capitalization of over US $14 billion and a turnover of US $3 billion. ITC has diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Branded Apparel, Greeting Cards and other FMCG products. Its International Business Division (ITC IBD) was created in 1990 as an agricultural trading company; it now generates US $150 million in revenues annually. In 1998, after competition forced ITC to explore the options of sale, merger, and closure of IBD, ITC ultimately decided to retain the business. The ITC-IBD has taken the challenges to use information technology to change the rules of the game and create a competitive business that did not need a large asset base.

ITC followed a different media/communication strategy which is more elaborate and extensive in rural marketing so far, which benefits both the farmers and the organization. The strategy is use the Information Technology and bridges the information and service

gap in rural INDIA which gives an edge to market its products like seeds, fertilizers and pesticides and other products like consumer goods. With this strategy it can also enhance its competitiveness in global market for agri exports. A pure trading model does not require much capital investment. The e-Choupal model, in contrast, has required that ITC make significant investments to create and maintain its own IT network in rural India and to identify and train a local farmer to manage each eChoupal. The company has initiated an e-Choupal effort that places computers with Internet access in rural farming villages; the e-Choupals serve as both a social gathering place for exchange of information (choupal means gathering place in Hindi) and an ecommerce hub. The computer, typically housed in the farmers house, is linked to the Internet via phone lines or, increasingly, by a VSAT connection, and serves an average of 600 farmers in 10 surrounding villages within about a five kilometer radius. Each eChoupal costs between US $3,000 and US $6,000 to set up and about US $100 per year to maintain. Using the system costs farmers nothing, but the host farmer, called a sanchalak, incurs some operating costs and is obligated by a public oath to serve the entire community; the sanchalak bene_ts from increased prestige and a commission paid him for all e-Choupal transactions. The farmers can use the computer to access daily closing prices on local mandis(governmentmandated markets), as well as to track global price trends and information about new farming techniques either directly or, because many farmers are illiterate, via the sanchalak (the village farmer who runs the e-Choupal and acts as ITCs representative in the village). In addition they can also know about weather forecast (local) and best practices in the world from e-Choupal website. They also use the e-Choupal to order seed, fertilizer, and other products such as consumer good from ITC or its partners, at prices lower than those available from village traders; the sanchalak typically aggregates the village demand for these products and transmits the order to an ITC representative. At harvest time, ITC offers to buy the crop directly from any farmer at the previous days closing price; the farmer then transports his crop to an ITC processing center, where the crop is weighed electronically and assessed for quality. The farmer is then paid for the crop and a transport fee. Launched in June 2000, 'e-Choupal', has already become the largest initiative among all Internet-based interventions in rural India. 'e-Choupal' services today reach out to more than 3.5 million farmers growing a range of crops - soyabean, wheat, rice, pulses, shrimp - in over 31,000 villages through 5200 kiosks across six states (Madhya Pradesh, Karnataka, Andhra Pradesh, Uttar Pradesh, Maharashtra and Rajasthan).

“Rural market has an untapped potential like rain but it is different from the urban market so it requires the different marketing strategies and marketer has to meet the challenges to be successful in rural market.”

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