1.

INTRODUCTION
When India's GDP was declared in 2009numbers were released, many were happily surprised.
In the fourth quarter of the fiscal year (January-March 2009), the economy grew 5.8% against
expectations of less than 5%. For the year, growth was 6.7%, less than the 9% recorded in
2007-2008, but still very respectable during a global downturn. Multinational banks and
brokerage houses rushed back to their spreadsheets to raise their growth forecasts for 2009-
2010.

But why were the estimates so pessimistic in the first place? A possible explanation is that
most analysts work in cities, and their views are colored by what is happening around them
and in the corporate world. That picture has been bleak: During the last quarter of 2008-2009,
manufacturing shrank 1.4%. In contrast, agriculture grew 2.7%. The feel-good factor in urban
India is returning only now with a new, stable government and a sharp jump in the Bombay
Stock Exchange Sensitive Index (Sensex).

In the villages and small towns, it has been a very different picture. The rural market is
insulated from the global meltdown, according to Harish Bijoor, CEO of brand and business
strategy consultants Harish Bijoor Consults. The rural part of our economy has been
untouched by credit cards and mortgages as known in the West.

The slowdown experienced by India on account of the IT (information technology), real

estate, financial services and automobile sectors was an urban phenomenon, according to Ajay
Gupta, founder and CEO of ruralnaukri.com, which focuses on jobs in the rural sector.
However, the negative impact of all this on urban India has been more than offset by
encouraging performance in rural areas. The rural economy has provided a cushion. Overall
sentiment in the country was different from other parts of the world where each household had
at least one person with a pink slip.

Several factors have led to an increase in rural purchasing power, according to Pankaj Gupta,
practice head, consumer & retail, Tata Strategic Management Group. The increase in
procurement prices [the government sets the minimum support price -- MSP -- for many farm
products] has contributed to a rise in rural demand. A series of good harvests on the back of

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several good monsoons boosted rural employment in agricultural and allied activities.
Government schemes like NREGS [National Rural Employment Guarantee Scheme, which
guarantees 100 days of employment to one member of every rural household] reduced rural
underemployment and raised wages. Also, farmers benefited from loan waivers [introduced in
the last Union Budget]. The increase in rural purchasing power is reflected in rural growth
across a number of categories. For example, in the financial year 2009 [April-March], FMCG
[fast moving consumer goods] rural volume growth is estimated to be 5% to 12% higher than
urban growth across a number of categories."

1.1 SHORT LIVED RENAISSANCE

Some academics agree with these upbeat views of a rural resurgence. "Policy measures like
the waiver of agricultural loans to the tune of US$13.9 billion and the NREGS have really put
cheer into the rural economy," says Devi Singh, director of the Indian institute of
Management Lucknow (IIML). The Bharat Nirman program with an outlay of US$34.84
billion for improving rural infrastructure is another step that has helped the rural economy. To
some extent, the growth of organized retail can also be held responsible for the rural
economy's growth, as this has ensured that farmers get a better price for agricultural produce.
The MSP set by the government has been rising further, fuelling rural growth by putting more
money into the hands of the rural population.

Singh adds a caveat, however the statement that the Indian economy has been saved from the
slowdown due to rural growth is true to a certain extent, this is not the only factor. "India's
growth has been fuelled more by domestic demand than exports. Also Indian spending and
saving habits differ from other parts of the world. Indians by their very nature always save for
their future and this holds them in good stead during times of crisis. The Indian buyer is more
finance conscious than his global peer. The Indian banking system, due to the so-called non-
reforms, is actually more resilient and the level of delinquencies is far lower than in other
parts of the world."

Some observers are skeptical about the durability of rural demand. "There is a worrying
groundswell of optimism that rural consumers will come to the rescue of an Indian economy
which is in the midst of a sharp slowdown. This optimism may be misplaced," suggest
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consumer behavior expert Rama Bijapurkar and Rajesh Shukla, a senior fellow at the National
Council for Applied Economic Research. Writing in business daily Mint, they continue:
"Hearing phrases such as 'rural renaissance' or 'rural India to the rescue' makes us nervous.
Such talk bears overtones of the 'Great Indian Middle Class' story of the 1990s, where we
declared victory at least a decade before we should have. Their question: How sustainable,
stable and volatility-free is the growth in income and consumption?

Bijapurkar and Shukla note that periodically, India has seen a consumption spurt because of a
one-time burst of a combination of events. This recent spurt seems no different. Over the past
four years, the monsoon has been good; the support prices for crops have grown at 10% to
15% CAGR [compounded annual growth rate] in 2005-2008 compared with 2.5% to 4% in
2002-2005. In addition to a healthy flow of farm credit, there has been a one-time loan write-
off of US$13.9 billion as well as a sizeable cash outlay from the NREGS. This doesn't show
intrinsic growth in rural India: This growth is, instead, owing to a combination of acts of God
and acts of government. What we must never do is make the same mistake with rural India
that Western multinationals make with India as a whole -- assume that it will evolve the same
way with a 10-year lag. The rural Indian market and consumer call for sophisticated new
marketing strategies and paradigms, not a transplant of old ideas.

1.2 MEANING OF RURAL

Even as this debate continues, the term "rural" is being re-defined. 'Rural' is difficult to define
any more, according to Bijoor of Bijoor Consults. Typically, from an Indian census point of
view, rural has been defined with a 'deprivation' orientation, rural being a landmass without
access to continuous electricity, water, the stock market. There has been a correction in this
view, however. Marketers today define rural as people living a different lifestyle as opposed
to that of those who have settled in the bigger cities and towns. Rural is defined as pastoral in
nature and as a mass of people who relate their income closely to the lands they till or use to
raise their cattle and livestock. He personally, define rural differently. He believes rural is a
mindset. Those who possess it are rural and those who do not are urban. To that extent, in
Bangalore city, just off the old airport road, are a whole set of people who live by farming on
their lands. If you visit their homes, their lifestyles are totally rural. Similarly, there are people

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who live in villages, who have access to the best of it all. These are urban folk. Rural is not a
geography; it is a mindset."

Definitions for rural India abound while the most convenient remains, 'anything that is not
urban'," says Gupta of ruralnaukri.com. Singh of IIML adds: Rural India comprises all places
that are not urban. This definition by exclusion for what is the much larger part of the country
has its roots in the government's own approach. "The Census of India defines urban India,
according to Gupta of TSMG. Urban India constitutes places with a population of more than
5,000, a population density above 400 per square kilometer, all statutory towns, that is, all
places with a municipal corporation, municipal board, cantonment board, notified area
council, etc. and with 75% of the male working population engaged in non-agricultural
employment. All non-urban is rural.

Such definitions leave marketers cold. The traditional definition of rural may be of little use to
marketers in terms of providing consumer insights, according to S. Ramesh Kumar, professor
of marketing at the Indian Institute of Management, Bangalore (IIMB). Given the diversity of
culture and lifestyle/aspirational changes that are taking place across non-metro consumers,
the non-metro areas need to be segmented into tiers of varying urban orientation using
psychographic and lifestyle analysis along with demographics. The digital 1 or 0 type of urban
and rural definitions is unlikely to yield consumer behavior nuances. For example, district
headquarters [towns] in Tamil Nadu are likely to be significantly different from those in
Karnataka or Maharashtra.

Many others agree that census-style definitions are no longer enough. Understanding of rural
India is a less developed countryside where the infrastructure is primitive, houses are of mud
or brick but rarely painted well, the primary source of livelihood is agriculture, employment
opportunities in the organized sector are negligible, eating choices are restricted to home-
cooked, simple food, schools are far away, health facilities are rudimentary and -- importantly
-- the youth, while energetic and ambitious, are to be seen playing cards the whole day,
according to Gupta of ruralnaukri.com.

Recognize rural India by certain characteristics, according to B.N. Garudachar, general

manager, corporate communication and investor relations at Voltas, a Tata group company in
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air-conditioning and engineering services. These are: low population numbers, low median
income, poor infrastructure [roads, electricity, communications], and agrarian rather than
industrial activity. Such rural areas are within the sphere of influence of neighboring cities and
metros. This influence determines their aspiration levels and their viability as markets.

1.3 MASSIVE MARKET

View it as you may, few people dispute that the rural market is massive. According to Singh,
12.2% of the world's consumers live in India. "Rural households form 72% of the total
households. This puts the rural market at roughly 720 million customers." Gupta of TSMG
extrapolates the Census 2001 numbers and comes up with an estimate of 790 million. "Total
income in rural India (about 43% of total national income) is expected to increase from
around US$220 billion in 2004-2005 to US$425 billion by 2010-2011, a CAGR of 12%," he
says.

Bijoor explains that this is entirely disposable income unlike what it would be in urban India.
"If a farmer in rural Holenarsipura earns US$1, all of it is his to dispose off as he pleases. The
same income in the hands of an urban person, who is possibly a tech worker, is actually not
US$1 of disposable income. It is most likely 67 cents; the rest goes as tax. The farm economy,
with zero-tax on farm income, creates far more disposable income. Buying power in the hands
of the rural rich is higher than the buying power of the urban rich."

Gupta of ruralnaukri.com provides some telling statistics. The purchasing power of rural India
is more than half for fast moving consumer goods [US$17 billion]. The durables and
automobile sectors contribute US$2.5 billion each, and agri-inputs (including tractors) about
US$1 billion. Some 42 million rural households [use] banking services against 27 million
urban households. There are 41 million Kisan credit cardholders [credit cards issued to
farmers for purchase of agricultural goods] against some 22 million card users in urban
markets. Be it automobile, telecom, insurance, retail, real estate or banking, the future drivers
of growth are rural. No marketer can afford to ignore the possibilities of rural India.

Bijoor adds some growth numbers. Rural folk have bought a lot more of FMCG; this part of
the market has grown at a robust rate of 23%. As durables shrink in urban India, the rural
market is witnessing a 15% growth rate. Some 60% of the durables market lies in rural India.

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Telecom in rural India is growing at 31%. It depends on the product, of course. Just the sheer
population numbers don't mean very much from a marketing point of view, according to
Garudachar of Voltas.

Across product categories, however, there seems to be a lot of action. Media -- particularly
TV -- has been a great leveler. Even in small villages, people who have seen the urban
lifestyle on television seem to want similar goods and services. Companies have realized this
and are going all out to tap this latent demand.

Consider some examples:

The State Bank of India (SBI) has started a zero-balance bank account program for villagers.
Called the SBI Tiny account, there are no physical branches or officials, just a paid volunteer
who is equipped with a small box and a cellphone. The box enables biometric measurements
(fingerprints), at the time of opening the account to confirm the account holder's identity. The
cellphone enables communication with the zonal office to check on available balance.
Payments under programs such as the NREGS and pensions are made directly to these
accounts. The advantage for the villagers is that they can withdraw money from their accounts
at any time of the day or night. (Withdrawals are never more than a few dollars.) SBI hopes to
cover 100,000 villages by 2012. The bank has tied up with India Post for some services.

India Post, the public sector postal network, has its own plans. It has been hard hit in urban
areas because of the more efficient (though more expensive) private sector courier services.
Now it is looking at consolidating its hold on the rural areas. Project Arrow has been launched
to IT-enable post offices in the hinterland. A pilot project involving 500 post offices -- the
country has more than 150,000 -- has been kicked off. It will focus on banking, money
remittance, and transmission and delivery of information.

1.4 PRODUCTS FOR RURAL MARKETS

Maruti Suzuki, India's leading automobile manufacturer, today sells 5% of its vehicles in the
rural markets. The company expects this number to rise to 15% in the next two years. This is

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not just wish, but reflects market demand, according to director (marketing & sales) Shuji
Oishi.

In telecom, service providers are making a beeline for the villages. That's where the growth in
what is now the world's fastest growing mobile market lies. According to industry estimates,
70% of all new subscribers will come from rural areas.

Mobile device manufacturers are also tailoring their products to this market. Nokia had earlier
launched a basic handset with a torch (large parts of rural India don't have electricity) and an
alarm clock. In December 2008, it went one step further with the launch of Nokia Life Tools.
Nokia Life Tools is a range of agriculture, education and entertainment services designed
especially for the consumers in small towns and rural areas of emerging markets. Aimed at
providing timely and relevant information customized to the user's location and personal
preferences directly on their mobile devices, Nokia Life Tools is the first step towards
bridging the digital divide.

The mobile phone is a new-age product; gold jewelry is as old as the hills. Here, too, there has
been a rural move. According to World Gold Council figures, 60% of India's US$15 billion
annual consumption of gold and gold jewelry is from rural and semi-urban areas. The Tatas
have launched a mass-market jewelry brand -- GoldPlus. The Tatas train unemployed youth
and send them to the villages as brand ambassadors. The problem with gold in India is that it
is often adulterated. In rural areas, gold jewelry is not for ornamentation; it is a safety net for
emergency situations. Thus, the Tata seal of good housekeeping is taking the brand places.
GoldPlus is an interesting example of the brand addressing the non-metro jewelry culture with
its ethnic touch with regard to its designs and retailing, according to Ramesh Kumar of IIMB.

There is substantial scope to create products that are oriented towards non-urban sectors, notes
Kumar. These can be in terms of functional appeal or cultural aspects or both. Chik shampoo
created the jasmine variant [in tune with the culture of women using jasmine flowers to style
their hair in a few parts of the country]. TVS mopeds created functional value in tune with the
all purpose' vehicle culture existing in several parts of the non-metro areas. Philips is moving
forward with the creation of gas stoves and lanterns that will be useful to such markets.

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Singh of IIML talks about pricing successes: The Chik shampoo sachets sells for 2 cents, the
Parle G Tikki biscuit packs at 4 cents and the Coca-Cola 200 ml glass bottle for 10 cents.
Singh notes that successes in rural areas can be transplanted to urban areas also. "The
shampoo in sachets created a new product segment. All shampoo manufacturers today retail in
sachets, and the demand from urban India for this category is very strong.

The sachet is as much a packaging (product) strategy as a price strategy. But, asks Garudachar
of Voltas, have companies done enough about the core product? The shampoo sachet is a case
in point. Villages in India have hard water. But the shampoo that you get in sachets sold in
villages is the same that you get in towns. Manufacturers should have tailored the products to
suit the environment.

It doesn't apply across the board, of course, particularly as manufacturers have moved away
from the mindset that along with cutting price, you can cut quality. Product re-engineering
was an issue five years ago, according to Bijoor. One company tried to pass off inferior
quality tea leaves in rural markets and superior quality grades for urban markets under the
same brandname. This fell flat.

But re-engineering is necessary in a different sense. According to Bijoor, Companies are

realizing that the urban and rural want is largely the same. However, the rural person is
savvier and demands real value for money. To offer this, marketers are re-engineering
products. Look at the auto segment. The urban man wants a car as does the rural man. Both
have the same amount of money. The rural person, however, believes spending US$12,000 on
a car is a sin. He wants it at US$3,000. The Nano is a solution. Every category needs to
operate on the Nano paradigm. The needs are all the same, across rural and urban. The
solutions have to be different.

Distribution and promotional channels also need to be different for rural markets. Companies
are getting their act together here, too. Private sector companies like ITC have set up the IT-
enabled eChoupal network, and Hindustan Unilever has project Shakti, under which women's
self-help groups act as the last link of the retail chain. As mentioned earlier, India Post wants
to convert itself into a retail chain for a variety of products. Even fair-price shops, which form
part of the government's rationing system, are trying to expand beyond supplying just basic
foods like rice and wheat.
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In the area of promotion, television has invaded rural India. TV reaches even very small
villages through community sets. But advertising on national channels is wasteful if you are
trying to target rural areas. Garudachar of Voltas says his company is trying to sell air
conditioners to the rural rich. Difficulties in penetration are due to the widespread and
scattered nature of the territory. At one time, basic conservatism and diehard thrift would also
have been factors, but exposure to TV has changed all that, and created aspirations where
once there was resistance to change.

1.5 FROM FOUR P'S TO FOUR A'S

Gupta of TSMG notes that the traditional four P's of marketing -- product, price, place and
promotion, as outlined above -- have been replaced by a different framework for analysis. "A
number of companies have worked on various elements of the marketing mix to improve the
four A's -- affordability, awareness, availability and acceptability -- for rural markets," he
says. "FMCG companies innovated on package sizes to introduce low price points. They have
customized promotional strategies for rural markets using local language and talent. Some
FMCG players continue to expand rural penetration [HUL's Project Shakti, Tata Tea's Gaon
Chalo]. Coca-Cola's Parivartan program has trained more than 6,000 retailers to display and
stock products. Dabur has created a training module ASTRA [advanced sales training for
retail ascendance] in several regional languages. A number of auto companies have launched
rural-specific campaigns."

Gupta of ruralnaukri.com offers more examples:

• Affordability -- Godrej introduced three brands of Cinthol, Fair Glow and Godrej
(soap) in 50-gram packs, priced at 10 cents; Adidas and Reebok increased their sales by
50% in rural markets by reducing prices.

• Size and design changes -- Videocon introduced a washing machine without a drier for
US$60; Philips launched a low-cost smokeless chulha (stove); DCM Shriram
developed a low-cost water purifier especially for rural areas.

Improving product acceptance -- LG Electronics developed a customized TV (cheap and

capable of picking up low-intensity signals) for the rural markets and christened it

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Sampoorna. It sold 100,000 sets in the first year; Coca-Cola provided low-cost iceboxes as
regular power outages meant families could not depend on refrigerators.

Perhaps the ultimate sign that rural India has arrived is in the allocation of talent. "In the old
days, the weakest people in organizations, the ones without a star career path, held the reins of
the rural marketing divisions," says Bijoor. "Today, things have changed. Sharper and sharper
brains from within the organization are being diverted to rural strategy formulation." When
the whiz kids go to villages, you know the cows have come home.

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2. TAPPING INDIA’S RURAL MARKET

Ten years ago, foreign consumer products were scarce in India and only available to the
affluent section. Import restrictions prevented or severely hindered foreign consumer goods
from entrance to India. With the economic liberalization that ensued, foreign brands are now
prevalent across India. Today, multinational corporations view emerging markets such as
India as prime opportunities for growth. Rural markets are growing twice as fast as the urban
markets. With a rural population equal to just less than 2.5 times the population of the entire
United States as of the 2000 census, the potential consumer base is astounding.

But generally speaking, success in India's rural markets for multinational corporations has
been mediocre at best. It is from these struggles and failures, however, that multinational
corporations seeking to enter the rural Indian market can learn how to do so more wisely.

Kellogg's' is an excellent example of a company that has struggled in the Indian market.
Kellogg's entered the Indian market in the mid-1990's. They intended to find a new market,
which would consist of over a million people, many of whom did not eat cereal. What
Kellogg's discovered was that they were introducing a completely new product category. This
meant they would have to invest large sums of money to create new eating habits in
consumers. The most common Indian breakfast consists of biscuits and tea.

While Kellogg's was busy creating new eating habits, local competitors were able to snatch
away portions of India's already small cereal market by introducing local cereal flavors at
lower prices. The unimpressive sales that followed in their first three years resulted in
Kellogg's needing to completely realign their marketing to meet local needs as well as
introduce a line of inexpensive breakfast biscuits. Disappointments like this have caused
companies who seek to enter the rural Indian market to reevaluate their entire approach.

2.1 UNDERSTAND THE RURAL MARKET

With a population already in excess of one billion people, India has caught the eye of
multinational corporations across the globe as a place of opportunity for exploring new

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markets. While India has portions of their population that would be considered wealthy or
middle class by Western standards, a much greater percentage of India's population is still low
income. As a result, they spend money, live, and use products differently than the countries
where most multinational corporations originate. Rural areas, in particular, exemplify these
differences.

Understanding the characteristics that make the people and the market in rural India unique,
can help corporations to enter this market with success. The key characteristics define the
term rural, determine the amount and flow of income, and determine the types of products and
packages that are typically used in rural India.

2.2 DEFINING RURAL

Seventy percent of India's population, or approximately 700 million people, live in rural areas.
This equates to just under 2.5 times the population of the U.S. A location is defined as rural if
at least 75 percent of the population is agrarian. With such a large number of potential
consumers, it is clear why multinational corporations would like to successfully penetrate the
rural Indian market.

2.3 RURAL INCOME

With an average income equivalent to $42 per month ($504 dollars per year), rural Indians
have a very low disposable income. Most rural homes have minimal storage space and no
refrigeration. Very few people own or have access to cars. As a result, rural Indian purchasing
habits tend to be of an "earn today, spend today" mentality.

Rather than buying in bulk, which would mean paying more for a large quantity upfront, rural
Indians tend to buy what they need for short segments of time. These factors result in
consumers buying products locally, as well as on a daily basis. In addition to the fact that
income levels are low, rural incomes also vary greatly depending on the monsoons. When a
monsoon hits, this devastates the livelihood of most rural consumers because they are
dependent on agricultural work for income. Corporations are also directly affected because
this makes it difficult to predict demand.

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2.4 PRODUCTS AND USES

Before a company considers entering the rural market, understanding the types of products
and packages that rural Indians typically use is crucial.
For example, urban Indian consumers would typically use toothpaste for brushing their teeth,
while most rural Indians prefer using tooth powder .
As a company seeking to enter India's market with an oral care product, this would be an
important fact to know and consider during both the product and package development stages.
Similarly, Hindustan Unilever Ltd. (HUL), the Indian subsidiary of Dutch-based Unilever,
discovered that rural Indians tend to use the same soap for washing everything from hair to
their bodies to clothing (if they use any soap at all). Because HUL manufactures products
including various soaps and detergents, HUL product and packaging development processes
have taken this rural habit into account by designing all-in-one soaps. By taking into account
the low disposable incomes and the unique product and package needs of this market,
consumer products that are designed and packaged for this market have great potential.

Any company starting to venture in rural Indian market must have to look into these aspects
and after that, schedule their next steps, because one-step wrong from their side can ruin their
whole brand image in other parts of the country also.

2.5 RURAL MARKETING IN INDIA

The concept of Rural Marketing in India Economy has always played an influential role in
the lives of people. In India, leaving out a few metropolitan cities, all the districts and
industrial townships are connected with rural markets.

The rural market in India is not a separate entity in itself and it is highly influenced by the
sociological and behavioral factors operating in the country. The rural population in India
accounts for around 627 million, which is exactly 74.3 percent of the total population.

The Registrars of Companies in different states chiefly manage: The rural market in India
brings in bigger revenues in the country, as the rural regions comprise of the maximum
consumers in this country. The rural market in Indian economy generates almost more than
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half of the country's income. Rural marketing in Indian economy can be classified under two
broad categories. These are:

• The market for consumer goods that comprise of both durable and non-durable goods
• The market for agricultural inputs that include fertilizers, pesticides, seeds, and so on

The concept of rural marketing in India is often been found to form ambiguity in the minds of
people who think rural marketing is all about agricultural marketing. However, rural
marketing determines the carrying out of business activities bringing in the flow of goods
from urban sectors to the rural regions of the country as well as the marketing of various
products manufactured by the non-agricultural workers from rural to urban areas. To be
precise, Rural Marketing in India Economy covers two broad sections, namely:

• Selling of agricultural items in the urban areas

• Selling of manufactured products in the rural regions

Some of the important features or characteristics of Rural Marketing in India Economy are
being listed below:

• With the initiation of various rural development programmes there have been an
upsurge of employment opportunities for the rural poor. One of the biggest cause
behind the steady growth of rural market is that it is not exploited and also yet to be
explored.

• The rural market in India is vast and scattered and offers a plethora of opportunities in
comparison to the urban sector. It covers the maximum population and regions and
thereby, the maximum number of consumers.

• The social status of the rural regions is precarious as the income level and literacy is
extremely low along with the range of traditional values and superstitious beliefs that
have always been a major impediment in the progression of this sector.

• The steps taken by the Government of India to initiate proper irrigation, infrastructural
developments, prevention of flood, grants for fertilizers, and various schemes to cut
down the poverty line have improved the condition of the rural masses.
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3. ASSESSING THE MARKETING FOR RURAL INDIA

In 2005, Hindustan Lever Limited had a contribution of Rs. 5,000 crore from the rural market
that was a whopping 50 percent of its total sales turnover. Another large corporate house LG
Electronics that had a total turnover of Rs. 4500 crore had a share of 55 percent from the rural
and semi-urban market. With such kind of contribution from the rural India, corporate houses
perceived great opportunity in the rural markets and tapped the countryside to enlarge their
market share.

Rural marketing is the much talked about subject for the business establishments – especially
the FMCG and the consumer durable industry. A large number of companies have made a big
headway by focusing themselves on rural markets. It proved to be an opportunity rather than a
problem for the marketers to concentrate on rural markets and the poor. Many of them who
had earlier ignored this segment due to lot of investment requirements and low returns have
again started foraying into it and targeted the rural masses. They attempted all the feasible
approaches to sell the products to the rural consumers that met their lifestyles and living
standards. Several large companies like HLL, ITC, Coca-Cola, LG, Britannia, Philips,
Colgate-Palmolive etc., penetrated aggressively into the rural markets and spent heavily in the
rural areas. Some of them even invested money to create separate sales and marketing teams
exclusively for rural markets. They also appointed specialist agencies who could advise them
on rural marketing.

But all said and done, how far were the companies successful in offering their products to the
rural consumers? This remains a big question for the management of these corporate houses.
Most of the products purchased by the rural masses were at times used for some unusual
purposes other than what they were basically made or manufactured for. Like the Godrej hair
dye is used by the rural consumers for applying on their buffaloes to make them look
immaculate black before displaying in the market for sale. Of course, if viewed optimistically,
this in one way gave scope for the companies to market their product in an innovative way
and also push up the sales figures further. But what about the fundamental purpose for which
it was manufactured? There is no correlation between the kind of usage of the product and the
application of the marketer's strategies. It is a disproportionate to the extensive research that a

15
company usually does before entering a new market or launching a new product and the
outcome it expects. This also gives scope to raise a query to the marketer whether he had
properly assessed his marketing strategies and the basic requirements of the customers before
planning his strategies. The company needs to analyze this aspect before it proceeds further
with dumping the products on rural consumers and thinks of capturing the rural market in a
big way by any means.

3.1 THE RURAL MARKET SCENARIO

The rural markets offered a huge potential to the business houses because of their enormous
spread and rising consumer demands. Around the world, over 4 billion people survived in
rural areas that came to more than 60 percent of the total population. In India also, the ratio of
rural to urban population was slightly higher than the world's ratio with 70 percent of them
living in rural areas. They domiciled in nearly 6,27,000 villages spread over 3.2 million sq.
km. This growing affluence along with good monsoon and the increased agriculture output,
increased the total disposable income of rural consumers to 58 percent with two-third of
middle income households being in the rural market. About 40 percent of the graduates
coming out of Indian Universities were from rural areas. As they are eager to earn more and
live better, their aspirations are similar to the urban youth. It is predicted by industry analysts
that by 2009 – 10, the urban households are projected to grow by 4 percent while rural
households are expected to grow by 11 percent. If the rural income rose by 1%, then the
buying power would correspondingly increase by about Rs. 10,000 crore. The colour
televisions, refrigerators, air-conditioners and microwaves have become a household sight in
villages and small townships that was long thought of as a luxury and domain of urbanites.

However, rural India had its own set of problems like illiteracy, early childhood marriages,
lack of access to birth control measures, poverty etc., that were interdependent on each other.
There are also large numbers of daily wage earners and most of the people depended on
vagaries of monsoon. Inadequate infrastructure like non-availability of gas supply, frequent
power cuts, improper sanitary conditions, inaccessible areas were the other common sight of
rural areas.

16
3.2 THE PARADIGM SHIFT

In most of the rural areas in different parts of the country, there is considerable awareness on
various latest products that are available in the market. This has been possible due to the
penetration of cable and satellite channels that have brought down the world at the finger tips
of the common man. The media influenced the mindset of the rural consumer to such an
extent that people who had money started purchasing the products unmindful of the costs, just
to satisfy their needs as well as their ego. But, the growth of rural market could be attributed
to many other reasons that in one way increased the sales as well as the profits of the
companies. Some of the important causes for the growth of rural markets are –

* The rise in disposable income of the rural families

* The economic boom
* Timely rains
* Rural population involved themselves in business other than agriculture
* Increase white-collar jobs in nearby towns
* Commercialization of agriculture
* Saturation of the urban markets
* Media penetration in rural areas (particularly satellite channels)
* Globalization
* Economic liberalization
* Revolution in the Information Technology
* Women empowerment
* Improving infrastructure

However, there was a significant role of the corporate enterprises simultaneously in the
development of rural market. Their timely intervention into the rural areas, their appropriate
planning, their perception and identification about the growth of rural markets and the use of
marketing strategies all have equally contributed for the progress of rural markets. Even
though corporate houses were hedged with so many problems in the rural areas, they saw a
galore of opportunities in the rural market and converted all the pessimistic characteristics of
the rural market into affirmative attributes. They satisfied themselves with the availability of

17
limited infrastructure, saw a sign of prosperity rather than fear during the entry of competitors
into the rural markets, showed excitement at the availability of satellite channels in the rural
households, visualized their cash bells ringing with the increase in purchasing power of the
rural masses that came equivalent to their urban counterparts. They traced a constant rise in
the demand for those products that were once confined mostly to the urban houses. But, blame
it on the kind of awareness created by the companies – people started using the products for
other purposes as seen earlier.

In many villages, one can see today the alternate use of the products other than for their actual
purpose. People in the state of Bihar feed the cattle with Horlicks as a health drink to fatten
them! Similarly, people in Punjab use washing machine not for washing clothes but to make
frothy lassi in huge quantities! Animals are rubbed with Iodex on their skins to relieve them
from muscular pains after a day's hard work. Paints meant for houses are used on the horns of
cattle for easy identification and theft prevention! The weavers in North India wear condoms
on their fingers as gloves to weave fine threads while its lubrication allows them fine control
on threads and protect their sensitive fingers! If companies felt happy with their increased
sales and profits through this means and thought that they captured the rural markets, then it is
time for them to review their marketing strategies. They should understand that these results
do not coincide with the application of the marketing tools and the technical expertise that are
generally used to satisfy the customers as well as the company objectives. The implications of
4 Ps of marketing mix or the use of 4 As for successful rural marketing have produced wrong
results. All companies usually claim that they provide the right product at the right place at
right price with right kind of promotion. Then why was a right product accepted by the rural
consumer used for different purpose? Why did he afford to spend either much or less on the
product that has not derived him the kind of benefit as claimed by the manufacturer? Why did
the place of offer differ than to where and to whom it actually was supposed to be available?
Why the right promotion has created wrong awareness in the minds of the target customers?

There was something missing in the marketing strategies of the companies while serving the
rural markets. Otherwise, the results should have been more astonishing where the sales
turnover or the balance sheet would have shown much more than what is presently achieved.
Though, only few products were used by the consumers in this way, that use might be the

18
result of the accidental or wrongful application by the rural consumers. The marketer's
planning about the product and the communication with the target customers should be perfect
that produces the desired results.

3.3 THE MARKETER'S PLAN

If the marketer truly understands the needs of the rural consumers, he should strive to provide
them with those products and services that would meet their requirements. The marketer has
to focus on his core competencies like the technological expertise to design the products for
the rural masses. Companies like Cavin Care who launched their shampoo in sachets,
Britannia who conveniently packaged its Tiger brand biscuits with low price tag are the best
examples of understanding the rural customer's needs and providing them with the desired
products. The marketer's basic need is to understand the pulse of the rural masses and serve
them accordingly. The companies need to make proper assessment while marketing for the
rural India. This could most probably happen in one way by changing the profile of their
managers. As most of them are management graduates bred in urban areas and are taught
marketing principles and strategies applicable for the western countries, there is a mismatch in
their thinking and the requirements of the rural consumers. Hence, hiring professionals who
have expertise in rural marketing would go a long way to improve the situation as they can
truly understand the rural traditions and cultures, understand the feelings of rural people
before designing and actually launching the product. It is very essential for the rural marketer
to understand the psychology of their consumers in terms of their usage habits and shopping
behavior along with their emotions and value systems. The integration of both technological
and managerial knowledge would help them to develop the various marketing strategies for
the rural Indian markets. This will further lead to technologically superior, robust and low cost
products that would be in resemblance with the Indian tradition and culture.

The marketers may also consider depending more on traditional media when marketing for
rural consumers. This unconventional method acts as an effective way to create awareness as
mass media is unreliable as it is too glamorous and interpersonal for the rural market. Uses of
skits, magic shows, and education by NGOs are some of the most preferred traditional media
which the marketers can usually use as it goes well with the tastes of the rural consumers.

19
Suppliers will not want to serve rural customers in competitive markets because they are
widely scattered and too expensive to reach. The biggest expense of reaching rural customers
—the power lines that connect to their homes and farms—are already in place and will not be
impacted by proposals to give customers a choice of suppliers. Similarly, the companies and
systems that deliver electricity will remain essentially unchanged. (Electric restructuring
would allow competition in the generation business; however, transmission and distribution
systems would remain regulated as they are today.) Many rural customers, for example, could
continue to receive affordable, reliable service from rural electric cooperatives. Once you
cover the cost of hooking a rural customer to the grid, that customer is no more expensive to
serve than a customer in a big city. Giving all customers choice will not prevent the Rural
Utility Service (RUS) or others from continuing to provide low income loans and other
financial assistance to distribution cooperatives. These programs can continue to help offset
the higher cost of distributing electricity to rural areas. Another commonly expressed concern
is that rural electricity customers will have fewer service options in a competitive industry,
because that is what happened in the period following airline deregulation. It is important to
recognize the difference between the two industries. The "wires" that connect rural electricity
customers to existing suppliers will not be eliminated by giving customers a choice of
suppliers.

Unlike airlines facing an additional expense to reach rural customers, electricity suppliers will
be competing to supply power over existing lines. The better analogy is to phone service, a
pre-wired industry where rural customers have seen an increase in service options. The notion
that different types of electricity customers are in some sense "harder to reach" and therefore
less attractive also fails the physics laugh test.

20
4. HIGH SECTOR EYE’S INDIAN RURAL MARKET
The roads are dusty and unpaved; electricity is erratic and its quality inferior; the residents
seldom finish school and to most the use of hi-technology starts with a television and ends
with a mobile phone – just for talking. Yet ask the heads of dozens of technology companies
in India and they will tell you that foremost on their list of strategic moves is to head into rural
India.

From multinational high-tech consumer durable companies to Chinese mobile-phone makers;

from global information technology giants such as Microsoft to back-office service providers;
global telecom and biotechnology companies, and even India’s IT-sector lobbyist, the
National Association of Software Services Companies (NASSCOM), are stepping out of the
cities and moving into the villages and towns of rural India.

Each has different imperatives and objectives, but all say that the growing influence of rural
India on the country’s society and economy is too big to ignore. Over 740 million people –
about 65% of India’s population – live in some 600,000 villages and small towns, and
according to a recent survey by Indian Revenue Service, more than half of the 145 million
rural households in India earn between US$300 and $1,400 a year.

And although only estimates of the present size of the rural markets are available, according to
a survey by the global advisory firm Mckinsey & Co, carried out in April last year, India’s
rural markets have the potential to reach $500 billion by 2020.

But that’s old news. After all, the realization that rural India holds huge potential dawned on
people about two decades back, when fast-moving consumer product companies – makers of
toothpaste, soap, detergent, soft drinks, etc – moved in, first just to sell their products. But
what’s different in the “Rural Strategy Version 2″ is the new range of interests and their
approach in tapping this largely unexplored market. The latest rural aspirants include a wide
range of companies, ranging from retail products to drug and industrial products companies,
as well as many technology companies.

21
Their strategy, too, is different. Few are looking at selling their products or services
immediately; in fact, many are willing to wait for years. In addition, almost all are targeting
the entire rural population rather than just the affluent elite.

Take Yahoo for example, the latest firm to announce that it is moving into rural India. This
Internet company has finally decided to take the plunge after watching the markets for several
months, primarily because competition from rival portals is getting tougher. According to
Pranesh Anthapur, chief operations officer of Yahoo India, “The importance of rural India
can’t be underestimated any more.” The company plans – for the time being – to just promote
brand awareness by providing basic e-commerce support against the backdrop of growing
personal computer ownership and Internet penetration in rural India.

Yahoo’s obvious competition in the rural markets is Google, which announced its foray about
two weeks back and does not have profits in mind either – at least not just yet. This search-
engine technology innovator’s “challenge” is to make the search engine less complicated, as
well as to develop content for rural users – such as weather updates, crop patterns, ebb and
tide schedules, etc.

Similarly, DataWind Net Access Corp, a Canada-based provider of wireless web access
products and services, has tied up with the Indian IT lobbyist NASSCOM to run Internet
training programs in the villages and small towns in the Indian states of Orissa, Andhra
Pradesh, West Bengal and Maharashtra. The objective looks more social than commercial in
the sense that the aim is to improve the reach and user base of the Internet in villages and
small towns so that state and district administration services can be enhanced and made more
transparent.

4.1 RURAL INDIA ALSO DRIVES VOLUMES

But if the rural markets are not revenue generators yet for Yahoo!, Google or even Microsoft
– which is implementing the “IT Saksham” project primarily to evangelize the benefits of
using IT in rural communities – most telecom companies (and even mobile handset makers)
are moving out of larger cities and plugging into the rural sector, purely to ramp up volumes.

22
Although urban markets are still lucrative and will continue to be the focus for the telecom
sector, the untapped potential of the rural markets is now seen as the next volume driver.
“India has the target of reaching 500 phone subscribers – from the present 200 million (fixed
plus mobile) – by 2010, and that kind of growth can only come from the rural segment,” said
TV Ramachandran, director general, Cellular Operators Association of India (COAI).

In fact, a strange thing happened in India two weeks ago. To create and run networks in
remote areas, the government announced the auction of 81 rural regions, the laying-out cost of
which was supposed to have been subsidized by the Universal Service Obligation Fund
(USOF) created by the Department of Telecom (DoT) in 2003. The resources for
implementation of this objective are raised through a 5% universal service levy on gross
revenue of all telecom companies (except the pure value-added service providers like the
Internet, voicemail, e-mail service providers) and grants and loans from the federal
government.

However, in 38 of the 81 regions, telecom companies did not bid – meaning that subsidies
was not sought at all – and in about 15 regions, Bharti Airtel, Reliance Communications and
Aircel (three of India’s large telecom companies) submitted negative bids – which means that
they preferred to pay into the USOF instead of accepting its support.

“Most of the rural pockets, which were unviable even a few years back, have now become
viable and profitable. Therefore, operators preferred to pay to the USOF rather than to take its
support and be bound by a few restrictive DoT conditions,” said a COAI spokesperson.

Small wonder then that with the DoT stranded with unutilized USOF funds of about $2 billion
as of March, many telecom experts have started questioning the utility of creating such a fund
in the country.

Indeed, to some extent, thanks to an abysmally low teledensity (number of telephone

connections per 100 people) of 4% (versus 15% in urban areas) in rural India, that segment of
the market is scorching. According to the vision plan drawn up by the DoT, 200 million rural
telephone connections are envisaged by the end of 2012, taking the rural teledensity figure to
25%.

23
4.2 NEW SOURCE FOR HUMAN RESOURCES
India’s 700 million-plus rural population is a cheap talent pool as well. That’s what the
flourishing IT-enabled services or the business process outsourcing (BPO) sector has realized
lately. Stymied in their growth by an acute shortage of human resources in the cities (where
the attrition rate can go up to 60%) local BPO companies have now started moving into to the
rural sector for launching their services. The other reason why the rural sector has emerged as
attractive is cost. The industry says that the infrastructure cost is 20% cheaper compared to
urban set-ups.

Pioneers that have set up such centers include Lason Inc (a US-based outsourcing firm),
GramIT (a rural venture associated with local IT giant the Satyam Group), and Datamation (a
Delhi-based group). These are now the key players in the Indian rural BPO scene, who say
that besides reducing costs for their customers, their rural strategy has also been a key
contributor toward bridging the digital divide and creating jobs.

24
5. SWITCHING ON IN RURAL INDIA
It's a twin-pronged strategy that has worked brilliantly for LG Electronics, India. Two years
ago 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. At one level, it has introduced cheaper products like it
Sampoorna television range. At another it has gone on an office-opening spree in India's
smaller towns. Currently, it has 40 branch offices. That will climb to 150 by year end.

According to Anil Arora, head, marketing, LG India: A chunk of our revenue was coming
from that segment and there was potential to grow it even further. Greater penetration has
meant greater focus.

But LG isn't the only white goods manufacturer that is striking deep into rural India. There's
also Mirc Electronics which late last year launched its Operation Vistaar (meaning
expansion).

Mirc is already selling a second-string brand Igo which is slightly cheaper than its Onida
range. Mirc says that both Igo and Onida are selling in the rural areas. Recently the company
has hired another 100 people for its Igo team.

Cracking the rural market has become the holy grail for scores of Indian companies. Now the
white goods manufacturers are hoping to catch the eye -- and the wallets -- of the out-of-
towners in a bigger way than ever before. As a result a rural bloodbath between white goods
giants is clearly on the cards.

The reasons for heading into the rural areas are fairly clear. The urban consumer durable
market for products like colour TVs, washing machines, refrigerators and airconditioners is
growing annually at between 7 per cent and 10 per cent.

By comparison, the rural market is zooming ahead at around 25 per cent annually. The rural
market is growing faster than urban India now, according to Venugopal Dhoot, chairman of

25
the Rs 989-crore (Rs billion) Videocon Appliances. The urban market is a replacement and
upgradation market today," according to Samsung's director, marketing, Ravinder Zutshi.

Leading the way is LG. In 2002, 60 per cent of its turnover came from the urban market.
Today, that's down to 40 per cent. The majority of LG's revenues are now coming from
smaller towns like Hapur, Trichy, Jorhat and Asansol.

Videocon, which sells about 40 per cent of its products in the rural areas, has just begun a
fresh thrust to boost sales outside the metros. It's hoping that by year end about 55 per cent of
total sales will come from the rural areas. But it isn't designing new products for rural
customers.

So an entry level 14-inch Videocon CTV will sell for Rs 7,000, both in the cities and the
villages. "The thrust is on CTVs, tape recorders, refrigerators, DVD/VCD players as
demanded by rural India today," says Dhoot.

Some companies are playing the game slightly differently. Samsung, for instance, insists that
it's a high end technology driven player. That's why the urban areas are still a focus area for it
and only 30 per cent of revenue comes from rural and semi-urban India. "We have always
been a hi-end technology driven player and want to keep that equity," says Zutshi.

Nevertheless, in the last two years, Samsung has looked at increasing awareness and
penetration of its products in second rung cities like Bhuj, Porbandar and Jalandhar. The
Samsung Dream Home road shows across the length and breadth of the country have been a
step in this direction.

Similarly, Mirc says it had to be careful about diluting the Onida brand. Igo, at Rs 5,000 for a
14-inch TV is priced Rs 500 to Rs 700 lower than the national brands.

At another level, there's Godrej Appliances that has learnt its rural lessons through trial and
error. Today, it is present in 900 towns of which 450 have a population above 100,000.
Another 250 are towns with less than 100,000 residents.

According to Soumitra Ghatak, executive vice president, Godrej Appliances, There is money
today in the rural household. So clearly we're looking at dropping anchor. The fear is not
being on their radar.

26
To match its new aims, for the first time, Godrej will be advertising on Doordarshan. Till now
the company has always advertised on cable television. The company has also redefined its
target group from SEC A, B and C to SEC D as well. Godrej's direct cool refrigerator range
starts at Rs 6,500.

Godrej admits that it fumbled on the way when it tried to sell cheaper products. Two years
ago it tried to sell a stripped- down fridge called Champion with only half a freezer.

However, sales did not pick up so it had to be rejigged and relaunched with a full freezer.
"Product features are important, rural customers are just as aware as the urban," says Ghatak.

But LG's example shows that revenues can rise quickly if you get the mix right. The company
says that earlier a single branch office catered to Chandigarh, Jammu & Kashmir, Punjab and
generated Rs 18 crore (Rs 180 million) per month.

Now with more branches, revenue in the same area has gone up to Rs 50 crore (Rs 500
million) per month. Similarly other states like Rajasthan now have two branches -- Jodhpur
and Jaipur -- instead of one.

The company has also taken other initiatives like 65 Remote Area Offices under the branch
offices that are empowered to directly link to the central billing system for orders, 230 service
centres and 2,600 mobile authorised service personnel for villages having below 10,000
residents. All these moves are part of LG's efforts to push turnover to a whopping Rs 7,000
crore (Rs 70 billion) by year-end.

All this is great music for rural dealers. A city dealer will today sell a CTV by cutting into his
margin, closer to the dealer price rather than the marked retail price. So while he makes 5 per
cent to 7 per cent, rural dealers make 7 per cent to 10 per cent on a sale. "Volume makes up in
the city whereas value makes up in the rural area," says an industry observer.

Also, the increased rural focus doesn't mean the urban market will suffer. Samsung, Onida and
even LG are aggressively looking at the urban replacement market for their hi-end premium
product range.

Who will emerge winner in this battle? Industry players warn of dangers in the aggressive
rural ramp up. For one, stripping product features in order to lower prices, as some brands are

27
known to do, players say is a dangerous game to play. Then there are other external problems
to surmount like the irregularity of electricity supply and lack of finance options.

Cracking the rural market is easier said than done, according to Godrej's Ghatak. Adds an
industry observer, The rural market will not be about pricing but about how the customer is
serviced and treated. If one consumer is not happy, the entire village will know and the
company can then kiss that market goodbye.

28
6. TELECOMMUNICATIONS AND RURAL DEVELOPMENT:
THREATS AND OPPORTUNITIES
Some forms of telecommunications competition are already evident in rural communities. A
telephone instrument owned by the telephone carrier and paid for as part of the monthly phone
bill is no longer the only means to connect to the telephone network. A wide variety of
telephones, some “smart” and some traditional, are available for subscribers to buy or lease
from a variety of different sources. Subscribers connect computers, fax machines, answering
machines and other “customer premises equipment” from a variety of competitive sources to
the former monopoly network.

Competitive long distance carriers compete for the interstate and some intrastate business of
both urban and rural telephone users. Local telephone companies that had been barred from
providing long distance services will now, under the terms of the 1996 legislation, be
permitted to enter the competitive long distance business once they have met a “competitive
checklist” to ensure that their local phone service markets are open to competition. Cellular
and other wireless carriers compete with the traditional wireline carriers for rural as well as
urban business. Some rural subscribers have found that even through the monthly base rates
for cellular service are higher than for wireline telephones, the wider “local” calling areas for
cellular service result in lower monthly bills.

The long run benefits of telecommunications competition in rural areas are likely to come
from alternate technologies that provide services at lower costs than traditional wireline
telephone and cable technologies. Wireless technologies are particularly promising for rural
areas. Since Federal law and FCC regulations have largely preempted state authority over
wireless services, states cannot stop the rising tide of wireless competition. Virtually the only
state regulatory role will be oversight of the rates charged by wireline telephone carriers for
intrastate interconnection with radio (wireless) carriers.

The alliance of Sprint and three major cable companies, TCI, Cox and Comcast, announced in
October 1994, is a harbinger of the coming competition. The alliance was successful in
29
winning bids for PCS frequencies in the FCC radio spectrum auctions completed in 1995.
Their longer term goal is to combine Sprint long distance service, cable television channels
for local phone service, and wireless PCS customer access, completely bypassing the existing
networks for many connections, while interconnecting with it to reach phone numbers not on
their own national network. Their long range plan is to build a seamless national network with
telephones that will work as cordless home telephones connected to the telephone network via
cable when in range of the home base station and that will also work as a cellular phone (with
the same phone number) when outside of the range of the home base station. The cable
members of the new alliance together own a controlling interest in the Teleport
Communications Group, which operates alternative voice and data networks in major US
cities.

The merger of McCaw Cellular (Cellular One) into AT&T creates another formidable national
competitor. AT&T won PCS licenses that will permit it to fill in holes in its current cellular
coverage and therefore be able to provide close to national coverage for both local and long
distance services. Since passage of the Telecommunications Act of 1996, AT&T also has filed
applications for authority to provide local telephone service in all 50 states, either with its own
facilities or by resale of the services of other carriers. Analysts anticipate that MCI will build a
wireless national network through joint venture arrangements with other winning bidders in
the PCS auctions, which permitted up to six competitors in each market.

The 1994 start of direct broadcast satellite services to rural locations with 18-inch diameter
satellite antennas at prices comparable to urban cable prices is another indicator of things to
come. Removal of regulatory restraints will also permit satellite and wireless competition for
voice and data services. The major small dish satellite direct broadcast vendor, DirecTV, a
business of Hughes Communications in which AT&T recently made a major investment,
plans to start in late 1996 a satellite data network business, called DirectPC, with services to
personal computers.

In some rural areas with local concentrations of population, cable television operators also
may offer competition for voice and data services. The 1996 telecommunications legislation
permits such competition. Cable television operators may compete for voice and data
telephone business as telephone carriers consider whether to deliver video services that
30
compete with cable and satellite vendors. Cable modems may permit cable companies to
compete with telephone carriers for high speed Internet access.

Rural electric utilities also may be rural telecommunications competitors. With the advent of
fiber optic technology, power line rights of way are more hospitable to telecommunications
because electric power does not interfere with fiber optic communications as it does with
standard telephone wire and cable. Furthermore, besides hospitable rights of way and existing
connections to most rural homes, electric utilities have an internal telecommunications
application that could justify most of the telecommunications investment. Real time
monitoring, control and pricing of power usage could lower peak load utilization enough to
pay for most of the communications investment with power cost savings. Once in place for
justifiable power utility reasons, the incremental costs to provide voice, data or video
communications services are likely to be very competitive with present telecommunications
providers. The main barrier to competitive entry by electric utilities has been regulatory, not
technical. The 1996 telecommunications legislation removes regulatory barriers by
overturning prior Federal prohibitions and preempting state laws and regulations that would
prohibit electric utility entry into telecommunications. Rural electric utilities could provide
fiber optic trunk capacity along their power poles and rights of way. They could team with
PCS or other wireless providers to offer local wireless access to telecommunications services
in their territories.

Competition in local and other intrastate telecommunications services will continue to

increase, driven by Federal policies and technological imperatives that are outside the control
of state authorities. Eventually that competition will inevitably reach rural areas also. In the
long run, telecommunications competition may bring benefits to rural areas. During the
lengthy transition period, rural telecommunications, and consequently the economies of rural
communities, are at risk. This is ironic considering the potential of advanced
telecommunications infrastructure to uplift rural economies by spreading economic
development benefits outside the populated corridors linked by interstate freeways.

New technologies provide both a promise and a threat for rural telephone users. Newer
satellite and wireless technologies provide opportunities to reach currently unserved rural
customers and to provide telephone service with lower costs than those of traditional
31
telephone carriers. However, new competitors are more likely to address more densely
populated markets first. The subsidized prices of incumbent carriers provide a formidable
entry barrier for potential rural competitors. State monopoly telephone franchises traditionally
provided a regulatory barrier to competitive entry, but the new Federal legislation now
prohibits such franchises.

Current carriers have sunk costs in existing physical plant and have commitments to be the
“carrier of last resort,” that is, to provide service to every household within their franchised
territory. Competitive entrants might not be able to accept that responsibility to serve the most
distant or most remote users. In some rural areas there may not be sufficient market to support
multiple competitors. Full competition implies that businesses may fail if they are not
competitive. Failure of a rural telephone carrier could wreak havoc on the rural communities
they serve.

These are somewhat more distant problems for telecommunications policy makers and local
community leaders. The nearer term problem will be the impact of urban competition on rural
telecommunications. Urban competition will put increasing pressure on the subsidy
mechanisms used to support rural telephony. Carriers with both urban and rural properties, for
understandable competitive reasons, will focus their new investments on markets where they
must respond to competitive threats rather than on markets where they have a protected
monopoly. The result of these two trends may be higher prices and deteriorating service for
rural users, with consequent damage to fragile rural economies.

Whatever the eventual long term outcome with respect to rural competition, the short and
medium term prospects are bleak for rural communities because their fragile economies are at
risk during a difficult transition. Communities served by carriers that also have urban
telecommunications franchises are likely to be hurt most. Many smaller rural independent
telephone carriers, using the current subsidy mechanisms and a lower cost of capital available
through government subsidized Rural Utilities Service loans, have been aggressively
modernizing their telecommunications infrastructure. Many independent rural carriers brought
digital switching and fiber optic trunk lines to their service areas before larger carriers brought
such enhancements to their rural properties. Larger carriers with both rural and urban
franchises are not eligible to receive all of the subsidies that smaller independents get.
32
Furthermore, the larger carriers will be facing competition first in their urban areas. Therefore
they will understandably focus their investments on urban areas where they are vulnerable to
competition. This does not bode well for rural areas with a monopoly telephone franchise held
by major telephone companies gearing up for urban competition.

Eventually, we may reach a point where competition provides alternate technologies and
services to rural communities at costs that do not require the massive subsidies of current rural
wireline telephony. Meanwhile, even if wireless costs were below wireline costs, wireless
carriers may not find it profitable to compete against the subsidized wireline prices. To permit
such lower cost competition to emerge, it will be necessary to modify the current system of
cost-plus rural subsidies to provide incentives for rural carriers to use least cost technologies.
The current subsidy mechanism is arcane. Appendix A provides a summary of the current
Federal subsidy mechanisms for rural telephone service. In addition, most states have their
own arrangements for providing further subsidies to rural telephone carriers. If the current
Federal subsidies were removed and the resulting loss of revenues by independent rural
telephone carriers was all passed on to subscribers, rural telephone rates would increase by 72
percent, from a current average of $43.20 to $74.53 per month.

The transition from monopoly to competition may eventually help rural communities, but the
transition will be a difficult one. If state and Federal regulators do not manage the transition
carefully, they could severely harm fragile rural economies. The potential of enhanced rural
telecommunications to improve rural economies is considerable, but the risks in the transition
are also very great. Regulators should change rural subsidy mechanisms slowly enough to
avoid severe economic shock to rural communities. Meanwhile, the best defense for rural
communities at risk is to begin active local planning for modernized local telecommunications
facilities and broadband connections from their communities to the rest of the country. Rural
communities that adopt a passive wait and see approach may find themselves in serious
economic difficulty. Minor inadvertent side effects of well-intentioned Federal and state
regulations could have disastrous unintended consequences for some rural communities.

33
7. CASE STUDY

CASE I: NOKIA TARGETING BILLION CUSTOMERS IN RURAL

INDIA

It's not just the Fast Moving Consumer Goods (FMCG) companies or the telecom service
providers who are targeting rural India but also mobile manufacturers like Nokia. Nokia has
unveiled its Nokia Life Tools (Jeevan Saadhan), an ambitious program which bundles the
handset with services, all aimed to hook the rural customers, according to Economic Times.

This is a long term initiative which focuses on empowering rural India, according to B V
Natesh, Head, Emerging Markets Services, Nokia India. So what began as a pilot program last
year has now been rolled across India possibly marking a first for any telecom handset maker
and for others to follow as well. The thrust on rural markets in India comes even as the mobile
density is around 40 percent with 450 million users thus providing ample scope for full
throttle growth.

Most of the growth witnessed so far has taken place in urban areas, particularly major metros
with teledensity going through the roof. Rural is the next big opportunity. Everyone knows
that. But the question is how to tap it. All the operators are aggressive. Bundling helps any
handset player to create extra 'value' to lure the entry level consumers. But how does one
create brand leadership for oneself in such a scenario without depending on others? according
to Jitender Dabas, Vice President and Strategic Planning Director, JWT.

Nokia knows that if it needs to make money from rural markets, it has to play a role in
augmenting the incomes of the target audience. And for that one can't merely rely on a
transactional relationship but one that creates relevant value for them. Meanwhile, the industry
is watching with interest on how exactly it pans out for Nokia. A senior official from a rival
company sounds a note of caution. Competing with operators is an altogether different story.
Unless the value adds is something very unique, it will just be another fad which will fade
away in sometime, adding that mobile connectivity has ensured that farmers have access to

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information like mandi prices. Further if one gets a plan with a close user group from
operators, then why pay extra.

Nokia officials however counter that Nokia Life Tools becomes a retention platform by
offering more and more services in the time to come. "The key is to create a base through
constant engagement. Once it is achieved, the services can be bundled on all handsets sold in
rural market," the official states.

CASE II: CELLPHONE ENTERTAINMENT IN RURAL INDIA

In the furthest reaches of India's rural heartland, the cellphone is bringing something that
television, radio and even newspapers couldn't deliver: Instant access to music, information,
entertainment, news and even worship.

Despite its rapid modernization, many of India's 750,000 villages remain isolated except for
the cellphone reception that now blankets almost the entire country after a decade of rapid
expansion by operators. So in villages that don't receive any FM radio stations, people have
begun calling a number that has a recording of Bollywood tunes and listening to it on their
headsets.

The Wall Street Journal

Sharda and Rekha listened to music while working in the fields.

This primitive cellular "radio" service was used by close to 20 million Indians last year, phone
company executives estimate.

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The cricket fan without a television or radio can dial up and listen to the latest match live on
his phone. Bharti Airtel Ltd., India's largest cell company by subscribers, has a special service
that calls hundreds of thousands of farmers every day with recorded messages of weather
reports and advice about crops.

Tata Teleservices has a service which lets farmers use their cellphones to control the pumps
that water their crops. For the religiously devout, Bharti Airtel is starting a service where users
can hear live prayers and chants from popular temples, mosques and shrines.

Religious offerings work the best, according to Raghunath Mandava, chief marketing officer
at Bharti Airtel. There is nothing like getting the original prayer from the place of worship.

Charges for the services vary: Some are free for now, others cost more than the price of a
regular call. Dial-up radio, for example, costs about one rupee, or 2 U.S. cents, a minute.
Reliance customers can get cricket reports via text messages three times a day on the day of
the match for 5 rupees per day, or take a service for 49 rupees a month to listen to live
commentary during matches.

Vibhuti Agarwal for The Wall Street Journal

A subscriber in Behror village in Rajasthan dials the radio service offered by Bharti Airtel
while taking a break.

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So far these types of services make up only about 10% of cellular companies' revenues,
analysts say. But in the next five years the portion of revenue generated by these services
could rise to as much as 25%, they estimate.

They are another example of how Indian companies are innovating to reach a new market:
consumers in rural India who may have little to spend but have been relatively insulated from
the global recession and are keen to gain access to some of the services enjoyed by India's
urbanites.

The mobile value-added service business, which also includes standard nonvoice services like
texting, will rise close to 70% in the next year to 165 billion rupees ($3.6 billion), according
estimates by the Internet and Mobile Association of India.

Some of the services are helping to offset the impact of a fierce price war that has erupted in
the Indian cellphone industry for regular voice calls as new entrants have come into the
crowded market.

Because of the lower prices, millions of new customers are being added per month, but there
is a crumbling of the average revenue per user, a key measure of revenue.

Average monthly spending by Indian cellphone users has plunged 20% in the past year to less
than $5.

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The biggest phone companies have also started charging per second rather than per minute,
further crimping the number of rupees they get from calls.

Monthly spending will continue to slide for the next two years, analysts estimate, unless
phone companies can find ways other than call rates to get Indians to spend more on their
phones.

Cellphone companies' shares, once the darlings of the stock market, have been tumbling,
many, including Bharti Airtel and Reliance, losing around 30% over the past three months.

New revenues won't come anytime soon from so-called 3G services, which offer advanced
cellular networks and high-speed Internet surfing. India has yet to even decide which private
companies will be allowed to offer 3G services, though an auction of spectrum is expected
early next year.

Instead, to get the cost-conscious Indian cellphone user to spend a few extra rupees requires
tailored services that are delivered simply and can work even on a $20 phone.

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In the town of Behror in the state of Rajasthan, there is no regular radio music broadcast, so
60-year-old farmer and music lover Balwant Singh Yadav says dialing up his favorite music
has been a "lifeline."

He used to walk 10 to 15 kilometers just to listen to Hindi songs being played at marriage
parties and other local functions. With the cellphone, the latest hits come handy. He can tune
in any time he’s free. He said he spends about $1.50 a month on the music service.

The latest Bollywood tunes "station" is the best seller, according to Mr. Prasad at Reliance.
Devotional songs as well as classic film songs are also popular, he says, showing that users
are not just tech-savvy teenagers.

With the more than $200 million in revenues phone company executives expect this year, the
radio via phone business already makes almost as much as consultants at KPMG estimate all
the regular FM stations in India will make.

The nonvoice business is becoming very, very important for any operator today to concentrate
upon, according to Madhusudan Gupta, a Singapore-based senior research analyst at Gartner,
a consultancy. That is the reason that a lot of experiments are now happening.

CASE III: MNC PHARMAFIRMS LINE UP TO TAPINDIA’S RURAL MARKET

Pharma MNCs operating in India are drawing up aggressive strategies to tap into the rural
markets where India’s two-third of the population live.

Aventis Pharma, the Indian arm of the French drug major sanofi-aventis has already recruited
a sales team of 300 people under a rural market division launched recently.

Aventis Pharma will launch 10 products initially in its effort to capture a bigger share in fast
emerging tier 2 and tier 3 cities of India.

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“We have essentially been a Tier I (big city) player and our current revenue from the rural
market is negligible,” Shailesh Ayyangar, managing director at Aventis Pharma was quoted as
saying

Aventis plans to expand its drug portfolio further by launching another five drugs by January,
2010, reports said.

Aventis Pharma aims to grab 1.5-2 per cent share of the rural market in the next five years.

Aventis Pharma plans to manufacture the product meant for the rural markets through Indian
manufacturers on a contract basis to make them cost-effect and on par with the offering prices
of companies operating in rural markets.

Aventis Pharma has also identified some broad therapeutic areas to be targetted in the rural
marketplace considering the prevalence of disease patterns in these areas such as such as
respiratory, gastrointestinal and nutritional diseases.

Currently, the rural markets in India accounts for about 20% of the country’s Rs 36,000-crore
total drug retail market.

About two-third of India’s 1 billion plus population lives in rural areas.

Aventis Pharma hopes increasing awareness about healthcare and rise in income will drive the
growth in rural regions.

Sanofi has completed the first phase of its rural doctor educational programme ‘Prayas’
covering 3,200 medical practitioners in Bihar, UP and West Bengal.

Besides Aventis Pharma several other multinationals are charting out strategies to exploit the
potential opportunities in India’s growing villages.

GlaxoSmithKline and Abbott Laboratories have reportedly ramped up plans to enter the
largely untapped rural markets of India in a big way.

MNCs including Eli Lilly, Novo Nordisk, and Novartis are also chalking out programmes to
tap the rural customer.

Novartis is currently targeting villages in seven states with low-priced products available in a
variety of package sizes. The model supplies medicines to more than 16,000 pharmacies.

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Novartis also create awareness on health issues using audiovisual interface through health
advisors in villages.

Novo Nordisk spread awareness through mobile clinics along the villages in Goa to screen
patients for diabetes.

Eli Lilly has been working with the Self-Employed Women’s Association in Ahmedabad to
educate people on tuberculosis.

Growing at compounded annual growth rate of nearly 14% in the next few years, the Indian
pharmaceutical market is expected to touch USD 40 billion by 2015, predicted a recent report
by the global management consulting major Mckinsey and Company.

Indian pharma market, which is currently valued at USD 20 billion, could see the figure
almost double in next 5 years majorly propelled by the steady growth in the domestic
segment. Related story: Indian pharma market sales up despite recession.

The domestic market which is growing at almost 10 to 14 per cent at present itself will
provide US$ 20 to 24 billion in 2015 and the exports and contract manufacturing business,
which are growing at 10 per cent per annum, will contribute to achieve the predicted growth.

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CONCLUSION

The rural India that has lot of money with it definitely offers a great potential for the
companies where the chances of outnumbering the urban areas in all aspects are very high.
But only those companies would survive at these places and win over the rural consumers
who can spend time and money on understanding the needs of them and come up with
innovative ideas.

The companies should also strive to give more focus to the rural market in order to make it a
market leader. This can happen only with the firm commitment of the top management and
extension of full support to the marketing personnel by each and every department of the
organization.

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BIBLIOGRAPHY

 http://www.choicesmagazine.org/2005-1/lending/2005-1-06.htm
 http://www.epsa.org/industry/faqs/?fa=ruralCustomers
 http://www.rural.org/workshops/rural_telecom/parker/8.htm
 http://www.siliconindia.com/shownews/Nokia_targeting_billion_customers_in_rural_Indi
a-nid-62370-cid--sid-.html
 http://ezinearticles.com/?Tapping-Indias-Rural-Market&id=1211637
 http://business.mapsofindia.com/rural-economy/state-development/marketing.html
 http://online.wsj.com/article/SB10001424052748704533904574545451866310232.html
 http://www.indianmba.com/Faculty_Column/FC299/fc299.html
 http://www.dancewithshadows.com/pillscribe/mnc-pharma-firms-line-up-to-tap-indias-
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 http://www.rediff.com/money/2004/apr/03spec1.htm

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