Global J. of Arts & Mgmt.

, 2011: 1 (4)

Review Paper: Deepa Ingavale, 2011: Pp.39-43

TAPPING INDIAN RURAL MARKET - RURAL DISTRIBUTION STRATEGY
Deepa Ingavale
Department of Commerce & Management, Shivaji University, Kolhapur.
Corresponding Author: deepaingavale@yahoo.com
ABSTRACT
The rural markets have been increasing steadily since the 1980s and are now bigger than the urban market
for both FMCGs (53%) and durables (59%). The rural consumer market, which grow 25% in 2008 when
demand in urban areas slowed due to global recession, is expected to reach $425 billion in 2010-11 with 720
– 790 million customers which will be double the 2004-05 market size of $220 billion. All smart marketers,
Indian as well as MNCs, are trying to enter into rural markets. Companies such as Hindustan Lever, Godrej,
Colgate Palmolive, Parle Foods, Philips, Dabur India have made inroads into the countryside. Rural reach is
on the rise and it is fast becoming the most important route to growth. Accessing rural markets presents
challenges to the marketers as these markets are geographically spread out with a large number of retail
outlets. Study on buying behavior of rural consumer indicates that the rural retailers influence 35% of
purchase decision. India offers a huge, sustainable and growing rural market which can be tapped effectively
through innovative distribution channels with retailing being the most critical element of this strategy as it is
the final touch point. The paper focuses on the rural distribution strategy and emerging distribution channels
for rural market with due emphasis on rural retailing.
Key words: Rural markets, global recession and rural retail system
INTRODUCTION
Rural marketing is the process of developing, and Pandey Satyaprakash, 2005). Customised and
pricing, promoting, distributing rural specific goods affordable products, effective distribution and
& service leading to exchange between urban & focused marketing initiatives are essential factors
rural markets which satisfies consumer demand & in building credibility for a brand in rural India. The
also achieves organizational objectives. India’s vast major challenge faced by the marketer involves
rural market offers a huge potential for marketers supplying products of right quality to meet the
facing stiff competition in the urban markets. When needs of customers. India’s 6, 50,000 villages are
rural customers discover the new & exciting choice spread over 3.2 million sq. km and 700 million
of brands available in urban markets, a demand for Indian live in rural areas. Finding them is not easy
these brands is created in rural areas. Marketers task (Mukherjee, 2009). The impediments in
have entered the rural markets by extending the reaching rural customers includes long distances
distribution of their existing offering or developing between villages, lack of pucca roads connecting
a separate marketing strategy for the rural markets villages to nearest township, lack of adequate
(Kashyap Pradeep and Raut Siddhartha, 2009). The transport facilities, lack of proper retail outlets, and
opportunities in the rural market are demonstrated lack of mass media infrastructure.
by comparing consumption levels in urban & rural Objectives
markets for different product categories. Their 1. To study the reason for increasing rural market
volume & growth show the importance of this attractiveness.
market (Mukharjee Rupali, 2009). CII reported that 2. To study the various distribution channel
the rural consumer market, which grew 25% in variants for rural market.
2008 when demand in urban areas slowed due to Research Methodology: The paper focuses on the
global recession, is expected to reach $ 425 billion rural distribution strategy. The research method
in 2010-11 with 720-790 million customers. adopted is the descriptive research for which
According to technopak study, rural demand for secondary data are used & it is collected from the
FMCG, pharma, auto & consumer durables books, newspapers & Internet.
industries estimated to match sales generated in Reasons for corporate interest in rural markets:
urban areas soon. While durables market shrunk in There are quite a few reasons for the growing
urban India, rural market is seeing a 15% growth interest in rural markets. The size of the market
rate, FMCG sales are up 23% & telecom is growing cover two third of the country’s population & half of
at 13%. The rural consumer is upgrading to the national income comes from the rural
branded products (Mukharjee Rupali, 2009). C.K. population. The country is classified into more than
Pralhad quoted that, much of the marketing activity 640 districts and around 6, 40,867 villages.
& product development was concentrated on urban 1) Untapped Potential – It offers a great chance for
& affluent class, which is only the tip of an iceberg & different branded goods as well as services for
much of the market potential is still available at the larger numbers of customers. About 12 per
bottom of the pyramid. The real challenge is how to cent of world’s population lives in rural India.
make this market accessible sustainable & The population of rural India is 833,087,662 as
profitable. Distribution is central to the success of a against the urban population of 377,105,760.
rural marketing strategy (Singh Awadesh Kumar Also rural market is not exploited by marketers.
Global Journal of Arts and Management - ISSN 2249-2658 (Online): 2249-264X (Print) - Rising Research Journal Publication
39

2) Rising rural Prosperity- Table 1 shows how
India is now seeing a dramatic shift towards
prosperity in rural households.
3) Growth in consumption – The purchase &
consumption of certain durables & non durables
by consumers in rural areas is more than that in
urban areas. Some of the durables for which the
demand in rural areas is more than that of urban
areas are sewing machine, radios, wristwatches,
bicycles etc (Table 2 & 3).
4) Changing buyer Profile – Younger, more
knowledgeable, better informed & educated
sons are replacing conservative fathers in
making purchase decisions or have more
influential role in decision making.
5) Life Style Changes – Life style changes are
witnessed in rural areas. Rural consumers are
increasingly spends the money on non-durable
such as soaps, toothpaste talcum powder,
shampoo, tea etc.
6) Accessibility of Market – Though the road
network hasn’t developed to the best possible
extent but a fair amount of development has
been made in many regions, making these
regions accessible from the urban region &
making it easier for supplying products to these
regions.
With many opportunities there are certain
challenges for rural marketing such as vast &
unevenly distributed purchasing power, lack of
storage, handling transport & communication
infrastructure, difficulty in logistics planning,
seasonal demand pattern etc. So the attitude
towards rural markets should provides the
opportunity & the approach should be one of
‘Market Seeding’. The marketer has to invest to
develop a separate marketing programme to meet
rural consumer needs.
Distribution management in rural markets: One
of the key problems in rural areas is poor
distribution system & higher cost of distribution.
The rural markets suffer from both the problems of
inadequacy & neglect. There are not many
distribution outlets, warehouses, stockiest, poor
infrastructure, transportation system & inadequate
flow of goods & services into the rural areas serve
as a deterrent to the growth of Indian rural market.
If proper distribution & logistic management
system can be developed for rural areas, it will
augment the demand for rural markets & a large
number of products & services for daily
consumption will flow to rural areas.
The following distribution channels can be
exploited to serve rural markets: Ration shops or
Public Distribution Systems, Retailers dealing in
agricultural inputs., Semi-wholesalers in mandi-
towns, Retailers in a village, National consumer co-
operative society and State consumer co-operative
society.
Channel variants in rural markets: Distribution
to rural markets is different from urban markets for
Global Journal of Arts and Management - ISSN 2249-2658 (Online): 2249-264X (Print) - Rising Research Journal Publication
Global J. of Arts & Mgmt., 2011: 1 (4)
multiple reasons. One of the main reasons is that
the cost of reaching to rural market is high because
of the geographical spread. The following are the
different channel variants,
Haats: The haats are the oldest outlets to purchase
household goods & for trade. Haats are periodic
(weekly) markets offering very useful mechanism
of reaching the interior rural market. Haats are very
well organized with shopkeeper having pre-
assigned spaces for them to sell the goods. A typical
market is in an open field with sample space for
displaying all sorts of goods. It is reported that
there are 47, 000 haats held periodically in rural
India. A study on Haats indicated that despite the
same products being available in the village shop 58
percent of the visitors preferred to buy these from a
haat because of better price, quality & variety.
According to Indian Market Research Bureau’s
(IMRB), rural market probe found that more than
25 per cent of the 3,10,000 villages having a
population below 500 do not have any shop &
another 56% have provision shops selling limited
quantities of soaps, toothpaste, etc. Haats provide a
very useful mechanism to reach the interior rural
markets.
Melas (Fairs): This is another low cost distribution
channel available to the marketers. Melas are
ancient & part of Indian cultural heritage. Most of
the fairs are associated with either a religious event
or a festival. According to Indian Market Research
Bureau (IMRB) around 8000 melas are held in rural
India every year, Melas are very important to the
marketer because they are invariably connected to
religious festivals, which make it obligatory for
people to attend a mela. Usually they take place
around the time the farmers sell their crops, which
means that the rural consumer has surplus money
to spend in the melas. Also farmers bring their
families along. Marketers can take advantage of this
tradition to establish a face-to-face communication
with all, which they would find difficult to
accomplish.
Unlike the haats, which cater primarily to the
essential needs of the local people, melas cater to a
much larger population with more sophisticated
factory-made products. Almost half the outlets in
the melas sell manufactured goods.
Mobile Trader: The mobile traders belong to
traditional communities like Banjaras, Bajajis,
Kujras. There are close to 4, 00,000 mobile traders
across India who reach an estimated 8 crore rural
homes. The mobile traders have an advantage on
cost & reach over the conventional wholesale-retail
channel. Mode of transport used is usually bicycle.
Most of these traders deal in particular commodity
like soap & detergents, blankets, etc. The mobile
traders also serve the womenfolk in the rural
market who do not visit shops & therefore prefer to
buy from their homes. The mobile traders usually
sell local brands of FMCG products. If companies
could put this model in place with adequate
40

publicity, customers could be motivated to
purchase company brands from mobile traders as
these would be available at doorstep. Ogilvy
Outreach of Ogilvy & Mather (O & M) experimented
with the mobile traders in Lucknow district to test
their effectiveness as a selling & communication
method. Two cycle salesmen visit two villages each
of less than 2000 population. They have a display
box a big red branded umbrella & an audio system,
which plays out jingles. With a range of FMCG
products, the trader gathers 10-15 households at
several points in the village. The jingle is played to
attract the crowd. The trader then educates the
consumers in the local dialect about the difference
between genuine & fake brands. It was observed
that if the branded products are offered with some
offers rural customers do purchase these products.
Co-operative society: Co-operatives occupy an
important place in India’s rural economy in terms
of their coverage of population. Rural scan reports
that there are 4398 Primary Marketing Societies &
2933 Large Agricultural Multipurpose Primary
Marketing Services (LAMPS) in the country.
Marketers can sell their products through the co-
operatives.
Agricultural Input Dealers: Fertilizer companies
have retail outlets within a range of 5km to any
village. They offer a good scope for marketers.
Public Distribution System (PDS): PDS is a
system of distribution for essential commodities to
a large number of people through a network of fair
prices shops (FPS). PDS has been evolved to reach
the urban as well as the rural population in order to
protect consumers from the fluctuating prices. PDS
with a network of about 4.76 lakh FPS is the largest
distribution network of its type in the world. Out of
the total number 3.8 lakh FPS are in rural areas.
These FPS in rural areas can be utilized for
distribution of consumer products.
Mobile Units: Organizations improved on the
traditional channels to economically reach &
service the rural markets. Marketers introduced
vans to directly service the rural outlets. Bharat
Petroleum has introduced Rural Marketing Vehicles
to reach rural consumers. This vehicle moves from
village to village & fills cylinders on the spot for the
rural customers. HUL also serve some rural markets
with mobile vans.
Corporate – SHG linkage: Self Help Group (SHG) is
a group of 10-15 women organized by government
bodies or NGOs to inculcate savings discipline &
boost feelings of self worth among women.
Members of SHGs get matching loans from rural
banks to set up income generating enterprises. The
rapid growth of SHG movement in India has
provided an opportunity to establish a path-
breaking distribution model through the linkage of
the groups of marketers. With over 10 lakh SHGs
across India, this holds a great potential to develop
a low – cost distribution model to reach rural
homes in the remotest parts of the country.
Global Journal of Arts and Management - ISSN 2249-2658 (Online): 2249-264X (Print) - Rising Research Journal Publication
Global J. of Arts & Mgmt., 2011: 1 (4)
Hindustan Lever’s Project Shakti was targeted at
strengthening the company’s FMCG rural
distribution drive. Since its inception & pilot in 50
villages of Andhra Pradesh in 2001, Project Shakti
has spread over 260 districts across 12 states.
Interested women from SHGs were appointed as
Shakti entrepreneurs they borrow money from her
SHG & provide service to 6-10 villages, covering a
population of 1,000-2,000 people. Shakti
entrepreneur receives stocks at her doorstep from
the HUL rural distributor & sells directly to
consumers as well as to retailers in the village. The
company representative’s i.e. Rural sales Promoters
provide training to Shakti Entrepreneurs (Nikita et
al., 2011). TTK Prestige Pressure Cooker is also
using SHGs for rural distribution. Meetings with
SHG women were organized to explain the concept
of pressure cooking & its advantages over open
cooking & also to create brand awareness for
prestige. Interested women among SHGs were
chosen as dealers & trained, demo pressure cookers
were made available. The company supplied the
product at the dealer price, so women dealers
earned a retail margin on every sale. Consumers
who bought the pressure cookers got genuine
products & service at their doorstep. Godrej has
joined hands with Micro Finance Institutions (MFI)
to create a new distribution ecosystem to reach a
mass in rural. Chotukool, a Rs.3,200 nano fridge
was co-created by Godrej & Boyce & Swayam
Shikshan Prayog an NGO microfinance institution.
The women of SHG helped Godrej conceive & design
the product. These women literally carried the new
product on their head to consumers & earn Rs.100
for every Chotukool sold. This helped them to
increase their income & create a capacity to
consumer.BP energy has also used microfinance
institutions SHGS to distribute the cooking stoves,
oorja in rural areas. The success stories of
companies which they worked together with SHGs
& MFIs paved a way to develop new channel to try
to open the bottom of Pyramid. MFIs are helping
various industries like insurance to reach the
untouched places of India.
Satellite Distribution (Hub-and-Spoke System):
The concept of satellite distribution designed to
penetrate rural markets is emerging as a strong &
viable model. Stockiest are appointed in major
towns & feeder towns. Retailers in & around the
feeder towns get attached to these stockiest. The
manufacturer supplies goods to the stockists.
Stockist takes care of sub-distribution to retailers.
The main advantage of this system is that market
penetration takes place into the interiors of rural
markets without the manufacturer having to
expand his direct stock point network. Pepsi has
chosen a hub-&-spoke distribution format. The
spoke is typically closest to the retail outlets & is
serviced by a hub distributor who is supplied
directly from the manufacturing plant or the
company’s warehouse. This format allows for large
41

loads traveling loner distances, an arrangement
that is cost effective. Coca cola India’s rural
marketing strategy was based on three A’s –
Availability, Affordability & Acceptability. Coca-cola
also has hub & spoke distribution format. Under
this system, stock was transported from the
bottling plants to hubs & then from hubs to spokes
which were situated in small towns. These spokes
fed the retailers catering to the demand in rural
areas. CCI not changed its distribution network; it
also changed the type of vehicles used for
transportation. The company used large trucks for
transporting stock from bottling plants to hubs &
medium commercial vehicles transported the stock
from the hubs to spokes. For transporting stock
from spokes to village retailers the company
utilized all possible means of transport that range
from truck, auto rickshaw, cycle rickshaws & hand
carts to even camel carts in Rajsthan & mules in the
hilly areas. Further, it also distributed around 2,
00,000 refrigerators to its rural retailers.
Syndicated Distribution: Syndicated distribution
system is a viable & novel approach to gain entry
into rural markets. Under this approach two or
more companies come together to form a
syndicated trading organization, to jointly
distribute a collective group of household products
in rural markets by sharing distribution costs. A
successful model of syndicated distribution is P & G
using rural distribution network of Marico to sell
Ariel, Tide etc. In the initial stages, Cavinkare, used
the distribution network of Amrutanjan Pain balm,
for its Chik shampoo.
Rural Retail System: Village retailers have
traditionally been amongst the most mobile
residents in rural areas. Table 4 shows the rural
versus urban retail shops. Rural India accounts for
65 per cent of retail outlets in the country. But the
logistics of feeding the 35 lakh retail outlets spread
over 6 lakh village is a difficult task. The high
distribution costs due to geographical spread & low
volumes per outlets acts as a deterrent to the entry
of products in rural markets. Distribution cost-
volume cycle requires substantial marketing efforts
to reach the retail shelf. Rural shops in India have
the lowest retail space per capita in the world. It
was also observed that most rural retail outlets
stocked a few standard product categories while in
interior villages stocked fewer product categories.
The sale of the rural retailers is small with more
than 60 per cent of the rural retailers having sales
of less than Rs.10, 000 a month. Another aspect
regarding consumer behaviour is that, it is greatly
influenced by rural retailer who helps create brand
knowledge in rural folk & enjoys shop loyalty of
rural consumer. Considering all these aspects
marketers need to support rural retailers in terms
of credit facilities, promotional facilities. Here
marketers can use push strategy (Singh Awadesh
Kumar and Pandey Satyaprakash, 2005).
Global Journal of Arts and Management - ISSN 2249-2658 (Online): 2249-264X (Print) - Rising Research Journal Publication
Global J. of Arts & Mgmt., 2011: 1 (4)
Use of Information & Communication
Technology (ICT): Information & communication
Technology is applied through the use of Internet
kiosks for supplying information, services &
obtaining orders for products. A subtle local is
selected & trained to operate the kiosk & this
person operates the internet kiosk to supply
information services & also to take orders for
products. The successful models under this
category have information services, facilitating the
farmer to sell the produce, provide the farmer with
agricultural inputs, provide government service &
also offer consumer products. The model has
reduced the costs of transactions as it reduces the
number of intermediates & reduction in physical
handling of goods.
ITC’s e-Choupal- ITC’s International Business
Division has conceptualized the E-Choupal as a
chain of Internet Kiosks connected through VSATs
to facilitate procurement of specific commodities.
The kiosks are managed by farmers, known as
Sanchalaks. The computer housed in the
Sanchalak’s house serves an average of 600 farmers
in 10 surrounding villages, within about a 5 km
radius. At harvest time, ITC offers to buy the crop
directly from any farmer at the previous day’s
closing price. The farmer then transports his crop
to an ITC processing center, where crop is weighed
electronically & assessed for quality. The farmer is
then paid for the crop & is also given a transport
fee. The farmer gains to the better returns while ITC
is able to improve on the quality of its produce.
n-Logue Communication: n-Logue Communication
was set up by the Telecommunications & Computer
Networks of IIT, Madras . n-Logue is in the business
of providing internet, voice, e-governance & other
rural services Providers (LSPs) & kiosks by
establishing & maintaining corDECT based
communication system.
Project i-shakti: The project i-shakti kiosks set up
by HLL in partnership with Women’s self-help
groups in Andhra Pradesh have received an
overwhelming response. To gain access to the
services offered, users have to first register
themselves & obtain a registration numbers.
Organized Rural Retailing: Study on buying
behaviour of rural consumer indicates that the rural
retailer influences 35% of purchase decisions. India
offers a huge, sustainable & growing rural market
which can be tapped effectively through innovative
distribution channels with relating being the most
critical element of this strategy. The business model
for rural retail can be successful only when
integration between the profit & social motive is
apparent. The social angle needs to be pronounced
for it to be acceptable. Empowerment in terms of
economic power, purchasing power, knowledge &
information dissemination is crucial for rural retail
ventures to succeed. The model should empower
the rural consumer & at the same time
empowerment through creation of demand for its
42
 Global J. of Arts & Mgmt., 2011: 1 (4)

own products & that of its partners. ITC was the
first to take such an initiative & launched the
country’s first rural mall in Madhya Pradesh. The
Business model of chaupal sagar mall is linked
closely with the E-chaupal. It offers a diverse
product range, range, including soaps, detergents,
toothpastes, television, DVDs, sewing machines etc.
in an attempt to provide farmers a one-stop
destination for all their needs. DCM shriram started
‘Hariyali kisan Bazaars’ in 2002 at different places.
It caters to all the farmers’ requirements i.e. farm
inputs; farm implements, spare parts, irrigation
equipments etc. Further it has planned to sell
FMCGS & durables also. Mahindra & Mahindra
started Mahindra Kirshi Vihar to provide a
complete range of products & services to improve
farm productivity. The staff provides support &
guidance to farmers in selection & usage of
products. The Godrej Group runs a chain of agri-
stores named Adhaar in Maharashtra & Gujarat that
serve as one-stop shop for farmers selling with
instruction on how to effectively utilize these
products. India’s rural retail market is expected to
grow by 29 % to 1.8 trillion rupees by 2010 helped
by rising incomes & changing consumption patters.
According to Confederation of Indian Industry and
Yes Bank report, rural per capita income would
double to Rs. 14000 by 2012 as more families
switch to commercial from subsistence farming.
Village household are expected to rise to 153
million in 2009-10 from 135 million in 2001-02,
probably making rural India the largest potential
market in the world.
CONCLUSION
Rural distribution has posted a challenge to
marketers because the market is spread over more
than 0.6 million villages. But the saturation of urban
market & the growing potential of rural markets
have forced marketers to come up with innovative
solutions. The marketers can reach the rural
consumers by effectively utilizing the rural retail
system. The marketers may use a combination of
attractive margins, credit & discount scheme to
Table 1. Rising rural prosperity
Income groups 1994- 2000- 2006-
95 01 07
Above Rs 1,00,000 1.6 3.8 5.6
R.S.77,001 to 1,00,000 2.7 4.7 5.8
R.S.50,000 to 77,000 8.3 13.0 22.4
R.S. 25,001 to 50,000 26.0 41.1 44.6
R.S.25,000 to below 61.4 37.4 20.2
Source: Rural marketing, CSG. Kishnamacharyulu. Lalitha Ramkrishnan
Table 3. Rural share in Market for Durable Goods.
Product category 1995-96 2001-02 2009-10
Scooter 33 39.4 39.9
Motorcycle 47.3 39.8 48.3
motive large outlets in rural areas. Marketers need
to supplement their sales through retail channel
through haats & meals. Traditional mobile traders
are a channel that the national brands can use to
reach the interior villages. Marketers can effectively
access rural market by any method that combines
the various function of marketing. The function of
creating awareness, educating the consumer &
persuading them can be achieved with the help of
SHGs & Micro Finance Institutions. Marketers make
consistent attempt to innovate tools & strategies to
overcome the challenges they face in rural markets.
Marketers need to design creative solutions to
overcome challenges typical of the rural
environment such as physical distribution, channel
management & promotion. Newer approaches
include syndicated distribution, relationship
marketing through service centers and direct-to-
home selling. The Information & Communication
Technology based value chain & the organized
retail format have been found to be the best
innovation for rural India. The combination of the
ICT & organized retail offers solutions to the
problem of poor connectivity, economics of scale,
transparency, communication & a direct medium of
communication to interact with customers.
REFERENCES
Kashyap Pradeep and Raut Siddhartha, 2009. The
Rural Marketing Book , Biztantra Publishers,
New Delhi, 2009.
Mukharjee Rupali, 2009. Rural India Promises growth
for Retail, Times of India, 8th April 2009.
Mukherjee P., 2009. FMCG Companies strategies to
extract more from rural segments, The Hindu, 9th
Nov.2009.
Nikita M Patel, Nirav Joshi, Yashpal Jadeja and Romy
Sebasian. 2011. A study on “kaizen” as a tool for
improving efficiency and effectiveness in
pharmaceutical company with little automation.
Global J. of Arts & Mgmt., 1 (3): 29-33.
Singh Awadesh Kumar and Pandey Satyaprakash,
2005. Rural Marketing- Indian Perspective, New
Age International Publishers, Delhi.
Table -2. Share of non durable in Indian Rural Market (2009-10)
Non – Durable Products Share of Rural market
Analgesic Tablets 45.7%
Batteries 56.2%
Blues 52.3%
Coconut Oils 41.6%
Iodized Salt 51.4%
Razor Blades 54.1%
Tea 53.3%
Toilet Soap 54.7%
Washing Soap 75.6%
Washing Powder 54.9%
(Reference – www.ncaer.com)

Mopeds 52.7 58.2 57.7 Table 4. Rural versus urban retail shops.
Cars/ Jeep 2.1 8.0 10.9 Urban Rural
Fans 50.0 56.9 57.1 1.67 million outlets spread 3.5 million outlets spread over
Low cost items 58.1 60.1 61.3 over 5000 towns & cities 6 lakh villages
(Reference – www.ncaer.com)
************
Global Journal of Arts and Management - ISSN 2249-2658 (Online): 2249-264X (Print) - Rising Research Journal Publication
43