Rural Marketing: Challenges, Opportunities & Strategies

Wednesday, May 26, 2010 By Ruchi Katiyar
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Rural marketing is confused with agricultural marketing. "The future lies with those companies who see the poor as their customers." -C. K. Prahalad Addressing Indian CEOs, Jan 2000. Concept In recent years, rural markets have acquired significance, as the overall growth of the economy has resulted into substantial increase in the purchasing power of the rural communities.

On account of green revolution, the rural areas are consuming a large quantity of industrial and urban manufactured products. In this context, a special marketing strategy, namely, rural

marketing. But often. 977 billion resulting in tremendous liquidity. 5. with cumulative credit of Rs.22 lakh have a Village Public Telephone (VPT). 41 million Kisan Credit Cards have been issued (against 22 million credit-plus-debit cards in urban). rural marketing is confused with agricultural marketing . Of the 20 million Rediffmail sign-ups.the latter denotes marketing of produce of the rural areas to the urban consumers or industrial consumers. whereas rural marketing involves delivering manufactured or processed inputs or services to rural producers or consumers. has emerged. 5. 50% of transactions from these towns are on Rediff online shopping site. What Makes Rural Markets Attractive? Rural market has following attributes and the following facts substantiate this: 742 million people Estimated annual size of the rural market - FMCG Durables Agri-Inputs (including tractors) 2 / 4 Wheelers Rs. 65. 50% are in small towns / villages.0 lakh villages.000 Crore In 2001-02. LIC sold 55% of its policies in rural India. 42 million rural households (HHs) are availing banking services in comparison to 27 million urban HHs. 45. Of the 6. Of two million BSNL mobile connections. .000 Crore Rs.000 Crore Rs.000 Crore Rs. 8. 60% are from small towns.

More than 90% villages are electrified.2 44.2 55.1 12.9 Total (% of Rural HH) 44.5 Rural 4. so there are many marketing opportunities - Durables CTV Refrigerator Urban 30. in next 10 years another 30% would be connected. Rural literacy level improved from 36% to 59%. 40% villages have been connected by road. Low penetration rates in rural areas. though only 44% rural homes have electric connections.5 Total (% of Rural HH) 12.2 Rural 35.6 .0 FMCGs Shampoo Toothpaste Urban 66. Rural telephone density has gone up by 300% in the last 10 years. every 1000+ pop is connected by STD. Social indicators have improved a lot between 1981 and 2001 Number of "pucca" houses doubled from 22% to 41% and "kuccha" houses halved (41% to 23%).7 million HHs in urban. Opportunities 1. Infrastructure is improving rapidly In 50 years only.3 82.Investment in formal savings instruments is 6.8 3.4 33.6 million HHs in rural and 6. Percentage of BPL families declined from 46% to 27%.

low unit price more important than economy. Chik shampoo. brands rarely fight with each other. which have been successful also • • • • • DSCL Haryali Stores M & M Shubh Labh Stores TATA / Rallis Kisan Kendras Escorts Rural Stores Warnabazaar.Marketers can make effective use of the large available infrastructure Post Offices Haats (periodic markets) Melas (exhibitions) Mandis (agri markets) Public Distribution Shops Bank Branches 1.38. In rural India.000 Proliferation of large format Rural Retail Stores. number of FMCG brand in rural is half that of urban.000 25.000 3. Ghadi detergent. 40 crore) Rural Consumer Insights • Rural India buys - Products more often (mostly weekly).80. Many brands are building strong rural base without much advertising support.000 42. . Buys small packs. • Fewer brand choices in rural areas. Maharashtra (Annual Sale Rs. they just have to be present at the right place. third largest brand. second largest shampoo brand.000 7.000 32.

can all be different. Punjab 6%). Small Farmers. as part of any economy. Therefore.2.5 million for urban sector.74% in urban between 1970-71 and 1993-94. The unique consumption patterns. The success of a brand in the Indian rural market is as unpredictable as rain. decider.95% compared to 10. not cheap products. which should have been successful. buyer. Myth 2: Disposable Income is Low Reality: Number of middle class HHs (annual income Rs. Marginal Farmers: Labourers. and needs of the rural consumers should be analyzed at the product planning stage so that they match the needs of the rural people. Bihar 44%) and population below poverty line (Orissa 48%. The main problems in rural marketing are: - . literacy (Kerala 90%. have failed miserably. 45.influencer. Various Tiers are present depending on the incomes like Big Landlords. Some Myths Myth 1: Rural Market is a Homogeneous Mass Reality: It's a heterogeneous population.15. Rural youth brings brand knowledge to Households (HH). The concept of rural markets in India is still in evolving shape. tastes.000) for rural sector is 27. Artisans. Why Different Strategies? Rural markets. Rural incomes CAGR was 10. State wise variations in rural demographics are present viz. and the sector poses a variety of challenges. Distribution costs and nonavailability of retail outlets are major problems faced by the marketers. have untapped potential. There are several difficulties confronting the effort to fully explore rural markets. one who pays .4 million as compared to the figure of 29. Myth 3: Individuals Decide About Purchases Reality: Decision making process is collective. So marketers must address brand message at several levels.000 . This is because most firms try to extend marketing plans that they use in urban areas to the rural markets. marketers need to understand the social dynamics and attitude variations within each village though nationally it follows a consistent pattern. Many brands. Traders. Purchase process .• Buy value for money.

celebrations.Understanding the Rural Consumer Poor Infrastructure Physical Distribution Channel Management Promotion and Marketing Communication Dynamics of rural markets differ from other market types. Distribution Strategy One of the ways could be using company delivery van which can serve two purposes . rural marketing strategies are also significantly different from the marketing strategies aimed at an urban or industrial consumer. and thereby facilitate sales promotion. Annual "melas" organized are quite popular and provide a very good platform for distribution because people visit them to make several purchases. . However. To effectively tap the rural market. The companies with relatively fewer resources can go in for syndicated distribution where a tie-up between non-competitive marketers can be established to facilitate distribution. and similarly. festivals. a brand must associate it with the same things the rural folks do. Strategies to be Followed Marketing Strategy Marketers need to understand the psyche of the rural consumers and then act accordingly. Firms should refrain from designing goods for the urban markets and subsequently pushing them in the rural areas. and other activities where they assemble. This can be done by utilizing the various rural folk media to reach them in their own language and in large numbers so that the brand can be associated with the myriad can take the products to the customers in every nook and corner of the market. Rural marketing involves more intensive personal selling efforts compared to urban marketing. and it also enables the firm to establish direct contact with them. "melas". only the bigwigs can adopt this channel.

melas. Also. and therefore introduced a smaller size cylinder to reduce both the initial deposit cost as well as the recurring refill cost.all in Hindi. Rural markets have the practice of fixing specific days in a week as Market Days (often called "Haats') when exchange of goods and services are carried out. products and services they need to enhance farm productivity. and Ponds cream to twenty million households. It also facilitates supply of high quality farm inputs as well as purchase of commodities at their doorstep. Under this operation. traditional media forms like folk dances. Thus. HLL started 'Operation Bharat' to tap the rural markets. the audio visuals must be planned to convey a right message to the rural folk. Farmers can access latest local and global information on weather. every region consisting of several villages is generally served by one satellite town (termed as "Mandis" or Agrimarkets) where people prefer to go to buy their durable commodities. they will easily be able to cover a large section of the rural population. BPCL introduced Rural Marketing Vehicle (RMV) as their strategy for rural marketing.According to the Indian Market Research Bureau. which offers the farmers all the information. fairness cream. If marketing managers use these feeder towns. etc. can be used for high impact product campaigns. The rich. with which the rural consumers are familiar and comfortable. It moves from village to village and fills cylinders on the spot for the rural customers. ITC is setting up e-Choupals. but rather concentrated on focused approach depending on geographical and market parameters like fares. scientific farming practices as well as market prices at the village itself through this web portal . So. . Some Live Examples One very fine example can be quoted of Escorts where they focused on deeper penetration. they positioned their bike as tough vehicle. Promotional Strategy Firms must be very careful in choosing the vehicle to be used for communication. Only 16% of the rural population has access to a vernacular newspaper. etc. they achieved whopping sales of 95000 vehicles annually. improve farm-gate price realization and cut transaction costs. Clinic plus shampoo. Looking at the 'kuchha' roads of village.. puppet shows. This is another potential low cost distribution channel available to the marketers. around 8000 such melas are held in rural India every year. Shandar Sawari'. it passed out lowpriced sample packets of its toothpaste. Their advertisements showed Dharmendra riding Escort with the punch line 'Jandar Sawari. BPCL considered low-income of rural population. They did not rely on TV or press advertisements.

Market growth: Market is growing at a rate of 3-4 % per annum adding more than one million new customer every year. Development of infrastructure: Government is taking a number of initiatives and investing towards development of infrastructure facility and public service projects in rural India. it can be said that the future is very promising for those who can understand the dynamics of rural markets and exploit them to their best advantage. looking at the challenges and the opportunities.Conclusion Thus. which rural markets offer to the marketers. telephone connection. . electricity connection. Higher purchasing capacity: Purchasing power of rural people is on rise. which includes construction of roads.38.365 villages of India spread over 32 lakh square kilometer. A radical change in attitudes of marketers towards the vibrant and burgeoning rural markets is called for. so they can successfully impress on the 230 million rural consumers spread over approximately six hundred thousand villages in rural India. 4.41% of India’s middle class resides in rural areas. Importance of Rural Market The main reason why the companies are focusing on rural market and developing effective strategies to tap the market potential can be identified as: Large population: Approximately 75% of India’s population resides in around 6.

4. . It is only natural that rural markets form an important part of the total market of India. etc. Some of the facts that will highlight the potentiality of rural market: • According to a study by the Chennai based Francis Kanoi marketing planning services. 1. Our nation is classified in around 450 districts. which can be sorted in different parameters such as literacy levels. 8.000 crore 2/4 wheelers . According to the NCAER study. accessibility. 5000 crore Agri inputs (eg tractor) . there are almost twice as many 'lower middle income' households in rural areas as in the urban areas. distances from nearest towns. Few Facts 70 % of India's population lives in 627000 villages in rural areas. Thus more number of rural people will start enjoying facilities like television.Rs.Rs. Two-thirds of countries consumers live in rural areas and almost half of the national income is generated here.Rs.000 crore Total .23. penetration. internet access. and approximately 630000 villages. electricity connection.Rs.000 crore Consumer durable . income levels. 65. 45. estimated annual size of market is FMCG . improve roads and better public transport system.Rs.000 crore • • • • • In 2001-02 LIC sold 55% of its policies in rural India 50% of BSNL mobile connection sold are in small towns/villages 41 million Kisan credit card issued (as against 22 million credit plus debit card in urban) Sh are Indian Rural Market The Indian rural market with its vast size and demand base offers great opportunities to marketers.

the rural population is nearly three times the urban. Features of Indian Rural Markets . What is more. As a result of the growing affluence.3 million urban households as against 1. fans. salt and toothpowder. In urban India. rural India has a large consuming class with 41 per cent of India's middle-class and 58 per cent of the total disposable income. Opportunity The above figures are a clear indication that the rural markets offer the great potential to help the India Inc which has reached the plateau of their business curve in urban India to bank upon the volume-driven growth. The importance of the rural market for some FMCG and durable marketers is underlined by the fact that the rural market accounts for close to 70 per cent of toilet-soap users and 38 per cent of all two-wheeler purchased. The rural market accounts for half the total market for TV sets. bicycles.6 million households in rural areas. The Indian rural market with its vast size and demand base offers a huge opportunity that MNCs cannot afford to ignore. Thus. the rural market for FMCG products is growing much faster than the urban counterpart. blades. Middle and high-income households in rural India is expected to grow from 80 million to 111 million by 2007. the absolute size of rural India is expected to be double that of urban India. washing soap. With 128 million households. the same is expected to grow from 46 million to 59 million. fuelled by good monsoons and the increase in agricultural output to 200 million tonnes from 176 million tonnes in 1991. tea.At the highest income level there are 2. pressure cookers.

Challenges before the Indian FMCG Sector & Designing a Blueprint for Future Tuesday. financial facilities are inadequate in rural areas. low savings. They do not prefer changes. 2010 By Amritanshu Mohanty • • • email print pdf . communication system. Low standard of living: The consumer in the village area do have a low standard of living because of low literacy. social backwardness. This is different in different parts of the country. Hence physical distribution becomes costly due to inadequate Infrastructure facilities. Major income from agriculture: Nearly 60 % of the rural income is from agriculture. Infrastructure Facilities: The Infrastructure Facilities like roads.70. warehouses.000 villages spread throughout the country. Diverse socio-economic backwardness: Rural consumers have diverse socio-economic backwardness. Hence rural prosperity is tied with agricultural prosperity.Large and Scattered market: The rural market of India is large and scattered in the sense that it consists of over 63 crore consumers from 5. Traditional Outlook: The rural consumer values old customs and tradition. low per capita income. May 18. etc.

they wielded INR 14000 Cr worth of discretionary income.460 billion FMCG market remains highly fragmented with roughly half the market going to unbranded. Indian economy is poised to remained buoyant and grow at more than 7%. Take distribution as an example. competing on margins. Changes in demographic composition of the population and thus the market would also continue to impact the FMCG industry. This makes logistics particularly . and teenagers among them numbered about 160 million. while there are sectors that have outperformed this benchmark index. Recent survey conducted by a leading business weekly.including Sara Lee. there are also sectors that have under performed. FMCG registered gains of just 33% on the BSE FMCG Index last year. The economic growth would impact large proportions of the population thus leading to more money in the hands of the consumer. approximately 47 per cent of India's 1 + billion people were under the age of 20. Nike and several beverage companies Markets all over the world have been on a roll in 2003 and the Indian bourses are no exception having gained almost 60% in 2003. successfully launching and growing market share around a branded product in India presents tremendous challenges. Unlike the U. companies that are able to influence and excite such consumers would be those that win in the market place.and wield proportionately higher spending power.Share 0 A few FMCG companies have already outsourced manufacturing to some degree . Means. However. The Indian FMCG market has been divided for a long time between the organized sector and the unorganized sector. This presents a tremendous opportunity for makers of branded products who can convert consumers to branded products. the former has varied between a two-player-scenario to a multi-player one. During this period. India is home to six million retail outlets and super markets virtually do not exist. market for fast moving consumer goods (FMCG). Together. which is dominated by a handful of global players. unpackaged home made products. India's Rs. At the macro level. By 2015.S. Indians under 20 are estimated to make up 55% of the population . and their families spent an additional INR 18500 Cr on them every year. While the latter has been crowded by a large number of local players.

Going forward. Even so. beverages. 4. recommendation of the retailer or word of mouth. river linking) are likely to enhance the living standards across India. The sector covers a wide gamut of products such as detergents.necessity. the opportunity keeps FMCG makers trying. a consumer buys these goods at least once a month. Other challenges of similar magnitude exist across the FMCG supply chain. as and when required. 2. over the long term. much of the battle will be fought on sophisticated distribution strengths. power.The consumer spends little time on the purchase decision. This is the latent potential that most FMCG companies are looking at. rails. comfort. Till date. Brand loyalties or recommendations of reliable retailer/ dealer drive purchase decisions. toothpaste.for new players extremely difficult. They meet the demands of the entire cross section of population. Price and income elasticity of demand varies across products and consumers. He seldom ever looks at the technical specifications. confectioneries. Typical characteristics of FMCG products are: - 1. Distinguishing features of Indian FMCG Business FMCG companies sell their products directly to consumers. toilet soaps. 5.Limited inventory of these products (many of which are perishable) are kept by consumer and prefers to purchase them frequently. and cigarettes. Even in the much-penetrated categories like soaps/detergents companies are focusing on getting the consumer up the value chain. At the macro-level. luxury.Brand switching is often induced by heavy advertisement. the efforts on the infrastructure front (roads. India's per capita consumption of most FMCG products is much below world averages. shampoos. powders. creams. Structural Analysis Of FMCG Industry Typically.Individual items are of small value (small SKU's) although all FMCG products put together account for a significant part of the consumer's budget. The fact is that FMCG is a structurally unattractive industry in which to participate. 3.The products often cater to 3 very distinct but usually wanted for aspects . food products. Major features that distinguish this sector from the others include the following: - .

Sh are • • • • • • 1 2 3 4 next › last » Sh are . technology for most products has been fairly stable. (2) flexibility in controlling labor costs. Also.Third-party Manufacturing .Most product categories in FMCG require relatively minor investment in plan and machinery and other fixed assets. Modifications and improvements rarely change the basic process. Design and Manufacturing 1. Also. Benefits associated with third party manufacturing include (1) flexibility in production and inventory planning.Technology .Basic technology for manufacturing is easily available. Low Capital Intensity . 3.Manufacturing of products by third party vendors is quite common. 2.sometimes its essential to get certain products manufactured near the market. and (3) logistics .1. the business has low working capital intensity as bulk of sales from manufacturing take place on a cash basis.