Features of Indian Rural Marketsby Udit Jain on June 21, 2007
Features of Indian Rural Markets
*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 5,70,000 villages spread throughout the country.
*Major income from agriculture:
Nearly 60 % of the rural income is from agriculture. Hence rural prosperity is tied with agricultural prosperity.
*Low standard of living:
The consumer in the village area do have a low standard of living because of low literacy, low per capita income, social backwardness, low savings, etc.
The rural consumer values old customs and tradition. They do not prefer changes.
*Diverse socio-economic backwardness:
Rural consumers have diverse socio-economic backwardness. This is different in different parts of the country.
The Infrastructure Facilities like roads, warehouses, communication system, financial facilities are inadequate in rural areas. Hence physical distribution becomes costly due to inadequate Infrastructure facilities.
The rural bazaar is booming beyond everyone’s expectation. This has been primarily attributed to a spurt in the purchasing capacity of farmers now enjoying an increasing marketable surplus of farm produce. In addition, an estimated induction of Rs 140 billion in the rural sector through the government’s rural development schemes in the Seventh Plan and about Rs 300 billion in the Eighth Plan is also believed to have significantly contributed to the rapid growth in demand. The high incomes combined with low cost of living in the villages have meant more money to spend. And with the market providing them options, tastes are also changing.
Problems in the Booming Rural Marketing
Although the rural market does offer a vast untapped potential, it should also be recognized that it is not that easy to operate in rural market because of several problems. Rural marketing is thus a time consuming affair and requires considerable investments in terms of evolving appropriate strategies with a view to tackle the problems.
The major problems faced are:
*Underdeveloped People and Underdeveloped Markets:
The number of people below poverty line has not decreased in any appreciable manner. Thus underdeveloped people and consequently underdeveloped market by and large characterize the rural markets. Vast majorities of the rural people are tradition bound, fatalistic and believe in old customs, traditions, habits, taboos and practices.
*Lack of Proper Physical Communication Facilities:
Nearly fifty percent of the villages in the country do not have all weather roads. Physical communication of these villages is highly expensive. Even today most villages in the eastern parts of the country are inaccessible during the monsoon.
*Media for Rural Communication:
Among the mass media at some point of time in the late 50’s and 60’s radio was considered to be a potential medium for communication to the rural people. Another mass media is television and cinemas. Statistics indicate that the rural areas account for hardly 2000 to 3500 mobile theatres, which is far less when compared to the number of villages.
*Many Languages and Dialects:
The number of languages and dialects vary widely from state to state, region to region and probably from district to district. The messages have to be delivered in the local languages and dialects. Even though the number of recognized languages are only 16, the dialects are estimated to be around 850.
Rural areas are scattered and it is next to impossible to ensure the availability of a brand all over the country. Seven Indian states account for 76% of the country’s rural retail outlets, the total number of which is placed at around 3.7 million. Advertising in such a highly heterogeneous market, which is widely spread, is very expensive.
*Low Per Capita Income:
Even though about 33-35% of gross domestic product is generated in the rural areas it is shared by 74% of the population. Hence the per capita incomes are low compared to the urban areas.
*Low Levels of Literacy:
The literacy rate is low in rural areas as compared to urban areas. This again leads to problem of communication for promotion purposes. Print medium becomes ineffective and to an extent irrelevant in rural areas since its reach is poor and so is the level of literacy.
*Prevalence of spurious brands and seasonal demand:
For any branded product there are a multitude of ‘local variants’, which are cheaper, and, therefore, more desirable to villagers.
*Different way of thinking:
There is a vast difference in the lifestyles of the people. The kind of choices of brands that an urban customer enjoys is different from the choices available to the rural customer. The rural customer usually has 2 or 3 brands to choose from whereas the urban one has multiple choices. The difference is also in the way of thinking. The rural customer has a fairly simple thinking as compared to the urban counterpart.
The 4A Approach
The rural market may be alluring but it is not without its problems: Low per capita disposable incomes that is half the urban disposable income; large number of daily wage earners, acute dependence on the vagaries of the monsoon; seasonal consumption linked to harvests and festivals and special occasions; poor roads; power problems; and inaccessibility to conventional advertising media.
However, the rural consumer is not unlike his urban counterpart in many ways.
The more daring MNCs are meeting the consequent challenges of availability, affordability, acceptability and awareness (the so-called 4 As).
The first challenge is to ensure availability of the product or service. India’s 627,000 villages are spread over 3.2 million sq km; 700 million Indians may live in rural areas, finding them is not easy. However, given the poor state of roads, it is an even greater challenge to regularly reach products to the far-flung villages. Any serious marketer must strive to reach at least 13,113 villages with a population of more than 5,000. Marketers must trade off the distribution cost with incremental market penetration. Over the years, India’s largest MNC, Hindustan Lever, a subsidiary of Unilever, has built a strong distribution system, which helps its brands reach the interiors of the rural market. To service remote village, stockists use auto-rickshaws, bullock-carts and even boats in the backwaters of Kerela. Coca-Cola, which considers rural India as a future growth driver, has evolved a hub and spoke distribution model to reach the villages. To ensure full loads, the company depot supplies, twice a week, large distributors which who act as hubs. These distributors appoint and supply, once a week, smaller distributors in adjoining areas. LG Electronics defines all cities and towns other than the seven metros cities as rural and semi-urban market. To tap these unexplored country markets, LG has set up 45 area offices and 59 rural/remote area offices.
Study on buying behaviour of rural consumer indicates that the rural retailers influences 35% of purchase occasions. Therefore sheer product availability can affect decision of brand choice, volumes and market share. Some of the FMCG giants like HLL took out project streamline to significantly enhance the control on the rural supply chain through a network of rural sub-stockists, who are based in the villages only. Apart from this to acquire further edge in distribution HLL started Project Shakti in partnership with Self Help groups of rural women.
The second challenge is to ensure affordability of the product or service. With low disposable incomes, products need to be affordable to the rural consumer, most of whom are on daily wages. Some companies have addressed the affordability problem by introducing small unit packs. Godrej recently introduced three brands of Cinthol, Fair Glow and Godrej in 50-gm packs, priced at Rs 4-5 meant specifically for Madhya Pradesh, Bihar and Uttar Pradesh – the so-called `Bimaru’ States.
Hindustan Lever, among the first MNCs to realise the potential of India’s rural market, has launched a variant of its largest selling soap brand, Lifebuoy at Rs 2 for 50 gm. The move is mainly targeted at the rural market. Coca-Cola has addressed the affordability issue by introducing the returnable 200-ml glass bottle priced at Rs 5. The initiative has paid off: Eighty per cent of new drinkers now come from the rural markets. Coca-Cola has also introduced Sunfill, a powdered soft-drink concentrate. The instant and ready-to-mix Sunfill is available in a single-serve sachet of 25 gm priced at Rs 2 and multiserve sachet of 200 gm priced at Rs 15.
The third challenge is to gain acceptability for the product or service. Therefore, there is a need to offer products that suit the rural market. One company, which has reaped rich dividends by doing so, is LG Electronics. In 1998, it developed a customised TV for the rural market and christened it Sampoorna. It was a runway hit selling 100,000 sets in the very first year. Because of the lack of electricity and refrigerators in the rural areas, Coca-Cola provides low-cost ice-boxes – a tin box for new outlets and thermocol box for seasonal outlets.
The insurance companies that have tailor-made products for the rural market have performed well. HDFC Standard LIFE topped private insurers by selling policies worth Rs 3.5 crore in total premia. The company tied up with non-governmental organisations and offered reasonably priced policies in the nature of group insurance covers.
Mass media is able to reach only to 57% of the rural population. Creating awareness then, means utilizing targeted, unconventional media including ambient media .For generating awareness, events like fairs and festivals, Haats, etc., are used as occasions for brand communication. Cinema vans, shop-fronts, walls and wells are other media vehicles that have been utilized to increase brand and pack visibility. Ideas like putting stickers on the hand pumps, walls of the wells putting on tin plates on al the tree surrounding the pond are some of the innovative media used by personal wash like Lux and Lifebuoy and fabric wash items like Rin and Wheel. Idea was to advertise not only at the point of purchase but also at the time of consumption.
With large parts of rural India inaccessible to conventional advertising media – only 41 per cent rural households have access to TV – building awareness is another challenge. Fortunately, however, the rural consumer has the same likes as the urban consumer – movies and music – and for both the urban and rural consumer, the family is the key unit of identity. However, the rural consumer expressions differ from his urban counterpart. Outing for the former is confined to local fairs and festivals and TV viewing is confined to the state-owned Doordarshan. Consumption of branded products is treated as a special treat or indulgence.
Hindustan Lever relies heavily on its own company-organised media. These are promotional events organised by stockists. Godrej Consumer Products, which is trying to push its soap brands into the interior areas, uses radio to reach the local people in their language.
Coca-Cola uses a combination of TV, cinema and radio to reach 53.6 per cent of rural households. It doubled its spend on advertising on Doordarshan, which alone reached 41 per cent of rural households. It has also used banners, posters and tapped all the local forms of entertainment. Since price is a key issue in the rural areas, Coca-Cola advertising stressed its `magical’ price point of Rs 5 per bottle in all media.LG Electronics uses vans and road shows to reach rural customers. The company uses local language advertising. Philips India uses wall writing and radio advertising to drive its growth in rural areas.
The key dilemma for MNCs eager to tap the large and fast-growing rural market is whether they can do so without hurting the company’s profit margins. In case of nestle, company’s product portfolio is essentially designed for urban consumers which cautions companies from plunging headlong into the rural market as capturing rural consumers can be expensive.
Role of Rural Retailing
Retailing is the final phase of the distribution channel and it is clear by now that it is availability and distribution that drives growth in rural Indian markets. Hence retailing will be significant and will undergo greater organisation and maturity as is being witnessed in the urban markets, even in the rural markets. Innovative retail models which take into account the nuances of rural markets is the way forward.
Study on buying behaviour of rural consumer indicates that the rural retailers influences 35% of purchase decisions. Therefore sheer product availability can affect decision of brand choice, volumes and market share. 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 and the actual touch point with the customer which can be the most critical influence in the buying process.