India has always been an enticing market for both MNCs and Indian companies. The aggressive moves by these companies since 1990s finally led to the saturation of urban markets. This made the companies look at the greener country side with immense growth potential. With 72.2% of the Indian Population belonging to the rural areas and with fast changing habits, attitudes and preferences of the rural consumer; the players in the consumer goods, healthcare, consumer durables, finance and banking cannot afford to ignore the market which can contribute to a huge share of their profit pie. There comes the need for Rural Marketing.
The rural space:
Using the Census of India definition of the urban areas, we can define rural area as any habitation with a population density of less than 400 per sq. km., where at least 75% of the male working population is engaged in agriculture and where there does not exist any municipality or municipal corporation.
The rural India still brings with itself the dichotomy of poverty, starvation and high purchasing power of consumers. Increasing exposure to national media, expanding telecom connectivity, financial support from organizations like NABARD, infrastructure development, better irrigation and agricultural facilities are indicators of constant improvement in standard of living of the rural populace.
While rural India remained an unexplored pasture for many years due to lack of focus by the marketers, tapping this market has today become the new found focus of many a companies and rural marketing is one way to begin the process of entering this space.
Creating innovative products that would suit the rural segment, making them available to them in a cost effective manner at a reasonable price and influencing the mindset to identify the value that the company wishes to deliver are three major tasks at hand for rural marketers to resolve.
Is it really worth the effort? After a good deal of contemplation on the same issue, I have summarized my arguments for and against the proposition of having a rural marketing venture, as below.
Pros: About 58% of the disposable income comes from the rural markets.
Government initiatives to improve the standard of living in the rural areas has led to virtually free food and shelter; primary education and healthcare. This has led to increased amount of disposable income and has lent a high purchasing power to the rural community.
Government initiatives like MGNREGA have enhanced the livelihood security of the unskilled and manual workforce of rural areas. Besides this, government, NGOs and local cooperatives are constantly working towards promoting the khadi, weaving and handloom industries. By the way of exhibitions and melas, the rural produce is brought to the urban market. Hence, income security for skilled artisans has also considerably increased.
Majority of the household income in rural areas comes from agriculture. The other income avenues are forestry and fisheries. The farmer may be self funding but most of the workers are paid daily, monthly or weekly wages. Their income levels are greatly dependent on seasonal fluctuations. Heavy rains may kill the crop or a drought may lead to famished conditions. Farmer suicides have been a concern for the government and NGOs for many years now. Financial institutions think twice before lending a sum to a farmer as the risks of default are very high.
Inflation tends to considerably reduce the purchasing power of the consumers in the rural segment. With price rises of the order of 5-25%, the spending is definitely going to shrink while the disposable income remains the same.
Pros: The educated rural consumer
The rural literacy rate has shown a steady increase from 36% in 1981 to 45% (1991) to 59% (2001) and 70.44% in the year 2011. The development brings to the forefront an educated consumer who does not necessarily look for low cost products but is increasingly seeking value for money. In such a scenario, if a company takes the onus of educating the consumer in better understanding its product (highly applicable to saving schemes and insurance products, contraceptives and health supplements), he will be able to appreciate the nuances of the product and the value that he can derive from it.
One such initiative that I would like to mention here is that of SBI bank. SBI, which is a leading public sector bank, tied up with Hindustan Unilever’s Shakti Ammas, a network of self-help groups to educate the rural folks about the importance of savings besides making available to them, monetary capital for enterprising. With HUL’s established network of Shakti Ammas, SBI could penetrate farther into the rural segment. The pilot project has commenced in Maharashtra and Karnataka and will soon spread to other regions of the country.
Hence, by sensible strategies, a company can make good business sense as well as a deep social and economic impact.
Cons: Caste, gender, cultural differences restricting sensible choice making
In a rural family, choices of products are still largely dominated by the male members unlike in an urban family. Independent choice making is limited because opinion leaders like the Sarpanch tend to sway the mind set of communities. Taking independent decisions may at times involve breaking strong social structures, a set of inherited beliefs which the older generation may perceive as attacking the traditional roots. A married woman in a rural setting may have to think hard before finalizing on a pair of jeans for herself if her in-laws and/or husband prefer conservative dressing. A person may also not switch to LPG because of the ingrained misconception that an LPG cylinder may burst automatically. A female member in a family may not even present herself before a male marketer to respond to a market survey. These issues pose serious challenges to the marketing exercises conducted by companies.
Rural areas are characterized by multiple dialects. This requires communication strategies to be customized regionally. Also, what works in one area may not always work elsewhere. This calls for huge spending in creating customized billboards which are appealing to the senses and moods of the consumer.
Hence communication and marketing strategies need to address these issues intelligently and sensitively.
Pros:Haats and melas to reach out to Rural India
Most consumers like to ‘touch’ and ‘feel’ the objects that they would like to buy. This also applies to rural consumers. Haats, mandis and melas are places where trade and exchange of goods take place. It is one of the easiest and cost-effective ways to gain access to a large rural audience and even study their choices, behavior and sentiment associated with the product. They also serve as the centers for cultural congregation. A single haat can cover 20-50 villages and is visited by over 5000 people at its 300+ contact points.
Cons: Infrastructure issues
Although rural areas offer attractive opportunities over 68% of these markets are still untapped. This is primarily due to the restricted reach that they offer to participating companies. The load and goods have to move large distances to reach the rural areas. This can be done using a hub & spoke model wherein large distributors are supplied at a higher frequency (hub) and from there the goods move at lower frequencies to the designated areas (spokes). This model though cost effective in the long run requires a substantial investment to create an extensive and all-encompassing network.
The supply chain innovation issues become more complex if there is an established network developed by a competitor. In such areas, it is very difficult for a company to be visible and accessible to its potential consumers.
At the same time, direct selling companies like Oriflame and Amway have tasted great success in the north eastern states with their business model. The evolving middle class and women consumers have shown eagerness and intent to be a part of the modern growth story of India. Hence, although the infrastructure remains a worry for the rural India, original thinking on the part of the companies will only find a way out.
Pros: Gives impetus to product innovation
Catering to a heterogeneous rural market demands innovative mix of product, advertising and distribution. It requires a thorough understanding of the consumer requirements which should necessarily match with a company’s vision, mission and long term strategy. Chotukool is one of the best examples that can be cited here. A compact size refrigerator which does not have a compressor, runs on battery, weighs only 7.8kgs, can stay cool for long hours without power and costs less than half of what conventional refrigerators cost, is a panacea for rural consumers’ electricity and cost troubles.
To gain a stronghold in the rural markets, a company needs to constantly differentiate. This can be done by redesigning the product or changing its packaging to make it more appealing. Coke could create magic with their idea of Thanda going rural.
Having Amir Khan in the villager’s get-up, making available an illustrious beverage like Coke at Rs. 5 garnered instant recognition amongst the consumers. The villagers could relate to Amir Khan who looked like one amongst the masses and felt immensely satisfied because they would have to pay a small amount to drink the Cola that even Amir Khan drinks!
“We want to be the Hindustan Lever Limited (now, Hindustan Unilever Ltd) of the Indian Beverage business”, said Sanjeev Gupta, Deputy President, Coca-Cola, India (May, 2002). This shows that the beverage company had a mission to make it big in the country and to ensure a holistic presence; it could not afford to bypass the rural markets.
Using red and yellow, the festive colors also makes for an effective ad campaign for the rural areas. Hence, the Thanda ad had all the ingredients in it: the perfect price, perfect size and perfect colors. Post this campaign, rural markets accounted for 80% of new coke drinkers and 30% of the sales volumes. The rural market grew 37% against 24% in the urban market in the year 2004-05 over the previous year.
Cons: Fake products and losing brand equity
Low literacy and education levels in many villages have resulted in consumers identifying brands based on their logos or colors. This has given scope for spurious products to flood the markets. The look-alike, spelt-alike and exact replicas are the types of fake products that easily make way into the haats and melas.
The existence of fakes has the potential to topple the entire branding and imaging exercise undertaken by the company. At the end of a huge campaign, it can be more than just disappointing if the cheap fakes sell and not the real goods. A bad experience using a fake product can turn away a potential customer forever. This kind of a sentiment can be particularly strong amongst the rural consumers who tend to be loyalists and judgmental both. Such an occurrence will seriously affect the brand equity.
The company has to take measures to use holograms to secure their products and educate the consumers of the same. This would again increase the advertising spend and increase the selling costs of the company, thereby affecting the bottom line.
Conclusion
The education levels are rising and but the continuous decadal decline in rural population (down 3.5% from 2001) is also a matter of concern. To enter the rural segment, a company invests heavily in R&D to come up with innovative products, in market research to understand the consumer sentiment and to build a sustainable infrastructure to expand its reach, based on its demand forecast. The returns on this initial investment come fairly late when the market matures. Shifting demographics can seriously hamper these forecasts and predicted profits for the company. While this is one side of the story, we have seen that rural marketing has done more good than bad to the industries in the FMCG, automobile and finance sectors.
Coupled with the growth in the rural market, the opening up of doors for FDI in retail is set to change the game for rural business. It will transform the supply chains in India drastically, hopefully increasing the total revenue generated by the producers. The increasing penetration of modern retail in Indian Tier 2 and Tier 3 cities will not only change the retailing scene, but will also increase the number of product categories used by the rural consumers. While the responsibility of educating the consumers about product usage lies with the companies, the increasing modern retail penetration will facilitate the same too.
After considering both sides of venturing into rural markets, it is clear that the growth story of any ambitious company hereon will inevitably contain a specially crafted marketing strategy for the Rural sector.
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Author - Priya Amrute
The author is a PGDM student at SP Jain Institute of Management and Research
References:
- The Rural Marketing Book by PradeepKashyap&SiddhrathaRaut (biztantra)
- Marketing Management by Philip Kotler (13th Edition, Pearson Publication)
- Internet website references:
Well written and researched post. Congrats. Prof Palekar
ReplyDeleteMeticulously written! Enjoyed reading it.
ReplyDeleteAnkit Singhai, pgp2 Ops