The Indian rural market with its vast size and demand base offers a huge opportunity that

MNCs cannot afford to ignore. TO expand the market by tapping the countryside, more and more MNCs are foraying into India's rural markets. Among those that have made some headway are Hindustan Lever, CocaCola, LG Electronics, Britannia, Standard Life, Philips, Colgate Palmolive and the foreigninvested telecom companies. Opportunity The Indian rural market with its vast size and demand base offers a huge opportunity that MNCs cannot afford to ignore. With 128 million households, the rural population is nearly three times the urban. As a result of the growing affluence, fuelled by good monsoons and the increase in agricultural output to 200 million tonnes from 176 million tonnes in 1991, 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. 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, fans, pressure cookers, bicycles, washing soap, blades, tea, salt and toothpowder, What is more, the rural market for FMCG products is growing much faster than 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) Availability 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 autorickshaws, bullock-carts and even boats in the backwaters of Kerala. 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. Affordability 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 mutiserve sachet of 200 gm priced at Rs 15. Acceptability

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 reasonablypriced policies in the nature of group insurance covers. 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. Mr Carlo Donati, Chairman and Managing-Director, Nestle, while admitting that his company's product portfolio is essentially designed for urban consumers, cautions companies from plunging headlong into the rural market as capturing rural consumers can be expensive. "Any generalisation" says Mr Donati, "about rural India could be wrong and one should focus on high GDP growth areas, be it urban, semiurban or rural."

A look at the challenges in cracking the Indian rural market

1. Distribution and logistics: Infrastructure continues to be a challenge in rural India. Moreover, the lack of an efficient distribution network prevents penetration of products/services into rural India. One of the most innovative models in recent times has been the usage of the postal service by mobile operators to penetrate scratch cards to the villages. The Indian Postal Service with 155000 post offices is the largest distribution network in the world, and has all of 120000 outlets in Indias villages. 2. Payment collection: The majority of the rural population is still unbanked. Clearly, noncash collection becomes rather unlikely. Cash collections, on the other hand, are messy and difficult to monitor, especially since cash cards or technology-enabled centralized POS (like Suvidha or ItzWorld) have still not reached rural areas. The time-tested manufacturer-distributor-retailer network has been the only real success so far but setting up such a structure is rarely feasible. Partnering with MFIs comes to mind but often, the MFIs dont cater to the relatively more privileged/affluent segments of the rural economy who are likely to be early adopters.

Rural India - Challenges and Opportunities 3. Pricing: While Sachet pricing may have worked very well for Chik shampoo, the overheads involved in payment collection do not always allow easy execution of sachet pricing. It is easier to collect in larger amounts as every instance of collection and carrying of cash has associated costs. Disposable income, though, isnt always high since the bulk of rural India is agricultural and income cycles in agricultural are very erratic and not as predictable as in the case of us salaried individuals. 4. Scaling across geographies: If India is a land of many cultures, the contrast becomes that much starker in the case of rural India. Setting up operations on a pan-India level presents different types of hurdles in different states ranging from political juggling to downright local factors. Any model where scalability involves scaling on-ground operations (and not merely an increase in downloads) is bound to run into myriad issues as we move from one state to the next. Add to that the greater differences in consumer tastes and behavior across geographies than in the relatively more cosmopolitan urban population. 5. Developing inorganic scale: Developing synthetic scale through partnerships typically results in larger overheads in the rural context. Finding the right partner with reach and presence in villages is difficult to start with. More importantly, there are very few players who are strong on these counts across multiple geographies. Hence, a pan-India rollout typically requires multiple partnerships resulting in higher partner management overheads. 6. Social and cultural challenges: The cyber caf (or kiosk) model has not worked in many parts of rural India due to socio-cultural issues. One of the reasons for the failure of the kiosk model in Kuppam (HPs i-community) was the lack of usage by women which was largely due to their discomfort in going to kiosks run by men. I dont at any point intend to play down the potential that exists. Most of my points just go back to the assumption that rural is a volume market and requires scale and achieving that scale organically or inorganically is a major challenge. Those who succeed in cracking these problems definitely will change the world around us.

MEANING OF URBAN AND RURAL "The Census of India defines urban India," says 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."

Bases for Segmentation in Consumer Markets

Consumer markets can be segmented on the following customer characteristics.

y y y y

Geographic Demographic Psychographic Behavioralistic

Geographic Segmentation The following are some examples of geographic variables often used in segmentation.
y y y y

Region: by continent, country, state, or even neighborhood Size of metropolitan area: segmented according to size of population Population density: often classified as urban, suburban, or rural Climate: according to weather patterns common to certain geographic regions

Demographic Segmentation Some demographic segmentation variables include:

y y y y y y y y y y y y

Age Gender Family size Family lifecycle Generation: baby-boomers, Generation X, etc. Income Occupation Education Ethnicity Nationality Religion Social class

Many of these variables have standard categories for their values. For example, family lifecycle often is expressed as bachelor, married with no children (DINKS: Double Income, No Kids), full-nest, empty-nest, or solitary survivor. Some of these categories have several stages, for example, full-nest I, II, or III depending on the age of the children. Psychographic Segmentation Psychographic segmentation groups customers according to their lifestyle. Activities, interests, and opinions (AIO) surveys are one tool for measuring lifestyle. Some psychographic variables include:
y

Activities

y y y y

Interests Opinions Attitudes Values

Behavioralistic Segmentation Behavioral segmentation is based on actual customer behavior toward products. Some behavioralistic variables include:
y y y y y y

Benefits sought Usage rate Brand loyalty User status: potential, first-time, regular, etc. Readiness to buy Occasions: holidays and events that stimulate purchases

Behavioral segmentation has the advantage of using variables that are closely related to the product itself. It is a fairly direct starting point for market segmentation.

RuRAL RETAILING IN INDIA 70% of India's population lives in rural India and the size of the rural economy is at Rs. 12 trillion predicted to go up to Rs.16 trillion in the next few years. Rural India is experiencing the same changes as urban India - changing consumer preferences and consumption patterns, increasing exposure to different lifestyles and products, and increasing purchasing power. A CII and Yes Bank study indicates that rural retail is set to cross US$ 45.32 billion by 2010. By 2015, this figure is estimated to go up to US$ 60.43 billion. Rural retail is growing at a much higher rate than urban retail and FMCGs are doing brisk business in Rural India. With more than 4.1 million outlets, more than 87% of rural India is still not penetrated by organized retail. ITC, DCM, Tata, Godrej are some of the major players in Rural India. Reliance, Spencers, Subiksha are extending their reach in semi-urban areas. Unilever, LG, Duncan, Nokia, Sony Ericsson, Novartis are some of the manufacturers with unique marketing programs and special campaigns are quite successful in Rural India. Some of the challenges faced by marketers and retailers in rural India are low per capita income, dependence on the monsoons for purchases, difficulties in communication and high distribution costs. Marketers are addressing these issues through the 4A's of Availability, Affordability, Acceptability, Awareness and coming up with innovative campaigns to address the rural segment. Understanding of rural customers and their needs is what will make the rural foray of retailers successful.