Rural Marketing

1. Introduction and Opportunities, Taxonomy, models, BOP approach

Taxonomy: What Constitutes the Rural Market?

The census of India defines rural as “any habitation where the population is not
more than 5000, population density is less than 400 per sq. km, and where at least
75 per cent of the male working population is engaged in agriculture”.

RBI, “Locations with population upto 10,000 will be considered as rural and 10,000
to 1,00,000 as semi-urban.”

Leaving aside Hindustan Lever and ITC, most FMCG Sector would define rural as
any place with a population below 20,000.

India classified into 450 districts, approx 6,30,000 villages.

 90% of rural Rural
70% of India's Promotion of Due to social &
population is in India has
population brands in backward
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lives in rural markets condition,
population of < needed
627000 requires personal selling
2000, with volume
villages in special is a challenging
agriculture being driven
rural areas measures role
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 Rural Markets- A Glimpse

The rural population in India accounts for around 627 million,

which is exactly 74.3% of the total population.

At present 53% of all FMCGs and 59% of all consumer durables

are being sold in rural India.

The biggest FMCG Company in India HLL derives more than half
of its Rs. 12,000 crore revenues from the rural markets.

The rural markets are growing with speed and steady compared
to the urban markets which are attaining a point of saturation.
 Rural Markets- A Glimpse
41 million Kisan Credit Cards issued (against 22 million credit-plus-debit cards
in urban) with cumulative credit of Rs. 977 billion resulting in tremendous
liquidity.

Of 20 million Rediffmail signups, 60 % are from small towns. 50% transactions

from these towns on Rediff online shopping site.

42 million rural House Holds availing banking services in comparison to 27

million urban House Holds.

Investment in formal savings instruments: 6.6 million House Holds in rural and
6.7 million in urban
 Rural Markets- A Glimpse
Hero Honda had 50% of its sales coming from rural market.

Rural India has a large consuming class with 41% of India’s middle-class and

58% of the total disposable income accounting for consumption.

In 20 years, rural Indian Market will be larger than the total consumer markets in countries such as
South Korea or Canada today, & almost 4 times the size of today’s urban Indian market

46% of the soft drinks sales happen in the rural areas.

Rural India accounts for 49% of motorcycle sales.

Rural India accounts for 59% of Cigarettes sales.

Factors responsible for growth and opportunities in
rural market:

• Increase in population and hence increase in

demand.
• A marked increase in the rural income due to
agrarian prosperity.
• Standard of living is also growing up in rural
areas.
• Large inflow of investment for rural development
programmes from government and other
sources.
• Increased contact of rural people with their urban
counterparts due to development of transport
and wide communication network.
Factors responsible for boom of rural market:

• Increase in literacy and educational level and resultant

inclination to sophisticated lives by the rural folks.
• Inflow of foreign remittances and foreign made goods
into rural areas.
• Change in the land tenure systems causing a structural
change in the ownership patterns and consequent
changes in the buying behaviour.
• Rural markets are laggards in picking up new products.
This will help the companies to phase their marketing
efforts. This will also help to sell inventories of
products out dated in urban markets.
 Opportunities
Rapid improvement in Infrastructure is attracting companies to
shift focus from urban to rural market distribution.

In 50 years only 40% villages connected by road, in next 10 years

another 30% so wide opportunity for efficient Distribution
network of companies .

More than 90 % villages electrified, so good opportunity for

distribution related warehousing storage facility for perishables.

Rural telephone density has gone up by 300% in the last 10 years

ensures effective communication among distribution channels.
 Opportunities
Rural Literacy level raised from 36% to 59%.

Low penetration rates in rural distribution so there are many marketing opportunities.

Marketers can make effective use of the large available distribution infrastructure:

- Post offices - 1, 38,000

- Haats (periodic markets) - 42,000

- Melas (exhibitions) - 25,000

- Mandis (agri markets) - 7,000

- Public distribution shops - 3, 80,000

- Bank branches - 32,000

Challenges Faced by Distributers in Rural Market

• Traditional outlook of rural retailers due to which they are

resistant to change. Their buying decision is low and
delayed, low risk averse.
• Demand in rural wholesalers depends on the agricultural
situation as it is the main source of income. Again
agriculture depends on monsoon. So buying capacity of
rural consumers varies and it becomes difficult to predict
demand by retailers.
• Lack of adequate infrastructure facilities to some territories
in spite of many development projects.
• Retailers pushing imitation or fake products in place of
branded ones for better commission.
• Communication problems across distribution networks.
• Problems related to distribution and channel management.
Rural Marketing Models: Success Stories- Godrej

Godrej Consumer Products-Project ‘Dharti’:

• Godrej in hair colours and soaps segment, intends to
increase its contribution from rural sales to 50 per
cent.
• Godrej has implemented a special project to penetrate
rual markets exclusively -
• Project ‘Dharti’ for rural India which is presently
covering 17,000 villages. Soon company intends to take
it to cover 50,000 villages.
• This also means that the 4,000 substockiest in rural
India would be more than doubled, creating more
employment opportunities.
Success Stories- HUL
HUL's Project SHAKTHI:
• Through the state governments and NGOs involved in
micro-finance, women entrepreneurs in villages are
identified to act as local distribution and sales point for HUL
products.
• Launched in 2001, Project Shakti involved working with
rural self-help groups (SHGs) to educate rural women, while
also making them part of the company’s distribution
network. Women from SHGs become Shakti entrepreneurs
— direct-to-home distributors [of Hindustan Lever
products] in rural markets.
• This micro-enterprise offers low risks and high returns. The
products distributed include a range of mass-market items
especially relevant to rural consumers, such as soap,
toothpaste, shampoo and detergent.
Success Stories- ITC e-Choupal
ITC’s foray into an enhanced distribution network came from the recognition that the existing
agri-produce distribution channels were inefficient. The company exports various agricultural
products — soybean, rice and wheat, to name a few.

In 2000, ITC embarked on an initiative to deploy technology to reengineer the procurement of

soybeans from rural India.

Kiosks — called e-Choupals — consisting of a personal computer with Internet access were set up
at the villages.

Soybean farmers could access this kiosk for information on prices, but had the choice to sell their
produce either at the local market or directly to ITC at their hub locations.

A hub location services a cluster of e-Choupals.

By purchasing directly from the farmer, ITC significantly improved the efficiency of the channel
and created value for both the farmer and itself.
E-choupal & choupal sagar
The eChoupal infrastructure consists of:

1. A kiosk with Internet access in the house of a trained farmer, called a

Sanchalak. This kiosk is within walking distance of target farmers.

2. A warehousing hub managed by the former middleman, called a Samyojak.

This is within a tractor-driveable distance of target farmers.

3. A collaborative network of companies orchestrated by ITC with a pan-India

presence.

Apart from the more efficient channel, there is money to be made from the
reverse flow. In 2005-06, ITC generated $23 million selling chemicals and
fertilizers.

In a recent move, ITC has set up its first urban outlet, the other end of the e-
Choupal chain, to retail fresh fruit and vegetables.
Success Stories- Godrej & Boyce
• Godrej & Boyce’s nano refrigerator- Chotu Kool is
making in roads in rural India.
• It is not a regular fridge, it specially developed by the
company to meet and suit need the of rural consumer.
• An Microfinance institution called Swayam Shikshan
Prayog has given valuable inputs to this design. It dose
not have compressor, it runs on a battery.
• Godrej has junked the traditional model of a
proprietary channel with sales force and a distributor-
dealer chain. Instead, it has joined hands with MFIs
(Microfinance Institutions) to create a new
distribution system.
ChotuKool
 BOP Approach

• The bottom of the pyramid which actually means

the bottom of the wealth pyramid or
the bottom of the income pyramid is the largest,
but poorest socio-economic group. In global
terms, this is the four billion people who live on
less than say $3,000 per year.
• The 4A’s Approach, comes a paper written by C.K
Prahalad for the Journal of Product Innovation
Management. His focus is on the BoP as a source
for breakthrough innovation.
 BOP Strategy

First of all, marketing managers working on BoP markets need to create an Awareness of
the product and service. Basically, it comes down to making sure that everyone there
understands that it is available and know how to use it.

Second, companies should generate an Access to it. These markets can be difficult to
access and this should be overcome.

Third, the supply should be Affordable for the local people’s wallet. This is a real challenge
in the sense that it means dividing product or service’s price by a 50 or 100 figure…

Fourth and last, what is produced should be Available. Building a relationship is of

tantamount importance since markets sometimes do not exist, and the companies should
see this strategy not as a market development one, but as a market creation one, with
implies a different customer relationship management.
“The future lies with those
companies who see the poor as
their customers”

says C. K. Prahalad in his book

“The Fortune at the Bottom of the Pyramid”

Thank You