ITC in Rural India                                                                          
A Case Study  
 
 
 
 
By 
 
Abhishek Tandon (2009A08) 
Jerrin Jacob (2009A18) 
Kumar Mithilesh (2009A44) 
Rachit Khemlani (2009A48) 
Ranbir Vasudeva (2009A49) 
 

Subject: Rural & Social Marketing   
ITC in Rural India                                                                                                         
 

Q1.  What is notable in the Indian context? 
 
Rural India is on the rise. This can be more noted through following instances:
• In 2004, disapproving the claim by ruling co-alition of BJP that “India is shining”; rural folks
outvoted them.
• NGOs worked closely with government and private sector. Self-help groups transformed village
women into empowered entrepreneurs.
• Good deal of incentives were offered to small firms. SMEs were given more tax breaks.
• With the growth of IT sector, FDI increased tremendously.
• 88% of rural population lived on less than $2/day.
• Government has focused greatly on rural employment, electrification, etc. NREGS was a good
step to provide jobs to rural folks.
• Distribution chains of big FMCG companies didn’t extend beyond wholesalers located in small
towns that had a population of 100,000.
• HUL started Project Shakti in 2001 to strengthen its rural presence. It was a great success.
• ITC launched e-chaupal in 2000 to leverage on its agri-commodity business. Farmers were
benefitted.

ITC e­chaupal: Its Impact/Results on the Rural India 
Wide reach: The project has come a long way since its inception, and is today recognized as India’s
largest Internet-based initiative, covering 1,300 choupals, linking 7,500 villages, and serving almost 1
million farmers. e-choupal has also established its presence in other states, such as Uttar Pradesh,
Andhra Pradesh, and Karnataka. ITC, which exports US$140 million worth of agricultural commodities,
sourced US$15 million worth of commodities from e-choupals in 2001.

Convenience for farmers: Web-enabled, real-time data on crop prices gives farmers an accurate picture
of the prices they can expect from ITC and from different mandis. This information enables them to
become informed decision-makers and thereby sell their produce at a price that gives them a higher
profit margin. With the participation of agricultural supplies companies in e-commerce, the farmers now
can also conveniently order agricultural inputs.
Although the prices offered by ITC are not higher than those at
the mandi, the farmer chooses ITC because the transactions are done closer to home and the practices of
weighing and quality assessment are more efficient and transparent. Farmers save on travel time and
costs and incur less wastage. Their savings have been estimated at Rs 400 to Rs 500 (US$8 to US$10)
per ton of soyabeans.

Employment for villagers: The intermediaries are not removed from the value chain. Instead, their
roles are redefined to samayojaks (coordinators), who assist ITC in setting up new e-choupals by
conducting village surveys and by identifying the best sanchalaks. They manage the physical
transportation of sales made at the e-choupal, collect price data from local auctions, and maintain
records. In turn, these coordinators earn a commission on product processed.

Over the years, with initiatives like e-chaupal; farmers became more informed and empowered in India.

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ITC in Rural India                                                                                                         
 

Key Elements of Empowerment 
1) Farmer calls the shots
It is important to note that the final decision to sell their crops to the mandi or to ITC rests with the
farmers themselves. The farmers can transact with the company directly and deal orders on the Internet.
In the process, the farmers save about Rs 250–500 per ton, depending on their location relative to the
collection center. ITC gains in terms of assured supply and savings of more than Rs 200 per ton by
avoiding the transportation of the crop from the mandi to the collection center and other intermediary
costs in the supply chain.

2) Information
Access to information through e-choupal has reduced the dependence of the farmers on the traditional
agricultural intermediaries. It has also enabled them to align their agricultural output with market
demand.
E-choupals enable transparent listing of various “mandi” prices, giving the farmers a fair chance
to choose where to sell their produce to gain a better price, thereby increasing their bargaining power.
Historical data on supply, expert opinion on future price movements, information on farming practices
and techniques, soil testing and weather information also contribute to the empowerment of the farmer.

3) Inclusion/Participation
The e-choupal model involved farmers in the design phase of the project. In some cases, farmers have
also contributed to the content on the Web to ensure user-friendliness. The sanchalak who operates the
computer is also a farmer selected from the village itself. Farmers actively access information for crop
prices in mandis, and get inputs on soil testing, best farming practices, and expert advice from the
system.

4) Accountability
The e-choupal system considerably reduced transaction costs for the farmers. The weighing techniques
under the system are accurate and transparent, and farmers are paid in proportion to the quantity of their
produce, unlike the mandi system. In addition, quality measurement is more open as results are
immediately available to farmers.

5) Local Organizational Capacity

This initiative has created an organization at the local level that is transparent and accountable in its
operations.
 
Q2. What are the opportunities and challenges of rural markets in India? 

Opportunities 
1. Low penetration level of FMCG products
The rural Indian population is large and its growth rate is also high. The FMCG sector in the urban areas
is becoming quite saturated (though it will continue to dominate in the next 8 – 10 years) while the
penetration in the rural areas are only about 1%. The rural areas have and will continue to make up more
than 50% (153 million) of India’s total households and accounting for more than its current 66%
contribution to total FMCG consumption.

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ITC in R
Rural India                                                                                                         
 

2. Hugee Consumer Base

Over 70% % of India’s 1.1 billion plus
p population lives in around
a 627,0000 villages inn rural areas.. This
w help the FMCG
simply shhows the greaat potential ruural India brinngs to the muuch needed voolumes and will
companies to bank up pon the volum me driven groowth. Rural Inndia has a largge consumingg class with 41 4 per
cent of India's
I middlee-class and 58% of the tottal disposablee income. Cuurrently, nearly 34% of thhe off-
take of FMCG
F compaanies comes from
fr rural areaas.

Souurce: Census of India, NSSO, 2001

3. Immiinent Growth h
The purcchasing poweer in rural Inndia is risingg steadily andd it has resullted in the grrowth of the rural
market. The
T market hash been grow wing at 3-4% per annum addding more thhan one million new consuumers
every year and now acccounts for cllose to 50% of
o volume connsumption off FMCG. The growth rates of lot
of FMCG G are higher in rural markkets than urbaan markets. Inn product cateegories like tooilet soaps, taalcum
powder, cooking oil, vanaspati ghhee, tea, cigarrettes and hair oil, the shaare of rural market
m is moree than
50%.
Sale
es of consum
mer productss in Rural Ind
dia
70% 66% 66
6%
58%
5 60% 58% 58%
57%
60% 53% 51%
47%
50% 42%
% 43%
40% 32%
29%
30%
20%
10%
0%
Cigare
ettes Cooking Oil Electric Bullbs Tea Toilet Soap Toothpaste Washing 
Powder

Ru
ural share 1985
5‐86 Ruraal share 1998‐9
99

Soource: NCAER, Ind

dian Market Demoographics Report, 2002

4. Rising Rural Prossperity

India is now
n seeing a dramatic shiift towards prrosperity in rural
r househoolds. As per the NCAER study
(2007), there
t are as many
m ‘middlee income andd above’ housseholds in thee rural areas as there are in
i the
urban areeas. There are almost twicce as many ‘llower middle income’ houuseholds in ruural areas as in the
urban areeas.

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ITC in Rural India                                                                                                         
 

Source: NCAER Rural Infrastructure Report, 2007

5. Effectiveness of Communication
A rural consumer is brand loyal and understands symbols better. The rural audience has matured enough
to understand the communication developed for the urban markets, especially with reference to FMCG
products. Television has been a major effective communication system for rural mass and, as a result,
companies should identify themselves with their advertisements. Advertisements touching the emotions
of the rural folks could drive a quantum jump in sales.

6. IT Penetration in Rural India

Today there are over 15 million villagers in India who are aware of the Internet and over 300,000
villagers have used it! The rural consumers spend time and money to access higher level information.
Studies have indicated that if the content has direct relevance and will result in commercial gains, people
in rural areas are willing to pay for information services. Consumerism has altered rural buying behavior
in recent years. Spending patterns of those who spend are now adapting to face the technology bug. If
television could change the language of brand communication in rural India, affordable Web
connectivity through various types of communication hubs will surely impact the currency of
information exchange. As the electronic ethos and IT culture moves into rural India, the possibilities of
change are becoming visible.
 
Challenges                                                                                                                      
1. Rural Consumer is different
There is a vast difference in the lifestyles of the rural and urban consumers. The rural Indian consumer is
economically, socially, and psychographically different from his urban counterpart. The kind of choices
that an urban consumer makes is very different from the choices available to their rural counterparts. The
behavior of rural consumer stems from fairly simple thought process in contrast to a much more complex
one of urban counterpart.

2. Lack of market data to understand consumer behaviour

Urban Indians and those living in small towns have been the target consumers for big FMCG companies
so far. Therefore, there has hardly been any research into the consumer behavior of the rural areas,
whereas there is considerable amount of data on the urban consumers regarding things such as - who is
the influencer, who is the buyer, how do they go and buy, how much money do they spend on their
purchases, etc. On the rural front the efforts have started only recently and will take time to come out
with substantial results. So the primary challenge is to understand the buyer and his behavior.

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ITC in R
Rural India                                                                                                         
 
3. Disp persed popula ation in villaages
Even greeater challengge lies in termms of the vasst differences in the rural areas which severely limiits the
marketerr’s ability to segment, targget and positiion his offerings. The poppulation is disspersed to suuch an
extent thhat 90% of thee rural populaation is concenntrated in villlages with population of leess than 2000.

Pu
upulation Ran
nge in Rural IIndia (1991)
120
100
100 3
93
8
81.8
80
60 26.3 52

40 9.5 9.8
29
25.7
20 16.8 11.2
9.5 7
0
ess than 500
Le 5
500‐999 100
00‐1999 2000
0‐4999 5000‐9
9999 10000 & 
abovee

% of population Cumulative % of population

Source: Censsus of India, 2001

Also witth agriculture being the maain business of

o rural sectorr, the purchassing power off rural consum
mer is
highly unnpredictable which
w can leaad to high varriations in dem
mand patternss.

4. Influ uence of Reta ailer

Rural coonsumer’s braand choices are greatly restricted
r andd this is wheere the retailer comes intto the
picture. The
T rural cusstomer generrally goes to the same retaailer to buy goods.
g Naturaally there’s a very
strong boonding in term ms of trust beetween the tw
wo. Also withh the low eduucation levels of rural sectoor the
rural buyying behaviorr is such thatt the consumeer doesn't askk for the thinngs explicitlyy by brand buut like
"laal wala sabun dena" or "paancch rupey waalli chai dena".. Now in suchh a scenario the t brand beccomes
subservieent to the retaailer and he pushes
p whatevver brand fettches him the greatest retuurns. Thus, as there
is a needd to understannd the rural consumer,
c milarly need is there to stuudy the retailler as he is a chief
sim
influenceer in the buyinng decision.

5. Heteerogeneous culture and customs

There is a common saying
s about Indian villagges – “Paanch koas meinn paani badlle, aath koas mein
waani”. The beliefs and customs of villagers change very rapidly from m one place tot another. Within
W
areas, diffferent group
ps hold differeent beliefs regarding their choices. Thiis kind of divversity is not found
in urban markets. Hen nce, it becomees tricky to livve up to the expectations
e o rural consuumers exactly.
of

6. Spurrious produccts
a they idenntify a producct by its packkaging (color, visuals, size etc.).
Rural maasses are illiteerate people and
So it beccomes very easy
e for counnterfeit produucts to eat innto the markeet share of established
e reeputed
brands. The
T retailer allso gets a largger profit on selling
s the loook-alike ratheer than the gennuine productts and
hence is biased toward ds the fake prroducts.

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ITC in Rural India                                                                                                         
 
7. Inadequate Infrastructure and Poor Connectivity
Due to the poor infrastructure, % of villages are not accessible by regular modes of transport.
Distribution of products becomes an arduous task here. Access to villages is hampered because of poor
road, rail and telecommunications links.

8. Cyclic Income
Farmers are very much dependent on rains in India. Also, the rural economy in India is primarily driven
by crops. Hence, villagers acquire greater ability to buy FMCG goods during the periods of harvesting.

Q3. What is the effect of stakeholders on the Bottom of Pyramid (BOP)?
The people at the BOP may be served by falling back on the Bottom of the Pyramid (BOP) marketing
strategies and the 4 A’s - Availability, Affordability, Acceptability and Awareness. The BOP marketing
strategies basically talk about aggregating the demand of consumers who have low individual purchasing
power and are spread out. The basic commercial model for the bottom of the pyramid markets
constitutes of four things namely,
• creating buying power,
• improving access,
• tailoring local solutions and,
• shaping aspirations.
The 4 A’s model is explained in the context of ITC, as below:

Availability
The first A is about making the product reach the consumers and the biggest barrier was overcome when
a system for trading came into existence through e-chaupal. Distribution system was very critical for e-
chaupal and through the “Hub & Scope Model” of procurement; ITC has ensured its success in rural
areas. 6,500 e-chaupals cater to 40,000 villages in nine states, reaching 3.5 million farmers. With an e-
chaupal covering average 6 villages and a Chaupal Saagar located close to small town (within 3-18
miles); bigger villages were targeted first, then the ones which were near a small town. Other than being
a point of distribution, the procurement hubs were also used for promoting products to villagers who
came frequently for either purchase of agricultural inputs or sale of their produce.

Acceptability
It includes issues needed to be addressed to improve the willingness to consume, distribute or sell a
product. In order to ensure how the product or service could be made more acceptable to the rural
consumers, Sanchalaks were appointed. These sanchalaks are chosen among the villagers and this helps

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ITC in R
Rural India                                                                                                         
 
them buuild credibility
y with the villagers.
v Sannchalaks givee the farmerss vital inputs about agricuulture
produce, forecasts andd technology.. Farmers are more likely to
t buy produccts if they are endorsed by them.

Affordabbility
Product should seek tot break an innitial barrier for
f a villager to buy a prodduct for the first
fi time. Thee rural
populatioon where literracy is low neeeds to be takken into consiideration befoore coming ouut with the prroduct
and the feature
f includ
ded in the prodduct need to beb rethought; e.g. price-pooint, labels, sizze of SKU, tyype of
pack, insstructions for use, packagiing etc. shoulld be done takking the BOP P into consideeration. For a rural
mindset, cost per-usee is more impportant than the t cost of thhe overall prooduct. They prefer
p to buy small
SKUs at round price-p points (Rs. 1, Rs.
R 2, Rs. 5, Rss.10) more freequently sincee their buying
g power is loww.

Com
mparison of TTransactional costs ($/MT)
20 17
7.63

15
9.25 8.38 8.38
10
8
5.38
5 3

0
Farmer's Total Cost ITC's Total Costt Total TTransactional Co
ost

Mandi Chain
n e‐Chau
upal Chain

Source: ITC
C Annual Report, 2007
2

Awareneess
The last A is linked to
o the issues of
o promotion of products inn rural areas. The promotiion of the prooducts
also needds to be adappted to the village
v environnment; the laanguage and means of communicationn used
should be
b in the locaal language. The
T best placces to promotte the servicees could be the t local haatts and
melas whhich is frequeented by the villagers,
v the local festivals should also be included in the promotional
plan. Mooreover, the promotion
p plaans are deviseed keeping aggricultural cyycles in mind.. Sanchalaks pay a
pivotal role in inform
ming farmers about
a me market priices. They alsso help a big way in prom
real-tim moting
the need for personal hygiene.

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ITC in Rural India                                                                                                         
 

Q4. Suggest some possible “affordable product forms” that ITC can offer to the rural 
BOP w.r.t. the FMCG sector. 

In rural areas people don’t believe in brand they buy product on the basis of the prices. For them buying
a branded product is not a necessity always. They will buy products if we show them the value
proposition.

Following product forms may be offered to rural BOP w.r.t. the FMCG sector:
• Low cost Toothpaste (by propagating awareness about oral care and launching low-cost toothpaste)
• Low cost Soap (just like lifebuoy) and affordable hair-care products (sachets of shampoos & hair oil)
• Fresh Mint based on natural ingredients (may complement cigarette consumers’ profile)
• Chewing Gums (for teenagers & kids)
• Vegetable Oil (since soya is already procured on a heavy scale)
• Detergent (for the low-income and value-seeking consumers)
• Food grain (flour “aata” --- a necessity product)
• Salt (by promoting the importance of Iodine)
• Tea (fitting to regional tastes; procured from farms)
• Non-durables such as glassware, bulbs, batteries, paper products, and plastic goods
• Health foods and beverages (to leverage on farm produce; an extension of agri-business)
• Ready-to-eat and processed food variants (staples, wafers and confectionary)
• Milk and related products (Their Hub & Spoke model of procurement already in place)
• Instant noodles and ready-to-eat products (especially targeted for school children)
• Paperboards, writing instruments (pen, pencil etc.)

 
 
References: 
1. Exhibits at the end of case – ITC in India
2. Kashyap Pradeep & Raut.(2005). Rural Marketing Book New Delhi. Biztantra Publication
3. http://www.ibef.org/economy/ruralmarket.aspx
4. Prahalad C K. (2004). Fortune at the Bottom of the Pyramid, New Delhi: Pearson Publication
5. Ganguly, A S. (1985). The Growing Rural Market in India. Marketing in India. New Delhi.
6. McKinsey Report.(2007). The ‘Bird of Gold’: The Rise of Indian Consumer Market. McKinsey Global Institute.
7. NCAER Rural Infrastructure Report. (2007). New Delhi : NCAER.

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