North Maharashtra University, Jalgaon

Department of Management Studies

Rural marketing Strategies & Food Chain

Members of the Team

Manoj Yadav Fegade. Tushar Patil.

M.B.A. (1) M.B.A. (1)

manoj_114@rediffmail.com
tushar27dec@gmail.com

08055436304 08087133283

08087910590
 GENERAL INDEX

 Abstract

 Introduction

 Objectives

 Rural Trends in India

 Rural Marketing-Scope, Challenges and Opportunities

 Current Rural Marketing Strategy in India

 Problems relating to present Rural Marketing strategies

 Solutions for improving the Rural Marketing

• Vertical coordination
• Mechanism for Vertical Coordination
• Creating Rural Markets for Vertical Integration
 Some other strategies by different Researchers
 Conclusion

 References
 Abstract
Rural Markets are defined as those segments of overall market of any economy,
which are distinct from the other types of markets like stock market, commodity markets or
Labour economics. Rural Markets constitute an important segment of overall economy, for
example, in the USA, out of about 3000 counties, around 2000 counties are rural, that is, non-
urbanized, with population of 55 million. Typically, a rural market will represent a
community in a rural area with a population of 2500 to 30000.
Rural products of India are unique, innovative and have good utility and values. Large
number of rural products sustains a significant segment of the population in the rural areas.
Some rural products can be identified as a demand in the market.
Rural markets, as part of any economy, have untapped potential. There are several
difficulties confronting the effort to fully explore rural markets. The concept of rural markets
in India, as also in several other countries and is still in evolving shape, and the sector poses a
variety of challenges, including understanding the dynamics of the rural markets and
strategies to supply and satisfy the rural consumers.
Now, a day’s every marketer try to capture rural areas. As the Rural population is
nearly three times the urban, so that Rural consumers have become the prime target market
for consumer durable and non-durable products, food, construction, electrical, electronics,
automobiles, banks, insurance companies and other sectors besides hundred per cent of agri-
input products such as seeds, fertilizers, pesticides and farm machinery.
So, our paper aims at the objectives such as availability of resources in rural areas,
create opportunity of employancy by some strategies of marketing, developing the food chain
of vertical coordination & role of ICT in developing rural markets.
 Introduction:
In the starting we have to use Mahatma Gandhi quote as-
"India lives in its villages" - Mahatma Gandhi.
From the social, economic and political perspectives the statement is valid even
today. Around 65% of the State's population is living in rural areas. People in rural areas
should have the same quality of life as is enjoyed by people living in sub urban and urban
areas. Further there are cascading effects of poverty, unemployment, poor and inadequate
infrastructure in rural areas on urban centers causing slums and consequential social and
economic tensions manifesting in economic deprivation and urban poverty. Hence Rural
Development which is concerned with economic growth and social justice, improvement in
the living standard of the rural people by providing adequate and quality social services and
minimum basic needs becomes essential. Rural Development is as -“A strategy designed to
improve the economic and social life of a specific group of people”- the rural poor. Hence,
rural development could be improved by rural marketing strategies.
Rural products of India are unique, innovative and have good utility and values. Large
number of rural products sustains a significant segment of the population in the rural areas.
Some rural products can be identified as a demand in the market.
In recent years, rural markets have acquired growth of the economy has resulted into
substantial increase in the purchasing power of the rural communities the rural areas are
consuming a large quantity of industrial and urban manufactured products. Rural marketing
involves delivering manufactured or processed inputs or services to rural producers or
consumers.
Also rural market is getting an importance because of the saturation of the urban
market. As due to the competition in the urban market, the market is more saturated as most
of the capacities of the purchasers have been targeted by the marketers. So the marketers are
looking for extending their product categories to an unexplored market i.e. the rural market.

Objectives:
1) Availability of resources in rural areas.
2) Create opportunity of employancy by some strategies of marketing.
3) Developing the food chain of vertical coordination.
 4) Propose the solutions on the present rural marketing strategies.

Rural Trends in India:

Trends indicates that the rural markets are coming up in a way and growing twice as
fast as the urban, witnessing a rise in sales of hitherto typical urban kitchen gadgets such as
refrigerators, mixer-grinders and pressure cookers. There are as many 'middle income and
above' households in the rural areas as there are in the urban areas. There are almost twice as
many 'low middle income' households in rural areas as in the urban areas. At the highest
income level there are 2.3 million urban households as against 1.6 million households in rural
areas. The money available to spend on FMCG (Fast Moving Consumer Goods) products by
urban India is Rs.49, 500 crore as against is Rs.63, 500 crore in rural India.
The number of middle and high-income households in rural India is expected to grow from
80 million to 111 million by 2007. In Urban India, the same is expected to grow from 46
million to 59 million. Thus, the absolute size of rural India is expected to be double that of
urban India. Rural income levels are largely determined by the vagaries of monsoon and,
hence, the demand there is not an easy horse to ride on. Apart from increasing the
geographical width of their product distribution, the focus of corporate should be on the
introduction of brands and develop strategies specific to rural consumers. Britannia industries
launched Tiger Biscuits especially for the rural market. An important tool to reach out to the
rural audience is through effective communication. A rural consumer is brand loyal and
understands symbols better. This also makes it easy to sell look-alike. 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, it is
argued, could drive a quantum jump in sales.

Rural Marketing-Challenges, Scope and Opportunities:

The basic scope of this novel initiative will be the mutual benefits of the rural
entrepreneurs and industries. The entrepreneurs – primary beneficiaries, SHGs – bridge with
the community, participating companies/industries and rural consumers have befitted through
a robust commercial relationship. These models of marketing linkages demonstrate a large
corporation which can play a major role in reorganizing markets and increasing the efficiency
of a rural product generation system. While doing so it will benefit farmers and rural
communities as well as shareholders. Moreover, the key role of information technology—
provided and maintained by the industry/company for building linkages, and used by local
farmers—brings about transparency, increased access to information, and rural
transformation. Besides, this strategy of market linkage, addresses the challenges faced by
rural entrepreneurs due to institution voids, numerous intermediaries and infrastructure
bottlenecks. Moreover, the prime scope of this model is the creation of opportunities for the
rural entrepreneurs for product differentiation and innovation by offering them choices.
Because of this sustainable market linkages, rural producers can participate in the benefits of
globalization and will also develop their capacity to maintain global quality standard.
Nonetheless, it creates new stakeholders for the industry sector. And subsequently, they
become part of the firms’ core businesses. The involvement of the private /industry sector at
the rural product and market development can also provide opportunities for the development
of new services and values to the customers, which will find application in the developed
markets. It will be worth mentioning that building a sustainable market linkage through
industry’s intervention will also empower the rural mass (producers, farmers &
entrepreneurs) to cope with socio-economic problems in the rural society and will ensure
economic self –reliance.
Strategies
Dynamics of rural markets differ from other market types, and similarly rural
marketing strategies are also significantly different from the marketing strategies aimed at an
urban or industrial consumer. This, along with several other related issues, have been subject
matter of intense discussions and debate in countries like India and China and focus of even
international symposia organized in these countries[2].
The Indian rural market with its vast size and demand base offers great opportunities
to marketers. Two-thirds of countries consumers live in rural areas and almost half of the
national income is generated here. It is only natural that rural markets form an important part
of the total market of India. Our nation is classified in around 450 districts, and
approximately 630000 villages which can be sorted in different parameters such as literacy
levels, accessibility, income levels, penetration, distances from nearest towns, etc.
The success of a brand in the Indian rural market is as unpredictable as rain. It has always
been difficult to gauge the rural market. Many brands, which should have been successful,
have failed miserably. More often than not, people attribute rural market success to luck.
Therefore, marketers need to understand the social dynamics and attitude variations within
each village though nationally it follows a consistent pattern. While the rural market certainly
offers a big attraction to marketers, it would be naive to think that any company can easily
enter the market and walk away with sizable share.

Current Rural Marketing Strategy in India:

In India, now the rural marketing strategy follows:

Rural markets and rural marketing involve a number of strategies, which include:
• Client and location specific promotion
• Joint or cooperative promotion..
• Bundling of inputs
• Management of demand
• Developmental marketing
• Unique selling proposition (USP)
• Extension services
• Business ethics
• Partnership for sustainability
Client and Location specific promotion involves a strategy designed to be suitable to the
location and the client.
Joint or co-operative promotion strategy involves participation between the marketing
agencies and the client.
'Bundling of inputs' denote a marketing strategy, in which several related items are sold to
the target client, including arrangements of credit, after-sale service, and so on.
Management of demand involve continuous market research of buyer’s needs and problems
at various levels so that continuous improvements and innovations can be undertaken for a
sustainable market performance.
Developmental marketing refer to taking up marketing programmes keeping the
development objective in mind and using various managerial and other inputs of marketing to
achieve these objectives.
Media, both traditional as well as the modern media, is used as a marketing strategy.
Unique Selling Propositions (USP) involves presenting a theme with the product to attract
the client to buy that particular product. For examples, some of famous Indian Farm
equipment manufacturers have coined catchy themes, which they display along with the
products, to attract the target client that is the farmers. English version of some of such
themes would read like:
• The heartbeats of rural India
• With new technique for a life time of company
• For the sake of progress and prosperity
Extension Services denote, in short, a system of attending to the missing links and providing
the required know-how.
Ethics in Business as usual, an important plank for rural markets and rural marketing.
Partnership for sustainability involves laying and building a foundation for continuous and
long lasting relationship.
Present position
Rural markets, as part of any economy, have untapped potential. There are several difficulties
confronting the effort to fully explore rural markets. The concept of rural markets in India, as
also in several other countries, like China[3], is still in evolving shape, and the sector poses a
variety of challenges, including understanding the dynamics of the rural markets and
strategies to supply and satisfy the rural consumers

Problems relating to Present Rural Marketing Strategies:

The rural market offers easy to operate in rural market because of several problems. \
The problems are:
1. Underdeveloped people and underdeveloped markets
The agricultural technology has tried to develop the people and market in rural areas.
Unfortunately, the impact of the technology is not felt uniformly through out the country.
Some districts in Punjab, Haryana or Western Uttar Pradesh where rural consumer is
somewhat comparable to his urban counterpart, there are large areas and groups of people
who have remained beyond the technological breakthrough. In addition, the farmers with
small agricultural land holdings have also been unable to take advantage of the new
technology.
2. Lack of proper physical communication facilities
Nearly 50 percent of the villages in the country do not have all weather roads. Physical
communication to these villages is highly expensive. Even today, most villages in eastern
part of the country are inaccessible during monsoon season.
3. Inadequate Media coverage for rural communication
A large number of rural families in own radios and television sets there were also community
radio and T.V sets. These have been used to diffuse agricultural technology to rural areas.
However the coverage relating to marketing is inadequate
4. Many language and Dialects
The number of languages and dialects vary from state to state region to region This type of
distribution of population warrants appropriate strategies to decide the extent of coverage of
rural market.
5. Market organization & staff
The size of the market organization and staff is very important, to manage market system
effective control. However the existing organizational setup particularly at district and block
level needs to be strengthened in order make the services on various aspects available to the
farmers timely and also easily accessible to them.
6. Other factors influencing marketing
Natural calamities and Market conditions (demand, supply and price), Pests and diseases,
Drought or too much rains, Primitive methods of cultivation, lack of proper storage facilities
which exposes grain to rain and rats, Grading, Transport, Market Intelligence (up to date
market prices to villagers), Long chain of middlemen (Large no. of intermediaries between
cultivator and consumer, wholesalers and retailers, Fundamental practices (Market Dealers
and Commission Agents get good part of sale of receipts).
7. Major Losers
Small and marginal formers, 75% villagers are illiterates or semiliterate, they are facing
difficulties like proper paper procedures for getting loans and insurance.

Solutions for improving the Rural Marketing:

According to the Food and Agriculture Organization (FAO), processed foods can be
of three types -primary, secondary and tertiary.

Primary processed foods involve basic cleaning, grading and packaging. Secondary
processing means modification of the basic product to a stage just before the final
preparation. Tertiary processing leads to high value-added ready-to-eat products like bakery
products, instant foods, etc.
Therefore, rural food chain could be one of the constraint to increase the value of
rural marketing as well as it increase the Rural Market Scenario. Also, Indian food market is
extremely fragmented, having large number of players both on the buyers and sellers side.
Presences of large number of players do not necessarily mean high level of competition and
efficiency as their size prohibits them to make necessary investment in production and
procurement of the food materials. Presently there are too many competitors in the Indian
food chain merely increased the cost of agricultural produce without adding any value to it.
So, by giving vertical co-ordination we can increase the quality, service of the food
chain in rural market. By doing this we can attract so many other industrialists to open there
businesses in rural market area which will help to increase the employancee in rural area &
also it will boost rural market economy.
Vertical coordination:
Vertical coordination means the synchronization of successive stages of production
and marketing regarding quantity, quality, and timing of product flows. Methods of vertical
coordination include open production (spot market), contract production, and vertical
integration. In open production, a firm does not commit to selling its output before
completing production. Spot prices coordinate sell of goods across the different stages of
production. Contract production is the production of goods for future delivery. Before
completing production, a producer commits to deliver a particular good to a particular buyer.
Contract production involves more interaction between buyers and sellers than open
production. Production contracts vary in control allocated and risk transferred across stages.
In market-specific production contracts, the contractor and producer may negotiate delivery
schedule, pricing method, and product characteristics. The contractor usually provides a
market for the goods but engages in few of the producer’s decisions. In resource-providing
contracts, the contractor provides a market for the goods, engages in many of the producer’s
decisions, and retains ownership of important production inputs. While this classification
scheme is not unique, it provides a general framework for contract terminology. In Vertical
integration, a single firm controls two or more successive stages of vertical coordination. In
vertically integrated firms, management decision dictates the transfer of resources across
stages. Movement along the continuum of vertical coordination from open-market production
to vertical integration represents the degree to which control of production has shifted to the
contractor or integrator as more functions are transferred from the producer. While market-
specific production Food Processing Five Sectors Project India Development Foundation
contracts, often referred to as marketing contracts, provide contractors with more control than
open market coordination, the control transferred across stages is usually minimal.
Mechanism for Vertical Coordination:
In the rural market also there are number of buyers & sellers who constitute the
essential part any market. So, the price & demand are the factor of the economy plays an
important role in market.
In reality, however, firms are concerns about their ability to buy and sell the quantities
they want at given prices. Buyers and sellers may not know the exact specifications of goods
that they demand or supply. Buyers face costs associated with searching for adequate
suppliers offering the most favourable prices, and sellers face costs associated with
communicating the availability of products with specific attributes. Transaction cost
economics analysis suggests that the main purpose and effect of contracts and vertical
integration is to reduce transaction costs. Transaction costs associated with spot-market
coordination include buyer costs of searching for suppliers offering preferred quality features
at favourable prices and seller costs of determining prices and buyer preferences. Buyers and
sellers can reduce some of these costs by entering into a contract arrangement before
production is completed, but they can still encounter other types of costs. Ex ante (prior to
reaching an agreement) contracting costs are costs associated with drafting, negotiating, and
safeguarding agreements. Ex post (following an agreement) costs are costs associated with
enforcing agreements and may require measuring damages or injury to a contract party,
enacting penalties, and compensating an injured party. Vertical integration may reduce costs
of contracting and spot-market trading but may also introduce new types of transaction costs,
including costs related to communicating information within a firm. Firms choose a method
of vertical coordination based on a comparison of the net effect on transaction costs.
Especially in India, vertical integration in agriculture is difficult to achieve because of the
land ceiling acts which prohibit corporate acquisition of cultivable land.
Creating Rural Markets for Vertical Integration:
An efficient marketing system can provide better prices to producers and improve the
availability of competitively priced quality produce to consumers. However, before
considering whether to carry out improvements to markets and what type of improvements to
introduce, it is important to be sure that markets, or lack of them, represent the main problem.
Other causes of inefficient marketing could be poor roads, lack of knowledge about
marketing among farmers, an inadequate quantity of products to attract sufficient traders.
Formal markets in rural areas play an important role in improving agricultural marketing.
With increase retail competition by providing a convenient place where farmers can meet
with consumers, reduce post-harvest losses by providing protection for produce from direct
sunlight, rain, etc. Traders who buy produce from farmers for transport to urban markets
experience significant costs in travelling from farmer to farmer to buy small quantities. This
is not a major problem if farmers are situated close to major roads and traders simply drive
along the road buying from each farmer. When farmers are at the end of poor quality local
roads, however, traders lose considerable time and money in reaching them. Farmers are also
at a disadvantage because they are more or less Food Processing Five Sectors Project India
Development Foundation forced to accept the price the trader offers. They cannot compare
the price they are offered with the prevailing local price because there is no local market.
Even if they have access to information about the prices in urban markets they cannot really
use that knowledge to negotiate with traders because they have no realistic idea of the costs
faced by the traders in travelling to their farm or village. Markets, on the other hand, provide
a location where all buyers and sellers can meet. Consumers can see the range and prices of
produce on offer and make choices based on their preferences and income. Sellers can take
their produce to one location rather than having to go from door to door. They can see how
much of a particular product is on offer, compare the quality of their produce with that of
other sellers, and set their prices accordingly. In order to achieve such benefits, however,
markets must be situated in locations acceptable to both sellers and buyers. Existing market
sites, or places where buyers and sellers meet informally (e.g. a plot of land at the side of the
road), is usually the best places to construct new markets because they are clearly at locations
favoured by the users. Unimproved markets usually lack any form of shelter. Produce is
displayed and stored in the sun. Fruits and vegetables, for example, can be kept fresh by
protecting it from the sun and by keeping it moist. This is not possible in markets that do not
have either shelter or fresh water supplies. As a first step towards identifying requirements
for new or improved rural markets it is important to understand how prevalent marketing
functions.
Let us discuss some of the methods practiced in India.
a) Farm-gate purchases: Purchase of produce may be on an individual basis at the farm
gate. Buyers go to the farm, usually at a pre-arranged time. In some cases, such as with fruit
crops, the produce can be sold “on the tree” or “in the field” and the buyer arranges for its
harvesting. In other cases the sales may be through marketing groups or cooperatives. The
farmers in this case may wait for the trader at collection centre. Drawback of farm get
purchase is producers cannot compare price of similar output. Advantage is it cuts back in the
number of intermediaries which results in decrease in producer consumer price spread.
Because of poor surface transport facility this method is mainly happen in places near town
only. But this channel is most appropriate for fruits where checking quality is costly. Buyers
and sellers can develop long term relationship. Producers can build up reputation for
producing quality output and can charge a premium for it. Agriculture often suffers from
varietals constraints. Oranges in Nagpur and Mangoes in Malihabad (UP) are instances where
though there are ample productions during harvest time, processing has not taken off due to
unreliability of process able varieties. Fostering relationships between processors & farmers
will lead to productivity increase and improvement of quality and variety.

b) Local markets: These markets are usually for direct sales of small quantities of produce
by farmers to village traders and rural consumers. Rural primary markets often form part of a
network arranged on a periodic basis, such as on a specific day of each week. They are
commonly organized at a central place in a village or district centre or beside a village’s
access road. In some instances, markets in small towns also provide an assembly function.
This form of market is most prevalent in India. Commission agents collect output from this
village level market and sell to district level, who sells to large traders and wholesalers. This
often led to high cost of procurement. Quality of the output cannot be guaranteed as outputs
of various qualities are consolidated. Commission agents do not have and lack incentive of
grading and sorting agricultural produce. This has a serious adverse effect in the food
processing industry because grading output at the later stage of food chain is costly. It leads
to high price and unreliable quality of the processed food. This leads to the vicious cycle of
low demand, low capacity utilization, high per unit cost and low demand.

c) Assembly markets: Larger rural markets are found where greater quantities of produce
are traded, either by the producers themselves or by traders. These “assembly” markets
(gathering produce in larger quantities for onward sale to outside buyers) are often combined
with local rural markets and are normally situated on main highways, other local main roads
or near to ferries. Traders or collection agents working on behalf of urban wholesalers
normally purchase produce. The market operations may be year-round or seasonal,
depending on the types of crops being marketed.

d) Direct sales to urban markets: Farmers may also take their produce directly to urban
areas, either to a retail market or to a wholesale market. Lack of surface transport
infrastructure and as most of the Indian farmers are small and marginal this method has
limited relevance in the context of India. For developing a market it is important estimating
the levels of supply that could pass through new or improved markets. For existing markets
the assessment can be based mainly on observing what is happening in the market. Where
there is no existing market the assessment must be based on local supply and demand
estimates and forecasts. Supplies to a market and the type of market used vary depending on
the type of local agriculture. For example, in areas where there is large-scale production of
fruits and vegetables for urban areas, a new or improved assembly market may be required.
In areas where production is primarily of export commodities, which usually have well-
established independent marketing channels, only rural retail markets may be required.
Conclusion:
One of India’s major achievements has been self-sufficiency in food production.
However, rural sector which employs 57% of the work force is suffering from low growth
rate for decades. If India wants to attain double digit growth rate it cannot be achieved
without growth in agricultural and allied industry. Food processing industry has the potential
of turning this sector into fast track of development. India’s middle class segment will hold
the key to success or failure of the processed food market in India. With higher level of
income and increasing proportion of female work force participation will create demand for
prepared foods. This is conducive to an expansion in demand for ready-to-eat Indian-style
foods. Retail outlets can create a market for processed food in India. Though India has well
over 5 million retail outlets but the retailing industry is in primitive stage in the modern sense
of the term.
The first challenge facing the organized retail industry in India is the competition
from the unorganized sector. Traditional retailing has established in India for some centuries.
It is a low cost structure, mostly owner-operated, has negligible real estate and labour costs
and little or no taxes to pay. They do not have the capability of investing in storage, creating
network of procurement. Consolidations in retail chain are thus necessary to extract the gain
from both size and scope and making necessary investment in storage and procurement.
Creation of rural markets is a must to achieve this objective.
References:

1) SAC Food Marketing by Craibstone Estate Aberdeen, U.K. (http://www.sac.co.uk/ )

2) www.globalfoodchainpartnerships.org
3) www.ruralsolutions.sa.gov.au/markets/food__and__wine/food__chain_innovations/
4) www.farmbusiness.cc/news.asp
5) www.sac.ac.uk/mainrep/pdfs/foodruralmarketing/
6) Book of Rural Industrial Management, edited by “N. Meenekshisundaram”.