Rural Marketing: Why

Dr. Sanjeev Prashar

Why???...


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.
Why???...
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.

Why???...
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.

What???...
The Census defined urban India as - "All
the places that fall within the
administrative limits of a municipal
corporation, municipality, cantonment
board etc or have a population of at least
5,000 and have at least 75 per cent male
working population in outside the primary
sector and have a population density of at
least 400 per square kilometer. Rural
India, on the other hand, comprises all
places that are not urban"
(of nearly 6.4 lakh villages, only 20K have
population more than 5K)
What???
FMCG companies (Ex HUL & ITC)
define rural as any place with
population less than 20K
Agri-input companies & consumer
durable companies consider places
with population less than 50K
Why??????
The growth rates of consumer products were slowing down
not because the markets were getting saturated in terms of
penetration as in the US, but because most consumer
markets were getting cluttered.

While overall volumes continue to grow reasonably well,
there are too many players eating into each other's market
share.

The companies, therefore, reduce prices in urban areas and
invest heavily in sales promotion, intensifying the battle for
market share.

Operating margins come under pressure and new growth
markets have to be explored.

This is where the rural markets play an important
role.
Why???
According to a National Council for Applied
Economic Research (NCAER) study, 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 'lower 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.
According to Hindustan Lever Limited, the money
available to spend on FMCG (Fast Moving
Consumer Goods) products by urban India is Rs.
49,500 crores as against is Rs. 63,500 crores in
rural India.
Why???
As per NCAER projections, 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.


Why???

The NCAER study on ownership of goods
indicates the same trend. It segments durables
under three groups
(1) Necessary products - Transistors, wristwatch
and bicycle,
(2) Emerging products - B&W TV and cassette
recorder,
(3) Lifestyle products - CTV and refrigerators.
Marketers have to depend on rural India for the
first two categories for growth and size. Even in
lifestyle products, rural India will be significant
over next five years.

Anugraha Madison, one of the first marketing firms to realize the potential of
rural India and decided to focus on rural marketing.

Today rural India is not 100 per cent dependent
on an agrarian economy. Unlike in the past where
the ratio between those who involved in
agriculture and in other business was 75-25,
today the estimated ratio is 50:50, if not 60:40.
So today, 50-60 per cent of the rural population
is involved in other businesses. A lot of people
belonging to the second generation are getting
white-collar jobs in nearby towns. So, there is a
growing middle class with a monthly income in
rural India and it is a drastic change from the
past where their income was totally dependent
on the monsoon, cropping season, etc.
Anugraha Madison
This has resulted in a definite growth in
the prosperity level in rural India. Of
course, there are still a lot of poor people,
especially the agricultural labourers. But
there is a growing middle class with
regular income and the rural rich are
becoming richer.
The divide between urban and rural India
is thinning among the top segment of
rural India. The rural rich are almost like
urban India.
Punjab, Haryana, Tamil Nadu, Andhra
Pradesh, Kerala and parts of Maharashtra
come under the developed rural India.
Anugraha Madison
The rural youth today is an important
trigger in changing the profile of rural
India. About 40 per cent of the graduates
coming out of Indian universities today
are from mofussil areas. And, they are all
doing very well.
Their aspirations are similar to the urban
youth, and it gets reflected in their
eagerness to earn more and live better.
So, if there is a problem in agriculture,
they do something else. They ensure that
they have steady flow of income.
Anugraha Madison
The total expenditure of urban India is
almost equal to what has been spent by
rural India. But what is being spent by
urban India is being done by only a small
percentage of the population.
About 25 per cent of the urban India is
spending as much as 75 per cent of what
rural India is spending. This shows the
potential exists in rural India. There is a
huge market waiting to be tapped in rural
India.
Why??????
For Coca Cola India
The rural market was tempting since it
comprised 74 per cent of the country's
population, 41 per cent of its middle class,
58 per cent of its disposable income and a
large consuming class
13,113 villages with a population of more
than 5,000
"The real market in India is in the rural
areas. If you can crack it, there is
tremendous potential."
Why??????
9,988 villages are in seven states - Uttar
Pradesh, Bihar, West Bengal, Maharashtra,
Andhra Pradesh, Kerala and Tamil Nadu

National Council for Applied Economic
Research
While the 1980s saw a boom in Class I towns
with the spread of television, the Class II towns
showed strong growth in the 90s propelled by
reforms, the millennium belongs to the Class III
and IV rural-urban towns

It is estimated that an average rural Indian
household has five major consumer appliances
(2006), almost double of what it had five years
ago.
Why??????
Videocon Appliances
The reasons for heading into the rural areas are
fairly clear. The urban consumer durable market
for products like colour TVs, washing machines,
refrigerators and airconditioners is growing
annually at between 7 per cent and 10 per cent.
By comparison, the rural market is zooming
ahead at around 25 per cent annually. The rural
market is growing faster than urban India now,
Samsung
The urban market is a replacement and
upgradation market today
Why???...
Between June 2002 and December
2003, rural per capita consumption
expenditure grew by 11.5 per cent
while the urban expenditure grew by
9.6 per cent.

After the basic needs of food, cloth
and shelter, they are looking at how
to live better
Indiantelevision.com
The Indian rural market today accounts
for only about Rs 8 billion (53 per cent -
FMCG sector, 59 per cent durables sale,
100 per cent agricultural products) of the
total ad pie of Rs 120 billion, thus claiming
6.6 per cent of the total share. So clearly
there seems to be a long way ahead.
The rural market is growing at a far
greater speed than its urban counterpart
HUL
Today, the young and the educated in the
villages are already large in number. And
this number is increasing. 40 per cent of
all those graduating from colleges are
rural youth. They are the decision makers
and are not very different in education,
exposure, attitudes and aspirations from
their counterparts at least in smaller cities
and towns.
Rural expenditures on Fast Moving
Consumer Goods (FMCG) were growing at
an impressive rate of 20 -25% (2004)
Insurers' rural, social targets
may be set higher
The Insurance Regulatory and Development
Authority of India (IRDA) is considering an
increase in the minimum rural and social
obligations for insurers akin to the priority sector
lending of banks.
Currently, life insurance companies are mandated
to sell 7 per cent, 9 per cent, 12 per cent, 14 per
cent and 16 per cent of their policies in rural
areas in the first, second, third, fourth and fifth
financial years, respectively. Non-life insurers
have to rake in 5 per cent of their gross written
premium from the rural years after the third year
of operation. Both life and non-life insurers have
to insure 20,000 lives from the social sector in
the fifth year of operations. The "social sector"
includes the informal and unorganised sector,
economically vulnerable and backward classes
from the rural and urban areas.

IRDA
Revisions The regulation on rural and
social obligations can be amended
once in five years and with private
insurers entering the sixth year of
operations, a revised prescription
would be due, said insurance
company officials.
There is untapped potential in this
segment.

Rural Prosperity
Thirteen consecutive good monsoons since
1990 (ex 2002, 03)
600% increase in five year plan outlay for
rural development from 8
th
to 10
th
FYP.
230% increase in the flow of institutional
credit from agriculture (1997-98 to 2004-
05)
41mn KCC issued amounting to Rs.
97,700 crores since 1998 (40mn Credit
plus Debit cards in Urban India)
Rural Prosperity
Consuming class household in rural are
equal to urban, hence disposal surplus in
rural is much higher.
There are 42,000 rural haats
(supermarkets) in India that exceed the
total number of retail chain stores in US
(35,000)
Nearly 85% of villages have Public
Telephone.
Billing per cell phone in rural AP is more
than in Hyderabad.
60% of 2 crores who signed up for
rediffmail & 50% of online shopping are
from small towns.

Rural Consumption
Consumption of major FMCG categories
increased from Rs 68,000 crore in 2000-
2001 to Rs 93,000 crore in 2005-06,
according to recently released Central
Statistics Office data.
However, the scorching pace of rural
consumption makes urban sales hikes
seem like a mere crawl. Top industry
executives say that the rural market share
in a number of categories has touched 40
to 50 per cent.
Challenge
Understanding rural consumers, reaching
products to remote places, communicating
with heterogeneous rural audiences

Servicing rural markets involved ensuring
availability of products through a sound
distribution network, overcoming
prevalent attitudes and habits of rural
customers and creating brand awareness.

Price-sensitivity is another key issue.
Challenge
Rural specific and region specific
strategies are required.
Barging into community decision
making
Opinion leadership is in transient
phase (School teacher/ sarpanch and
young graduates)
Adaptation Vs critical mass
Myths
Rural Market is a huge mass.
( Its vastly heterogeneous)

Rural customers buy cheap products.
(They seek value for money)

Rural people dont buy brands



The Point

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 generalization" says Mr Donati,
"about rural India could be wrong and one should
focus on high GDP growth areas, be it urban,
semi-urban or rural."







Finally
Reasons for entering rural market
Large Population Base:
- nearly 6 lakh villages
-746 million people
Saturation in urban market
-Peak touched in most product
categories
-Highly aware/demanding customers.
-Fragmented Media habits.
-Increased competition.
Reasons- contd.
Increasing income in rural areas:-
From 1989-90 to 2009-10, the cumulative
growth in number of families coming
under Middle-high income category:
Urban =353%
Rural =519%

Growing consumption
Improved Connectivity of rural areas.

Reasons-contd.
Scope for improving penetration
rate.
Changing Life-style:
-Improved literacy rate.
-Better media reach.
-Influence of
Immigrants/commuters.
-Influence of Youth.

Rural Marketing: Why???




Session2

Questions???