CHAPTER 1: Introduction To Rural Marketing

1.1 Definitions

Marketing:
Identifying needs of customers and potential customers, providing
products/services that satisfy these needs and developing efficient processes or
systems to deliver your product/service to the market when, where and how
consumers want it.

Rural marketing:
Can be defined in terms of the location (villages) and occupation (mainly farming)
A large variety of transactions are considered a part of rural marketing
These are marketing of:
1. Agricultural inputs like fertilizers. Pesticides, farm equipment.
2. Products made in urban centers and sold to rural areas like soaps,
toothpastes, TVs etc.
3. Products made in rural areas sold to urban centers like khadi cloth,
handcrafted products etc.
4. Products made and sold in rural areas like milk and milk products. Locally
manufactured toothpowder, cloth etc.

*We are going to concentrate only on point numbers 1. And 2.

Types of rural markets

RURAL To URBAN

R
U
R
1 2
A
L

From
U
3 4
R
(FMCGs, durables
B
Services, Agricultural-
A
Inputs)
N

*We are concentrating on Block 3

Definition of a Rural Area (by planning commission, Insurance Regulatory
Development Association {IRDA}):

“ That which is not urban”

 Population of less than 5000
 At least 75% of the male workforce is engaged in agricultural activities
 Absence of a municipality/ corporation
 Density of population is less than 400 per sq km

It is important to remember that a definition for a rural area does not exist, so the
definition that is used is the exact opposite, of the definition of an urban area.

1.2 Rural Population

Population of India – Rural v/s Urban

Population % To Population % To Population % To Population % To

In total In total In total in total
Crores Crores Crores Crores

Year 1971 1 1981 1 1991 1 2001 2001

971 981 991
Rural 43.9 80 50.2 76.3 64.1 76 74 73

Urban 10.91 20 15.62 23.7 20.3 24 29 27

Total 54.8 100 65.82 100 84.4 100 103 100

A perspective:

Total world population: 6 Billion

Rural population in India: 740 million, which is 12.6% of world population.
Urban population in India: 290 million, which is 4.4% of world population.

1.3 Hurdles and constraints vis-à-vis marketing

1.3.1 Deprived people and deprived markets:

The number of people below the poverty line has not decreased in any
appreciable manner. Thus, poor people and consequently under developed
markets characterize rural markets. A vast majority of rural people is tradition
bound and they face problems like inconsistent electrical power, scarce
infrastructure, and unreliable telephone system, politico-business associations
that hinder development efforts.

1.3.2 Lack of Communication Facilities:

Even today most villages in the country are inaccessible during the monsoons.
Moreover 3 lakh villages in the country have no access to telephones. Other
communication infrastructure is also highly under developed.
1.3.3 Transport:
• Many rural areas are not connected by rail transport.
• 50% of the roads have been poorly surfaced and majority are severely
damaged by the monsoons
• The use of bullock carts is inevitable even today
• Camel carts are used in Rajasthan and Gujarat in both Rural and Urban
sectors
• Out of the 15 million carts 12 million are estimated to be in the rural areas
transporting as much as 6 billion ton KM of freight per year

1.3.4 Many Languages and Dialects:

The number of recognized languages is 16; the dialects are estimated to be
about 850. The languages and dialects vary from state to state, region to region
and probably from district to district. Since messages have to be delivered in the
local language it is difficult for marketers to design promotional strategies for
each of these areas. Facilities such as phone, telegram and fax are less
developed in villages adding to the communication problems faced by marketers.

1.3.5 Dispersed Markets:

Rural populations are scattered over a large land area. And it is almost
impossible to ensure the availability of a brand all over the country. 7 Indian
states account for 76% of the countries rural retail outlets. District fairs are
periodic and occasional in nature. Manufacturers and retailers prefer such
occasions as they allow greater visibility and capture the attention of the target
audience for larger spans of time. Advertising in such a highly heterogeneous
market is also very expensive.

1.3.6 Low per capita Income:

Even though about 33% to 35% of the GDP is generated in rural areas it is
shared by 74% of the population. Moreover demand in rural markets depends on
the agricultural situation, which in turn depends upon the monsoons. Therefore
the demand is not stable or regular. Hence, the per capita income is low in
Villages compared to urban areas.

1.3.7 Low levels of Literacy:

The levels of literacy are lower compared to urban areas. This again leads to a
problem of communication in these rural areas. Print medium becomes
ineffective and to an extent irrelevant since its reach is poor.

1.3.8 Prevalence of spurious brands and Seasonal Demand:

For any branded product there are a multitude of local variants, which are
cheaper and hence more desirable. Also due to illiteracy the consumer can hardly
make out a spurious brand from an original one. Rural consumers are cautious in
buying and their decisions are slow they generally give a product a trial and only
after complete satisfaction do they buy it again.

1.3.9 Different way of thinking:

There vast difference in the lifestyles of the people. The choice of brands that an
urban customer enjoys is not available to the rural customer, who has usually 2 –
3 choices. As such the rural customer has a fairly simple thinking and his
decisions are still governed by customs and traditions. It is difficult to make them
adopt new practices.

1.3.10 Distribution problem:

• Effective distribution requires village level shopkeeper, taluka level wholesaler/
dealer, district level stockist/ distributor and company owned depot at state
level.
• So many tiers increase the cost of distribution.
• Rural markets typically signify complex logistical challenges that directly
translate into high distribution costs.
• Also there is relatively slower growth of demand and lack of adequate
institutional mechanism for retail operations.
• Bad roads, inadequate warehousing and lack of good distributors pose as the
major problem to marketers.

Area Under Cultivation

70% for food crops

- Food security
- 50% retained for self consumption by farmer

30% for non- food crops (cotton, sugarcane etc.)

- Entirely marketed
- Generates disposable income

The above pattern shows that the Indian farmer is extremely food security
oriented and is not willing to allocate more than one-third of his land to growing
cash crops, which generates additional income for him. Whereas in countries of
America and Europe the farmers use most of their land for cash crops and hence
they have greater incomes.

Monsoon and Food grain Production

Year Rainfall (% of normal) Food-grain output (million

tones)
1992 93 179
1993 100 184
1994 110 191
1995 100 180
1996 103 199
1997 102 192
1998 105 203
1999 96 209
2000 92 196
2001 98 212
2002 (drought year) 81 184
It is observed that in the drought year along with low rainfall food grain output
has also decreased.
2003-projected 96% rainfall, the normal figures are between 98% and 102%

Grain Pain:
- Public investment in agriculture has been stagnant for the past 10 years
- Indian farmers are grappling with problems of declining soil fertility and
water salinity and the rise of complex pest pathologies.

Poor agricultural growth leads to:

- Fall in rural incomes
- Higher food prices reduce consumers purchasing power
- Even Non-agricultural GDP falls (due to last years drought, non-farm GDP
decelerated)

1.4 Characteristics of rural markets

• Out of the total 6,30,000 villages in India less than 500 people live in 50%
of these villages
• 40% (300 mn) live in 7% (50,000) villages
• Only 1% (6300 villages) have more than 5000 people
• Owner/ farmers constitute 34% of the house hold sectors in rural India and
they account for 65% of TV purchases
• Even though literacy levels are on the rise in rural India it is of limited
meaning in terms of marketing as by definition literate people can only sign
their names

Economic Status
• The average household income of the urban population (Rs.36,000p.a) is
thrice that of the rural (Rs.12,000p.a).
• According to NCAER (National Council of Applied Economic Research)
the lower income group (<70,000) will shrink by 55% in 2006-2007 and
upper income groups (>1,40,000) will double in 2006-2007
• The aspirants, lower middle and middle class are the largest segment and
are the largest base for durables and FMCG goods
• The well off segment like the wheat farmers in Punjab are as of today a
negligible base
• The destitute i.e. the lowest income group have a very low purchasing
power.
• % Of per capita expenditure on food in the rural area is 61% as compared
to urban which is 50% For other items it is:
FMCG 15% (URBAN) 10% (RURAL)
Durables 5% 3%
 Demand
• The demand for goods is irregular as it is seasonal and agriculture
dependant
• It depends on the harvest periods. Their cash flows are better after
harvest.
• It is festival and marriage linked. For e.g. The demand for sweets would go
up during Durga pooja in villages in Bengal. Companies like Heinz use
festivals to sponsor “pandals” at various pooja sites and indirectly promote
their products.

1.5 Changing Scenario

The table below is indicative of a move from an agrarian to a service economy:

Component 1981 1992 1995 2000

Agriculture 38% 32% 29% 26%
Industry 21% 27% 29% 22%
Services 41% 41% 42% 52%

 Aspirations to improve lifestyles with increased purchasing power and

disposable incomes
 Growth in demand for durables, services
 Bank branches, schools, primary health centers at nodal points
 Government focus on rural development (outlay of Rs.45,000 cr in 9 five-
year plan from Rs. 14,000 cr. In 7th five year plan)
 Rural markets growing at five times the rate of urban market especially
category III durables.
 Marketer’s efforts
 New employment opportunities (IRDP :Integrated rural development
program, Banks)
 Green, white revolution, WTO removals of quantitative restriction for
exports of food produce.
 Improved penetration of mass media has resulted in creation of awareness
among rural consumers. (Press, TV, hoardings, radio etc.)

Increased Food grain Production

 Green revolution
 Scientific methods, increased crop yields
 200 million tones if food grains P.a.
 Increased exports of Indian agricultural produce because of WTO support
 Increased rural purchasing power

Government Initiatives
  Self sufficiency (Operation Flood, white revolution; blue revolution)
 Integrated Rural Development Programme (IRDP); TRYSEM (Training
Rural Youth for Self-Employment); REP (Rural Electrification Programme)
 REP gave impetus to consumer durables industry, it also aims at having
electricity in almost all villages by 2010
 PSU and Co-op banks lend farmers (with ‘Kisan’ credit card by Canara &
Andhra bank, a person can borrow up to 50,000 with these credit cards.)

Co-operatives and corporate support

 Amul, Campco (initiated co-operative movements)

 Contract Farming: companies give High Yielding Variety HYV seeds and
tied up with farmers to cultivate crops and sell them back to the company.

$ 2billion World Bank loans in this fiscal year

 The World Bank’s first loan of $ 150 million for 2003-04 will go to the
Andhra Pradesh rural poverty reduction project – it is expected to benefit
2million Households.
 District poverty initiative started in 2000 includes an expansion of the
geographical area from six districts to the entire state and a sharper focus
on poorer and more vulnerable rural consumers for sectors like power,
road, and poverty reduction.

1.6 Distinctive features of rural markets vis-à-vis urban markets

Features Rural Urban

Demand pattern Seasonal Uniform
Spread Scattered Concentrated
Literacy level Low Moderate
Per Capita Income Low Moderate
Awareness of needs | Not entirely known Known
Infrastructure Poor Moderate
Sources of information, Word of mouth personal/ All
communication direct selling, TV, radio,
unconventional media
Supply Erratic, untimely Timely
Product info guidance Needed Adequate
Consumer Protection No awareness Increasing awareness

1.7 Are Rural markets an opportunity?

 Green revolution has highly increased the disposable income of farmers,

there are many farmers in high income group
 Purchasing power has increased tremendously (Administered price
mechanism APM) ensures that the farmers get the correct/fixed prices for
their produce through the government.(usually for cash crops) In addition
 to this when the farmer wants to buy inputs like fertilizers, the govt. gives it
to him at a fixed price.
 Vast size- Majority of India’s population still lives in villages (Demand
Base)
 A growth rate of 3-4% adds 1 million rural consumers every year
 Steep rise in support price of paddy, wheat
 10 consecutive good monsoons (except 2001-2002) –so increased income

1.8 Rural Demand Pattern

Rural product portfolio

Category I II III (Items costing more

thanRs.6,000)
Pressure cookers 2 in 1 (mono_ CTV (S)
Pressure pans 2 in 1 (stereo) CTV (R)
Mono cassette recorders B & W TV (S) VCRs
Bicycles B&W TV (R) VCPs
Wrist watches (mech) Instant geysers Scooters
Wrist watches (Quartz) Storage geysers Mopeds
Radio/ transistors Sewing machines Motorcycles
Electric Irons Vacuum cleaners Refrigerators
Ceiling fans Mixer/ grinders Washing machines
Table fans
SOURCE: NCAER (Economic Times)

 CTV sales – 65% in rural India

 Rural share of durables about 60% (esp. bicycles, wrist watches, radios/
transistors)
 Share of category I is declining and II and III is increasing.
 Purchase of goods under category III has increased by 25 % over the
previous year, category II has increased by 15% and category I by 3%

Preference for brands

Segment % of < 40% 40 –80% >80%

consumers who
preferred branded
items
Necessity/ Coconut oil Iodized salt Toilet soaps
popular
Tea Washing powder
Washing cakes Analgesics
Biscuits Toothpaste
Blues (neel) Razor blades
Premium Refined oil Hair oils Shampoo
Bulbs Batteries
Rubs, balms
Skin cream
Toothbrushes
Antiseptics
Chyavanprash
Digestives
Mosquito
repellents
Shaving creams
Tube lights

Of The 740 Million rural consumers realistically about 200 million have the
propensity to spend. However, it is claimed that disposable incomes in
higher income classes in rural areas is higher than in urban areas since
many services such as housing, health and education (leaving quality
issues aside) cost far less.