Rural Marketing – Issues Opportunities &

Challenges
Indian Rural

The Macro Scenario

 Rural Market Has Finally Arrived

• 742 million people

• Rural is bigger than urban
• FMCG's 53%
• Durables 59%
• Estimated annual size of the rural market
• FMCG Rs 65,000 Crore
• Durables Rs 5,000 Crore
• Agri-inputs (incl. tractors) Rs 45,000 Crore
• 2 / 4 wheelers Rs 8,000 Crore
• Total Rs 1,23,000 Crore
Source: Francis Kanoi, 2002
 Rural Market Has Finally Arrived

• Some impressive facts about the Rural market

• In 2001-02, LIC sold 55 % of its policies in rural India.

• 50% of BSNL mobile connections in small

towns/villages.

• 482 crorepatis in rural Haryana, only 137 in

Bangalore, similar number in Kolkata or Hyderabad.

• 55.6 million Kisan Credit Cards (KCC) issued (against

60 million credit-plus-debit cards in urban) resulting
in tremendous liquidity.
 Rural Market Has Finally Arrived

• Some impressive facts about the Rural market

• Of 20 million Rediffmail signups, 60 % are from small
towns. 50% transactions from these towns on Rediff
online shopping site.

• No of HHs saving in formal financial instruments

(banks, mutual funds, shares etc) same in rural and
urban at 6.2 million in 2002-03

• Electricity consumption

Sector 1980 2000

Agriculture 17.6% 29.2%
Industry 58.0% 34.8%
 Rural Income Dispersion

Consumer
Annual Income 1995-96 2006-07
Class
Very Rich Above Rs 215,000 1.6 5.6

Consuming Class Rs 45,001- 215,000 2.7 5.8

Climbers Rs 22,001- 45,000 8.3 22.4

Aspirants Rs 16,001 - 22,000 26.0 44.6

Destitutes Rs 16,000 & Below 61.4 20.2

Total 100.0 100.0

NCAER Projections Based on 7.2% GDP Growth

 Rural Housing Pattern

(percentage)
House Type 1981 1991 2001

Pucca 22 31 41

Semi- Pucca 37 36 36

Kuccha 41 33 23

Source: Census of India

 Distribution of Villages

Population No of villages % of total villages

Less than 200 96,855 15.7 Hardly any
shops in these
200-500 1,36,454 21.4
2.3 lac villages
501-1000 1,56,737 24.6

1001-2000 1,40,751 22.0

2001-5000 87,206 13.7

5001-1000 20,363 3.2 17% of villages

account for 50%
Total no of villages 6,38,365 100.0 of rural
population &
60% rural wealth

Source: Census 2001

 Distribution of Towns

Towns
80 35
72
70 30 30
61
60
25 25
50

P ercentage
20
Millions

40 34
15
30 14 27 26
23 11
11 10
20 9
10 5

0 0
Top 8 Other 1 Mn+ 0.5-1 Mn 0.2-0.5 Mn 0.1-0.2 Mn < 0.1 Mn
Mn
Town With Pop
%
Source: NRS 2005
 Distribution Of Towns Continued…

Town Class Population No. Of Towns % of Total

Class I 1 Lac above 423* 8.2

Class II 50,000 – 99,999 498 9.6 90 % of durables

purchased by
Class III 20,000 – 49,999 1386 26.9 rural people are
from these 1900
Class IV 10,000 – 19, 999 1560 30.2 towns

Class V 5000 – 9,999 1057 20.5

Class VI Less than 5000 237 4.6

Total 5161 100.0

* 10 Lac +: 27, 5 – 10 Lac: 42, 1 – 5 Lac: 354 Source: Census 2001

 Issues In Rural Distribution

Poor road connectivity Large number of

Large number of small
intermediaries leading
markets
to higher costs

Low density of shops

Dispersed population Issues
IssuesInIn per village and high
and trade Distribution
Distribution variation in their
concentration

Highly credit-driven Inadequate banking

market and low and credit facilities for
investment capacity of Poor storage system, retailers, poor viability
retailers leading to inadequate of outlets
stocking of products
 Insights

The Rural Consumer

 Rural Consumer Insights

• Rural India buys

• FMCG's more often (mostly weekly).
• Buys small packs, low unit price more important
than economy.
• Distribution and pricing are the mantras to success
in rural India.

Even expensive brands like Close up, Marie biscuits, Clinic

shampoo are doing well because of deep distribution
 Rural Consumer Insights

• In rural India, brands rarely fight with each

other
• They just have to be present at the right place

Average Number of Brands Per Retailer

Category11
Rural Urban
Toothbrush 3 7
Toothpaste 3 6
Biscuits 3 9
Hair Oil 3 7

Source: ORG 2002

 Rural Consumer Insights

Details Rural Urban

Average monthly sale / outlet Rs 3,000 Rs 12,500

No. of product categories

19 27
stocked per outlet

No. of brands / outlet 42 92

Average Stock Keeping Units /

62 154
outlet

Source: ORG 2002

 Rural Consumer Insights

• Many brands are building strong rural base

without much advertising support.
• Chik shampoo, the second largest shampoo brand.
• Ghadi detergent, fourth largest brand.
• Brand recognition not through name but.
• Color (Lal Dant Manjan, Red battery)
• Numeric (555 detergent bar)
• Visual (Ghari detergent, Katchua Chaap)
• Buy value for money not cheap products.
 Rural Myths

Perception vs. Reality

 Myth 1 : Rural a Homogeneous Mass

• The reality
• Heterogeneous population
• 16 languages
• State wise variations in rural demographics
• Literacy (Kerala 90%, Bihar 44%)
• Population below poverty line (Orissa 48%, Punjab
6%)
Big Land Lords

Rural Pyramid
Traders & Small Farmers

Marginal Farmers

Laborer’s & Artisans

Source: Planning Commission, GOI

 Myth 2 : Disposable Income is Low

• The Reality
• Number of middle class HHs (annual income Rs
45,000- 2,15,000)
Rural 15.6 Million
Urban 16.4 Million

• Per Capita Annual Income

Rural Rs 9,481 (Punjab- Rs 16.5 K, Haryana- Rs 14.8 K)

Urban Rs 19,407

Source: NCAER, 2002

Myth 3 : Individual Decide About Purchases

• The Reality
• Decision making process is often collective
• Purchase process- influencer, decider, buyer, one
who pays can all be different.
• Marketers must address brand message at several
levels
• Rural youth brings brand knowledge to House Hold
India’s Rural

What’s Changing
 Infrastructure Improving Rapidly

• In 50 years only 40% villages connected by

road, in next 10 years another 30%.

• > 90 % villages electrified, though only 44%

rural homes have electric connections.
 Infrastructure Improving Rapidly

• Rural telephone density has gone up by 148% in

the last 5 years, every 500+ pop is connected by
STD.
• 18.8 million individual phone connections.
• Levels of literacy are up.
Rural Tele-density (phones per 100)
Division 2000 2005 % increase
Rural 0.7 1.74 148%
Urban 8.2 26.2 220%

All 2.9 9.08 213%

Source: TRAI, 2005 & Census 2001

 Infrastructure Improving Rapidly

• 70% of R1,R2, R3 can be reached through mass

media.
70

53

41 SEC wise Rural HH

R1 - 4%
26
R2 - 11%
21 R3 - 39%
14 R4 - 46%

Satellite Radio Press Cinema TV All Media

TV

Source: IRS 2001 & 2005

 Rural Market

Opportunities & Challenges

 Marketing Opportunities

• Low penetration in rural

Per 1000 HH

FMCG’s Urban Rural Total

Toothpaste 749 376 486
Soft Drinks 370 122 198
Mosquito Repellent 541 152 267
Coffee 232 79 125
Skin Cream 315 178 220

Health Beverage 188 47 88

Source: IRS 2005

 Marketing Opportunities

• Low penetration among lower pop strata

villages and SEC R3/R4
Penetration of Durables and FMCG (% of HH)
Product Category Pop Strata (Villages) SEC
5K+ 1K-5K <1K R1/R2 R3/R4
Radio 14.1 14.5 14.4 24.4 12.7
CTV 18.5 9.7 7.1 30.1 7.8
Telephone 12.7 5.3 3.7 23.6 3.6
Toilet Soap 92.4 88.2 87.2 96.0 87.7
Shampoo 35.3 33.1 24.6 47.5 29.2
Toothpaste 49.5 36.0 29.1 69.1 32.1
Soft Drinks 16.0 12.3 7.8 22.7 10.4
Mosquito Repellents 22.4 14.8 8.4 31.2 12.4

Source: IRS 2005

 Marketing Opportunities

• Rapidly growing product categories and largest

rural brands in rural markets
Rural Growth of FMCG and Durables (% of HH) Largest Rural Brands
Product Category 2000 2005 Growth (%) Brand Category Growth (%)
CTV 3.7 11.1 217.6 Parle-G Biscuits 8.2
Motorcycle 3.0 5.3 76.7 Lifebuoy
Toilet Soap 6.4
Refrigerator 3.2 4.2 31.3 Active

Tractor 1.8 2.3 27.8 Lux Toilet Soap 5.6

Shampoo 13.3 31.9 213.7 Ghari W. Powder 21.5

Packaged Edible Oil 8.7 13.7 57.5 Nirma W. Powder -13.1

Packaged Biscuits 39.1 54.2 38.6

Figures are year-on-year growth for MAT
Soft Drinks 9.8 12.2 24.5 July 2004 by Value
Source: AC Nielsen Retail Store Audit

Base: All Rural Households Source: IRS,2005

 Marketing Opportunities

• SEC wise rural households

• R1 - 4%
• R2 - 11%
• R3 - 39%
• R4 - 46%
• Rich HHs FMCGs Annual Consumption
Urban Rural
Rs 13,000 Rs 9,400
• Rural consumption volumes (R1+R2+R3)
• Toothpaste 88%
• Toothpowder 79% So this half of the
population consumes
• Shampoo 88% over 75% of FMCG
volumes
Challenges

In future
 Challenge

• Reaching the product to remote rural locations

and entering more rural homes (penetration)

• Increasing rural incomes (market growth)

 Challenges

• Making effective use of the large available

infrastructure
• Post offices 1,38,000
• PCOs 2,00,000
• Haats (periodic markets) 42,000
• Melas (exhibitions) 25,000
• Mandis (agri markets) 7,000
• Public distribution shops 3,80,000
• Bank branches 32,000
 New Wave

• Proliferation of large format rural retail stores

• DSCL Haryali stores
• M & M Shubh Labh stores
• TATA/Rallis Kisan Kendras
• Escorts rural stores
• Warna bazaar, Maharashtra (annual sale Rs 50 crore)
• ITC Choupal Sagar
 Corporates Need To Do
• Long term commitment to rural. Create a dedicated
rural vertical
• Grow size of rural pie: Public-Private partnerships
• Hire professionals from rural management institutes –
IRMA, IIRM, XIM etc
• Create rural specific products and communication
• Explore new Distribution models – mobile traders, NYKS
volunteers etc
• Commission MR studies to profile Rural Consumers
• Organize rural sensitization training for managers
• Industry Associations should glamorize Rural Marketing.
 Quote - Unquote

• The future lies with those companies who see

the poor as their customers.
C K Prahalad

• To get rich, sell to the poor.

Pradeep Kashyap
That’s All

Thanks