Desertation FMCG Retail in Rural Sector

EXECUTIVE SUMMARY:
A thorough understanding of the rural markets has become an important aspect of

marketing in the Indian marketing environment today. This attraction towards the rural
markets is primarily due to the colossal size of the varied demands of the 230 million
rural people. In fact, the rural markets are expanding in India at such a rapid pace that
they have overtaken the growth in urban markets. This rate of growth of the rural market
segment is however not the only factor that has driven marketing managers to go rural.
The other compelling factor is the fact that the urban markets are becoming increasingly
complex, competitive and saturated.
The vast untapped potential of the rural markets is growing at a rapid pace. The policies
of the government largely favour rural development programmes. This is clearly
highlighted by the fact that the outlay for rural development has risen from Rs 14000
crores in the 7th plan to Rs 30000 crores in the 8th plan period. These figures also prove
that the rural market is emerging stronger with a gradual increase in disposable income of
the rural folk. In addition, better procurement prices fixed for the various crops and better
yields due to many research programmes have also contributed to the strengthening of the
rural markets. Thus, with the rural markets bulging in both size and volume, any
marketing manager will be missing a great potential opportunity if he does not go rural.
This however raises a fundamental problem of fathoming the differences between urban
and rural markets in India. This is of paramount importance in the Indian marketing
environment as rural and urban markets in our country are so very diverse in nature, that
urban marketing programmes just cannot be successfully extended to the rural markets.
The buying behavior demonstrated by the rural Indian differs tremendously when
compared to the typical urban Indian. Further, the values, aspirations and needs of the
rural people vastly differ from that of the urban population. Basic cultural values have not
yet faded in rural India. Buying decisions are still made by the eldest male member in the
rural family whereas even children influence buying decisions in urban areas. Further,
buying decisions are highly influenced by social customs, traditions and beliefs in the
rural markets. Many rural purchases require collective social sanction, unheard off in
urban areas.
Another contrasting feature is the precision in the assessment of purchasing power of the
consumers. In urban markets, income levels are generally used to measure purchasing
power and markets are segmented accordingly. However, this measure is not adequate for
defining the purchasing power in rural areas because of the single fact that rural incomes
are grossly underestimated. Farmers and rural artisans are paid in cash as well as in
kind. However, while reporting their incomes, they report only cash earnings, which then
affect the calculation of their purchasing power. This is the reason why marketers are
often surprised to find that their products are sometimes consumed by people who,
according to their surveys and estimates do not have the purchasing power to do so.
Every marketing manager must therefore make an attempt to understand the rural
International School Of Business & Media 1

consumer better so that he can plan his strategies in such a manner that they produce the
desired results.
Unfortunately, most marketers of today try to extend marketing plans that they use in
urban areas to the rural markets and face, on many occasions failure. They should adopt a
strategy that appeals individually to the rural audience and formulate separate annual
plans and sales targets for the rural segment. Changes must be made in the marketing mix
elements such as price, place, product and promotion. Corporate marketers should refrain
from designing goods for the urban markets and subsequently pushing them in the rural
areas. The unique consumption patterns, tastes, and needs of the rural consumers should
be analyzed at the product planning stage so that they match the needs of the rural people.
For most companies wanting to enter the rural markets, distribution poses a serious
problem. Distribution costs and non availability of retail outlets are major problems faced
by the marketers. But if one takes a closer look at the characteristic features of the rural
market, it will be clear that distribution in fact, is no problem at all.
In rural India, annual Melas organized with a religious or festive significance are quite
popular and provide a very good platform for distribution. Rural markets come alive at
these melas and people visit them to make several purchases. According to the Indian
Market Research Bureau, around 8000 such melas are held in rural India every year.
Besides these melas, rural markets have the practice of fixing specific days in a week as
Market Days when exchange of goods and services are carried out. This is another
potential low cost distribution channel available to the marketers. Also, every region
consisting of several villages is generally served by one satellite town where people
prefer to go to buy their durable commodities. If marketing managers use these feeder
towns they will easily be able to cover a large section of the rural population.
While planning promotional strategies in rural markets, marketers must be very careful in
choosing the vehicle to be used for communication. They must remember that only 16%
of the rural population has access to a vernacular newspaper. Although television is
undoubtedly a powerful medium, the audio visuals must be planned to convey a right
message to the rural folk. The marketers must try and rely on the rich, traditional media
forms like folk dances, puppet shows, etc with which the rural consumers are familiar and
comfortable, for high impact product campaigns.
Thus, a radical change in attitudes of marketers towards the vibrant and burgeoning rural
markets is called for, so they can successfully impress on the 230 million rural consumers
spread over approximately six hundred thousand villages in rural India.

RURAL MARKETS – MIRAGE OR REALITY:
Various CMIE and NCEAR reports have shown a decline in rural poverty levels and an
increase in rural incomes, but despite everything, rural markets have remained an
anathema for most marketers.
The reasons are not far to seek.
Most corporate have treated rural markets as adjuncts to their urban strongholds and rural
consumers as a homogeneous mass without segmenting them into target markets and
positioning brands appropriately.
The companies should not treat rural markets as a dumping ground for lower end
products designed for an urban audience. Instead they should use their technological
expertise to create specific products for the rural economy. The companies that have done
this (e.g. Hindustan Levers and Nestle) have benefited tremendously.
Also, while launching products, it is of paramount importance to understand the

dynamics of culture and society of the rural audience. The classic example that can be
cited here is of the CTV segment wherein corporate found that their carefully drafted
rural marketing went awry. Models developed and priced specifically for the rural
markets found more takers in the urban markets. At the same time, rural consumers
purchased the premium models designed for urban markets and also made cash down
payments. The reason is not the fact that they are richer than their urban counterparts, but
the fact that the joint family system prevalent in rural areas called for wider screens (as a
larger number of people were watching)
Along with the cultural dynamics, the needs and latent feelings of the rural people also
need to be well understood. Marketers would do well to first understand this and then
design and launch products accordingly. For example, Cadburys has launched ChocoBix,
a chocolate flavored biscuit – the launch is on the basis of the understanding that rural
mothers opt for biscuits rather than chocolates for their children.
Another very important factor that needs to be looked at is the proliferation of spurious
products. Rural masses are primarily illiterate and identify a product by its packaging.
Brands such as "Bonds Talcum", "Funny & Lovely" etc., which are doing the rounds of
rural markets, eat into the demand for the genuine products.
Companies would also do well to have a proper distribution network and make sure that
the prices of products are not pushed up because of a channel of middlemen who are
neither required nor add any value to the product. A very significant step for change
could be an effort to directly tap the haats.
Companies also need to change the profile of their brand managers. Their brand
managers are usually urban-bred management offerings who do not relate themselves to
the rural markets. A step in this direction could probably go a long way in improving the
situation.

To conclude, it can be said that the shape of rural income distribution and their
consumption pattern needs to be carefully looked into. The rural income distribution is a
debatable issue as there are no structural accounting methods used. Corporates will have
to try hard to get a clear picture. Once the homework is done, the mirage will surely
transform into concrete reality.
CK PRAHALAD ON RURAL MARKETS
He believes in ‘fortune at the bottom of the pyramid’. Management guru C K

Prahlad’s message for Indian companies has always been to concentrate on the economic
needs of the society they operate in. At the just concluded Delhi Sustainable
Development Summit organised by Teri, the world renowned expert spoke about
corporates’ increasing role in fulfilling the needs of the poor. So, how do we wed
together a commercial approach and needs of the poor for utilities like water and energy?
“The fundamental question that we have to address is how to reduce costs. The problem
in case of utilities like water and energy is that there is no real price — distortions in
subsidies have paid put to that. People are ready to pay, amply proved by the fact that
people pay exorbitant sums for private water tankers, but even then they do not get the
required quality. So radical innovation is a must, and not just in product innovation, but
in distribution strategies, maintenance and pricing strategies,” says Prahlad.
While business innovation is not so easy, it has been happening. According to Prahlad,
more and more companies are now
turning to address the needs of the rural poor, as proven by the successful efforts of
FMCG companies like HLL.
“Slowly and in fragments, corporate India is discovering the huge market waiting in rural
India. The private sector and NGOs are delivering results. We see it in FMCG companies
directing their energies to rural India, we see it in the mobile phone in the hands of the
fishermen in the backwaters. It is happening on the ground,” says the Harvey C Fruehauf
Professor of Business Administration at the University of Michigan.
“Look at the Micro Finance Schemes — there are 2000 micro finance schemes covering
6 million women in Andhra Pradesh alone. But we have to accept that one single solution
cannot cover everybody. We have to learn to grow in stages. The trick is to combine
global standards, affordable prices and make it available to the consumer. A small start
somewhere can yield results down the line,” he adds.
Talking about FDI, and the strong belief that it can cure all worries, Prahlad says that
while FDI does help in ensuring global standards, it cannot drive growth.
“FDI is smart money. It is good in the sense that it brings good governance, global
standards of production. But the objective should not only be to bring the world to India,

but to make Indian companies of global standard. I would say being an open market is
good. Look at the auto sector and the wireless sector, foreign investment in these sectors
has not only ensured better products, it has also raised the standards of our home grown
companies. FDI, therefore, increases our capability to compete, becoming competitive
both locally and globally, as it requires the same capabilities.” He is concerned about
India’s policies, though. “Our policies are not pro-poor, unlike that of China,” he says.
Prahlad believes that a lot of work is yet to be done on that front. Comparing the two
economies, he says, “China has been doing better than India, but that is in the number
game. We have to remember that development in the short term will be asymmetric. The
development process is market driven and only in the long run can it cover all sections of
society. I believe India’s system is better. We have the checks and balances, transparency
and entrepreneurship, all of which are necessary to ensure not only higher rates of
growth, but all round development.”

RURAL MARKETS:
INTRODUCTION:
 The future lies with those companies who see the “poor” as their customers.
CK Prahalad to Indian CEO's, Jan 2000.
 To get rich, sell to the “poor”.

Pradeep Kashyap.
EVOLUTION OF RURAL MARKETING

PHASE I Before the 1960’s
• More of food grains, farm equipment, pots , pans etc.

• Unorganized
PHASE II 1960’s TO 1990’s
• Green Revolution – modern equipment/practices

• Organized companies enter above
• Cooperatives/Commissions formed and promotion of handicrafts/village
industries
• Growing wealth – FMCGs discover rural
PHASE III-Beyond the 1990’s
U R
Branded consumables Farm/non farm goods

and durables(organised) and services (unorganized)
Handicrafts, handloom, leather

(Semi-organised)
RURAL MARKET ARRIVAL:
 742 million people

 Rural consumption is bigger than urban
 FMCG's 53%
 Durables 59%

Source: NCAER,2002
 Estimated annual size of the rural market
 FMCG Rs 65,000 Crores
 Durables Rs 5,000 Crores
 Agri-inputs (incl. tractors) Rs 45,000 Crores
 2 / 4 wheelers Rs 8,000 Crores
 Total Rs 1,23,000 Crores
Source: Francis Kanoi, 2002
 SOME IMPRESSIVE FACTS ABOUT THE RURAL SECTOR.
 In 2001-02, LIC sold 55 % of its policies in rural India.

 Of two million BSNL mobile connections, 50% in small towns/villages.
 Of the six lakh villages, 5.22 lakh have a Village Public Telephone (VPT)
 For every Re.1/- per quintal increase in the Procurement Price for grains,
Rs. 170 crores added to rural economy
 41 million Kisan Credit Cards issued (against 40 million credit-plus-debit

cards in urban) with cumulative credit of Rs 97 ,700 crores resulting in
tremendous liquidity.
 Of 20 million Rediffmail signups, 60 % are from small towns. 50%
transactions from these towns on Rediff online shopping site
 42 million rural HHs availing banking services in comparison to 27
million urban HHs.
 Investment in formal savings instruments: 6.6 million HHs in rural and 6.7
million in urban
 Over 50% of HLL’s Rs. 11700 crores sales turnover is from rural markets

RURAL MARKET STRUCTURE
DEMOGRAPHIC ENVIRONMENT
• POPULATION UP 40% PURCHASING POWER UP 42%

• 5-14 YEARS – 26%; 15-34 YEARS – 32%
EDUCATION AND LEVEL OF DEMAND
• LITERACY UP 23%
• SIGNIFICANT INCREASE IN DEMAND FOR EDUCATIONAL MATERIALS
• FAMILY STRUCTURE
• 48% NUCLEAR FAMILIES & GETTING HIGHER
OCCUPATIONAL PATTERN
• 41% CULTIVATORS, 35% WAGE EARNERS & 11% SALARIED
DISTRIBUTION OF RURAL HHs BY INCOME
ANNUAL INCOME 1989 -90 1998 – 99

INCOME INCLASS (% (%
Rs.AT 1998 – HOUSEHOLDS) HOUSEHOLDS)
99 PRICES
<=35000 LOWER 67.3 47.9
35001-70000 LOWER 23.9 34.8
MIDDLE
70001-105000 MIDDLE 7.1 10.4
105001-140000 UPPER 1.2 3.9
MIDDLE
> 140000 HIGH 0.5 3.0
TOTAL 100 100

• Rural Annual Per Capita Income is Rs. 9481 vs. Rs. 19407 in Urban
• Highest Rural Per Capita Income is Punjab (Rs. 27256)
• Lowest Rural Per capita Income is Orissa (Rs. 5704)
SPLIT OF RURAL INCOMES
RURAL
INCOMES
AGRICULTURE NON-AGRIC.
53% 47%
SELF
WAGE FORMAL INFORMAL
EMPLOYED
EARNER 31% 16%
43%
10%

PER CAPITA INCOME
RURAL
POPN
9941.
AGRICULTURE NON-AGRIC.
6855 27%
SELF WAGE FORMAL INFORMAL

EMPLOYED
EARNER 19514 12595
10150 2860
RURAL INCOME DISPERSAL PROJECTION:
Consumer Annual
1995-96 2006-07
Class Income
Very Rich Above Rs 215,0000.3 0.9
Consuming Rs 45,001-
13.5 25.0
Class 215,000
Climbers Rs 22,001- 45,000 31.6 49.0
Rs 16,001 -
Aspirants 31.2 14.0
22,000
Rs 16,000 &
Destitute 23.4 11.1
Below
Total 100.0 100.0

 Projections Based on 7.2% GDP Growth
 Consuming class households in rural nearly equal to urban.
 Rural Purchasing Power higher due to lower expenses on food, shelter,

education & health
SOME MYTHS ABOUT RURAL MARKETS
MYTH 1: Rural Market Is a Homogeneous Mass
REALITY
 Heterogeneous population.
 16 languages, 800+ dialects
 State wise variations in rural demographics
 Literacy (Kerela 90%, Bihar 44%)
 Population below poverty line (Orissa 48%, Punjab 6%)
MYTH 2: Disposable Income Is Low
REALITY
 Number of middle class HHs (annual income Rs 45,000- 2,15,000)

Rural 27.4 million
Urban 29.5 million
 Per Capita Annual Income (not Purchasing Power)

Rural Rs 9,481
Urban Rs 19,407
Total Rs 12,128 Source: NCAER, 2004
 Rural incomes CAGR was 10.95% compared to 10.74% in urban between 1970-
71 and 1993-94
Source: ETIG, 2003-04

MYTH 3: Individuals Decide About Purchases
REALITY
 Decision making process is collective
 Purchase process- influencer, decider, and buyer, one who pays can all be
different. So marketers must address brand message at several levels
 Rural youth brings brand knowledge to HH
INFRASTRUCTURE IMPROVING RAPIDLY
 In 50 years only 40% villages connected by road, in next 10 years another 30%.
 More than 90 % villages electrified, though only 44% rural homes have electric
connections.
 Rural telephone density has gone up by 300% in the last 10 years, every 1000+
pop is connected by STD.

MEDIA REACH IMPROVING RAPIDLY
 70% of R1, R2, R3 can be reached through mass

media.
70
53
41
21 26
14
Satellite Press TV
TV

MARKETING OPPORTUNITIES:
Low penetration rates in rural

% of
rural HH
Durables Urban Rural Total
CTV 30.4 4.8 12.1

Refrigerator 33.5 3.5 12.0
FMCG Urban Rural Total
Shampoo 66.3 35.2 44.2

Toothpaste 82.2 44.9 55.6
Source: NCAER 2002
 R1 - 4%
 R2 - 11%
 R3 - 37%
 R4 - 48%
 Low rural consumption in FMCGs (rich HHs)
Urban Rural
 Annual consumption Rs 13,000 Rs 9,400
 Rural consumption volumes (R1+R2+R3)

 Toothpaste 88%
 Toothpowder 79%
 Shampoo 88%

RURAL CLASIFICATION:
CONSUMER MARKET: ALL KINDS OIF CONSUMMABLES, FOOD
PRODUCTS, TOILETRIES, COSMETICS, TEXTILES,
FOOT WEAR ETC WATCHES, BICYCLES,
RADIO, TV, KITCHEN APPLIANCES, FURNITURE,
SEWING MACHINE, TWO WHEELER ETC.
INDUSTRIAL MARKET: AGRICULTURAL AND ALLIED ACTIVITIES,
FARMING, COTTAGE INDUSTRIES, HEALTH
CENTRE, SCHOOL, COOPERATIVE, PANCHAYAT,
OFFICE ETC. SEEDS, FERTILISERS, PESTICIDES,
TRACTORS ANIMAL FEED, ETC
SERVICES MARKETS: REPAIRS, TRANSPORT, BANKING, CREDIT,
INSURANCE, HEALTH CARE, EDUCATION,
COMMUNICATION, POWER ETC.

DIFFERENCE BETWEEN RURAL AND URBAN
MARKETING
ASPECT URBAN RURAL
PHILOSOPHY MARKETING MARKETING AND

& SOCIETAL DEVELOPMENT
SOCIETAL GREEN, RELATIONSHIP RELATIONSHIP
MARKET:
DEMAND HIGH LOW

COMPETITION ORG. SECTOR UNORG.SECTOR
CONSUMERS:
LOCATION CONCENTRATED WIDELY SPREAD

LITERACY HIGH LOW
INCOME HIGH LOW
EXPENDITURE PLANNED, EVEN SEASONAL
NEEDS HIGH LEVEL LOW LEVEL
INNOVATION ADOPTION FASTER SLOW
PRODUCTS:
AWARENESS HIGH LOW

CONCEPT KNOWN LESS KNOWN
POSITIONING EASY DIFFICULT
USAGE METHOD EASILY GRASPED DIFFICULT TO
GRASP
QUALITY PREFERENCE GOOD MODERATE
FEATURES IMPORTANT LESS IMPORTANT
PRICE:
SENSITIVE YES VERY MUCH

LEVEL DESIRED MEDIUM-HIGH LOW-MEDIUM
ASPECT URBAN RURAL
DISTRIBUTION:
CHANNELS MULTI VILL SHOPS, SHANDIES,

HAATS, YATRAS

TRANSPORT FACILITIES GOOD AVERAGE
PRODUCT AVAILABILITY HIGH LIMITED
PROMOTION:
ADVERTISING ALL TV, RADIO, MULTI

-LINGUAL
PERSONAL SELLING DOOR 2 DOOR OCCASSIONALLY
& FREQUENTLY
SALES PROMOTION ALL GIFTS, DISCOUNTS,
DEMO
PUBLICITY GOOD OPPORTUNITIES LOW
ANALYSIS OF THE RURAL MARKET IN INDIA

Rural market of India consists of about 80% of the population of the country.
Apparently in terms of the number of people, the Indian rural market is almost twice as
large as the entire market of USA or Russia. This market is not only large, but very much
scattered geographically. It is also as diverse as it is scattered. It exhibits linguistic,

regional and cultural diversities and economic disparities, and hence, it can easily be
considered as more complex than the market of a continent as a whole.
The rural market scene has undergone a steady and encouraging change over the last
three decades. Inspite of several barriers to faster growth, the growth has not only been
quantitative, but also qualitative. This change has been possible because of new
employment opportunities and new sources of income made available through rural
development programmes which have resulted in green and white revolutions and a
revolution in rising expectations of rural masses.
The rural buyers in India provide a tremendous range of contradictions and paradoxes
which baffles the urban-based marketing people and, even more so, the foreign observers.
Rural consumers are far less homogeneous than their urban counterparts and differ from
region to region.
The rural market is made up of two broad components i.e., the market for
consumption goods and the market for agricultural inputs. The rural markets are by and
large less exploited. Another important feature of the rural market is that at least in the
present context, it is largely agriculture oriented. Green revolution and the resultant
prosperity is confined to a few select areas in the country. As a result, the effective
demand for consumer items has not spread all over rural India. Income generated from
the money sent by the members of their families employed in towns and abroad also
helped the rural people to spend more on consumer goods.
In spite of the increasing rate of growth in urban population through migration and other
channels and the consequent increase in their purchasing power, the rural market still
offers opportunities which are vast and yet relatively untapped.
It has been noted that the rural consumer is discerning and the rural market vibrant. At
the current rate of growth it will soon outstrip urban market. Surveys and audits for a
number of consumer products and services have, over the years, clearly highlighted the
emerging importance of this sector.
The rural market is not sleeping any longer. 'Go Rural' seems to be the latest slogan.
Rural consumption of all products is growing by leaps and bounds, since the urban
market has reached near saturation levels in a number of categories.
In short, the sheer size of the rural population will serve as a large potential demand base
for a variety of products:
The new agricultural strategy of applying science and technology to farming will
increasingly trigger off a chain reaction of increased generation of wealth, productivity
income and consumption, which provide the key for the emerging rural demand.

FACTORS CONTRIBUTING TO RURAL BOOM:
The marketing boom in the rural areas is caused by such factors as increased
discretionary income, marketable surplus of product, like vegetables and eggs, rural
development schemes, unproved infrastructure, increased retailing and retailers,
increased awareness with information explosion, expanding TV networks, liberalized
Government policies for rural development, emphasis on rural markets by companies,
new cadre of entrepreneurship, competitive and creative sales promotion, packaging
revolution and, changing life styles in the rural areas.
The desi touch

The rural market in India is beginning to emerge as an important consumption area. The
rural consumer is now more aware and is open to experiment with new products. The
rural market in the case of key product categories such as FMCG and consumer durables
is larger than the urban market in terms of its sales value. The rural middle class has also
been steadily growing. The middle to high income households in rural India are now 17
per cent of the total rural population and are growing at 7 per cent. However, rural
retailing as a segment is yet to develop in India. The total size of the rural market for
FMCG products is Rs 41,550 crore as compared to Rs 37,130 crore in urban India.
The rural market share for consumer durables market is 59 per cent of the total market.
An analysis of the rural market shares for about 35 FMCG and consumer durables
product shows that the rural market share is higher in about 20 of them. While in the
service industry, in 2001- 2002, LIC sold about 55 per cent of its policies in rural
India. Similarly, out of 2 million BSNL mobile connections, 50 per cent are in rural
India. The billing per mobile in small towns in Andhra Pradesh is higher than in
Hyderabad. In the same way, the 24 million Kisan Credit Cards (KCC) issued in the rural
markets exceed the 18 million mark issued in the urban market, while similarly Rs 64,000
crore was disbursed under KCC. Likewise, out of 20 million rediffmail signups 60 per
cent are from smaller towns. Though rural retailing has a huge potential, it is importance
for retailers to analyse the market, understand the local tastes and preferences and so on.
Thus, before starting a rural venture, retailers must consider the following:
Merchandising Mix
Merchandise requirements of a rural customer are far too different from that of an urban
customer. Thus, making generalizations or extrapolation of preferences and habits based
on urban experiences may not prove to be a success. For example, a sensible
generalization would be to assume that ethnic clothing would sell higher than modern
clothing. When ITC conducted its research before setting up their rural venture, they
found that though ethnic clothing sells well in the rural markets, there is a hidden desire
for modern clothing. This is because of the aspirational levels of a rural consumer is
high. As they wish to dress up like an urban customer. Similarly an urban merchandiser

might be wrong in assuming that all lower end products of urban stores would sell well in
rural stores. While it is true that the rural customers are more price
Now for some facts and figures. 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.
Time and again marketing practitioners have waxed eloquent about the potential of the
rural market. But when one zeroes in on the companies that focus on the rural market, a
mere handful names come to mind. Hindustan Lever Limited (HLL) is top of the mind
with their successful rural marketing projects like 'Project Shakti' and 'Operation Bharat'.
The lynchpin of HLL's strategy has been to focus on penetrating the market down the line
and focusing on price point. Furthermore, activating the brand in the rural market through
activities, which are in line with the brand itself, is what sums up HLL's agenda as far as
the rural market is concerned informs MindShare Fulcrum general manager R
Gowthaman. Amul is another case in point of aggressive rural marketing. Some of the
other corporates that are slowly making headway in this area are Coca Cola India,
Colgate, Eveready Batteries, LG Electronics, Philips, BSNL, Life Insurance Corporation,
Cavin Kare, Britannia and Hero Honda to name a few.
Khaitan fans' ad on a horse cart Wheel's wall painting
• We can safely say that until some years ago, the rural market was being given a
step-motherly treatment by many companies and advertising to rural consumers
was usually a hit and miss affair. More often than not, the agenda being to take a
short-cut route by pushing urban communication to the rural market by merely
transliterating the ad copy. Hence advertising that is rooted in urban sensitivities
didn't touch the hearts and minds of the rural consumer. While, this is definitely
changing, the process is slow. The greatest challenge for advertisers and
marketers continues to be in finding the right mix that will have a pan-Indian rural
appeal. Coca Cola, with their Aamir Khan ad campaign succeeded in providing
just that.

Corporates are still apprehensive to "Go Rural." A few
agencies that are trying to create awareness about the rural
market and its importance are Anugrah Madison, Sampark
Marketing and Advertising Solutions Pvt Ltd, MART,
Rural Relations, O&M Outreach, Linterland and RC&M,
to name a few. Also, the first four agencies mentioned
above have come together to form The Rural Network.
The paramount objective of the Network is to get clients
who are looking for a national strategy in rural marketing
and help them in executing it across different regions.
Interestingly, the rural market is growing at a far greater

speed than its urban counterpart. "All the data provided by
various agencies like NCAER, Francis Kanoi etc shows
Lifebuoy's wall painting in that
rural India rural
markets are growing faster than urban
markets in certain product categories
at least. The share of FMCG products
in rural markets is 53 per cent,
durables boasts of 59 per cent market
share. Therefore one can claim that
rural markets are growing faster than
urban markets," says Sampark
Marketing and Advertising Solutions
Pvt Ltd managing director R A
Patankar.
"Yaara da Tashan..." McCann Erickson's ads
Coca-Cola India tapped the rural with Aamir Khan created universal appeal for
market in a big way when it Coca Cola
introduced bottles priced at Rs 5 and
backed it with the Aamir Khan ads. The company, on its behalf, has also been investing
steadily to build their infrastructure to meet the growing needs of the rural market, which
reiterates the fact that this multinational has realised the potential of the rural market is
going strength to strength to tap the same.
Clearly the main challenge that one faces while dealing

with rural marketing is the basic understanding of the
rural consumer who is very different from his urban
counterpart. Also distribution remains to be the single
largest problem marketers face today when it comes to
going rural. "Reaching your product to remote locations
spread over 600,000 villages and poor infrastructure -
roads, telecommunication etc and lower levels of literacy
In 2000, ITC took an
initiative to develop direct
contact with farmers who
lived in far-flung villages in
Madhya Pradesh.
International ITC's
School Of E- & Media
Business 21
choupal was the result of this
initiative.
are a few hinges that come in the way of marketers to reach the rural market," says
MART managing director Pradeep Kashyap.
Citing other challenges in rural marketing, Patankar says, "Campaigns have to be tailor
made for each product category and each of the regions where the campaign is to be
executed. Therefore a thorough knowledge of the nuances of language, dialects and
familiarity with prevailing customs in the regions that you want to work for is essential.
The other challenge is the reach and the available means of reaching out to these markets,
hence the video van is one of the very effective means of reaching out physically to the
rural consumers."
The fact of the matter remains that when compared to the Indian urban society, which is
turning into a consumerism society; the rural consumer will always remain driven by his
needs first and will therefore be cost conscious and thrifty in his spending habits.
"Decision-making is still conscious and deliberated among the rural community. But
nevertheless, the future no doubt lies in the rural markets, since the size of the rural
market is growing at a good pace. There was a time when market predictions were made
on the basis of the state of the monsoon but this trend has changed over the years; there is
a large non farming sector, which generates almost 40 per cent of the rural wealth. Hence
the growth in the rural markets will be sustained to a large extent by this class in addition
to the farmer who will always be the mainstay of the rural economy.
"Although the melting of the

urban - rural divide will take a
while, this is not for want of the
availability of the means but for
want of the rural consumer's
mindset to change; which has its
own logic, which is driven by
tradition, custom and values that
are difficult to shed.
Fulcrum's Gowthaman says, "The

biggest impending factor or
deterrent on rural monies going
up is that there is a general sense Satellite dish antennas reach rural India
of trying to benchmark cost per
contact (CPC). The television CPC is going to anyways be cheaper to rural CPC and
unless and until the volume - value equation turns the other way round, you will not be
able to spend disproportionate monies in the rural market."

For HLL, a one rupee or a five rupee sachet
or the Kutti Hamam (the small Hamam) helps
in giving the consumers a trial opportunity.
While it does help in generate volume but not
in terms of values. "Till the time that volume
- value equation is managed better, the CPC
is preventing anybody to look at rural at a
large scale activation programme," reiterates
Gowthaman.
Ultimately, the ball lies in the court of rural

marketers. It's all about how one approaches
the market, takes up the challenge of selling
products and concepts through innovative
Typical shop in rural India stocked with media design and more importantly
sachets, etc interactivity.
Anugrah Madison's chairman and managing director RV Rajan sums up, "There is better
scope for language writers who understands the rural and regional pulse better. I also see
great scope for regional specialists in the areas of rural marketing - specialists like Event
Managers, Wall painters, folk artists, audio visual production houses. In fact all those
people who have specialized knowledge of a region are bound to do well, thanks to the
demands of the rural marketers."
So the fact remains that the rural market in India has

great potential, which is just waiting to be tapped.
Progress has been made in this area by some, but there
seems to be a long way for marketers to go in order to
derive and reap maximum benefits. Moreover, rural
India is not as poor as it used to be a decade or so back.
Things are sure a changing!
MAJOR PROBLEMS IN TAPPING THE RURAL MARKET:
1. High distribution costs
2. High initial market development expenditure
3. Inability of the small retailer to carry stock without adequate credit facility
4. Generating effective demand for manufactured foods

5. Wholesale and dealer network problems
6. Mass communication and promotion problems
7. Banking and credit problems
8. Management and sales managing problems
9. Market research problems
10. Inadequate infrastructure facilities (lack of physical distribution, roads warehouses
and media availability)
11. Highly dispersed and thinly populated markets
12. Low per capita and poor standards of living, social, economic and cultural back-
wardness of the rural masses
13. Low level of exposure to different product categories and product brands
14. Cultural gap between urban based marketers and rural consumers.
The development of the rural market will involve additional cost both in terms of
promotion and distribution. In rural marketing, often it is not promotion of a brand that is
crucial, but creating an awareness concerning a particular product field, for instance,
fertilizers and pesticides.
RURAL MARKETING: Challenges, Opportunities &

Strategies:
Concept:
In recent years, rural markets have acquired significance, as the overall growth of the
economy has resulted into substantial increase in the purchasing power of the rural
communities. On account of green revolution, the rural areas are consuming a large
quantity of industrial and urban manufactured products. In this context, a special
marketing strategy, namely, rural marketing has emerged. But often, rural marketing is
confused with agricultural marketing – the latter denotes marketing of produce of the
rural areas to the urban consumers or industrial consumers, whereas rural marketing
involves delivering manufactured or processed inputs or services to rural producers or
consumers.

Why Different Strategies?
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 is still in evolving shape, and the sector poses a variety of challenges.
Distribution costs and non availability of retail outlets are major problems faced by the
marketers. The success of a brand in the Indian rural market is as unpredictable as rain.
Many brands, which should have been successful, have failed miserably. This is because,
most firms try to extend marketing plans that they use in urban areas to the rural markets.
The unique consumption patterns, tastes, and needs of the rural consumers should be
analyzed at the product planning stage so that they match the needs of the rural people.
Therefore, marketers need to understand the social dynamics and attitude variations
within each village though nationally it follows a consistent pattern.
The main problems in rural marketing are:
• Understanding the rural consumer

• Poor infrastructure
• Physical Distribution
• Channel Management
• Promotion and Marketing Communication
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.
Strategies to be followed:
• Marketing Strategy:
Marketers need to understand the psyche of the rural consumers and then act accordingly.
Rural marketing involves more intensive personal selling efforts compared to urban
marketing. Firms should refrain from designing goods for the urban markets and
subsequently pushing them in the rural areas. To effectively tap the rural market a brand
must associate it with the same things the rural folks do. This can be done by utilizing the
various rural folk media to reach them in their own language and in large numbers so that
the brand can be associated with the myriad rituals, celebrations, festivals, “melas” and
other activities where they assemble.

• Distribution Strategy:
One of the ways could be using company delivery vans which can serve two purposes- it
can take the products to the customers in every nook and corner of the market and it also
enables the firm to establish direct contact with them and thereby facilitate sales
promotion. However, only the bigwigs can adopt this channel. The companies with
relatively fewer resources can go in for syndicated distribution where a tie-up between
non-competitive marketers can be established to facilitate distribution. Annual “melas”
organized are quite popular and provide a very good platform for distribution because
people visit them to make several purchases. According to the India n Market Research
Bureau, around 8000 such melas are held in rural India every year. Rural markets have
the practice of fixing specific days in a week as Market Days (often called “Haats’) when
exchange of goods and services are carried out. This is another potential low cost
distribution channel available to the marketers. Also, every region consisting of several
villages is generally served by one satellite town (termed as “Mandis” or Agri-markets)
where people prefer to go to buy their durable commodities. If marketing managers use
these feeder towns they will easily be able to cover a large section of the rural population.
• Promotional Strategy:
Firms must be very careful in choosing the vehicle to be used for communication. Only
16% of the rural population has access to a vernacular newspaper. So, the audio visuals
must be planned to convey a right message to the rural folk. The rich, traditional media
forms like folk dances, puppet shows, etc with which the rural consumers are familiar and
comfortable, can be used for high impact product campaigns.
Some Live Examples:
 One very fine example can be quoted of Escorts where they focused on deeper
penetration. They did not rely on T.V or press advertisements rather concentrated
on focused approach depending on geographical and market parameters like fares,
melas etc. Looking at the ‘kuchha’ roads of village they positioned their bike as
tough vehicle. Their advertisements showed Dharmendra riding Escort with the
punch line ‘Jandar Sawari, Shandar Sawari’. Thus, they achieved whopping sales
of 95000 vehicles annually.
 HLL started ‘Operation Bharat’ to tap the rural markets. Under this operation it
passed out low–priced sample packets of its toothpaste, fairness cream, Clinic
plus shampoo, and Ponds cream to twenty million households.

 ITC is setting up e-Choupals which offers the farmers all the information,
products and services they need to enhance farm productivity, improve farm-gate
price realization and cut transaction costs. Farmers can access latest local and
global information on weather, scientific farming practices as well as market
prices at the village itself through this web portal - all in Hindi. It also facilitates
supply of high quality farm inputs as well as purchase of commodities at their
doorstep.
 BPCL Introduced Rural Marketing Vehicle (RMV) as their strategy for rural
marketing. It moves from village to village and fills cylinders on the spot for the
rural customers. BPCL considered low-income of rural population and therefore
introduced a smaller size cylinder to reduce both the initial deposit cost as well as
the recurring refill cost.
Conclusion:
Thus looking at the challenges and the opportunities which rural markets offer to the
marketers it can be said that the future is very promising for those who can understand
the dynamics of rural markets and exploit them to their best advantage. A radical change
in attitudes of marketers towards the vibrant and burgeoning rural markets is called for,
so they can successfully impress on the 230 million rural consumers spread over
approximately six hundred thousand villages in rural India.
THE 4A APPROACH FOR RURAL MARKETS
The rural market may be alluring but it is not without its problems: Low per capita
disposable incomes that is half the urban disposable income; large number of daily wage
earners, acute dependence on the vagaries of the monsoon; seasonal consumption linked
to harvests and festivals and special occasions; poor roads; power problems; and
inaccessibility to conventional advertising media.
However, the rural consumer is not unlike his urban counterpart in many ways.

The more daring MNCs are meeting the consequent challenges of availability,
affordability, acceptability and awareness (the so-called 4 As)
AVAILABILITY
The first challenge is to ensure availability of the product or service. India's 627,000
villages are spread over 3.2 million sq km; 700 million Indians may live in rural areas,
finding them is not easy. However, given the poor state of roads, it is an even greater
challenge to regularly reach products to the far-flung villages. Any serious marketer must
strive to reach at least 13,113 villages with a population of more than 5,000. Marketers
must trade off the distribution cost with incremental market penetration. Over the years,
India's largest MNC, Hindustan Lever, a subsidiary of Unilever, has built a strong
distribution system which helps its brands reach the interiors of the rural market. To
service remote village, stockists use autorickshaws, bullock-carts and even boats in the
backwaters of Kerala. Coca-Cola, which considers rural India as a future growth driver,
has evolved a hub and spoke distribution model to reach the villages. To ensure full
loads, the company depot supplies, twice a week, large distributors which who act as
hubs. These distributors appoint and supply, once a week, smaller distributors in
adjoining areas. LG Electronics defines all cities and towns other than the seven metros
cities as rural and semi-urban market. To tap these unexplored country markets, LG has
set up 45 area offices and 59 rural/remote area offices.

AFFORDABILITY
The second challenge is to ensure affordability of the product or service. With low
disposable incomes, products need to be affordable to the rural consumer, most of whom
are on daily wages. Some companies have addressed the affordability problem by
introducing small unit packs. Godrej recently introduced three brands of Cinthol, Fair
Glow and Godrej in 50-gm packs, priced at Rs 4-5 meant specifically for Madhya
Pradesh, Bihar and Uttar Pradesh — the so-called `Bimaru' States.
Hindustan Lever, among the first MNCs to realise the potential of India's rural market,
has launched a variant of its largest selling soap brand, Lifebuoy at Rs 2 for 50 gm. The
move is mainly targeted at the rural market. Coca-Cola has addressed the affordability
issue by introducing the returnable 200-ml glass bottle priced at Rs 5. The initiative has
paid off: Eighty per cent of new drinkers now come from the rural markets. Coca-Cola
has also introduced Sunfill, a powdered soft-drink concentrate. The instant and ready-to-
mix Sunfill is available in a single-serve sachet of 25 gm priced at Rs 2 and mutiserve
sachet of 200 gm priced at Rs 15.
ACCEPTABILITY
The third challenge is to gain acceptability for the product or service. Therefore, there is a
need to offer products that suit the rural market. One company which has reaped rich
dividends by doing so is LG Electronics. In 1998, it developed a customised TV for the
rural market and christened it Sampoorna. It was a runway hit selling 100,000 sets in the
very first year. Because of the lack of electricity and refrigerators in the rural areas, Coca-
Cola provides low-cost ice boxes — a tin box for new outlets and thermocol box for
seasonal outlets.
The insurance companies that have tailor-made products for the rural market have
performed well. HDFC Standard LIFE topped private insurers by selling policies worth
Rs 3.5 crore in total premia. The company tied up with non-governmental organisations
and offered reasonably-priced policies in the nature of group insurance covers.
AWARENESS
With large parts of rural India inaccessible to conventional advertising media — only 41
per cent rural households have access to TV — building awareness is another challenge.
Fortunately, however, the rural consumer has the same likes as the urban consumer —
movies and music — and for both the urban and rural consumer, the family is the key
unit of identity. However, the rural consumer expressions differ from his urban
counterpart. Outing for the former is confined to local fairs and festivals and TV viewing
is confined to the state-owned Doordarshan. Consumption of branded products is treated
as a special treat or indulgence.

Hindustan Lever relies heavily on its own company-organised media. These are
promotional events organised by stockists. Godrej Consumer Products, which is trying
to push its soap brands into the interior areas, uses radio to reach the local people in their
language.
Coca-Cola uses a combination of TV, cinema and radio to reach 53.6 per cent of rural
households. It doubled its spend on advertising on Doordarshan, which alone reached 41
per cent of rural households. It has also used banners, posters and tapped all the local
forms of entertainment. Since price is a key issue in the rural areas, Coca-Cola
advertising stressed its `magical' price point of Rs 5 per bottle in all media. LG
Electronics uses vans and road shows to reach rural customers. The company uses local
language advertising. Philips India uses wall writing and radio advertising to drive its
growth in rural areas.
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
generalisation" 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."

FAST MOVING CONSUMER GOODS SECTOR
BACKGROUND
The FMCG sector has been the cornerstone of the Indian economy. Though, the sector
has been in existence for quite a long time, it began to take shape only during the last
fifty-odd years. To date, the Indian FMCG industry continues to suffer from a
definitional dilemma. In fact, the industry is yet to crystallize in terms of definition and
market size, among others. Generally, FMCG refers to consumer non-durable goods
required for daily or frequent use. The sector touches every aspect of human life, from
looks to hygiene to palate. Perhaps, defining an industry whose scope is so vast is not
easy.
Post-reforms, the industry's growth has been hinging around a burgeoning rural
population which has witnessed significant rise in disposable incomes. Consequently, the
rural markets have been witnessing intense competition in almost all the consumer
product classes. Another reason which has led to rise in this trend is the saturation in
urban markets in most of the consumer non-durable goods categories. This has led to the
industry players scrambling for greater rural penetration as a future growth vehicle, the
area which accounts for 70% of the total Indian households
The FMCG sector consists mainly of subsegments viz. personal care, oral care and
household products. This can be further sub-divided into oral care, soaps and detergents,
Health and Hygiene products, beauty cosmetics, hair care products, food and dairy-based
products, cigarettes, and tea and beverages. Of late, there seems to be a liberal approach
towards branding of the companies/products as FMCG; companies in businesses like
liquors (United Breweries), paints (Asian Paints), adhesives (Fevicol) too are being
labeled as FMCG stocks in the stock market parlance. Quite interestingly media stock
Zee Telefilms was labelled as FMCG stock by a mutual fund, which had Zee as its top
holdings in its FMCG sector scheme at one point of time!
So far, it has been a chequered graph for the MNCs operating in the Indian FMCG
industry. Domestic companies are only beginning to make their presence felt in the
industry. It has taken tremendous consumer insight and market savviness for the FMCG
players to reach where they are today. But, the journey seems to have just now begun for
the players as the majority of the rural populace are yet to get access to the items of daily
usage like toothpastes, soaps and shampoos.

SUMMARY
The FMCG industry is a low-margin business. Volumes hold the key to success in this
industry. That is why the industry players puts so much emphasis on marketing and
distribution. Brands are the key determinants of success in the market place. However,
the unorganized segment has continued to play spoilsport and has benefitted mainly due
to their strategy of "low price, high volumes". To add to the woes of the organized
players, the unorganized players have benefitted without spending even single penny on
advertising and brand building.
In the organized segment, FMCG players fight out in the marketplace to reach out to the
masses and compete with brands in similar product categories. Brand perception
influences purchase decisions here and so building that perception is critical. Little
surprising then that FMCG majors opt for high-decibel advertising in a bid to build and
reinforce the notion of perceived superiority, and convert that notion finally into sales
volumes. For new brands, spending more on advertising is all the more crucial. Product
launches entail large initial investments in advertising and sales promotion. Launch costs
are known to climb as high as 100 percent of sales revenue during the first year of the
launch.
A successful brand commands premium over non-branded products. According to a

recent A&M-ORG-MARG study, the share of branded goods is high for a number of
daily used products. Branded goods comprise of 65% of sales in villages. Of late, there
has been a decline in the share of non-branded products, according to the said study. This
all indicates that the coming days will witness more fierce battles for a pie in the lucrative
rural market segment.

STRUCTURE:
With domestic consumption close to Rs 80,000 crore, the FMCG sector today is one of
the largest in the country. One of the biggest challenges facing the Indian FMCG industry
is to get to the next level of innovation, besides presence of a huge unorganized market.
The key characteristics of the Indian FMCG market are as follows:
Heavy launch costs
Companies incur huge costs on the launch of new products. The entire launch process
goes through a series of processes such as product development, market research, test
marketing. All this require huge cash outflow. Further, in order to build brand awareness
and develop franchise for a new brand initial expenditure is incurred on launch
advertisements, free samples and product promotions. Launch costs are as high as 50-
100% of revenue in the first year and these costs progressively reduce as the brand
matures, gains consumer acceptance and turnover rises. For established brands,
advertisement expenditure varies from 5 - 12% depending on the categories. It is
common to give occasional push by re-launches, which involves repositioning of brands
with sizable marketing support.
Less capital intensive
The sector is not so capital intensive as majority of the product classes require very low
investment in fixed assets. The sector is also characterised by high turnover to investment
ratio; turnover is typically five to eight times the investment made in a greenfield plant at
full capacity. Another reason for the sector being less capital intensive is that bulk of
sales from manufacturers takes place on a cash basis.
Contract Manufacturing
Manufacturing of products by third party vendors is quite common. In order to keep a

check on costs and hence increase affordability of their products, companies in many
cases prefer to go for contract manufacturing by third party.
Marketing Drive
Marketing assumes a significant place in the brand building process of the industry
players. This helps in reaching out to a large consumer base and fight with the existing
brands. Even for an existing brand it requires constant marketing efforts to keep the
demand alive and kicking.

Market Research
Before the launch of any new product, conducting market research to gauge the
consumers' reaction is very important. This is because consumers' purchase decisions are
based on perceptions about brands and which keep on changing with fashion, income and
changes in lifestyle. Also in case of consumer goods it is difficult to differentiate
products on technical or functional grounds, unlike in the case of industrial products.
Now with increasing competition, there is tremendous pressure on the companies to do
extensive market research, test market it before coming out with any new product.
Presence of a large unorganized market
The FMCG sector is characterized by a huge unorganized market. Factors like low entry
barriers in terms of low capital investment, fiscal incentives from government, low brand
awareness, especially in rural areas led to the mushrooming of the unorganized sector.
Other features
In urban areas, the consumption dispersion is logically and practically broken up by the
population strata i.e. the Town Class. The urban elite, or the people living in metros,
consume a proportionately higher value of FMCGs. This has an effect on the retailing
structure also, as the retailer varies his stocking pattern and his basket of services,
according to the needs and the purchasing habits of the consumer on the one hand and his
own desire to differentiate from other such service providers on the other.
The key to success in the Indian FMCG industry lies in: cutting costs, investing in brand
building in the form of marketing, advertisements and promos, providing good price
points and aggressive pricing, offering products such as packaged atta and milk that add
value and convenience and protecting their human talents from poachers. Alongside,
FMCG players need to go in for new initiatives. Consider HLL for instance. The
company has made it clear that Internet is going be its key delivery vehicle, which would
expedite its distribution and sales efforts. Sure, Internet is going to change the way
FMCG companies strategize and do business. With reasons. Internet presents vast
opportunities to FMCG companies in the areas of logistics interface with consumers and
value chain.
Building a solid distribution network calls for massive investments. Indian FMCG
players, unlike their foreign counterparts, could not take chances with new brands, just in
case they failed. But more than their financial handicaps, it was a mindset that was
responsible for the laid back attitude: they were complacent, anti-change and anti-growth.
This mindset clouded their vision and strategy. Dabur has been a slow-changer to date.
Some of the McKinsey recommendations such as exiting from non-core businesses met
with strong objections from some members of the promoter family. Family feuds, so
typical of Indian corporates, left domestic FMCG majors with little time for marketplace
battles and strategizing.

Major Indian consumer product companies (like Britannia, P&G, HLL, etc.) have a very
strong presence through their strong brands. These companies make considerable
investment in R&D to sharpen and maintain their edge in the business. Diversified
portfolios, wide distribution networks and scale economies of these companies deter new
players from entering. Brand equity, therefore, is an extremely important factor in FMCG
industry. One of the other most critical factors is the ability to build, develop, and
maintain a robust distribution network.
The major issues that new MNC entrants face are low income levels, non-existence of
super markets in India, an incredible 5 million retail outlets, and a typically slow moving
low consumer demand resulting in dealers/retailers being reluctant to allocate their
resources and time.
The pace of competition
MNCs had both good product propositions and deep pockets to back them. Their parents'
wide product portfolios ensured that new products kept hitting the Indian market. Players
such as Cadbury redefined the basic tenets of the chocolate confectionery industry. It not
only launched new varieties and flavors, but in fact helped to change the consumption
patterns.
Consider the case of Cadbury's exercise in positioning its chocolate as a snack food.
Others such as Procter & Gamble (P&G) and SmithKline Beecham chose to be different.
They decided to introduce new products through their 100 per cent subsidiaries instead of
their already existing Indian subsidiaries. In P&G's case, though the move was aimed at
shielding it from high costs of product launches and brand building, it might deprive the
Indian arm the opportunities of leveraging P&G's global brands and high growth areas.
For long, Indian FMCG players have remained low-decibel advertisers. It was only
Nirma, which was a deliberate low-decibel advertiser. It still is. Such has been its
corporate philosophy. It does not even figure in the 1999 top-ten list of advertisers, which
had Dabur at number two, and Marico at four. When practically everybody else have
hiked their ad-budgets, Nirma continues to gain volumes by passing on the cost-benefits
to consumers. Nirma has proved that ultimately what matters is understanding the
consumer. Which is more a positioning than a marketing ploy. Another Indian major to
have reaped hefty benefits from its innovative positioning is Dabur.
Value for money
Ever since the global recession of 1991-94, which hit consumer spending hard, value-for-
money has become the buzzword for FMCG companies globally. These FMCG
companies embarked upon major restructuring and cost rationalization exercises as
business continued to become fiercely competitive. Several packaging innovations were
also resorted to. India was no different. There was a paradigm shift towards value-for-
money products and, to some extent, towards the rural market.

What Nirma did all these years suddenly become the buzzword for many FMCG players.
Price cuts became inevitable to keep the market share from shrinking. Sometimes, the
cuts touched ridiculous levels. Economic recession hit the urban pockets badly and forced
companies to train their guns on rural India, which was witnessing a major change in its
aspiration and lifestyles and even had an income that translated into increasing volumes.
Companies such as HLL, Colgate and Britannia who already had a strong rural focus,
stepped up the gas further. HLL unleashed its "Operation Bharat". Britannia pushed its
Tiger biscuits to every nook and corner of the country, while Colgate went about wooing
the rural masses by offering low-priced products in convenient packaging. Those who
could not do it on their own went piggyback on somebody else. P&G, whose distribution
is largely urban, chose to leverage Marico's retail reach.
P&G and SmithKline Beecham, nonetheless, are interesting cases. With small product
portfolios like theirs, they have been able to achieve what others could not and proved
that what you need is a good product, marketed effectively and sold at the right price.
Acquisitions all the way
Of late, an interesting trend in the Indian FMCG sector has been brand acquisitions. This
represents a growing awareness among the FMCG players are talking today more and
more of product "fits" while discussing brand acquisitions. It is not just acquiring
anything and everything as it was in the past.
Forget brands, protect those who make them. Yes, though there will be some amount of
brand acquisition, the real worry of the domestic FMCG players is to protect the makers
of their brands from poachers. The real challenge for all FMCG players, however, is in
holding on to the human talent that makes brands rather than the brands themselves.
FMCG marketers are known to be the best marketers globally and have takers in industry
as distinct as telecom and cellular, even insurance. HLL has learnt it the hard way.
Consider Internet's role in logistics. FMCG players can leverage Internet to extend their
logistics network beyond the traditional expensive EDI-based solutions. This would start
from connections between the factory and C&F and then move on to more complex
networks reaching out to key urban distributors and wholesalers. And over time, even to
rural wholesalers and retailers. As far as interface with consumers is concerned, Internet
can work wonders here. Over time, successful e-marketers can leverage the Internet to
develop user-communities, which are invaluable in creating loyalty and in testing
products. What more, FMCG companies can come together to form e-purchasing portals
and increase their purchasing power and ability to find smaller suppliers. All these call
for a productive partnership between the FMCG industry and the government. Experts
see this as an emerging opportunity. A partnership between the government, which wants
to drive Internet penetration into smaller towns, and FMCG companies who want to ride
off a shared infrastructural network to enable superior logistics and drive product
communications. Such a partnership can jointly drive the Internet network deeper into the
Indian heartland. It seems the excitement is just beginning in the Indian FMCG industry.

Rural marketing has become the latest marketing mantra of most FMCG majors. True,
rural India is vast with unlimited opportunities. All waiting to be tapped by FMCGs. Not
surprising that the Indian FMCG sector is busy putting in place a parallel rural marketing
strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, Colgate-
Palmolive and Britannia Industries are only a few of the FMCG majors who have been
gung-ho about rural marketing. With reason.
India’s agrarian economy is fundamentally strong. Rural India accounts for as much as 70
per cent of the nation’s population. That means rural India can bring in the much needed
volumes and help FMCG companies to log in volume-driven growth. That should be
music to FMCGs who have already hit saturation points in urban India.
Certainly, rural marketing holds the key to success of FMCG companies, which are
desperate to find ways out to gain deeper penetration. Not just the rural population is
numerically large, it is growing richer by the day. Of late, there has been a phenomenal
improvement in rural incomes and rural spending power. Successive good monsoon has
led to dramatic boost in crop yields. Consider this statistics: foodgrain production
touched 200 million tones during fiscal 1999 against 176 million tones logged during
fiscal 1991. Not just improved crop yields, tax-exemption on rural income too has been
responsible for this enhanced rural purchasing power.
COMPANIES INITIATIVES
E-CHOUPAL AT A GLANCE
Commencement of initiative 2000

States Covered 7
Villages Covered 31,000
e-Choupal Installations 5372
Empowered e-farmers 3.5 million
AGENDA
• States to be covered: 15
• Villages to be covered: 1,00,000
• e-Choupals to be installed: 20,000
• Farmers to be e-empowered: 10 million

Through the e-Choupal initiative, ITC aims to confer the power of expert knowledge on
even the smallest individual farmer. Thus enhancing its competitiveness in the global
market.
The immense potential of Indian agriculture is waiting to be unleashed. The endemic

constraints that shackle this sector are well known – fragmented farms, weak
infrastructure, numerous intermediaries, excessive dependence on the monsoon,
variations between different agro-climatic zones, among many others. These pose their
own challenges to improving productivity of land and quality of crops. The unfortunate
result is inconsistent quality and uncompetitive prices, making it difficult for the farmer
to sell his produce in the world market.
ITC’s trail-blazing answer to these problems is the e-Choupal initiative; the single-largest
information technology-based intervention by a corporate entity in rural India.
Transforming the Indian farmer into a progressive knowledge-seeking citizen. Enriching
the farmer with knowledge; elevating him to a new order of empowerment.
e-Choupal delivers real-time information and customised knowledge to improve the

farmer's decision-making ability, thereby better aligning farm output to market demands;
securing better quality, productivity and improved price discovery. The model helps
aggregate demand in the nature of a virtual producers' co-operative, in the process
facilitating access to higher quality farm inputs at lower costs for the farmer. The e-
Choupal initiative also creates a direct marketing channel, eliminating wasteful
intermediation and multiple handling, thus reducing transaction costs and making
logistics efficient. The e-Choupal project is already benefiting over 3.5 million farmers.
Over the next decade, the e-Choupal network will cover over 100,000 villages,
representing 1/6th of rural India, and create more than 10 million e-farmers.
ITC began the silent e-volution of rural India with soya growers in the villages of
Madhya Pradesh. For the first time, the stereotype image of the farmer on his bullock cart
made way for the e-farmer, browsing the e-Choupal website. Farmers now log on to the
site through Internet kiosks in their villages to order high quality agri-inputs, get
information on best farming practices, prevailing market prices for their crops at home
and abroad and the weather forecast – all in the local language. In the very first full
season of e-Choupal operations in Madhya Pradesh, soya farmers sold nearly 50,000 tons
of their produce through the soyachoupal Internet platform, which has more than doubled
since then. The result marks the beginning of a transparent and cost-effective marketing
channel. Bringing prosperity to the farmers' doorstep.
Linking farmers to remunerative markets
Farmers grow wheat across several agro-climatic zones, producing grains of varying
grades. Though these grades had the potential to meet diverse consumer preferences, the
benefit never trickled down to the farmers, because all varieties were aggregated as one
average quality in the mandis. Enter ITC's e-Choupal intervention. The e-Choupal site is
now helping the farmers discover the best price for their quality at the village itself. The

site also provides farmers with specialized knowledge for customizing their produce to
the right consumer segments. The new storage and handling system preserves the identity
of different varieties right through the 'farm-gate to dinner-plate' supply chain.
Encouraging the farmers to raise their quality standards and attract higher prices.
ITC provides the farmer appropriate documentation which records the quantity
and quality of his output. Payment is instant.
ITC's mobile vans take the message of e-Choupal to new villages. Thereafter, virtual
helpdesks enable the farmer to find solutions to his problems through online
interactions. ITC has set up VSAT links to overcome connectivity problems.
• ITC’s Aqua Care Centre in Kakinada, Andhra Pradesh, has revolutionised the
concept of shrimp seed testing. Its sophisticated laboratory detects the deadly
White Spot virus in the shrimp seed and advises farmers on appropriate remedial
action.
• The whats and ifs in the aqua farmers' life posed daunting odds. They were
haunted by the nightmare of contaminated soil, wrong levels of salinity in the
water or the killer White Spot virus, any of which could wipe out an entire shrimp
crop. Until ITC's aqua-choupal site provided them the support and the know-how
to cope with and manage such risks. Information on the aqua-choupal site equips
farmers with comprehensive know-how to keep abreast of food safety norms to
compete in the international market. Information includes parameters for
antibiotic usage, hygienic washing, sanitised dressing and air-tight packing. All
these factors help to neutralise the risks involved in aqua farming. Making it
economically much more attractive, benefiting hundreds of aqua farmers.

• In the high-risk business of shrimp farming, the wealth of information provided
by aquachoupal.com has proved a great boon for farmers in Andhra Pradesh. This
success has encouraged ITC to plan its extension.
• In addition to assisting with knowledge management through the website, ITC

provides on-ground inputs to farmers on best practices, grading standards, quality
policy etc.
“A quiet digital revolution is reshaping the lives of farmers in remote Indian villages.
In these villages, farmers grow soyabeans, wheat and coffee in small plots of land, as
they have for thousands of years. A typical village has no reliable electricity and has
antiquated telephone lines. The farmers are largely illiterate and have never seen a
computer. But farmers in these villages are conducting e-business through an initiative
called e-Choupal, created by ITC, one of India's largest consumer product and
agribusiness companies”.

HINDUSTAN LEVER LTD.
HLL has been proactively engaged in rural development since 1976 with the initiation of
the Integrated Rural Development Programme in the Etah district of Uttar Pradesh, in
tandem with the company’s dairy operations. This Programme now covers 500 villages in
the district. Subsequently, the factories that HLL continued establishing in less-developed
regions of the country have been engaged in similar programmes in adjacent villages.
These factory-centered activities mainly focus on training farmers, animal husbandry,

generating alternative income, health & hygiene and infrastructure development.
The company has acquired a wealth of experience and learning from these activities.
KEY LEARNINGS ON RURAL DEVELOPEMENT:
The principal issue in rural development is to create income-generating opportunities for

the rural population. Such initiatives are successful and sustainable when linked with the
company’s core business and is mutually beneficial to both the population for whom the
programme is intended and for the company.
Based on these insights, HLL launched Project Shakti in the year 2001, in keeping with
the purpose of integrating business interests with national interests.
EMPOWERING WOMEN IN RURAL INDIA
The objective of Project Shakti is to create income-generating capabilities for

underprivileged rural women, by providing a sustainable micro enterprise opportunity,
and to improve rural living standards through health and hygiene awareness.
Following the pioneering work carried out by Grameen Bank of Bangladesh, several
institutions, NGOs and government bodies have been working closely, for nearly five
years, to establish Self Help Groups (SHGs) of rural women in villages across India.
Their experiments clearly indicate that micro-credit, when carefully targeted and well
administered can alleviate poverty significantly A crucial lesson learnt was that rural
upliftment depended not on successful infusion of credit, but on its guided usage for
better investment opportunities
This is where HLL's Project Shakti is playing a role in creating such profitable micro
enterprise opportunities for rural women.

CATALYSING PROSPERITY IN INDIAN VILLAGES
Under the project, HLL offers a range of mass-market products to the SHGs, which are
relevant to rural customers. HLL is investing significantly in resources who work with
the women on the field and provide them with on-the-job training and support. This is a
key factor in ensuring the stabilization of their fledgling businesses.
HLL imparts the necessary training to these groups on the basics of enterprise
management, which the women need to manage their enterprises. For the SHG women,
this translates into a much-needed, sustainable income contributing towards better living
and prosperity. Armed with micro-credit, women from SHGs become direct-to-home
distributors in rural markets.
PROJECT SHAKTI
A typical Shakti entrepreneur conducts a steady business which gives her an income in
excess of Rs.1,000 per month on a sustainable basis. As most of these women live below
the poverty line, and hail from extremely small villages (with populations of less than
2000), this earning is very significant, and almost twice the amount of their previous
household income.
For most of these families, Project Shakti is enabling families to live with dignity, with
real freedom from want.
In addition to money, there is a marked change in the woman's status within the
household, with a much greater say in decision-making. This results in better health and
hygiene, education of the children, especially the girl child, and an overall betterment in
living standards.
The most powerful aspect about this model is that it creates a win-win partnership
between HLL and the consumers, some of whom will depend on the organization for
their livelihood, and builds a self-sustaining cycle of growth for all.

SHAKTI: THE VISION
HLL envisions the creation of 25,000 Shakti Entrepreneurs covering 100,000 villages,
and touching the lives of 100 million rural people by the year 200.
In order to achieve this goal, Project Shakti plans to extend to the states of West Bengal,
Punjab and Rajasthan in addition to expanding operations in the eight existing states.
HLL
M
A RE-DISTRIBUTION
R STOCKIST
T
MACTS
SHG’S RETAILERS
RURAL CONSUMER
“HLL’S RURAL DISTRIBUTION MODEL”

KEY ISSUES
It's a volume-value game. Most Indian FMCG majors know this well. That is why FMCG
companies such as “Marico Industries” are gearing up for bigger advertisement and
sales promotion campaigns aimed at the rural buyer. Marico’s high-pitch rural
marketing exercise involves repositioning brands, repackaging products and re-pricing
them, all with an eye on the rural wallets. The company has been working constantly on
extending its parallel rural sales and distribution networks, which already finds a place
among the industry’s top three. Concerns abound over the inability of rural markets to
meet the soaring rural ambitions of the Indian FMCG majors. Is the perception that
industry majors such as Hindustan Lever are on the verge of diluting their rural
focus true? Does the urban consumer featured on the cover of Hindustan Lever’s 1998
annual report reflect this shifting focus? It is a tactical shift, just a trade-off between value
and volume, between the urban market and the rural market". For, focusing all out on one
of these markets at the cost of the other could be suicidal. That is why a few FMCG
companies are not putting in concerted efforts to tap the rural market. Consider the case
of Cadbury. The company has clarified that the rural market is not for it, at least for now.
Meanwhile, Marico is trying hard to get into the premium-end hair-oil market. What do
all these portend? Rural marketing could open the doors of opportunities, but the path is
paved with thorns. One major limitation here is this: most FMCG players just do not have
the critical size for going all out for rural marketing. That is why most FMCG players are
expected to concentrate both on rural and urban marketing: focus on urban markets for
value and focus on rural markets for volumes. One result-oriented marketing strategy
here is this: offer value-additions to existing lines to lure the urban consumer and
alongside offer the rural consumer wide-ranging choices within a single product category
in a bid to generate high volumes.
There are more problems in rural marketing. Success in rural marketing calls for a sound
network and a thorough understanding of the rural psyche. Rural consumer’s price-
sensitivity is something the FMCG players should be alive to. Rural income-levels are
largely determined by the vagaries of monsoon and thus rural demand is not a steady
horse to ride on. This makes rural marketing a gamble. It is more than a gamble for
FMCG minors who do not have a clutch of strong brands across product segments. These
FMCG minors are not able to cross-subsidize their products and go for product
experimentation. The result: FMCG minors have a limited reach, are not able to erect
entry barriers and have no ways to minimize the impact from loss of sale opportunities.
The vast and diverse rural market calls for multi-tiered distribution networks, efficient
logistics and friendly infrastructure.
Another issue is the stark difference in the characteristics of the consumers. The
consumers stand apart as two different markets as is evident from their current
consumption baskets, and their attitude towards essential and luxury items. In addition,
although the evolution is towards a better lifestyle therefore product and brand choice is
there in both these markets, the rate of evolution is highly different.

The real test still lies ahead. One major hurdle in rural marketing is: whether an FMCG
player will be able to offer the best price and aspirational values to the rural consumer
who has a peculiar tendency to mimic his urban counterpart. So, what should the FMCG
players do now? They should not only price their products competitively, but also offer
their rural prospects maximum value for money spent. Certainly, reaching out to 3.33
million retail outlets is an uphill task. The only way out for Indian FMCG players: put in
place an aggressive cost structure, which would enable them to offer low-price and value-
for-money products. But then, FMCG is a low-margin business with a high cost of raw
materials. Consider the case of Marico: its material cost works out to a high of 59 per
cent on sales. Therein lies the rural marketing paradox. However, customer-centric and
market-savvy FMCG companies have always chased prospects when they perceive there
is a latent demand. For instance, Hindustan Lever’s Rin, Surf and Lux are available even
in India’s most obscure villages. Hindustan Lever had given shape to its rural strategy a
few years ago when it perceived that its urban market was shrinking due to an industrial
slowdown. Its Operation Bharat that focused on personal care products made the most out
of surging rural incomes. The result was there for all to see. The company has been able
to clock in double-digit profits every three years and log in double-digit revenues every
four years. Britannia with its Tiger brand of biscuits and Colgate-Palmolive with its low-
priced and conveniently packaged products designed for the rural masses have been other
pioneers in rural marketing. Thus, Britannia and Colgate-Palmolive have been able to
derive more than 30 percent of their revenues from rural markets.
Sure, there is a lot of money in rural India. But, there are obstacles. The biggest obstacle
is that the rural consumer is still evolving. Only FMCGs with deeper pockets, unflinching
rural commitment and staying power can play this rural game. Cost of setting up a huge
retail network has saw many casulaties, the notable being the P&G which abandoned its
plan to fight the likes of Lever in the rural segment on its own. Instead, it is aiming to
piggyback on the Marico Industries which has got a strong presence in these markets
through its flagship brand "Parachute". The FMCG stalwart Hindustan Lever has started
its ambitious project "Project Shakti", a five-month old marketing initiative involving
women belonging to micro-credit self-help groups (SHGs) in the Nalgonda district of
Andhra Pradesh, similar to the highly successful experiment Bangladesh's Grameen Bank
used in rural areas of the country.

FUTURE OUTLOOK
Domestic market is witnessing a structural shift in terms of demand with rural markets
beginning to show increased demand for FMCG products. This is happening at a time
when the urban market is showing signs of saturation. However, the low level of
penetration in the rural areas is a cause of concern. For a number of consumer
expendables the penetration levels are extremely low, but are expected to increase with
the passage of time and rise in income levels. For instance, for toilet soap, the average
expenditure per user household for low-income households is Rs. 237, while it has
increased to Rs. 706 for high-income groups. Rural market at a staggering 122 million,
five times the urban market, is hard to ignore for anyone.
This on the other hand also provides an excellent opportunity for the industry players in
the form of a vastly untapped market. However, to propel the demand in the rural areas,
issues like taxes and costs would be very crucial, given the cost-conscious nature of the
consumers there. Recent Bugdet hike in FMCG products like toothpastes do not bode
well for the companies's efforts to focus on spreading awareness about oralcare in these
areas and the increased usage of oral care products there.
Another area which offers immense growth opportunities is unbranded segment.

However, cost will again be the determining factor for success here. The increased
inflow of imported consumer goods in the country, especially from China, as a result of
lifting of the QRs (Quantitative Restrictions) by the government, is also expected to give
the domestic players a run for their money. In recent times, the markets have been seeing
a veritable war over the retail shelf, which promises to intensify in the foreseeable future.
Lifting of the quantitaive restrictions and dereservation of several items, which were
earlier reserved for SSIs, are expected to lead to intense competition in the market
place.
In the wake of such developments, the crucial success factor will be the distribution
strength a company would be able to have or develop. However, in the wired world that
alone won't be enough as a entry barrier. Internet is fast emerging as a strong distribution
channel and the new players are finding it easier to launch assaults through this medium
very effectively. That is why we are seeing web intiatives from market majors like HLL,
Godrej etc. which want to pre-empt competitors in that space. And, it won't be an
exaggeration to say that the next FMCG war will be fought on the wired turf.
Brand building will be another key issue. There has been a spurt in promotional activities,
which has resulted in an increasing fight for the customer's attention at the point of
purchase. This has made brand differentiation at the retail level extremely difficult. This
has been further aggravated by brand extension strategies adopted by the companies. One
good example is the Hindustan Lever. The company, in some of the product categories
like soaps, have relied heavily on brand extensions. In case of Lifebuoy, a toilet soap, so
many variants have flooded the shelves, however this could also mean diluted focus, on
part of the company and confusion for the consumers. HLL has recently planned to trim
its product portfolio and concentrate on key brands only. It is expected to withdraw from

the markets variants of its toothpaste brand "Close Up" such as Close Up Renew and
Close Up Oxyfresh.
Companies will be increasingly reviewing the quantity versus quality equation, as well as
distribution synergies, to try and leverage for the best possible distribution at the least
possible cost. This could be a crucial factor in deciding the fate of players.
The key factors that are expected to trigger future growth for the FMCG industry include
reduction in excise duties, relaxation of licensing restrictions and reduced dominance of
unorganized sector due to creation of level playing field. The growing reach of
advertising medias like satellite and cable TV too is expected to give a boost to the
market penetration initiatives of the industry players.
The results of a survey done by National Council of Applied Research (NCAER) suggest
that Indian FMCG space is all set to enter a new growth phase, sample this: the study
says that the lower income group is expected to shrink from over 60 percent (1996) to 20
per cent by 2007 and the higher income group is expected to rise by more than 100 per
cent. It looks, the industry is all set for a fast-paced race ahead.

PILLARS OF FAST MOVING CONSUMER GOODS
The Fast Moving Consumer Goods (FMCG) business is built on two pillars - Brands and
Distribution. The under given is the comprehensive conceptual coverage of these and
other key marketing concepts
1. BRANDING
2. VALUATION OF BRANDS
3. DISTRIBUTION
4. MARKETING
5. MARKET RESEARCH
6. MARKET SEGMENTATION AND POSITIONING
7. ADVERTISING AND PROMOTIONS

BRANDING
What is a brand ?
A brand is name, term, sign, symbol or design or a combination of them which is

intended to identify the goods or services of one seller or group of sellers and to
differentiate them from those of competitors’
A Trade mark is "a brand or a part of brand that is given legal protection because it is
capable of exclusive appropriation."
Manufacturers can use their own brands (known as Manufacturers’ brands) or brands of
their distributors (Distributors’ brands).
Why branding?
Manufacturers/ distributors use brand names for a variety of reasons from simple
identification purposes to having legal protection for unique features of the products from
imitations and help consumers recognize certain quality parameters. In some cases,
brands are just used to endow the product with unique story and character which itself
can be a basis for product differentiation.
Special importance of brands for FMCG products
While brands can represent all types of goods or entities, they have special importance
for FMCG products. Brand equities are stronger in FMCG products as the consumer is
reluctant to try unknown brands/ unbranded products for the following reasons
• these products individually account for a small part of household spending.

• most of these products are personal use
• In many cases, it is difficult to differentiate a product on technical or functional
grounds and therefore the consumer is reluctant to switch to an unknown brand.
• Successful brands generate strong cash flows, which enable the owner of the
brand to reinvest a part of it in the form of aggressive advertisements/ promotions.
This reinforces the perceived superiority of a brand.

How a brand is created?
FMCG companies spend enormous sums on building brand equity by way of:
-advertisements/publicity
-Free samples
-Low entry price
-Promotions (schemes for dealers, consumers etc)
Advertisement and promotion can induce trials but for sustained loyalty, the
manufacturer has to offer superior quality and value for money. Most successful brands
are founded on a chance discovery of a new product/ process or assiduous research and
development work. Major players invest in R&D on their existing brands and improve
the product quality continuously to maintain their edge over competitors.
Branding strategies
a) Individual brands Vs Umbrella brands
Individual brand has its own identity and the corporate or common name is not used to
promote its equity. In case umbrella brand, there is a generic brand with association of
some values. For instance, Hindustan Lever follows individual branding strategy and has
several brands in the same category such as Lux, Liril, Rexona soaps etc. Competitor
Nirma has mainly followed the umbrella branding strategy such as Nirma Bath, Nirma
Beauty, Nirma Super, Nirma Shikakai soap etc. Only recently, the company for the first
time diverted from its strategy of umbrella branding with the launch of Nima.
Advantages of Individual branding strategy are
• Some of the products which flop in the market, do not have negative spill over
impact on other brands. For example, Nirma is associated with popular end of
products, which becomes a major deterrent for its expansion in the premium
segment.
• Consumers looking for a change are offered distinctly new brands by the same
manufacturer.
But individual branding requires expensive advertisements and brand building exercises.
Also, each new brand does not benefit from the positive perceptions of earlier brands.

In umbrella branding, manufacturers have advantage of
• Establishing a new product quickly with association of quality/ benefits of the

mother brand (a classic case in Indian context has been Godrej).
• No need for name research, expensive advertisement for creating brand names,
recognition and preference.
b) Brand extensions
Brand extensions are used for a group of products such as Clinic Plus Shampoo, Clinic
All Clear., Clinic Plus hair oil or Close Up Renew, Close Up Oxyfresh, Close Up
Sensation, etc. The brand has some unique USP and there are cosmetic/ functional
variations in the extensions. The strategy is to build upon initial success of a brand entry
by creating flanker it ems and minor variants of the basic brand. Brand extensions may
be used within product categories (In some products like shampoos, there can be natural
variants such as shampoo for normal hair, dry hair or for specific problem solving like
anti-dandruff). It may also be used for different product segments (eg Sunsilk brand being
extended to hair oil)
c) Multi brands
Marketer introduces brands mostly in large markets, which compete with each other in
almost the same segment. In multi branding, there is cannibalization but overall result is
greater market share. Net incremental market share is enough to justify the investment in
the new brand. For instance Hindustan Lever has several brands (Lux, Breeze, Hamam,
Rexona, etc) in the same category ie toilet soaps.
Accounting for brand expenses
Expenses incurred by way of advertisements, free samples, promotions etc are treated as
revenue expenditure by accountants, as they do not create any tangible assets. The
intangible assets created in the form of a brand pays back in the form of repeat buying
and pricing power over a long period of time. An established brand is a precious asset
and when sold, fetches a price several times the value of tangible assets required to
manufacture the product.
There is no generally accepted methodology for valuing and accounting for brands. Also,
all methods recommended for valuing brands suffer from lack of objectivity and
consistency. There is considerable risk as expenses incurred on a unsuccessful brand has
to be written off almost entirely. But the same are paid back several times in case of
successful brands. In case of FMCG companies, assets are considerably understated as
they do not include value of brands. Inclusion of brands in assets will
- dilute return on networth
- reduce gearing ratio.

It can be argued that high return on networth shown by established companies is
overstated as assets (ie Brands) are understated. Similarly, in case of companies in
investment phase, making extensive investment in new brands, would exhibit depressed
return on networth as investment in brands is being written off, pulling down the profits.
Some companies defer writing off a part of the expenditure for brand building. The
expenditure not written off in the year is treated as deferred revenue expenditure.
Some case studies on brand valuation, acquisitions and transfers
Brand valuation
1. Infosys brand valuation
Brand takeovers
1. Cibaca takeover by Colgate
2. Lakme takeover by Hindustan Lever
3. Captain Cook and Tarla Dalal by International Bestfoods
Brand transfers
1. Marico
2. Navneet
DISTRIBUTION
Distribution channels and network
Marketing or Distribution channel refers to the set of marketing intermediaries which

manufacturers link together to reach their products to the ultimate consumers. Depending
on the product, nature of market and manufacturers’ resources/strategy, there can be one
or more links between the manufacturer and consumer.
a. Manufacturer - Retailers
b. Manufacturer - Wholesalers - Retailers
c. Manufacturer - Stockists - Wholesalers - Retailers .

Why use distribution channels
There are several benefits for a manufacturer particularly in case of consumer goods to
rely on these marketing intermediaries rather than develop one’s own distribution
network.
• Efficiency in performing the basic marketing task by these intermediaries who

through their experience, specialization, knowledge of local conditions, contacts
and scale, offer services which manufacturers can scarcely do on their own.
• Cost advantage most of these intermediaries in India are family owned outfits.
Their cost of operations and overheads are substantially lower.
• Focus : Manufacturers can concentrate on their core activity and optimize return
on assets.
RETAILING
In India, there are over 5 million retail outlets dispersed all over the country. The retailing
industry provides employment to over 18mn people. 1 out of every 25 families in India is
engaged in the business of retailing. Ownership and management are predominantly
family controlled. However in sharp contrast to developed countries, unit average size of
a retail outlet in India is very small.
Organized retailing, however, has been a recent phenomenon and is relatively

undeveloped. There are no large super market chains/ shopping malls. Consumers are
unwilling to pay a premium for convenience shopping as their counterparts in the western
countries do. While small chain stores called Apna Bazaars and Sahakari Bhandaars,
which offer products at reasonable prices have been fairly popular, Department Stores
and Food Stores are slowly gaining popularity. A large number of corporates have
recently ventured into retailing.
The retail outlet in India can be broadly categorized as follows:
• Grocery Stores
• General Purpose Stores
• Food Stores
• Pan/Bidi Stores
• Chemist/Drug Stores
• Cold Chains
• Others

The relative share of grocers dropped from over 50% in the early 90's to 35% in the late
90's. Chemist outlets on the other hand, have been expanding their product range to
include high margin FMCG products from shampoos to ketchup. Panwallas are also
emerging as full fledged consumer product outlets.
Table : Growth in retail outlets (m nos)
Year Urban Rural Total

1978 0.58 1.76 2.35
1984 0.75 2.02 2.77
1990 0.94 2.42 3.36
1996 1.80 3.33 5.13
Composition of urban outlets
Grocers 34.7%
Cosmetic stores 4.0%
Chemist 6.3%
Food Stores 6.6%
General Stores 14.4%
Pan + stores 17.0%
Others 17.0%
Composition of rural outlets
Grocers 55.6%
General stores 13.5%
Chemist 3.3%
Others 27.6%

MARKET SEGMENTATION AND POSITIONING
A market is defined as individuals, organizations with purchasing power, and desire/

willingness to purchase. Markets can be categorized based on the buyers as follows :
Producers market trade in raw material, equipment, supplies, machines etc.
Reseller market trade in finished goods, services from producers
Consumer market : refers to market where end consumer buys the products for personal
or household use. Consumer market can be bifurcated into durables and non-durables
markets. The non-durable products are also known as fast moving consumer goods.
Market segmentation
Markets comprise of heterogeneous segments of consumers. Market segmentation refers

to process of identifying a group of buyers with similar buying desires and requirements.
Each segment is targeted by the marketeer with a distinct marketing mix.
Broadly markets can be segmented on the following basis :
Geographic : location, nations, states, cities, rural, urban areas etc
Demographic variables such as age, sex, family size, marital status, income, occupation,
education, family life cycle, religion, nationality, social class.
Psychographic variables such as lifestyles, personality, buying motivation, product

knowledge.
Benefits segmentation divides the market along buying motives. For instance, in case of
toothpastes, benefits could be decay prevention, white teeth, fresh breath, good taste, low
price etc.
Within a segment, there can be further segmentation such as a market segmented along
geographic areas can be further segmented on the basis on income and so on.
Income segmentation
Income segmentation is one of the most popular and convenient way of segmenting the
market. Consumers can be broadly divided into low income, middle income and high
income group. Most FMCG products are also segmented along the target consumer
segments in economy, popular and premium categories. Price differential between
popular and premium products is significantly higher than what would be warranted by

manufacturing cost differentials. Marketeers create product differentiations with focussed
advertisement/ promotions and superior packaging also.
Segmentation and consolidation
With increasing competition, players try out to carve separate niche which leads to
greater segmentation of the market. As each brand needs significant investment for
launch as well to sustain equities, the plethora of brands become unmanageable. The
process of restructuring and cost engineering results in consolidation and phasing out of
weaker brands and thereby reducing the market segmentation.

ADVERTISING AND PROMOTION
Advertising consists of non-personal form of communications. The communication is

conducted through trade media under player sponsorships. Advertising aims at providing
information about the product, arouse demand for the product and emphasize on superior
features of the advertised product over others. Players have to decide on overall
advertisement budget, message and mode of presentation, type of media, timing etc. They
invariably do post audit of advertising efficacy.
Promotions are of two types viz pull promotions where consumers are incentivized and
push promotion where dealers/ retailers are incentivized. There are several forms of
promotion such as distributing free samples, discount coupons, gift offers for consumers
and target based incentives, display schemes etc for retailers. Marketeers also sponsor
charity programmes, sports etc to promote corporate/ brand image.
RURAL PROMOTION STRATEGIES:
“Promotion” of brands in rural markets requires the special measures. Due to the
social and backward condition the personal selling efforts have a challenging role to play
in this regard. The word of mouth is an important message carrier in rural areas. Infect
the opinion leaders are the most influencing part of promotion strategy of rural promotion
efforts. The experience of agricultural input industry can act as a guideline for the
marketing efforts of consumer durable and non-durable companies. Relevance of Mass
Media is also a very important factor.
The Indian established Industries have the advantages, which MNC don't enjoy in this
regard. The strong Indian brands have strong brand equity, consumer demand-pull and
efficient and dedicated dealer network which have been created over a period of time.
The rural market has a grip of strong country shops, which affect the sale of various
products in rural market. The companies are trying to trigger growth in rural areas. They
are identifying the fact that rural people are now in the better position with disposable
income. The low rate finance availability has also increased the affordability of
purchasing the costly products by the rural people. Marketer should understand the price
sensitivity of a consumer in a rural area. This paper is therefore an attempt to promote the
brand image in the rural market.
Introduction
Indian Marketers on rural marketing have two understanding (I) The urban metro
products and marketing products can be implemented in rural markets with some or no
change. (ii) The rural marketing required the separate skills and techniques from its urban
counter part. The Marketers have following facilities to make them believe in accepting
the truth that rural markets are different in so many terms.

(i) The rural market has the opportunity for.
(ii) Low priced products can be more successful in rural markets because the low
purchasing, purchasing powers in rural markets.
(iii) Rural consumers have mostly homogeneous group with similar needs, economic
conditions and problems.
(iv) The rural markets can be worked with the different media environment as opposed to
press, film, radio and other urban centric media exposure.
How does reality affects the planning of marketers? Do villagers have same attitude like
urban consumers? The question arises for the management of rural marketing effects in a
significant manner so than companies can enter in the rural market with the definite goals
and targets but not for a short term period but for longer duration. The Research paper
will discuss the role of regard. The strategy, which will be presented in the paper, can be
either specific or universally applicable.
Realities before the Marketers
70% of India's population lives in 627000 villages in rural areas. 90% of the rural
population us concentrated in villages with a population of less than 2000, with
agriculture being the main business. This simply shows the great potentiality rural India
has to bring the much - needed volume- driven growth. This brings a boon in disguise for
the FMCG Company who has already reached the plateau of their business urban India.
As per the 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 the 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 India is expected to be doubles that of urban
India.

HLL chairman MS Banga Says, "This exercise may not pay in the immediate future, but
will definitely give long-term dividends. Incidentally, over 50 percent of the sales of
HLL's fabric wash, personal wash and beverages are in rural areas. And we see a future in
going rural in a major way".
The improved agricultural growth is expected to boost rural demand, through not at too
sizzling a rate. Moreover, the price drop in personal products, after the recent excise duty
reductions, in also expected to drive consumption. "Better agricultural yields will give
farmers more spending power, making the rural markets bullish," says an analyst.
As a result, HLL has planned a rural marketing program that is expected to result in a
marked growth in the consumption of the company's products in the rural market. HLL
will adopt three-pronged marketing strategy- new price points, sizes and awareness
campaigns for its detergents and soaps segment to augment rural growth.
The Indian established Industries have the advantages, which MNC don't enjoy in this
regard. The strong Indian brands have strong brand equity, consumer demand-pull and
efficient and dedicated dealer network which have been created over a period of time.
The rural market has a grip of strong country shops, which affect the sale of various
products in rural market.
The companies are trying to trigger growth in rural areas. They are identifying the fact
that rural people are now in the better position with disposable income. The low rate
finance availability has also increased the affordability of purchasing the costly products
by the rural people. Marketer should understand the price sensitivity of a consumer in a
rural area. The small sachet packs are the examples of price sensitivity. Colgate has done
this experiment with launching of sachet packs for rural markets.
Research Modus Operandi and Design:
The research methodology for this research work is based on the survey technique. Few
brands like Coca-Cola, BPL, Asian Paints have been chosen to conduct the research
work.
The Gram Panchayat areas have been selected on random basis from the list of available
Gram Panchayat. The four-Gram Panchayat have been short-listed and 60 respondents
have been selected in each Gram Panchayat so the total sample size N = 240.
The respondents were organized in a group and asked about their views on
following advertisement actions and theme:
1) In case of Coca-Cola how does the role of Aamir Khan affect the rural consumers?
2) In case of BPL Television how does Amitabh Bachchan give the impression about
BPL Brand

3) How does the advertisement of Asian Paints with the Slogan "Sunil Babu" influence
the rural consumers
The research design applied for this purpose is experimental with descriptive. The
experimental design was suitable as the rural consumers fell interest about it and
descriptive design depends on the explanation past about the campaign of these Brands.
Conceptual Framework
Given the Literacy scenario in to consideration the promotion of Brands in rural markets
requires the special measures. Due to the social and backward condition the personal
selling efforts have a challenging role to play in this regard. The word of mouth is an
important message carrier in rural areas. Infect the opinion leaders are the most
influencing part of promotion strategy of rural promotion efforts. The experience of
agricultural input industry can act as a guideline for the marketing efforts of consumer
durable and non-durable companies. Relevance of Mass Media is also a very important
factor. Door Darshan had already acquired high penetration in rural households.
Now the cable and other Channels have also penetrated in rural households. The
newspapers and other printed Media are also gaining strategy but their role is still
secondary in this regard.
Results and Discussions:
The field exercise has given the various inputs about the rural consumers. This
experience was unique from a marketer's point of view that the companies must have a
proper understanding of rural marketing environment at a region wise basis. The data has
tabulated in following manner. Advertisement of Coca-Cola (Acceptability pattern)
Contents Favor Non-Favor No Comment

Language and content of Ad. 72% 20% 8%
Back ground effect of Ad. 50% 20% 30%
expressions and communication styles of Aamir 85% 15% -
Khan
The Ad plays an important role for giving boost to rural consumers feeling. The feeling
plays very important role. The Language and content (72%) and expression style of
Aamir Khan (85%) play significant role.
BPL advertisement

Amitabh Bachchan as a brand 75% 20% 5%
Ambassador

The Action style of Amitabh Bachchan 65% 30% 5%
The language of Ad. 62% 20% 18%
Amitabh Bachchan is a leading player in the ad feature. The Action style of Amitabh
Bachchan is a very delighted factor for rural Consumers.

Style of Presentation 77% 20% 3%
The concept of ad. 65% 20% 15%
Interesting and delightful Ad. 63% 17% 20%
Style of presentation plays an important role. 77% is a high figure as this affects the
whole creativity aspect of any ad. The total concept and delight fulness is a strong factor
for this ad. Different Modes of promotions in rural market.
Modes Favor Non-Favor No Comment

Hats 65% 30% 5%
Wall Paintings 40% 53% 7%
Melas 65% 20% 15%
Hats and Melas play a very important role in this regard. The 65% response in favor of
this is an indicator of this.
Suggestions
1) Rural consumer environment must be understood before the creation of ad.
2) Rural mindset accepts the brands easily, which are close to their culture. This point
must be reflected in ad for rural markets.
3) Sponsorships to the Melas and Hats must be considered in a significant manner.
4) Selection of brand ambassadors, lyrics must not be ignored in this regard.
They have a special liking for folk culture so this can be taken in an effective utilization
of brand promotions.

Conclusions
The following conclusions could be drawn:
1) The Language and content must be according to the suitability of rural environment.
2) Background figures are also a deterministic factor.
3) Admissibility of brand ambassadors plays an important role in this regard.
4) Special promotion measures are the strong applicable factors in this regard

FMCG CONSUMTION IN RURAL INDIA
Here the rain gods still play havoc with one's dreams. The dusty village path winds past a
cluster of slumbering cottages and leads one to a weekly rural bazaar or haat, brimming
over with din, bustle and transaction. This is where the real India resides. Telephone is a
luxury here. Electricity, if at all, comes here only in fits and starts. And a delivery by road
may take any stretch of time.
However, things are changing fast now. Thanks to the increasing literacy level and media
explosion, people are becoming conscious about their lifestyles and about their rights to
live a better life. Brand consciousness is on the rise. This, clubbed with increasing
disposable income of rural households, has made the rural consumer more demanding
and choosier in his purchase behaviour than ever before. And the dusky village damsel
has now learned to pine for a satin rose.
The rural India offers a tremendous market potential. A mere one percent increase in
India's rural income translates to a mind-boggling Rs 10,000 crore of buying power.
Nearly two-thirds of all middle-income households in the country are in rural India. And
close to half of India's buying potential lies in its villages. Thus for the country's
marketers, small and big, rural reach is on the rise and is fast becoming their most
important route to growth. Realizing this Corporate India is now investing a sizeable
chunk of its marketing budget to target the rural consumers.
INCREASING BRAND AWARENESS
In the rural families, studies indicate a slow but determined shift in the use of categories.
There is a remarkable improvement in the form of products used. For instance,
households are upgrading from indigenous teeth-cleaning ingredients to tooth powder and
tooth-pastes, from traditional mosquito repellant to coils and mats. There is also a visible
shift from local and unbranded products to national brands. From low-priced brands to
premium brands.

FMCG CONSUMPTION
Organizations like Hindustan Lever Ltd., Nirma Chemical Works, Colgate Palmolive,
Parle foods and Malhotra Marketing have carved inroads into the heart of rural markets.
Various categories of products have been able to spread their tentacles deep into the rural
market and achieved significant recognition in the country households. And, in the
process, the regional brands, local brands and the other unbranded offerings got displaced
by the leading brands.
Company Household penetration

HLL 88%
Nirma Chemical Works 56%
Colgate Palmolive 33%
Parle Foods 31%
Malhotra marketing 27%
% volume of local brands
Category
/ unbranded
Washing cakes/bars 88%
Tea 56%
Salt 33%
Of the expenditure on consumer goods in rural household, approximately, 44% is on food

articles such as biscuits, tea, coffee and salt, 20% on toiletries, 13% on washing material,
10% on cosmetics, 4% on OTC products and 9% on other consumables. A number of
category products have established themselves firmly in the rural households.
It is evident that in the villages low-priced brands are well accepted and one might feel
that a larger proportion of the purchases made in rural market can be attributed to local/
unbranded players. Surprisingly, however, the unbranded/local component contributes to
a substantial portion of the volume of only a few of the highly penetrated categories.
Category Brand with highest

Category
Penetration penetration
Toilet Soap
91% Lifebuoy
Washing cakes/Bars
88% Wheel
Edible oil
84% Double iran mustard
Tea
77% Lipton Taaza
Washin powder / liquid
70% Nirma
Salt
64% Tata Salt
Biscuits
61% Parle G
FOCUS ON URBAN CATEGORIES

Though the commodity products have greater penetration, traditionally urban categories
such as skin creams and talcum powder have also made a mark. While the urban talcum
powder market suffered a de-growth, the rural talcum powder market darted ahead.
Similarly, growth of rural skin cream market was at par with that of urban skin cream
market. This clearly indicated that after being considered urban for a long time, some
categories are now wearing a rural face. And, in many a case, it is the rural market that is
actually driving the growth of category.
PREMIUM BRANDS
Pond's is the leader in the talcum powder category with a penetration of 65% and volume
contribution of 56%. Its rivals viz. Nycil and Liril are trailing far behind. Moreover, 60%
of the Pond's users have purchased no other brand i.e. they are 100% brand loyal. This
reflects the strength of the brand in rural bazaar.
Category Household Penetration

Skin creams 18%
Talcum Powders 15%
the skin care category, Fair & Lovely fairness cream, with a penetration of 75%, accounts
for 60% of the skin care market in rural India. It also enjoys the undistinguished
patronage of 58% of its user households. Both Pond's and Fair & Lovely are enjoying a
monopoly in the rural markets in their respective categories.
Rural India is not averse to trying out the premium brands at high prices. A study
indicated that a majority of the premium brand users are using the brand for the first time.
Similarly 0.9% of the talcum powder-using families have started using Denim talc and
0.7% of the shampoo using households started using Pantene. Surveys also reveal that
trials are not restricted to the more affluent echelon of the villages. The experimenting
households are more-or-less evenly spread across the various socio-economic clusters of
the rural market. This should further encourage the marketers to focus their attention on
rural buyers.
Brand Penetration of category users

Surf 6.2%
Ariel 4.5%
Pantene 1.8%
Denim 1.8%
The rural youths are more open to fresh concepts as against their elderly family members.
Their difference in choice of products/brands with the seniors of the households often
leads to a “dual-usage” of product categories. As an instance, 20% of the households
using tooth powder also use tooth paste. Similarly, many of the households using

premium brands also use mass market brands. For example, while 15% of Surf and
12% of Ariel using families also use Nirma detergent, 3% of Denim users use Pond's
Dreamflower talc and 18% of Pantene using households use Clinic shampoo as well.
AMAZING INNOVATOR
With a queer psychology of purchase and usage, Indian rural market is still a puzzle to
marketers. In many a case, it stretches its imagination to find surprisingly different uses
of some of the products. And the red-faced marketers admit that they actually sell their
products in areas they would otherwise find difficult, simply because there are other uses
for them. For instance, in parts of Northern India, condoms are used by weavers as gloves
on their fingers to weave fine threads. Lubrication on condoms allows them fine control
on threads and protects their sensitive fingers. Buffaloes displayed at the haats for sale
are dyed an immaculate black with Godrej hair dye. Horlicks is used as a health beverage
to fatten up cattle in Bihar. In villages of Punjab, washing machines are being used to
make frothy lassi in bulk. Paints meant for colouring up the rich-smooth walls are used to
paint the horns of cattle to make identification easier and to achieve a long-term
protection from theft. Iodex is rubbed into the skins of animals after a hard day's work to
relieve muscular pain. The organizations in question might not be pleased with such
usage. However, their moneybags keep on jingling.
THE OTHER TWISTS AND TURNS OVERCOMING THE INCOME

VARIABILITY
Savvy firms create innovative opportunities for the rural segments that are lagging behind
in purchasing power. The local distribution for Akai in India, Baron International,
realized that the market for new television sets are primarily urban.
However, there was a considerable inertia when it came to replacing a working TV set of
a previous generation.But Baron also knew that there existed a market, primarily rural,
for used televisions. Rural retailers purchased traded-in sets from urban dealers. Urban
consumers got something for their old TV sets, urban retailers made their margins from
selling the traded-in sets, rural retailers made a profit on used TVs and rural consumers
were offered TV sets they could afford. Resultantly, Baron's sales increased by 1500%
over three years making it the most profitable firm in the television business.
WIDER COMPETITION FOR A PRODUCT

Many of the rural buyers tend to have little stock of money, only a flow. Consequently,
they tend to make purchases only to meet their daily needs and have little capacity to
build inventory. The marketing implications of this are far-reaching. Not only are pack
sizes and price points affected, but in turns out that consumers have to make a selection
from a much wider array of product categories. Thus the nature of competition for any
given product is much broader. For instance, in a village haat, Coca Cola competes not
just with Pepsi, but with a broad set of purchases that the rural consumers consider as
“treats”.
PREFERENCE FOR LOW UNIT PACKS (LUP)
Trial is often encouraged by Low Unit Packs (LUP) or sachets. The sachet packaging
strategy caught the popular FMCG imagination in the early 1990s and it was considered
as a breakthrough in the psyche of the rural consumers. Today, the sachets are
increasingly dominant on shelves. Shampoo, for instance, has invaded the rural
households with sachets at low affordable prices. Sachets of tea, blues and washing
powder are being launched in a big way in the village haats by leading manufacturers.
Companies like HLL and Marico are making concrete efforts to create and then meet the
demand of rural consumers by launching products in small affordable packs.
CHANNEL POWER
The rural consumers interact directly with their retail salespersons who has a strong
conviction power and whose recommendations carry weight. The owners' relationship
with customers is based on an understanding of their needs and buying habits and is
cemented by the retailer extending credit. Some of the successful manufacturers
creatively develop new revenue activities for the rural retailer. United Phosphorous
Limited (UPL), an Indian crop protection company, realized that in its rural markets
small farmers were not applying pesticide at all, or applying it inappropriately due to the
lack of application equipment. The capital cost of the equipment (mounted pumps and
dispensers that cost up to $3000) was placed out of reach of small farmers and most rural
retailers. UPL designed a program in which it arranged for bank loans for its rural
retailers to purchase application equipment and demonstrated to their retailers the
additional revenue possibilities from renting this equipment to small farmers. The result
was an added revenue stream for rural retailers.
PRICE PROMOTION

In an occasional effort to capture volume sale, multinational brands use price promotions
that often yield dramatic, if temporary, sales increases in the rural areas. Their large
volume increases reveal a potentially large market in the villages that remains untapped,
just below the actual price points. To penetrate this market and generate sustainable
volume sales, a permanent product entry at the lower price point is required. Failure to
recognize the potentially huge market of the villages that lies below the surface of
international price points can even place the premium branded business at risk.
INCOME GROWTH GOES INTO CONSUMPTION
In urban households there are a number of competing demands for ones money. In rural
households, they hardly change their house or go out on a vacation. They save only a
small fraction of his money and spend the rest. And when there is a growth in their
income, the money goes straight into consumption.
QUALITY CONSCIOUSNESS
It will be unjustified to think that rural consumers are less bothered about product quality.
Even the village buyers desire to buy a quality product and upgrade their quality of life.
Marico, an Indian edible oil company, has found the rural consumers in the interior of
India willingly pay a reasonable price premium for branded cooking oil, over community
oil, because they are certain of its consistent quality. Unbranded products are often
considered by some of them to be adulterated.
TRAVAILS IN DISTRIBUTION
In spite of recognizing the potential of this vast market of 700 million, marketers are
often unable to cater to it because of lack of adequate infrastructure. The distances
between villages, the terrain and the lack of pucca roads connecting the places act as
impediments for them to reach their customers. But once if they overcome these hassles
and reach those remote bazaars to be first on the shelf in the product category, they
develop a privileged relationship with the retailer that offers them a tremendous
competitive advantage. Rural retailers are far less specialized than their urban
counterparts and carry a wider range of products. Since frequent delivery is not possible
in their part of the world, they tend to carry only a single brand in each product category.
And, usually, the brands that are first on the rural shelves become synonymous with

product category and are difficult to dislodge. For instance, Maggi noodles, the brand that
created the category of instant noodles, reached the rural shelves before anyone else and
remained the market leader ever since. Thus, a drive down the rugged countryside, sans
electricity and other modern facilities, is, surely, torturous. But the pain is worth bearing.
RURAL MEDIA
Urban consumers shop daily and have 365 opportunities a year to switch brands while the
rural purchasers who buy their goods in weekly haats have only 54. Attempts to reach
rural consumers, even once during the purchase cycle to ensure repeat purchase, make
point of purchase advertising and trade push indispensable. This requires a significant
reorientation in the allocation of funds across media. For example, outdoor advertising
accounts for over 7% of all media expenditures in India, while it only accounts for 0.8%
in USA.
Rural buyers living in small isolated groups distributed across vast distances have limited
access to the broadcast media. The existence of a multiplicity of languages and varying
level of illiteracy complicates the task of communication further. To overcome some of
these challenges, Unilever pioneered the concept of video vans that travel from village to
village screening films in the local language, interspersed with advertisements for
Unilever's products. The company also provides product usage demonstrations to the
captive audience because written instructions on the pack may be illegible to the
consumers who are either illiterate or do not understand the dialect.
Where mass media is used, variability can, at times, back fire. On re-entering India in the
1990s, Coca Cola decided to reinvest massively on a TV advertising campaign. It opted
for slick commercials, rich in colour, with high production values, but the effect was
somewhere lost on a market where 60% of all TVs are still black and white.
However, in the recent past, the improved technology has allowed the cable and satellite
networks to increase their reach across the countryside thus exposing a rural consumer to
a lifestyle that was beyond his dreams. And this increasing awareness has led to a
significant change in his buying behaviour and consumption patterns.
While the urban market is getting increasingly competitive and saturated, the rural market
is blooming with increase in the disposable incomes of the households, thus promising a
far better scope for growth for marketers. Hence, with the shifting dynamics of the
present-day market situation, now it is the turn of the rural consumers to dictate the
terms. And this reinforces the need for marketers to formulate a well-designed strategy to
feel the pulse and to tackle the mystic rural market.

RURAL MARKETING – THE “HINDUSTAN LEVER LIMITED PRESPECTIVE
THE CHALLENGE
Around 700 million people, or 70% of India's population, live in 6,27,000 villages in
rural areas. 90% of the rural population is concentrated in villages with a population of
less than 2000.
The statistics is daunting. Particularly for companies, such as HLL, which market
Packaged Mass Consumer Goods (PMCG) of everyday use, the size of the rural market
makes it essential to tap.
Indeed, we have traditionally focused on the rural market. Several of company's major
business categories, such as Fabric Wash, Personal Wash and Beverages, already get over
50% of their sales from rural areas. Our distribution system is the best amongst PMCG
companies.
But the company also recognizes that there is much more that needs to be done. To
service rural markets, the key issues that need to be addressed are availability, awareness
and overcoming prevalent attitudes and habits.
EXTENDING AVAILABILITY
Data on rural consumer buying behavior indicates that the rural retailer influences 35% of
purchase occasions. Therefore, sheer product availability can determine brand choice,
volumes and market share.
Project Streamline was conceptualised to significantly enhance HLL’s control on the

rural supply chain through a network of rural sub-stockists, who are based in these very
villages. As part of the project, higher quality servicing, in terms of frequency, credit and
full-line availability, would be provided to rural trade. Thereby, giving the company a
substantial competitive edge over the next decade.
The principle of Project Streamline is to leverage HLL’s scale and organisational

synergy to increase reach in rural markets. The pivot of Streamline is the Rural
Distributor (RD), who has15-20 rural sub-stockists attached to him. Each of these sub-
stockists is located in a rural market. The sub-stockist then performs the role of driving
distribution in neighbouring villages using unconventional means of transport such as
tractor, bullock cart, et al.
From 1998, the project has been rolled out in select states of the country where the terrain
or poor stage of market development typically makes any distribution system unviable.
The Streamline system has extended direct HLL reach in these markets to about 37% of

India's rural population from 25% in 1995. Most important, the number of HLL brands
and SKUs stocked by village retailers has gone up significantly. Having done that, the
project now aims to expand the company’s coverage to 50% of rural population by 2003.
Distribution will acquire a further edge with Project Shakti, HLL's partnership with Self
Help Groups of rural women. The project, started in 2001, already covers over 5000
villages in 52 districts of Andhra Pradesh, Karnataka Madhya Pradesh and Gujarat, and is
being progressively extended. The vision is to reach over 100,000 villages, thereby
touching about 100 million consumers. The SHGs have chosen to adopt distribution of
HLL's products as a business venture, armed with training from HLL and support from
government agencies concerned and NGOs. A typical Shakti entrepreneur conducts
business of around Rs.15000 per month, which gives her an income in excess of Rs.1000
per month on a sustainable basis. As most of these women are from below the poverty
line, and live in extremely small villages (less than 2000 population), this earning is very
significant, and is almost double of their past household income. For HLL, the project is
bringing new villages under direct distribution coverage. Plans are being drawn up to
cover more states, and provide products/services in agriculture, health, insurance and
education. This will both catalyse holistic rural development and also help the SHGs
generate even more income. This model creates a symbiotic partnership between HLL
and its consumers, some of whom will also draw on the company for their livelihood, and
helps build a self-sustaining virtuous cycle of growth.
INFLUENCING AFFORDABILITY
Project Streamline focused on extending distribution, and Project Bharat's influence

was restricted to raising penetration and awareness levels. On the anvil, is a new rural
programme, which will reach villages with a population below 2000 and influence
income as well.
This path-breaking venture aims to facilitate the doubling of HLL’s share of the rural
consumer's wallet in three years. The model is unique in that it influences all the variables
that influence growth. This model triples physical reach, doubles communication reach,
creates a platform for influencing attitude changes and raising incomes.
The company’s rural growth engine raises incomes of rural families by channel
intervention through rural Self-Help Groups (SHG), which operate like direct-to-home
distributors. The model consists of groups of (15-20) villagers below the poverty line
(Rs.750 per month) taking micro-credit from banks, and using that to buy HLL products,
which they will then directly sell to consumers. In the process, generating employment
and incomes for themselves, and increasing the reach of our products.
HLL is tying up with various Non-Governmental Organisations, United Nations'
Development Programme (UNDP), and voluntary organisations to propagate health and

hygiene messages. The goal is to reach 2,35,000 villages up from the current 85,000;
75% of the population up from 43% today; and a message reach of 65% up from the
current TV reach of 33%. In the process the company aim to increase access, influence
attitudes, create a channel to raise awareness of its brands and catalyse affluence in rural
India.
ENHANCING AWARENESS
Mass media reaches only 57% of the rural population. Generating awareness, then, means
utilising targeted, unconventional media including ambient media. HLL has been
utilising events such as fairs and festivals, haats, et al, as occasions for brand
communication. Cinema vans, shop-fronts, walls and wells are other media vehicles that
the company has utilised to heighten brand and pack visibility.
OVERCOMING ATTITUDES AND HABITS
Creating distributive reach is not sufficient to tap the rural markets. Market development
can be a difficult task because in rural India, both consumption and penetration is low.
For instance, only three out of 10 people in rural areas use toothpaste or talcum powder,
or shampoo and skin care products, and only six use washing powders.
Even in categories with high penetration, such as soaps, consumption is once per five
bathing occasions.
Project Bharat, the first and largest rural home-to-home operation to have ever been
mounted by any company, sought to address many of these issues. The operation was
conducted in high-potential districts of the country. The exercise was started by HLL’s
Personal Products Division in 1998, and covered 13 million households by the end of
1999. In the course of the operation, company vans visited villages across the country and
distributed sample packs comprising a low-unit-price pack each of shampoo, talcum
powder, toothpaste and skin cream priced at Rs. 15. The distribution was supported by
explanation of product usage and a video show, which was interspersed with product
communication. Thus HLL generated awareness of its product categories and the
availability of affordable packs. Consumers were also made aware of the superior
benefits of using our products vis-à-vis their current habits, and the affordability of the
pack sizes on offer. The project, thus, successfully addressed issues of awareness,
attitudes and habits. Hopefully, as consumers in rural areas get exposed to such value-
added, value-for-money alternatives, they will continue to buy into the categories. The
project saw a 100% increase in penetration, user ship and top-of-mind awareness in the
districts targeted.

However, sampling once is not adequate to convert non-users. So Personal Products
rolled out a follow-up programme, the Integrated Rural Promotion Van (IRPV), to
once more target villages with a population of over 2,000.

CONSUMER DEMOGRPHICS
POPULATION DISTRIBUTION
OVERALL INDIA
West (%)
1.43.4 19.7 East (%)
23.3
North (%)
South (%)
25.5
31.5 Total UT
Other states
URBAN AND RURAL DISTRIBUTION

POPULATION
100
80
60 Rural %
40 Urban %
20
0
A
ST
Ts
H
T
DI
UT
ES
RT
EA
IN
SO
W
NO

AGE DISTRIBUTION OF POPULATION
%
80
65
PERCENTAGE
50 1992
35 1997
20 2007
5
-10
0 to 4 5 to 14 15 to 59 60 &
Above
AGE GROUP

CONSUMER DURABLES SECTOR: TIME TO BUY
The performance of the consumer durable sector has been sluggish in the past. However,
it is likely to see some movements as we enter 3QFY01. We expect the sector to show
better performance during the third quarter (October-December). If you ask me why, the
reason is pretty straight – the festive season is on its way and that’s a reason enough for
the consumers to spend some hard cash and get some goodies home.
Besides this, there are other reasons, like the growing sales of refrigerators and air
conditioners, recent forecast by CII, speedy introduction of new products, rising number
of replacement buyers, increasing promos and ad spend, falling percentage of households
in the lower income group, easy availability of finance, and so on…
The rationale in detail:
• The festive seasons like Diwali (October) and Christmas (December) will spurt
sales in the third quarter. Consumers have a tendency to wait for an auspicious
occasion to purchase durable products. Moreover, as a general trend, the number
of promotion schemes and freebies rise during the festive seasons.
Manufacturers are trying to encash this opportunity and are focusing on the forthcoming
festival season. Most of them have lined up interesting sales promos, which would hit the
market around the time of Onam in Kerala, Durga Pooja in West Bengal, Navaratri,
Diwali, Christmas etc.
• Though the CTV sales are down, refrigerator and air conditioner sales are picking
up. Due to the world cup factor last year (FY00), the CTV industry showed a 30%
growth. This kind of growth is unlikely during FY01. However, the market
experts expect the refrigerator industry to go the CTV way now. Higher growth
(approximately 20%) is expected to come from the frost-free segment constituting
15% of the total refrigerator industry. The direct cool segment constituting the
rest (85%) is expected to grow at 5%.
• As per ASCON (Association Council of Confederation of Indian Industry), during

the period Apr-Jun’00 the refrigerator sales grew by 3.5%, the air conditioners
sales grew by 36%, the water coolers grew by 15%, while the washing machine
sales grew by 5%. Refrigerator exports grew by 13%. The outlook for the next six
months shows a 10-15% growth in sales and exports of consumer durable goods.
As per the Department of Statistics, Ministry of Statistics and Programme

Implementation, the consumer durable industry grew by 23.3% during Apr-Jun’00 as
against a growth of 14.5% during the corresponding period last year.
• Most of the players, including BPL and Korean brands are introducing relatively
low-priced products to push volumes. In addition to this, there has been a sharp
jump in the number of replacement buyers.

• Industry majors have also started aggressive advertising with innovative
marketing schemes to attract customers. For the period 1H2000, the ad spends of
consumer durable companies rose by 13% to Rs3.92bn. This is despite the fact
that after having spent large sums on advertising last year for the World cup
cricket promotions, the companies have no comparable opportunity for heavy
promotions this year. Among the ones who have increased ad spends this year are
BPL (highest ad spend of Rs600mn), LG, Whirlpool, Godrej, Videocon and Akai.
Thus, despite prevailing negative sentiments, higher ad spends will result in higher sales.
• Easy availability of finance has also been one of the important factors that drove
volumes in recent years. The various financing schemes have provided easy
access to the low and the middle income group consumers.
• Apart from the big cities, the future market growth is likely to come from small
towns and SEC (Social Economic Class) B & C in large towns. There has been a
considerable change in the pattern of ownership between 1990 & 1999. The table
below shows the complete picture.
Table1: Data on Absolute % Increase in Ownership between 1990 & 1998
Social Class
Product A B C D E Overall
Colour TV 20 17 13 7 3 11
Refrigerator 19 17 11 4 2 10
Washing Machine 20 8 3 0.6 - 5
Source: Ms. Rama Bijapurkar, a strategic marketing consultant in an article on The

marketing in India – The Economic Times.
• The latest NCAER data reveals a definite fall in the percentage of households in
lower income group and an increase in all the other income groups. This is true
for both, the urban as well as the rural area. More and more low middle class
income groups are maturing to the higher level with the number of double income
families going up significantly.

• Chart1: %Distn of Urban Households in Each Income group
Chart2: %Distn of Rural Households in Each Income group
• The consolidated quarterly results for 1QFY01 of the consumer durable

companies (mentioned below) indicate a growth of 24% in net profits and a 6%
growth in Operating profits. Though there hasn’t been much improvement on the
sales front in the first quarter, the operating and the net margins improved to 9%
and 4% from 8% and 3% respectively.

Table2: Consolidated Qtrly Results for the period 1QFY01
Period to Apr-Jun'00 Apr-Jun'99 Growth

(Rs mn) (3) (3) %yoy
Sales 12042.05 12042.33 (0.002)
Operating profit 1104.06 1043.73 5.78
PAT 506.61 408.06 24.15
OPM (%) 8.69 8.41
Net Margin (%) 4.21 3.39
Companies included: BPL, Carrier Aircon, Whirlpool of India, Blue Star and Voltas.
We expect a 10-15% topline growth in the sector for the 3rd quarter, FY01. The sales are
likely to be backed by high volumes. Thus, even if there won’t be a very strong
bottomline growth, the effect of the rising sales will be positively reflected on the stock
markets.
The Great Indian Market
While the size of the Indian consumer market is growing by 15-20 per cent per annum in
the case of motorcycles and roughly 50 per cent in the case of cellular phones, estimating
the market still remains a complicated task. Where does the consumer live, in urban India
or in rural areas, in small towns or in big ones? Is it more fruitful to concentrate
marketing efforts in rural Haryana than it is in urban Bangalore or Kolkata? Do
consumption patterns differ in urban and rural areas for households in the same income or
occupation group - that is, do middle class households in urban areas have different
spending habits as compared to their rural counterparts, and do urban salary earners
spend differently from rural ones? How does this behaviour change across regions, even
states and cities? The study seeks to answer these questions.
Since consumer preferences change all the time, and the demand for one product is often
related to that of other products, the report gives details of household ownership of
various goods in relation to others. So, for instance, a marketer can easily see how many
car-owning households have medical insurance today in comparison with the number of
motorcycle-owning households that have such policies, and arrive at a conclusion as to
which segment to tap for increasing medical insurance policies.

The Great Indian Market 2005 - a study by National Council of Applied Economics and
Research (NCAER), in association with Business Standard, is based on the annual survey
of households in various income brackets, covering over 300,000 households across 858
villages, 660 towns and cities in 221 districts all over India, carried out in 2001-02. The
study also combines some of the results of another study by NCAER titled “The Great
Indian Middle Class (2004)”.
NCAER has been evaluating the changes in household income patterns and related
changes in consumer & demand behaviour across regions, States and cities, through
annual surveys since 1986 except for three missed years.
NCAER was founded in 1956 as an independent body to give support to both the
government and the private sector in empirical economic research.
Middle Income Class Consumers in Rural India vis-à-vis their Urban Counterparts

Difference of Consumption Patterns across Occupation
Groups in Urban and Rural areas
Around 41 per cent of urban households owned two wheelers in 2001-02 versus around
11 per cent for rural areas and by the end of the decade this difference will change to 71
per cent versus 31 per cent.
Difference in Consumption Patterns across towns of different sizes
Just 35 per cent of households in towns with under five lakh people owned two-wheelers
in 2001-02 as compared to 50 per cent for towns with 5-10 lakh persons and 63 per cent
in the case of towns with 10-50 lakh persons. The figure goes down to 38 per cent in the
case of towns with over 50 lakh persons. By 2009-10, such differences are likely to
reduce.

Country's Income Distribution - The Past & the Future
In 1995-96, 80 per cent of Indian families earned less than Rs. 90,000 a year, this fell to
72 per cent by 2001-02 and is projected to fall to 51 per cent by 2009-10. In contrast,
those earning over Rs. 10 lakh a year rose from 0.2 per cent to 0.4 per cent and will rise
to 1.7 per cent by the end of the decade.
Growing Prosperity
(Income figs, in Rs. '000 per annum at 2001-02 prices, households in
'000s)
Income
Classification 1995-96 2001-02 2009-10
class
Deprived <90 131,176 135,378 114,394
Aspirers 90 - 200 28,901 41,262 75,304
Seekers 200 - 500 3,881 9,034 22,268
Strivers 500 - 1000 651 1,712 6,173
Near Rich 1000 - 2000 189 546 2,373
Clear Rich 2000 - 5000 63 201 1,037
5000 -
Sheer Rich 11 40 255
10000
Super Rich >10000 5 20 141
Total 164,876 188,192 221,945

Effect of Change in Income Distribution on Demand for various Consumer
Durables in Future
While just two per cent of households who earned under Rs. 90,000 per annum owned
motorcycles in 2001-02, this rose dramatically to 15 per cent in the case of households
earning between Rs. 90,000 and Rs. 2 lakh and to 29 per cent in the case of the Rs. 2-5
lakh earning households. As more people come into the higher income groups, demand
increases more than proportionately.
Importance of Top Cities in the Demand for Major Durables
The top 67 cities account for 44 per cent of scooter demand, 27 per cent of motorcycle
demand and 47 per cent of demand for regular-sized colour televisions. In terms of usage
too, the top cities are way ahead. While just 3 per cent of families owned a car/jeep all
over the country, the figure was as high as 15 per cent in these cities.

Usage of Durables Differ across Cities
Over 30 per cent of Delhi-ites own cars/jeeps in comparison with 21 per cent in the case
of Mumbaikars though at higher income levels, it is Mumbai that has the lead.

Most Preferred Secondhand Goods
Close to 15 per cent of all scooters bought are second-hand as compared to around 11 per
cent in the case of motorcycles. For white goods like washing machines and refrigerators
these figures are under three per cent. In the case of wage-earners, over a fourth of all
two-wheelers bought were second hand; in the case of households with an income of over
Rs. 3 lakh, a mere four per cent bought secondhand scooters.
Correlation in Demand

The analysis shows, for instance, that while 62 per cent of two-wheeler-owning
households already owned televisions in 2001-02, only 12 per cent of them owned
cars/jeeps, clearly identifying the two-wheeler segment as an ideal candidate for
switching to low-end cars such as the Maruti 800.
Correlation in demand
2- LIC
Product Cars/Jeeps TVs Refrigerators
Wheeler policies
2-Wheeler 100 12.3* 62.1 21.8 30.7
Cars/Jeeps 70.9 100 81.8 83.8 54
TVs 41.6 8.8 100 26.3 24.6
Refrigerators 68.8 18.6 86.6 100 40.1
LIC policies 41.8 12.8 62.6 43.2 100
* 12.3 per cent of 2-wheeler owners already own a car/jeep as well
Equally important, just six per cent of this very large population of two-wheeler-owning
households had credit cards as opposed to around 14 per cent in the case of car/jeep
owning households.
While credit card sellers would do well in both segments of households considering just
how low the usage of credit cards was, two-wheeler owners would make a better target
market given their low usage as well as much larger number in comparison to those
owning cars/jeeps.
Similarly, according to the survey, 54 per cent of those owning cars already owned at
least one life insurance policy (at the time of the survey, LlC was the only company that
sold such policies) as compared to just 30 per cent of two-wheeler owning families that
had a life insurance cover.
There is, naturally, a big difference in the correlation matrix across urban and rural areas.
While a fifth of the two-wheeler owners in urban areas owned cars/jeeps in 2001-02, the
figure was under two per cent in rural areas.
While six per cent of two-wheeler owners also owned air conditioners in urban areas, the
figure was well under half a percentage point in rural areas.
Around a third of two-wheeler owners also owned a refrigerator in urban areas compared
to under a tenth in rural areas (the all-India figure is around 22 per cent).
Equally important, of course, is to keep in mind the total size of the market for each
product. In overall terms, quite obviously, the number of television owning families (45
per cent of Indians owned televisions in 2001-02) is much larger than the ones owning
two wheelers (about 20 per cent).

So even if the correlation in demand is lower for televisions, the number of potential
targets is higher.
Interestingly, though, by the end of the decade, this difference narrows down
considerably (63 per cent will own televisions as compared to 44 per cent for two-
wheelers, 28 per cent will own motorcycles as compared to 31 per cent with regular-sized
colour televisions).
Rural Market Rise
By the end of the decade, 11 % of car demand will come from rural areas.
Thanks to the rapid rise projected in rural incomes over the next few years, especially in
the upper income groups, the share of demand from the rural areas is projected to rise
steadily - by the end of the decade, roughly 11 per cent of the country's demand for
cars/jeeps will come from rural areas.
While some part of this is clearly due to the fact that rural areas are home to the majority
of the country's population, the gap between rural and urban usage patterns is also
projected to decline significantly.
At the aggregate level, nearly a tenth of all urban households owned a car/jeep in 2001-02
compared to a mere 0.3 per cent in rural areas. By the end of the decade, while urban
usage will grow to 26 per cent, rural usage will increase to 1.2 per cent.
That is, in 2001-02, urban usage was nearly 34 times as large as rural usage but by the
end of the decade, this will fall to under 22.
In the case of scooters, this difference is projected to fall from 5.9 to 4.7, from 2.5 to 1.8
in the case of motorcycles and from 3.4 to 2.5 in the case of mopeds. In the case of the
upper income groups (those who earn more than Rs 180,000 per annum in 2001-02
prices), the change is even more stark.
In 2001-02, the urban to rural usage of cars was 7.3 but by 2009-10, this is projected to
fall to 5.3 times in the top income group.
As a result, while roughly 2 per cent of 1995-96 demand came from rural areas and this
rose to 8 per cent in 2001-02, this is expected to rise to just under 11 per cent in 2009-10.
Changing Income Demographics will Drive Changes in Demand

The rapid rise in the country's middle and upper income classes, more than overall GDP
growth per se, is likely to lead to a dramatic hike in the demand for big-ticket items like
motorcycles, refrigerators and cars/jeeps.
Rapid rise in incomes

Per cent of households in each income group that own product
Regular
Income in Moter- Cars/
Scooters
Rs. '000 cycles Jeeps Colour Refrigerators
TVs
Less than 90 3 2 0 5 4
90-200 20 15 4 40 34
200-500 30 29 29 74 63
500-1000 32 34 48 69 59
1000-2000 24 35 73 92 70
2000-5000 23 44 84 113 79
5000 and
22 56 175* 116 103
above
All India 8 7 3 17 14
* means each family has 1.75 cars on an average
As a result, the number of households owning cars will more than double from around 4
per cent right now to over 9 per cent by the end of the decade, that for scooters will
remain stagnant at around 8 per cent, will double for motorcycles to over 28 per cent.
In terms of demand, this will mean demand for cars/jeeps will easily cross the 3 million
mark, motorcycles will nearly touch the 8.5 million mark and regular sized colour TVs
the 10 million mark.

Demand for all automotive categories, which grew by under 10 per cent between 1995-96
and 2001-02 will grow by 1.5 times this between 2005-06 and 2009-10 while growth in
demand for TV sets of all types will more double, from 4.6 per cent to 9.7 per cent
annually in the same period.
Much of the increased demand, according to Dr Sanjay Dwivedi, a key member of the
team that worked on the project, is not so much demand from existing households in
various income groups as it is the one emanating from the migration of households into
upper income groups.
NCAER's sample shows, for instance, that just two per cent of those with a family
income of less than Rs. 90,000 p.a. owned a motorcycle in 2001-02.
In the income group above this, that is those earning between Rs. 90,000 and Rs. 2 lakh a
year, the number owning motorcycles is as high as 15 per cent. And in the Rs. 2-5 lakh
income earning households, around 29 per cent owned motorcycles.
The same is true of most other categories. Naturally, then, as families move up the
income ladder, their consumption habits change dramatically, giving rise to a more than
expected (based on the usual GDP growth figures, that is) surge in demand.
NCAER earlier forecast that even if India's GDP grows by around 6.75 per cent per
annum till the end of the decade, the income demographics will become unrecognisable.
In 1995-96, 80 per cent of Indian families earned less than Rs 90,000 per annum, this fell
to 72 per cent in 2001-02 and will further fall to 51 per cent by the end of the decade.
Just three per cent of families earned between Rs. 2-10 lakh in 1995-96, this doubled by
2001-02 and is forecast to rise to 13 per cent by the end of the decade. Those earning
over Rs. 10 lakh, around 0.2 per cent of the population in 2001-02, will rise to 1.7 per
cent by the end of the decade.

Demand for Secondhand Goods
With secondhand cars/jeeps accounting for around a seventh of the total demand for such
vehicles in 2001-02, it's hardly surprising that auto-giant Maruti Udyog has gone in for a
used-car business, True Value.
When it comes to scooters also, a seventh of demand is for used vehicles. In the case of
motorcycles, just around a tenth of those purchased in 2001-02 were second-hand.
There is, naturally, a much higher demand for used vehicles in lower income groups, and,
according to the NCAER, close to a fifth of all purchases of two-wheelers by households
earning less than Rs. 90,000 per annum in 2001-02 were secondhand while the figure was
a mere 4 per cent in the case of households earning over Rs. 300,000 per annum.
As a result, around two-thirds of secondhand two-wheelers bought in 2001-02 were

bought by households which had an annual income of under Rs. 90,000 per annum. The
highest proportion of cars, 40 per cent of the total, however, was bought by households
with an annual income between Rs. 90,000 and Rs. 135,000 per annum.
Households' purchase patterns differ dramatically across rural and urban areas. While
under 14 per cent of urban households in the category of those earning below Rs. 90,000
per annum bought second-hand two-wheelers in 2001-02, the figure was nearly 20 per
cent for their rural counterparts.
For cars, not surprisingly, just five per cent of rural households earning under Rs. 90,000
per annum bought used cars compared to over 16 per cent in the case of their urban
counterparts.
The study also estimates secondhand purchases according to the occupation of the head
of the family, and found that cultivator households bought the largest proportion of used
cars and scooters at the all-India level - 26 per cent of their scooter purchases in 2001-02
were second hand.
While the average price of a new car was Rs. 2,15,000 in 2001-02, the average price paid
for a secondhand car in that year was Rs. 1,06,000. In the case of two-wheelers,
compared to an average price of Rs. 35,000 for a new machine, a secondhand one cost
Rs. 14,000.
In the case of new cars, around half those bought were financed while the figure was a
lower 25 per cent in the case of two-wheelers and under 9 per cent in the case of washing
machines.

PHILIPS' MAHA RURAL STRATEGY
THIS is bound to be a Maha affair of a different kind. Consumer durables major, Philips
India, in a bid to aggressively push its sales in the rural/semi-urban segment has
designed an innovative strategy for these regions. Called the `Philips Mahasangram
Integrated Marketing Programme', the rural initiative will be taken across the country
from July 2, focusing on rural towns with a population of less than 5,000 and semi-urban
towns with a population between 5,000 and 50,000.
"The Philips Mahasangram is aimed at taking Philips' new products to the semi-urban and
rural customers and increasing their awareness where product knowledge, information
and availability are concerned." An indication of the size of this initiative can be obtained
from the fact that Philips will be spending about 4.5 per cent of its turnover from the
rural/semi-urban areas on the Mahasangram alone.
Meanwhile, the key reason behind this initiative lies in the growing potential of the rural
market. According to industry data, while in 1997-98, rural sales formed about 25 per
cent of the total sales for CTVs, refrigerators and washing machines, it increased to 36
per cent in 2001-2002 and is expected to go up to as high as 41 per cent in 2006-07.
Apart from initiating new marketing and distribution programmes, Philips will also be
launching a range of new products during the rural initiative. “They have specially
designed value-for-money products specifically targeted at the semi-urban and rural
consumer in India, across the CTV and audio product range. The pricing for these
products has been structured to make it affordable for there target audience." These
include special economy models in the 14-inch colour television (CTV) segment, starting
at a price point of Rs 8,000. Other new models to be introduced will include features such
as a new `Eye-fi' technology which allows picture improvement under any cable signal
condition, economy in electricity consumption and on-screen display in the regional
language, among other things.

Similar innovative products are planned in the audio segment as well. The company has
recently revamped its portable audio range and introduced new models in monos and
stereos with new features and styling.
Products to be pushed during the Mahasangram include the recently launched Free
Power Radio, which does not require batteries or any external source of electricity for
operation. A one-minute winding of the lever runs the radio for as long as 30 minutes.
"Research studies showed us that in semi-urban and rural India, an average household
spends Rs 1,000 to Rs 2,000 annually on batteries for a radio set. The Free Power Radio,
priced at Rs 995, is ideal for this rural household as the household actually saves on costs
incurred on batteries, and experiences a payback of the money invested in the radio, in
just one year. It also manages to save more than Rs 1,000 every year for the next 12
years, the same amount which the household would have spent on batteries. We see huge
potential for the product in both the semi-urban and the rural markets."
Philips also recently introduced a new CD portable system, at Rs 4,000 in a bid to make
the CD-based music system affordable to the semi-urban and rural customers.
"Philips as a market leader in audio needs to drive the business and pioneer new concepts
to grow the business, and for consumers to see the innovation and authority in the brand,
as far as audio products are concerned." A reason for the renewed focus on the segment
could be the fact that a bulk of demand for radio sets is expected to come from the
rural/semi-urban areas in the future. According to industry estimates, the radio segment is
expected to grow from the current Rs 160 crore to around Rs 1,200 crore by fiscal 2005
and to Rs 3,400 crore by fiscal 2010. Out of this at least 60 per cent of the growth is
expected to come from the semi-urban and rural areas. In addition, the expected increase
in FM services is also expected to boost demand for radio sets.
Meanwhile, Philips plans to implement an innovative FMCG style marketing strategy

to push its durables in the rural segment. "The Mahasangram Integrated Marketing
Programme is essentially about implementing a non-durables strategy marketing in a
consumer durable segment. They are planning effective use of a number of media
vehicles to ensure efficient communication of our message and maximum utilization of
the monies spent.
The advertising and marketing strategy will be a combination of above-the-line and

below-the-line/ on-ground activities."
Various promotional activities which Philips plans to initiate during the Mahasangram
include a series of on-ground activities such as point of sale material at retailers'
counters, road-shows, mobile vans with Philips products on display and games,
innovative tactics like advertising on an inland letter form or postcard (a popular form of
communication in rural areas) and sponsorship of local events, among other things.
On the Distribution front, Philips claims to have the biggest distribution network (as
compared to other consumer electronics companies) and a high degree of penetration

even in the rural and semi-urban areas. The company has carried out an extensive
product-wise mapping exercise over 540 districts across India., "Keeping in mind the
objective of extensive physical reach of 80 per cent plus, where portable audio is
concerned, they have developed a second line of activity in there distribution set-up.
Also, in order to cater to volume drivers i.e, major retailers, we have identified the main
retailers of each distributor and practice the Key Account Management Approach with
them, so that there is a focus on improving relations, trade with these retailers, and
catering to their needs. These steps have helped Phillips in developing there volume
reach, geographical reach and counter share significantly."
Philips is hoping that its innovative rural marketing initiative coupled with the high
growth in the rural market will boost its market share. It is targeting to increase the
percentage contribution in terms of portable audio from rural/semi-urban areas to the total
turnover to 50 per cent by end-2003 from the current 28 per cent. For CTVs, the company
is aiming to increase that figure to 45 per cent in the same period, from the current 22 per
cent
CONCLUSION:
So by the end of this project one can easily make out the potential that Rural Markets
carries, specially for FMCG companies where the urban markets are saturated so they
have to sell in rural areas where exists huge opportunities, the requirement is to tap them
in effective manner with efficient strategies.
Rural India holds the future for growth in FMCG and Consumer Durable sector and
therefore companies have started looking towards it and which are left will have to do so
very soon indeed.

RECOMMENDED STRATEGIES FOR RURAL MARKETING
The past practices of treating rural markets as appendages of the urban market is not
correct, since rural markets have their own independent existence, and if cultivated well
could turn into a generator of profit for the marketers. But the rural markets can be
exploited by ruralising them, rather than treating them as convenient extensions of the
urban market.
The focus should be on infecting marketing culture into the villages. The educated
unemployed youth in the villages could be trained to carry out this mission.
1. DECENTRALISING RURAL MARKETS
Decentralizing the Rural Market by detaching them from the urban bases. A give-and-
take two-way approach should replace the present one-way exploitation
2. SELECTION OF THE SALESMAN
The salesman in rural markets should be selected from the educated unemployed
villagers, trained well and appointed as salesmen. The town-to-villages shuttling
salesmen are to be replaced by stationary salesman in villages "
3. EDUCATE THE VILLAGERS
Companies should also adequately concentrate on educating the villagers to save them
from spurious goods and services .
4. NEW PRODUCTS MARKET
Rural markets are laggards in picking up new products. This will help the companies to
phase their marketing efforts. This will also help to sell inventories of products out dated
in urban markets.
5. Managing “Distribution channels” effectively like HLL is doing because this is the
biggest hurdle in rural markets and then creating awareness and avialiability are key
issues to be managed effectively.

ANNEXURE:
INDIAN STATES: Population (Rural and Urban)
State Population (mn) Rural (mn) Urban (mn) Rural % Urban %
West
Rajasthan 44.0 33.9 10.1 77.0 23.0
Goa 1.2 0.7 0.5 59.0 41.0
Maharashtra 78.9 48.4 30.5 61.3 38.7
Gujarat 41.3 27.1 14.2 65.6 34.4
Total West 165.4 110.1 55.3 66.6 33.4
West (%) 19.7
East
Manipur 1.84 1.33 0.5 72.3 27.7
Nagaland 1.21 1 0.21 82.6 21.0
Bihar 86.4 75 11.40 86.8 15.2
West Bengal 68.1 49.4 18.7 72.5 37.9
Arunachal Pradesh 0.9 0.8 0.1 88.9 12.5
Sikkim 0.41 0.37 0.04 90.2 10.8
Assam 22.4 19.9 2.5 88.8 12.6
Meghalaya 1.8 1.4 0.3 77.8 21.4
Orissa 31.6 27.4 4.2 86.7 15.3
Total East 214.7 176.6 37.95 82.3 21.5
East (%) 25.5
North
Delhi 9.4 0.9 8.4 10.1 89.9
Chandigarh 0.6 0.1 0.6 10.3 89.7
Madhya Pradesh 66.2 50.8 15.3 76.8 23.2
Punjab 20.3 14.3 6.0 70.5 29.5
Haryana 16.5 12.4 4.1 75.3 24.7
Uttar Pradesh 139.1 111.5 27.6 80.2 19.8
Himachal Pradesh 5.2 4.7 0.4 90.9 9.1
Jammu & Kashmir 7.7 5.9 1.8 76.4 23.6

Total North 265.0 200.5 63.6 75.7 24.3
North (%) 31.5
South
Tamil Nadu 55.9 36.8 19.1 65.9 34.1
Andhra Pradesh 66.5 48.6 17.9 73.1 26.9
Kerala 29.1 21.4 7.7 73.5 26.5
Karnataka 45.0 31.1 13.9 69.2 30.8
Total South 196.4 137.9 58.6 70.2 29.8
South (%) 23.3
Union Territories
Andaman Nicobar 0.3 0.21 0.07 73.3 26.7
Dadara & Nagar Haveli 0.1 0.13 0.01 91.5 8.5
Daman & Diu 0.1 0.05 0.05 53.2 46.8
Lakshwadeep 0.1 0.02 0.03 43.7 56.3
Pondicherry 0.8 0.3 0.52 36.0 64.0
Total UT 1.4 0.7 0.7 50.7 49.3
Other states 3.4 2.7 0.7 78.5 21.5
All India 846.3 628.5 216.9 74.3 25.7
Population is as per 1991 Census
Indian States : Number of Villages
State/Union Territory No.

All India 580781
Andhra Pradesh 26586

Arunachal Pradesh 3649
Assam 24685
Bihar 67513
Goa 360
Gujarat 18028
Haryana 6759
Himachal Pradesh 16997
Karnataka 27066

Kerala 1384
Madhya Pradesh 71526
Maharashtra 40412
Manipur 2182
Meghalaya 5484
Mizoram 698
Nagaland 1216
Orissa 46989
Punjab 12428
Rajasthan 37889
Sikkim 447
Tamilnadu 15822
Tripura 855
Uttar Pradesh 112803
West Bengal 37910
Andman & Nicobar 504
Chandigarh 25
Dadra & Nagar Haveli 71
Daman & Div 24
Delhi 199
Lakshdweep 7
Pondichery 263
Source : IRS 99
PENETRATION OF CONSUMER EXPENDABLES
Penetration rates - Rural & Urban
1985-86 (%) 1995-96 (%) Increase

Personal products
Washing Cake 89.32 93.28 3.96
Washing Powder 44.14 61.19 17.05
Toilet Soap 26.7 98.47 71.77
Tooth Paste 26.7 43.8 17.1
Tooth Powder 34.59 38.52 3.93

Talcum Powder 39.6 45.12 5.52
Face Cream 9.25 20.22 10.97
Lipstick * 3.67 5.23 1.56
Nail Polish* 4.43 6.6 2.17
Hair Oil/Cream 57.25 77.3 20.05
Shampoo* 10.3 15.39 5.09
Food & beverages
Cooking medium oil 84.85 91.27 6.42
Cooking medium vanaspati 33.88 40.95 7.07
Packaged Biscuits 18.37 31.67 13.3
Tea 75.65 85.99 10.34
Health Beverages 4.59 10.37 5.78
Cigarettes 16.49 21.47 4.98
* The penetration rates of lipstick, shampoo & nailpolish are available from 1992-93
onwards only. Therefore 85-86 numbers refer to penetration in 1992-93
Source : NCAER
Penetration rates - Urban
1985-86 (%) 1995-96 (%) Increase

Personal products
Washing Cake 90.4 96.9 6.6
Washing Powder 62.8 75.9 13.0
Toilet Soap 54.1 99.9 45.7
Tooth Paste 54.1 71.2 17.0
Tooth Powder 42.8 42.3 (0.5)
Face Cream 15.5 33.9 18.3
Lipstick* 12.0 15.4 3.4
Nail Polish* 10.0 15.4 5.3
Hair Oil/Cream 69.0 87.8 18.8
Shampoo* 23.0 35.9 12.9
Food & beverages

Tea 84.2 92.1 7.9
Cigarettes 24.3 28.5 4.2
Source : NCAER
Penetration rates - Rural
1985-86 (%) 1995-96 (%) Increase

Personal products
Washing Cake 83.92 91.82 7.9
Washing Powder 37.37 55.37 18
Toilet Soap 18.46 97.92 79.46
Tooth Paste 18.46 32.97 14.51
Tooth Powder 31.59 37.03 5.44
Face Cream 6.98 14.82 7.84
Lipstick* 0.56 1.18 0.62
Nail Polish* 2.34 3.14 0.8
Hair Oil/Cream 52.97 73.14 20.17
Shampoo* 5.4 8.1 2.7
Food & beverages
Tea 72.56 83.58 11.02
Cigarettes 13.65 18.68 5.03
Source : NCAER

MEDIA REACH
Media Reach - Urban & Rural Reach
Demographic TV (%) Press (%) Radio (%) Cinema (%) Internet (%)
Sex
Male 47.0 45.0 16.0 16.0 0.1
Female 42.0 21.0 12.0 7.0 -
Age (Years)
12-14 57.0 34.0 11.0 11.0 -
15-19 57.0 44.0 15.0 20.0 0.1
20-24 51.0 42.0 17.0 21.0 0.1
25-34 44.0 35.0 15.0 14.0 0.1
35-44 41.0 32.0 15.0 8.0 0.1
45-54 38.0 27.0 14.0 5.0 0.1
55+ 29.0 19.0 11.0 2.0 -
Education
Illiterate 19.0 7.0 5.0

- -
Below SSC 54.0 42.0 17.0 13.0

-
SSC & above 75.0 82.0 23.0 21.0

0.1
Graduate and above 87.0 96.0 26.0 22.0

1.4
Occupation
Industry / Businessmen 92.0 90.0 15.0 21.0 2.0
Prof/Senior Execs 93.0 97.0 21.0 18.0 5.0
Trader/ Shopowner 70.0 63.0 15.0 22.0 0.1
Junior Execs 95.0 98.0 21.0 20.0 4.0
Clerk / Salesman / Sup 90.0 94.0 22.0 21.0 1.0
Skilled Worker 72.0 64.0 17.0 26.0 0.2
Unskilled Worker 53.0 35.0 14.0 23.0 -
Non-Working / Retd /
79.0 54.0 13.0 15.0 0.2
House.w
Farmers 27.0 25.0 13.0 7.0 -
Fish/ Poultry 25.0 21.0 13.0 10.0 -

Shop Owners / Traders 43.0 47.0 23.0 16.0 -
Service 58.0 69.0 26.0 15.0 -
Artisans 35.0 36.0 23.0 19.0 -
Labourers 24.0 15.0 13.0 12.0 -
Others - - - - -
Not Working 37.0 22.0 13.0 7.0 -
Sec
A1 94.0 87.0 16.0 21.0 21.0
A2 91.0 77.0 16.0 23.0 23.0
B1 90.0 76.0 18.0 23.0 23.0
B2 87.0 67.0 15.0 22.0 22.0
C 84.0 59.0 16.0 24.0 24.0
D 72.0 41.0 15.0 24.0 24.0
E 54.0 21.0 16.0 23.0 23.0
Not Ascertained 70.0 45.0 7.0 23.0 23.0
R1 76.0 74.0 30.0 15.0 -
R2 64.0 58.0 22.0 10.0 -
R3 48.0 41.0 19.0 12.0 -
R4 22.0 12.0 10.0 8.0 -
Population Strata
10 lakh+ 84.0 65.0 16.0 16.0 1.0
5-10 lakh 80.0 61.0 14.0 18.0 0.2
1-5 lakh 77.0 57.0 14.0 18.0 0.1
50,000 - 1 lakh 71.0 54.0 14.0 21.0 0.2
< 50,000 61.0 47.0 14.0 17.0 -
>= 5000 44.0 37.0 23.0 15.0 -
1000 - 4999 31.0 22.0 13.0 9.0 -
< 1000 27.0 18.0 11.0 6.0 -
Income (MHI Rs)
Upto 1000 24.0 16.0 12.0 10.0 -
1001 - 2000 40.0 28.0 14.0 11.0 -
2001 - 3000 59.0 45.0 16.0 12.0 -
3001 - 5000 76.0 62.0 18.0 15.0 0.1
5001 - 8000 88.0 79.0 19.0 18.0 0.7
8000+ 93.0 86.0 18.0 21.0 2.1
Not disclosed 49.0 40.0 14.0 9.0 0.3

Source : IRS 98
Media Reach - Urban1998
Demographic TV (%) Press (%) Radio (%) Cinema (%) Internet (%)
Sex
Male 76.0 70.0 16.0 25.0 0.5
Female 75.0 45.0 14.0 11.0 0.1
Age (Years)
12-24 85.0 56.0 11.0 17.0 0.1
15-19 84.0 68.0 14.0 30.0 0.2
20-24 78.0 64.0 17.0 32.0 0.5
25-34 74.0 59.0 16.0 21.0 0.5
35-44 73.0 58.0 16.0 13.0 0.3
45-54 72.0 55.0 15.0 8.0 0.3
55+ 62.0 42.0 13.0 3.0 0.1
Education
Illiterate 45.0 - 8.0 11.0 -
Below SSC 77.0 57.0 15.0 19.0
SSC+but not graduate 89.0 87.0 18.0 23.0 0.3
Graduate and above 94.0 97.0 21.0 22.0 2.1
Occupation
Industr/ Businessmen 92.0 90.0 15.0 21.0 2.2
Prof/Senior Execs 93.0 97.0 21.0 18.0 4.5
Trader/ Shopowner 70.0 63.0 15.0 22.0 0.1
Junior Execs 95.0 98.0 20.0 20.0 3.9
Clerk / Salesman / Sup 90.0 94.0 22.0 21.0 0.8
Skilled Worker 72.0 64.0 17.0 26.0 0.2
Unskilled Worker 53.0 35.0 14.0 23.0
Non-Working / Retd /
79.0 54.0 14.0 15.0 0.2
House.w
SEC
A 94.0 91.0 16.0 20.0 2.2
B 91.0 83.0 17.0 18.0 0.5
C 85.0 72.0 17.0 18.0 0.1
D 73.0 52.0 15.0 19.0 -
E 55.0 27.0 12.0 18.0 -

Income (MHI Rs)
<1000 43.0 27.0 14.0 19.0 -
1001 - 2000 63.0 40.0 14.0 19.0 -
2001 - 3000 79.0 58.0 15.0 18.0 0.1
3001 - 5000 89.0 74.0 16.0 17.0 0.2
5000 - 8000 93.0 84.0 16.0 19.0 0.9
8000 95.0 91.0 17.0 21.0 27.0
Not disclosed 85.0 69.0 14.0 16.0 1.0
Source- IRS 98
Media Reach - Rural 1998
Demographic TV (%) Press (%) Radio (%) Cinema (%)

Sex
Male 35.0 35.0 16.0 13.0
Female 30.0 12.0 11.0 5.0
Age (Years)
12-24 47.0 26.0 11.0 8.0
15-19 45.0 35.0 16.0 17.0
20-24 39.0 33.0 17.0 16.0
25-34 31.0 25.0 15.0 11.0
35-44 28.0 22.0 14.0 7.0
45-54 26.0 18.0 10.0 4.0
55+ 19.0 12.0 13.0 1.0
Education
Illiterate 15.0 - 7.0 5.0
Below SSC 45.0 35.0 18.0 11.0
SSC+but not graduate 62.0 76.0 28.0 19.0
Graduate and above 73.0 92.0 23.0 23.0
Occupation
Farmers 27.0 25.0 13.0 7.0
Fish/ Poultry 25.0 21.0 13.0 10.0
Shop Owners / Traders 43.0 47.0 23.0 16.0
Service 58.0 69.0 26.0 15.0
Artisans 35.0 35.0 23.0 19.0
Labourers 24.0 15.0 13.0 12.0

Others
Not Working 37.0 22.0 13.0 7.0
SEC
R1 76.0 74.0 30.0 15.0
R2 64.0 58.0 22.0 10.0
R3 48.0 41.0 19.0 12.0
R4 22.0 12.0 10.0 8.0
Income (MHI Rs)
<1000 22.0 15.0 11.0 9.0
1001 - 2000 33.0 24.0 14.0 9.0
2001 - 3000 46.0 36.0 17.0 9.0
3001 - 5000 60.0 48.0 22.0 12.0
5000 - 8000 75.0 65.0 25.0 14.0
8000 82.0 68.0 22.0 18.0
Not disclosed 37.0 29.0 13.0 6.0
Source- IRS 98
Media Reach - State wise - 1999 (Urban & Rural)
Total Press TV Radio Cinema

Zone Region Satellite(%)
(mn) (%) (%) (%) (%)
West Goa All 1.0 48.0 72.0 11.0 10.0 25.0
Rural 1.0 41.0 67.0 8.0 11.0 21.0
Urban 0.4 59.0 79.0 16.0 9.0 30.0
Gujarat All 34.0 25.0 41.0 24.0 4.0 11.0
Rural 21.0 13.0 24.0 9.0 3.0 5.0
Urban 13.0 45.0 70.0 50.0 5.0 22.0
Madhya All 54.0 17.0 54.0 14.0 11.0 12.0
Pradesh Rural 41.0 8.0 44.0 5.0 11.0 7.0
Urban 13.0 42.0 84.0 41.0 11.0 27.0
Maharashtra All 69.0 33.0 60.0 17.0 10.0 19.0
Rural 42.0 18.0 45.0 4.0 7.0 13.0
Urban 27.0 57.0 83.0 52.0 16.0 24.0
East Assam All 18.0 11.0 34.0 4.0 25.0 12.0

Rural 16.0 6.0 26.0 0.8 26.0 9.0

Urban 2.0 42.0 87.0 27.0 18.0 34.0
Bihar All 66.0 13.0 23.0 3.0 17.0 13.0
Rural 57.0 9.0 17.0 1.0 17.0 11.0
Urban 9.0 36.0 61.0 18.0 15.0 31.0
Orissa All 25.0 14.0 39.0 4.0 19.0 13.0
Rural 22.0 11.0 34.0 0.9 20.0 11.0
Urban 3.0 31.0 68.0 22.0 15.0 30.0
West Bengal All 57.0 19.0 55.0 12.0 30.0 20.0
Rural 40.0 10.0 44.0 5.0 32.0 17.0
Urban 17.0 40.0 80.0 27.0 26.0 27.0
North Delhi All 8.0 53.0 85.0 39.0 28.0 16.0

Urban 8.0 53.0 85.0 39.0 28.0 16.0
Haryana & All 14.0 18.0 54.0 16.0 13.0 7.0
Chandigarh Rural 10.0 7.0 42.0 5.0 13.0 4.0
Urban 4.0 44.0 84.0 42.0 16.0 14.0
Himachal All 4.0 27.0 68.0 9.0 24.0 10.0
Pradesh Rural 4.0 13.0 58.0 10.0 22.0 3.0
Urban 0.4 48.0 91.0 64.0 20.0 16.0
Punjab All 17.7 20.0 59.0 14.0 11.0 10.0
Rural 12.0 10.0 48.0 5.0 8.0 4.0
Urban 6.0 40.0 84.0 32.0 17.0 20.0
Rajasthan All 34.0 21.0 27.0 7.0 10.0 9.0
Rural 27.0 13.0 14.0 1.0 10.0 5.0
Urban 9.0 53.0 74.0 27.0 10.0 24.0
Uttar
All 110.0 14.0 32.0 4.0 7.0 8.0
Pradesh
Rural 86.0 7.0 22.0 0.2 7.0 5.0
Urban 24.0 39.0 67.0 18.0 9.0 19.0
South Andhra All 57.0 22.0 51.0 24.0 12.0 46.0

Pradesh Rural 41.0 15.0 41.0 15.0 12.0 43.0
Urban 16.0 39.0 78.0 45.0 12.0 55.0
Karnataka All 37.0 28.0 61.0 24.0 30.0 41.0
Rural 25.0 19.0 51.0 13.0 32.0 40.0
Urban 12.0 48.0 83.0 47.0 24.0 42.0

Kerala All 24.0 68.0 68.0 9.0 60.0 33.0
Rural 17.0 65.0 63.0 6.0 62.0 31.0
Urban 7.0 76.0 81.0 17.0 54.0 38.0
Tamil Nadu All 49.0 33.0 63.0 25.0 35.0 43.0
Rural 32.0 24.0 54.0 13.0 35.0 41.0
Urban 17.0 51.0 80.0 48.0 35.0 47.0
All
All 681.0 23.0 47.0 13.0 18.0 20.0
India
Rural 494.0 14.0 36.0 5.0 18.0 16.0
Urban 187.0 46.0 78.0 35.0 18.0 31.0
Source- IRS 99


Desertation FMCG Retail in Rural Sector

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Desertation FMCG Retail in Rural Sector

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EXECUTIVE SUMMARY:

A thorough understanding of the rural markets has become an important aspect of

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Also, while launching products, it is of paramount importance to understand the

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CK PRAHALAD ON RURAL MARKETS

He believes in ‘fortune at the bottom of the pyramid’. Management guru C K

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 To get rich, sell to the “poor”.

EVOLUTION OF RURAL MARKETING

• More of food grains, farm equipment, pots , pans etc.

PHASE II 1960’s TO 1990’s

• Green Revolution – modern equipment/practices

PHASE III-Beyond the 1990’s

Branded consumables Farm/non farm goods

Handicrafts, handloom, leather

RURAL MARKET ARRIVAL:

 742 million people

International School Of Business & Media 6

Source: Francis Kanoi, 2002

 SOME IMPRESSIVE FACTS ABOUT THE RURAL SECTOR.

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

 41 million Kisan Credit Cards issued (against 40 million credit-plus-debit

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• POPULATION UP 40% PURCHASING POWER UP 42%

EDUCATION AND LEVEL OF DEMAND

• 41% CULTIVATORS, 35% WAGE EARNERS & 11% SALARIED

DISTRIBUTION OF RURAL HHs BY INCOME

ANNUAL INCOME 1989 -90 1998 – 99

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• Highest Rural Per Capita Income is Punjab (Rs. 27256)

• Lowest Rural Per capita Income is Orissa (Rs. 5704)

SPLIT OF RURAL INCOMES

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SELF WAGE FORMAL INFORMAL

RURAL INCOME DISPERSAL PROJECTION:

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 Consuming class households in rural nearly equal to urban.

 Rural Purchasing Power higher due to lower expenses on food, shelter,

SOME MYTHS ABOUT RURAL MARKETS

MYTH 1: Rural Market Is a Homogeneous Mass

MYTH 2: Disposable Income Is Low

 Number of middle class HHs (annual income Rs 45,000- 2,15,000)

 Per Capita Annual Income (not Purchasing Power)

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 Decision making process is collective

 Rural youth brings brand knowledge to HH

INFRASTRUCTURE IMPROVING RAPIDLY

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

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Low penetration rates in rural

CTV 30.4 4.8 12.1

FMCG Urban Rural Total

Shampoo 66.3 35.2 44.2

Source: NCAER 2002

 Low rural consumption in FMCGs (rich HHs)

 Annual consumption Rs 13,000 Rs 9,400

 Rural consumption volumes (R1+R2+R3)

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