R URAL M ARKETING : W HY

W HY ???...

The Indian rural market with its vast size and demand base offers a huge opportunity that MNCs cannot afford to ignore. With 128 million households, the rural population is nearly three times the urban.

W HY ???...

As a result of the growing affluence, fuelled by good monsoons and the increase in agricultural output to 200 million tonnes from 176 million tonnes in 1991, rural India has a large consuming class with 41 per cent of India's middle-class and 58 per cent of the total disposable income.

W HY ???...

The rural market accounts for close to 70 per cent of toilet-soap users and 38 per cent of all two-wheeler purchased. The rural market accounts for half the total market for TV sets, fans, pressure cookers, bicycles, washing soap, blades, tea, salt and toothpowder. What is more, the rural market for FMCG products is growing much faster than the urban counterpart.

W HAT ???...

The Census defined urban India as - "All the places that fall within the administrative limits of a municipal corporation, municipality, cantonment board etc or have a population of at least 5,000 and have at least 75 per cent male working population in outside the primary sector and have a population density of at least 400 per square kilometer. Rural India, on the other hand, comprises all places that are not urban" (of nearly 6.4 lakh villages, only 20K have population more than 5K)

R URAL

MARKETING

Rural marketing is the process of developing, pricing, promoting and distributing ruralspecific goods and services, leading to exchanges between urban and rural markets, which satisfies consumer demand and also achieves organizational objectives.

W HAT ???

FMCG companies (Ex HUL & ITC) define rural as any place with population less than 20K Agri-input companies & consumer durable companies consider places with population less than 50K

W HY ??????

The growth rates of consumer products were slowing down not because the markets were getting saturated in terms of penetration as in the US, but because most consumer markets were getting cluttered. While overall volumes continue to grow reasonably well, there are too many players eating into each other's market share. The companies, therefore, reduce prices in urban areas and invest heavily in sales promotion, intensifying the battle for market share. Operating margins come under pressure and new growth markets have to be explored. This is where the rural markets play an important role.

W HY ???

According to a National Council for Applied Economic Research (NCAER) study, there are as many 'middle income and above' households in the rural areas as there are in the urban areas. There are almost twice as many 'lower middle income' households in rural areas as in the urban areas. At the highest income level there are 2.3 million urban households as against 1.6 million households in rural areas.
According to Hindustan Lever Limited, the money available to spend on FMCG (Fast Moving Consumer Goods) products by urban India is Rs. 49,500 crores as against is Rs. 63,500 crores in rural India.

W HY ???
As per NCAER projections, the number of middle and high income households in rural India is expected to grow from 80 million to 111 million by 2007. In urban India, the same is expected to grow from 46 million to 59 million. Thus,
the absolute size of rural India is expected to be double that of urban India.

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

A NUGRAH A M AD ISON ,

ONE O F THE FIRST MARK ET I NG

FIRMS TO REAL IZ E THE POTENTIA L O F RURA L

AND DECIDED TO FOCUS ON RURA L

I ND IA MARKE T IN G .

Today rural India is not 100 per cent dependent on an agrarian economy. Unlike in the past where the ratio between those who involved in agriculture and in other business was 75-25, today the estimated ratio is 50:50, if not 60:40. So today, 50-60 per cent of the rural population is involved in other businesses. A lot of people belonging to the second generation are getting white-collar jobs in nearby towns. So, there is a growing middle class with a monthly income in rural India and it is a drastic change from the past where their income was totally dependent on the monsoon, cropping season, etc.

A NUGRAH A M AD ISO N

This has resulted in a definite growth in the prosperity level in rural India. Of course, there are still a lot of poor people, especially the agricultural labourers. But there is a growing middle class with regular income and the rural rich are becoming richer. The divide between urban and rural India is thinning among the top segment of rural India. The rural rich are almost like urban India.
Punjab, Haryana, Tamil Nadu, Andhra Pradesh, Kerala and parts of Maharashtra come under the developed rural India.

A NUGRAH A M AD ISON

The rural youth today is an important trigger in changing the profile of rural India. About 40 per cent of the graduates coming out of Indian universities today are from mofussil areas. And, they are all doing very well. Their aspirations are similar to the urban youth, and it gets reflected in their eagerness to earn more and live better. So, if there is a problem in agriculture, they do something else. They ensure that they have steady flow of income.

A NUGRAH A M AD ISON

The total expenditure of urban India is almost equal to what has been spent by rural India. But what is being spent by urban India is being done by only a small percentage of the population. About 25 per cent of the urban India is spending as much as 75 per cent of what rural India is spending. This shows the potential exists in rural India. There is a huge market waiting to be tapped in rural India.

W HY ??????

For Coca Cola India The rural market was tempting since it comprised 74 per cent of the country's population, 41 per cent of its middle class, 58 per cent of its disposable income and a large consuming class

13,113 villages with a population of more than 5,000

"The real market in India is in the rural areas. If you can crack it, there is tremendous potential."

W HY ??????
9,988 villages are in seven states - Uttar Pradesh, Bihar, West Bengal, Maharashtra, Andhra Pradesh, Kerala and Tamil Nadu

National Council for Applied Economic Research

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

It is estimated that an average rural Indian household has five major consumer appliances (2006), almost double of what it had five years ago.

W HY ??????

Videocon Appliances
The reasons for heading into the rural areas are fairly clear. The urban consumer durable market for products like colour TVs, washing machines, refrigerators and airconditioners is growing annually at between 7 per cent and 10 per cent. By comparison, the rural market is zooming ahead at around 25 per cent annually. The rural market is growing faster than urban India now,

Samsung
The urban market is a replacement and upgradation market today

W HY ???...
Between June 2002 and December 2003, rural per capita consumption expenditure grew by 11.5 per cent while the urban expenditure grew by 9.6 per cent.

After the basic needs of food, cloth and shelter, they are looking at how to live better

HUL

Today, the young and the educated in the villages are already large in number. And this number is increasing. 40 per cent of all those graduating from colleges are rural youth. They are the decision makers and are not very different in education, exposure, attitudes and aspirations from their counterparts at least in smaller cities and towns.

Rural expenditures on Fast Moving Consumer Goods (FMCG) were growing at an impressive rate of 20 -25% (2004)

I NSURERS '

RURAL , SOCIAL

TARGETS MAY BE SET HIGHER

The Insurance Regulatory and Development Authority of India (IRDA) is considering an increase in the minimum rural and social obligations for insurers akin to the priority sector lending of banks.

Currently, life insurance companies are mandated to sell 7 per cent, 9 per cent, 12 per cent, 14 per cent and 16 per cent of their policies in rural areas in the first, second, third, fourth and fifth financial years, respectively. Non-life insurers have to rake in 5 per cent of their gross written premium from the rural years after the third year of operation. Both life and non-life insurers have to insure 20,000 lives from the social sector in the fifth year of operations. The "social sector" includes the informal and unorganised sector, economically vulnerable and backward classes from the rural and urban areas.

IRDA

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

R URAL P ROSPERITY

Thirteen consecutive good monsoons since 1990 (ex 2002, 03) 600% increase in five year plan outlay for rural development from 8th to 10th FYP. 230% increase in the flow of institutional credit from agriculture (1997-98 to 2004-05) 41mn KCC issued amounting to Rs. 97,700 crores since 1998 (40mn Credit plus Debit cards in Urban India)

R URAL P ROSPERITY

Consuming class household in rural are equal to urban, hence disposal surplus in rural is much higher.
There are 42,000 rural haats (supermarkets) in India that exceed the total number of retail chain stores in US (35,000) Nearly 85% of villages have Public Telephone. Billing per cell phone in rural AP is more than in Hyderabad.

60% of 2 crores who signed up for rediffmail & 50% of online shopping are from small towns.

R URAL C ONSUMPTION

Consumption of major FMCG categories increased from Rs 68,000 crore in 20002001 to Rs 93,000 crore in 2005-06, according to recently released Central Statistics Office data. However, the scorching pace of rural consumption makes urban sales hikes seem like a mere crawl. Top industry executives say that the rural market share in a number of categories has touched 40 to 50 per cent.

C HALLENGE
Understanding rural consumers, reaching products to remote places, communicating with heterogeneous rural audiences

Servicing rural markets involved ensuring availability of products through a sound distribution network, overcoming prevalent attitudes and habits of rural customers and creating brand awareness.
Price-sensitivity is another key issue.

C HALLENGE

Rural specific and region specific strategies are required. Barging into community decision making

Opinion leadership is in transient phase (School teacher/ sarpanch and young graduates)
Adaptation Vs critical mass

M YTHS

Rural Market is a huge mass.

( Its vastly heterogeneous)

Rural customers buy cheap products.

(They seek value for money)

Rural people dont buy brands

T HE P OINT
The key dilemma for MNCs eager to tap the large and fast-growing rural market is whether they can do so without hurting the company's profit margins. Mr Carlo Donati, Chairman and Managing-Director, Nestle, while admitting that his company's product portfolio is essentially designed for urban consumers, cautions companies from plunging headlong into the rural market as capturing rural consumers can be expensive. "Any generalization" says Mr Donati, "about rural India could be wrong and one should focus on high GDP growth areas, be it urban, semi-urban or rural."

Finally

R EASONS

FOR ENTERING RURAL MARKET

Large Population Base: - nearly 6 lakh villages -746 million people

Saturation in urban market -Peak touched in most product categories -Highly aware/demanding customers. -Fragmented Media habits. -Increased competition.

R EASONS - CONTD .

Increasing income in rural areas:-From

1989-90 to 2009-10, the cumulative growth in number of families coming under Middle-high income category: Urban
Rural

=353%
=519%

Growing consumption
Improved Connectivity of rural areas.

R EASONS - CONTD .

Scope for improving penetration rate. Changing Life-style: -Improved literacy rate.

-Better media reach.

-Influence of Immigrants/commuters.

-Influence of Youth.