Rise of the Rural Rich- Changing the Dynamics of Marketing
Posted in Marketing & Strategy Articles, Total Reads: 1382
, Published on 01 May 2015
When we talk about a typical Indian village, what do we envisage? Fields, bullock carts and Kuccha houses. But this might not be the real picture these days. According to the current reports, approx. More than 35% of rural households have television and there is more than 15% growth in disposable income . This is the new rural India, riding the waves of “Rise of the Rural Rich (RRR)”.
Bottom of the Pyramid
Vertically, along the pyramid, there are 3 Indias. First India comprises of top 48 cities, which account for 25% of GDP. Then we have 7800 small towns, which account for another 25% of India’s GDP. Finally, we have 6,40,000 villages which account for 50% of India’s wealth.
Economic Pyramid of India
Any marketer would easily get attracted towards the lucrative market of rural India, considering its enormous size and growth potential. Rural India is now a 1 trillion US $ market, which means in relative terms, it is equal to the size of the Canadian economy. Horizontally, also there are 3 rural Indias: Developed rural India (like the states of Punjab, Haryana, Maharashtra, and Gujarat), Least Developed States (Bimaru states, i.e., Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh) and the rest of the states are in the middle. From academicians to corporate everyone is trying to solve the puzzle of BOP (Bottom of The Pyramid). There lies a huge business opportunity along with the fortune at the bottom. A $2000 car (Tata Nano), a $20 hotel room (Ginger), and a supermarket chain of its own kind (Hariyali Kisan Bazar), especially for rural masses. What do they all have in common? It is their vision of the future. Their strategies are rural oriented and they are scratching the ground to find the gold in the hinterland .
Rise of the Rural Rich
Five years ago, Kotak Mahindra Bank showed agricultural lending as its retail portfolio. At that time its retail portfolio sized approx. Rs 16000 Cr and the share of agricultural lending in it was about 15%. According to the latest figures, this lending is about 40% of its retail portfolio of Rs 21500 Cr. This is the wave of rural rich on which Kotak rode . This example speaks volumes of the increasing importance this clichéd and non-descript hinterland now plays in the lives of this emerging class of rural rich.
Wealth in the countryside is rising and the big players are taking a giant leap towards this market. These rural pockets are an attractive proposition for the businesses. According to RBI, consumer prices in rural India increased by 8.7% in 2012-13 but, income of rural people increased by more than 17%. This is the extra income in the hand of the rural masses and it is increasing rapidly. The state run programs such as MGNREGA and other short term income booster schemes made rural income more stable and larger in size. In 2012-13, when the automobile industry was facing a decrease in urban demand due to various micro and macro level factors, it was the rising rural demand for tractors, transport vehicle and scooters which kept driving the industry amidst the sceptical economic environment. These bulging rural pockets are attracting every kind of business towards them.
Tapping the Untapped Potential
The traditional rural marketing companies like Unilever, ITC, and Eveready have always been present for the last 40-50 years and they are the ones who have really reaped the benefit of first mover advantage. Unilever gets about 50% of its business from rural India. So, if they had not opened up this market at that time, they would have been half the size of the company they are today. Same story goes for ITC and many others. Similarly, 50% of the sales of motorcycles for Hero MotoCorp. comes from rural India. Maruti, started their rural business only 6 years back . At that time they were getting almost 0% share, but today they get a 27% share (their total production is 1 million cars annually) which means 270,000 cars are sold in rural India.
Source: Financial Express
FMCG always have a major chunk in the consumption basket in the form of necessity and inelastic products. They cover more than 60% of consumers’ basket. According to census 2011, rural India is a home for 70% of India’s population and it contributes to 56% of GDP, 64% of consumption and more than 30% of domestic savings.
Growth of the FMCG Sector
Amul, saw this opportunity in small towns and have opened up 7000 ice cream parlours in 1500 small towns and quite recently they have got an additional business of Rs 500 Crore(25% considering their total portfolio of ice creams is Rs 2000 Crore) just for ice creams from these small towns within a year. They have now decided to open up 3000 more ice-cream parlours in small towns.
FMCG as a category grew by around 11% in urban India and 18% in rural India. BCG has come out with a report which says that by 2020 the market for FMCG in rural India will grow by 360%. Whereas, in urban India it will grow only by 200%. Durables growth in 2012 was 12% in urban areas and 27% in rural areas, again on the same basis . So, rural India has now reached that inflection point because 70% of our villages are now connected by all-weather roads. There are around 60 million TV sets in rural India, which account for 80% of rural wealth. So, when we talk of electricity, 60% of households now have electricity. The fastest growth is coming out of the rural markets. Companies that fail to move into the rural market now, will do so at their own peril.
The Next Big Thing for Marketers
Marketing to Rural Rich is a new kind of marketing canvas. The need of these masses is different and the medium of communication is also quite different from conventional rural markets. Whereas the demand in the rural sector is seasonal and monsoon driven, the demand by rural rich need not necessarily consider them into account. All these factors make it critical for FMCG companies to make a whole new set of marketing strategies. Few of the strategies are mentioned below:
• Customized promotion specific to client and location
• Cooperative promotion
• Bundling of the inputs
• Developmental markets
• Supply chain transformation according to the rural area
• Sustainable partnership
• Self Help Groups
These few strategies and redefining the 4Ps of the business for the rural rich is important for success in this landscape. For example, the small size of the products is preferred (Chik shampoo was the first to bring out small sachets). The size of the Chik shampoo is the key reason behind its tremendous success in rural areas. The rural customers are price sensitive and they seek value for their money. So, the large volume and low profit is one of the most important strategies used by market players.
Changing Face of Rural India
Rural areas are swiftly becoming the new engines of growth due to relocation of industries from cities to rural areas. A lot of GDP is now being created in these rural areas. With much better road connectivity to the nearby town, more and more market players are finding it convenient to reach the far-off places which were earlier inaccessible.
Rural Market Scenario
By 2020, this pyramid is going to morph into a diamond and the rural rich are going to increase from 50 million bracket to 150 million (three times). The poor are going to shrink from 400 million bracket to 250 million. 150 million people from this lowest bracket would be pushed up to the middle income bracket. These 150 million people will be the first time users of brands. So, they offer a huge opportunity to companies like Unilever and others who are into mass brands. At the premium category, we would be having 100 million additional people who would be buying brands like Dove. Never, even in China in a decade has such a transformation happened. Growth in China right now is largely urban but, the growth in India is largely rural and therefore India, will continue to remain a fairly insulated economy because ours will be a domestically driven market (largely by rural India).
This article has been authored by Akash Sen & Prateek Keshwani from IIFT