Rural marketing – Where Marketers Should Break The Rules

Posted in Marketing & Strategy Articles, Total Reads: 3874 , Published on 25 September 2012
Advertisements

Marketers should know one basic rule-India is second largest consumer market in the world. India has over 1 billion potential customers; hence one can see no surprise why consumer goods companies see India as most prolific ground for development, expansion and growth.

The National Council for Applied Economic Research (NCAER) published a study on consumer behavior and purchasing power of customers in India. The classifications by NCAER stated three major Indian consumers by their propensity to consume products. The lowest stage formed the customer base needing the basic and necessary products for consumption (destitute class) and top of scale were the affluent class. The middle scale had middle class consumers with more than basic needs for the products but they have different mindset, differentiated, price sensitive and target oriented.


Dr. R.K. Shukla, of NCAER pulls out a vast array of statistics to back his assertions. “In the year 1997-98 the percentage of low income households sunk from 73% to 51% while the high income households in rural areas moved up from 0.3 to 2.3 percent. But by 2006, the rural consuming class will have risen to 75.5 percent of all households making this a population of 432 million customer database. Low-income homes went down to a mere 16.5% of the population.

Marketers should know that India is a land of over 1 billion people, 72% of these folks live in 5 lakh eighty thousand villages vastly spread villages of India.

Population of Indian customer database: Rural-Urban 1981-2010


1991

2001

2010

Increase over previous decade

1991

2001

Rural population (in crore)


60.21

66.0

70.2

+10.01

+5.79

Urban population (in crore)



24.18


32.6


38.7

+8.56

+8.42

Total


84.39


98.6


18.57

14.21

Source: Customer of India goods, 2010 (P)

According to this table around 71% of the total population in the rural areas that provide a larger market compared to the urban market.

There are three most important things that attract rural markets more than urban ones:

  1. Rural market growth: It is growing rapidly than the traditional urban market. The rural markets seeks the 4 A’s rather than branding and luxurious items. The 4 A’s are affordability, availability, acceptability and awareness. The stats about the income and their spending should be crystal clear for the marketers.
  2. Purchasing power of rural consumers: Better facilities like irrigation, fertilizers, and credits have enhanced the rural consumers to equip themselves to buy more. Hence they are looking to improvise on their standard of living.
  3. Saturation of Urban Markets: The intense competition in urban areas gave malls, retail stores, factory outlets and forcing the market to operate at marginal profits. Thus marketers will have to find a new fresh, less-competitive and more resourceful market to conquer new heights.

Another thing to keep in mind is the agricultural source of income for a rural marketing. In fact, earlier the rural marketing ran only around the agricultural markets to feed itself but it has change past the 2001 era where game changers like Kisan Credit Cards, Micro Finance and Pardhan Mantri Gramodyog Yojna came to rural customers enabling them to spend more than earlier.

Sr. No.


Source of income


Proportion to total

1

Agriculture

58.8

2

Agricultural wages

16.1

3

Business and crafts

8.8

4

Non-agricultural wages

7.2

5

Salaries

2.5

6

Current transfers

1.9

7

Others

4.7


Total

100

Source: G.M. Pande– Rural Marketing, Thrust and Challenge, p. 30.

Now, the most important thing that marketers can’t afford to miss out is the strategy. Remembering basic characteristics as low spending on capital income, lack of formal retail and distribution and conservative mentality for buying, marketers first need understand segmentation of rural market. It can be done as:

a) Geographic: Dividing markets into sections having similar regions for better distribution network. This helps in channelizing products as per the geographical features. Typically, the success soaring for Chik shampoo having a USP of Amla, Shikakai and Neem as its chief ingredients in all villages not growing such products.

b) Demographic: Division of market with basis of income, education, lifestyle, gender and religion. Rural population insists to buy Rin Shakti or Ghadi detergent than the “Daag ache hai” international brand- surf excel.

c) Psychological: Interestingly, rural population is typical investor behind every penny. But it is interesting to see them flex their financial machine when competing in the main field- Agriculture. As seen in North Gujarat, farmers prefer a 50 horse power tractors rather than required 25 to 30 hp just because they want to “keep up with neighbors” when it comes agriculture.

It’s about making a right mix of strategy to identify and launch products accordingly. The strategy still consists of the 4 Ps to work in rural marketing:

1) Product: The tapping of the traditional culture that rural women groomed hair seriously was done perfectly right by HUL and launched shampoos with a view to sell shampoos because knowing that rural women compromise in ornaments and clothes but not in hair. But they were cautious enough to know that rural families used only soaps for hair and body both. These women, having family oriented buying behavior, will not buy “only” shampoo just for hair’s sake. Hence they launched a 2-in -1 soap that can be used for hair and body both.

It later on, after seeing Chik shampoo’s success started selling shampoos in single served sachets priced at Re. 1, and the sales of shampoos of HUL have increased to the extent of 30%. 'Operation Bharat', initiative by HUL 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 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.

2) Price: The most important P of all because the marketers will face a challenge to tap each segment of their impending customer base. Looking at the table gives a novel idea to tap first two groups (done by FMCG) to introduce products focused on them.

Household category share

Annual income

Population size

Low income (59%)

Up to Rs. 22, 500

590 million

Lower middle income (25%)

22,500 to 45,000

250 million

Middle income (10%)

45,000 to 62,000

100 million

Upper-middle income (4%)

62,000 to 96,000

40 million

High income (2%)

Above Rs. 96,000

20 million

Source: National center for Applied Economic Research (NCAER) in India.

The most apt conclusion said by C.K.Prahlad on rural marketing that is derived is to “Focus on volume, not margins” holds true in this case. In early 90s Kellogg’s had launched breakfast cereals which had huge profit margin targeting last two groups of table and lost the plot but HUL, by introducing “products in sachets” sells its products in 8 lakhs to 12 lakh villages.

Another example of Nirma where they went to focus on first two groups giving soaps to these categories and today its success is a living proof of Prahlad’s most vital rule.

3) Place: The concept of distributed network, retailing and storage for goods is totally absent in most villages and towns in India. The innovation marketers use IDC (indirect coverage) methods for tackling above problems. Godrej used company vans to deliver its items in rural India and used ‘mobile traders’ which were people travelling on cycles or tractors from villages to towns. Coke even provided cheap cold storages for storing coca cola bottles in them.

4) Promotion: The most challenging P for marketers because when it comes to rural markets, two out of five are connected by TV, press, Radio and Cinema put together. SO the only way possible are innovation promotions using channels where the rural populations are attracted to like melas, haats and puppet shows. Few years ago, the Kumbh mela at Ganges witnessed 30 million customers where FMCGs equipped salesmen launched “Touch and feel” demonstrations, gave away samples and take aways.

Even, Colgate distributed herbal toothpastes, Lifebuoy and Brooke bond by HUL and Nupur Kali Mehndi by Godrej. The quote goes saying “When you can’t predict, create it” and it goes true in the rural market as well. It goes to those who create the buying power for it like the HUL did in 1998 by targeting villages with population less than 3000. It trained the poorest income groups from it (15 to 20 people) to sell HUL products amongst other villagers with better profit margins creating awareness of HUL.

To conclude, rural market is extremely lucrative for market growth but also the most complex to reach into. These conservative, miserly spending, resistant mindset people can be won over by offering most value for money products. Only a smart marketer will understand the golden rule of focusing on volumes and not on margins in rural markets.

This article has been authored by Jay Padhya from ATC Company.


Advertisements


If you are interested in writing articles for us, Submit Here


Related Business Articles You May Like: