2 rural marketing

8/10/2019 2 Rural Marketing

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Rural Marketing: Why

Dr. Sanjeev Prashar


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Why???...

The Indian rural market with its vast

size and demand base offers a hugeopportunity that MNCs cannot affordto ignore. With 128 million

households, the rural population isnearly three times the urban.


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Why???...

As a result of the growing affluence,fuelled by good monsoons and theincrease in agricultural output to 200

million tonnes from 176 milliontonnes in 1991, rural India has alarge consuming class with 41 per

cent of India's middle-class and 58per cent of the total disposableincome.


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Why???...

The rural market accounts for closeto 70 per cent of toilet-soap usersand 38 per cent of all two-wheelerpurchased.

The rural market accounts for halfthe total market for TV sets, fans,pressure cookers, bicycles, washingsoap, blades, tea, salt andtoothpowder.

What is more, the rural market forFMCG products is growing much

faster than the urban counterpart.


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What???...The Census defined urban India as - "All

the places that fall within theadministrative limits of a municipalcorporation, municipality, cantonmentboard etc or have a population of at least

5,000 and have at least 75 per cent maleworking population in outside the primarysector and have a population density of atleast 400 per square kilometer. Rural

India, on the other hand, comprises allplaces that are not urban"

(of nearly 6.4 lakh villages, only 20K havepopulation more than 5K)


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What???

FMCG companies (Ex HUL & ITC)define rural as any place withpopulation less than 20K

Agri-input companies & consumerdurable companies consider placeswith population less than 50K


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Why??????The growth rates of consumer products were slowing downnot because the markets were getting saturated in terms ofpenetration as in the US, but because most consumermarkets were getting cluttered.

While overall volumes continue to grow reasonably well,there are too many players eating into each other's marketshare.

The companies, therefore, reduce prices in urban areas andinvest heavily in sales promotion, intensifying the battle formarket share.

Operating margins come under pressure and new growthmarkets have to be explored.

This is where the rural markets play an important

role.


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Why???

According to a National Council for AppliedEconomic Research (NCAER)study, there areas many 'middle income and above' householdsin the rural areas as there are in the urban areas.

There are almost twice as many 'lower middleincome' households in rural areas as in the urbanareas. At the highest income level there are 2.3million urban households as against 1.6 millionhouseholds in rural areas.

According to Hindustan Lever Limited, the moneyavailable to spend on FMCG (Fast MovingConsumer Goods) products by urban India is Rs.49,500 crores as against is Rs. 63,500 crores inrural India.


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Why???

As per NCAER projections, the number ofmiddle and high income households inrural India is expected to grow from 80million to 111 million by 2007. In urban

India, the same is expected to grow from46 million to 59 million.Thus,

the absolute size of rural India is expectedto be double that of urban India.


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Why???

The NCAER study on ownership of goodsindicates the same trend. It segments durablesunder three groups

(1) Necessary products - Transistors, wristwatchand bicycle,

(2) Emerging products - B&W TV and cassetterecorder,

(3) Lifestyle products - CTV and refrigerators.Marketers have to depend on rural India for thefirst two categories for growth and size. Even inlifestyle products, rural India will be significantover next five years.


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Anugraha Madison, one of the first marketing firms to realize the potential of

rural India and decided to focus on rural marketing.

Today rural India is not 100 per cent dependenton an agrarian economy. Unlike in the past wherethe 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 populationis involved in other businesses. A lot of peoplebelonging to the second generation are getting

white-collar jobs in nearby towns. So, there is agrowing middle class with a monthly income inrural India and it is a drastic change from thepast where their income was totally dependenton the monsoon, cropping season, etc.


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Anugraha Madison

This has resulted in a definite growth inthe prosperity level in rural India. Ofcourse, there are still a lot of poor people,especially the agricultural labourers. But

there is a growing middle class withregular income and the rural rich arebecoming richer.The divide between urban and rural Indiais thinning among the top segment ofrural India. The rural rich are almost likeurban India.Punjab, Haryana, Tamil Nadu, AndhraPradesh, Kerala and parts of Maharashtra

come under the developed rural India.


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Anugraha Madison

The rural youth today is an important

trigger in changing the profile of ruralIndia. About 40 per cent of the graduatescoming out of Indian universities todayare from mofussil areas. And, they are all

doing very well.

Their aspirations are similar to the urbanyouth, 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 thatthey have steady flow of income.


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Anugraha Madison

The total expenditure of urban India isalmost equal to what has been spent byrural India. But what is being spent byurban India is being done by only a small

percentage of the population.About 25 per cent of the urban India isspending as much as 75 per cent of whatrural India is spending. This shows thepotential exists in rural India. There is ahuge market waiting to be tapped in ruralIndia.


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Why??????

For Coca Cola India

The rural market was tempting since itcomprised 74 per cent of the country's

population, 41 per cent of its middle class,58 per cent of its disposable income and alarge consuming class

13,113 villages with a population of more

than 5,000"The real market in India is in the ruralareas. If you can crack it, there istremendous potential."


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

National Council for Applied EconomicResearchWhile the 1980s saw a boom in Class I townswith the spread of television, the Class II townsshowed strong growth in the 90s propelled byreforms, the millennium belongs to the Class IIIand IV rural-urban towns

It is estimated that an average rural Indianhousehold has five major consumer appliances(2006), almost double of what it had five yearsago.


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Why??????

Videocon Appliances

The reasons for heading into the rural areas arefairly clear. The urban consumer durable marketfor products like colour TVs, washing machines,

refrigerators and airconditioners is growingannually at between 7 per cent and 10 per cent.By comparison, the rural market is zoomingahead at around 25 per cent annually. The ruralmarket is growing faster than urban India now,

SamsungThe urban market is a replacement andupgradation market today


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Why???...

Between June 2002 and December2003, rural per capita consumptionexpenditure grew by 11.5 per cent

while the urban expenditure grew by9.6 per cent.

After the basic needs of food, clothand shelter, they are looking at howto live better


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Indiantelevision.com

The Indian rural market today accountsfor only about Rs 8 billion (53 per cent -FMCG sector, 59 per cent durables sale,

100 per cent agricultural products) of thetotal ad pie of Rs 120 billion, thus claiming6.6 per cent of the total share. So clearlythere seems to be a long way ahead.

The rural market is growing at a fargreater speed than its urban counterpart


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HUL

Today, the young and the educated in thevillages are already large in number. Andthis number is increasing. 40 per cent ofall those graduating from colleges arerural youth. They are the decision makersand are not very different in education,exposure, attitudes and aspirations fromtheir counterparts at least in smaller cities

and towns.Rural expenditures on Fast MovingConsumer Goods (FMCG) were growing atan impressive rate of 20 -25% (2004)


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Insurers' rural, social targets

may be set higher

The Insurance Regulatory and DevelopmentAuthority of India (IRDA) is considering anincrease in the minimum rural and socialobligations for insurers akin to the priority sectorlending of banks.

Currently, life insurance companies are mandatedto sell 7 per cent, 9 per cent, 12 per cent, 14 percent and 16 per cent of their policies in ruralareas in the first, second, third, fourth and fifthfinancial years, respectively. Non-life insurers

have to rake in 5 per cent of their gross writtenpremium from the rural years after the third yearof operation. Both life and non-life insurers haveto insure 20,000 lives from the social sector inthe fifth year of operations. The "social sector"includes the informal and unorganised sector,

economically vulnerable and backward classes


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IRDA

Revisions The regulation on rural andsocial obligations can be amendedonce in five years and with private

insurers entering the sixth year ofoperations, a revised prescriptionwould be due, said insurancecompany officials.

There is untapped potential in thissegment.


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Rural Prosperity

Thirteen consecutive good monsoons since1990 (ex 2002, 03)

600% increase in five year plan outlay for

rural development from 8thto 10thFYP.230% increase in the flow of institutionalcredit from agriculture (1997-98 to 2004-05)

41mn KCC issued amounting to Rs.97,700 crores since 1998 (40mn Creditplus Debit cards in Urban India)


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Rural Prosperity

Consuming class household in rural areequal to urban, hence disposal surplus inrural is much higher.There are 42,000 rural haats

(supermarkets) in India that exceed thetotal number of retail chain stores in US(35,000)Nearly 85% of villages have Public

Telephone.Billing per cell phone in rural AP is morethan in Hyderabad.60% of 2 crores who signed up forrediffmail & 50% of online shopping arefrom small towns.


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Rural Consumption

Consumption of major FMCG categoriesincreased from Rs 68,000 crore in 2000-2001 to Rs 93,000 crore in 2005-06,

according to recently released CentralStatistics Office data.

However, the scorching pace of ruralconsumption makes urban sales hikes

seem like a mere crawl. Top industryexecutives say that the rural market sharein a number of categories has touched 40to 50 per cent.


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Challenge

Understanding rural consumers, reachingproducts to remote places, communicatingwith heterogeneous rural audiences

Servicing rural markets involved ensuringavailability of products through a sounddistribution network, overcomingprevalent attitudes and habits of rural

customers and creating brand awareness.

Price-sensitivity is another key issue.


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Challenge

Rural specific and region specificstrategies are required.

Barging into community decisionmaking

Opinion leadership is in transientphase (School teacher/ sarpanch and

young graduates)

Adaptation Vs critical mass


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The Point

The key dilemma for MNCs eager to tap the largeand fast-growing rural market is whether theycan do so without hurting the company's profit

margins. Mr Carlo Donati, Chairman andManaging-Director, Nestle, while admitting thathis company's product portfolio is essentiallydesigned for urban consumers, cautionscompanies from plunging headlong into the rural

market as capturing rural consumers can beexpensive. "Any generalization" says Mr Donati,"about rural India could be wrong and one shouldfocus on high GDP growth areas, be it urban,semi-urban or rural."


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Finally


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Reasons for entering rural market

Large Population Base:

- nearly 6 lakh villages

-746 million people

Saturation in urban market

-Peak touched in most productcategories

-Highly aware/demanding customers.-Fragmented Media habits.

-Increased competition.


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Reasons- contd.

Increasing income in rural areas:-From 1989-90 to 2009-10, the cumulativegrowth in number of families comingunderMiddle-highincome category:

Urban =353%Rural =519%

Growing consumptionImproved Connectivity of rural areas.


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Reasons-contd.

Scope for improving penetrationrate.

Changing Life-style:

-Improved literacy rate.

-Better media reach.

-Influence ofImmigrants/commuters.

-Influence of Youth.


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Rural Marketing: Why???

Session2

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