India Rural Market - a Critical Analysis

“Woken Up Sleeping Giant”

Rajesh Viswanathan July, 2013

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Case Summary
• Urban markets in India are already crowded and saturated.

• Rural India is undergoing a phenomenal changes.
• FMCG & consumer durable companies, which are basically “volume targeters” need to find new market regions and/or segments to sustain their topline & bottom-line. • Companies can exploit rural market segment/region to for new opportunities. • There are some organizations like HUL, ITC, LG, Mahindra etc. who are already benefiting from the rural focus through innovative ideas.

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SOLOTAXONOMY Approach
• Pre-structural
– Urban markets are already crowded & saturated.

• Uni-structural
– Agriculture’s share in overall GDP is going down, but, India still lives in her villages.

• Multi-structural
– Rural Marketing is a different ball game.

• Relational Level
– The understanding of “rural” is diffused and sometimes confusing. PESTEL factors affecting rural market is entirely different compared to urban marketing.

• OOB Thinking
– FMCG & consumer durables companies need to come up with innovative ideas on products, pricing, promotions & places (4 Ps) to penetrate into the rural markets & make a fortune. Need a real rethink of marketing mix for rural markets. Organizations have to work with local govt bodies & NGOs to create necessary awareness among the rural customers.

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Statement of Problem/Opportunity
• Urban markets are crowded and saturated.

• Agriculture’s share in overall GDP is going down, but, India still lives in her villages.
• Rural Marketing is a different ball game.

• The understanding of “rural” is diffused and sometimes confusing.

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Scope of Analysis
• Rural Business Env, potential challenges & opportunities.

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Rural Env Analysis
Political Heavy investment from govt in agri, irrigation, electricity, khadi, village industries & other infra facilities like roads, communication, schools, hospitals & banking. Local resistence. Prosperity from agriculture, development of village industries, migration of rural people to cities, remittance of money etc. have increased income level & buying power of rural people. - Traditional life, occupation & beliefs got substantial changes due to education, technical advances & travel. - Considerable reduction in the per culture of destitute and increase in other social classes in rural areas. - Nuclear family. - Reference groups got established around movie or sports stars (WOM). - Diversified into other occupations like construction, transport, hotels & small scale services like plumping etc. - Sociability & self confidence improved.

Economic

Social

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Rural Env Analysis
Technological Telecommunications & TV networks helps rural Indian to get latest updates & news on weather, market price. This also help marketers to pass right information back to customers. Organic farming is getting more attention. New educated class is very env conscious. (Mayillamma of Plachimada)

Ecological

Legal

Legislations like Money Lending act, Consumer protection act etc. added much required confidence to rural customers.

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Rural Opportunities
Large population base – 72% of population Growth in consumption Market growth rate higher than urban In expensive marketing IT penetrations Rising rural prosperity Change in life style Life cycle advantage Effectiveness of communication – rural customers are very brand royal.

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Rural Challenges & Expectations
Large, diverse & scattered market. Seasonal income Rising literacy rates – awareness level increased. Inadequate Infra – lack of all weather roads, warehouses, physical connectivity Price sensitive Smaller quantities Everything at a single place Major income is still from agriculture Traditional outlook - Resistance to change or accept changes gradually. Diverse socio economic backgrounds – one size do not fit for all. Inadequate financial facilities

Value for money More frequent buyers Delayed / divided payment

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Strategy Framework – 4A’s Structure
• Awareness
– Larger portion is inaccessible to conventional media. Have to leverage other channels like movies, songs, village fairs & festivals. Godrej is using radio, LG uses vans & road shows, Philip India using wall writing etc.

• Acceptability
– Customer should feel that the product is designed as per their needs & it should provide a solution for their current problem. LG’s customized ‘Sampoorna’ TV/fridges. Coca-cola provides low cost ice boxes

• Affordability
– Daily wagers & price conscious. Value for money. Need to consider their buying capacity. Sachet marketing. Electrolux launched a refrigerator that keeps ice frozen for up to six hours after a power failure, Nokia 1100, which is dust-resistant and doubles as a flashlight.

• Availability
– Greatest problem. Most of the products do not reach the customers on time. Strong distribution systems (HUL, CocaCola), Village Shops. ICICI leveraging postal services.

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Conclusion
• Estimates shows that rural India will consume around 60% of goods produced in India. • FMCG & Consumer Durable companies can’t afford to ignore rural India & move ahead. • Needs, wants & demands of Rural India is entirely different – One Size Doesn’t Fit All. • Marketing Mix – product, price, promotions & place – Need rethinking!!!

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Will the strategy of FMCG companies to go rural work? Justify your answer in the context of factors affecting the Business in Rural markets.
• Yes, if they have a right rural specific product & marketing strategy. There are lots of favorable conditions & factors existing, which can positively impact the business in rural areas.
– Large population base – 72% of total population.

– Rising rural prosperity due to modern faming practices, contract farming & migration to urban areas, govt funds etc.
– Growth in consumption. Average per capita household expenditure increased.

– Change in life style. Urbanization of rural areas, improved education & literacy rates. Social mobility & constant interaction with urban population.
– Life cycle change. Products that have attain the maturity stage in urban market is still in growth stage in rural market – Inexpensive rural marketing.

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What are the social changes that might be brought about by the proliferation of MNCs in the rural markets?
• Access to information like weather details, market prce (eChoupal) • Access to capital (Micro finance) • Entrepreneurial ability • Tastes & preferences got changed due to technological advancements like TV, Telephones.

• Social mobility got changed due to transportation advancements & road connectivity.
• Focus beyond agricultural income - alternate revenue channels from horticulture, poultry, fisheries and other activities which are less rain-dependant flourished. • Farmers got exposure to new crops & farming technology. (micro sprinkler irrigation systems, vegetable farming etc.). • Awareness level & literacy got improved. • Rural isolation got reduced.

• Basic amenities like education, drinking water, sanitary etc. got improved.
• Empower of women through self help groups.

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Give illustrations of CSR activities in rural areas by companies.
• BPCL
– Mahul is a fishing community village located closed to BPCL’s Mumbai refinery.
– Even though the community was rich in terms of marine wealth, they are far below on other areas like education, health etc. – BPCL volunteered to develop the education & health factors here since 1986. – Success of Mahul model helped BPCL to adopt another near by village Karjat. – Today 37 villages across India have been adopted by BPCL. – BPCL’s initiatives help those villages to get drinking water, sanitation facilities, medical facilities, enhanced their income standards through vocational training & agri innovations. – BPCL also provided grant to open new schools & adult literacy camps.

• http://www.bharatpetroleum.in/EnergisingSociety/CSR_vision.aspx?id=2

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Give illustrations of CSR activities in rural areas by companies.
• IOCL
– Focus on health, family welfare, education, env protection, providing portable water, sanitation, empowerment of women/marginalized groups.
– IOCL always in the forefront in times of national emergencies & calamities maintaining uninterrupted supply of petroleum products. – IOCL used to allocate petrol/diesel station dealerships and LPG distributorships to beneficiaries from among Scheduled Castes, Scheduled Tribes, physically handicapped, exservicemen, war widows, etc. – Unveiled kisan seva kendras as small-format retail outlets to reach quality products and services to people in the rural areas.

• http://www.iocl.com/Aboutus/corporat esocialresponsibility.aspx

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Give illustrations of CSR activities in rural areas by companies.
• Colgate-Palmolive (India) Ltd & “Operation Jagruti”
– Rural hygiene drive along with the Indian dental Association. – Covers 60 lakh people in 20,000 villages, out of which 15,000 villages had no experience to the availability of toothpaste and tooth powder. – To promote the brand in rural areas but the overall strategy is also spreading the vital information of oral hygiene among the lesser aware rural people.

http://expressindia.indianexpress.com/fe/dail y/20010219/fst19020.html

http://www.colgate.co.in/app/Colgate/IN/Corp/ ColgateCares/ColgateCommunity.cvsp

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Give illustrations of CSR activities in rural areas by companies.
• Chambal Fertilisers and chemicals ltd (CFCL)
– CFCL trains unemployed rural youth as extension workers known as krishi sewaks, who interact with the farmers and advise them .

• HUL'S VINDHYA VALLEY PROJECT
– HUL + Madhya Pradesh + Khadi Board – Helped the board to brand local produce from villages and tribal areas such as natural honey collected from forests in the state under the brand name Vindhya Valley. Product range includes edible products like papads, pickles, masala and turmeric. – HUL provided the corporate expertise, marketing acumen and quality parameters, while the state government bore the marketing expenses for the brand building.

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Give illustrations of CSR activities in rural areas by companies.
Company Asian Paints Coca Cola Initiatives - Schools for rural children - Improving infra & sanitary facilities in local schools. - Education for children through “The Schools into Smiles Project” - Water management & conservation.

ICICI Bank
Lupin India

- Micro finance services - Universalization of elementary education
- Schools, community facilities, low cost housing, training centers

Thank You

The Fortune at the Bottom of the Pyramid – CKP We are Like that Only – Rama Bijapurkar