Corporate Initiatives and Innovations in Rural Market of India

Discussion in 'CAT / MBA INDIA Forum' started by krishna, Feb 8, 2013.

  1. krishna

    krishna Banned

    Abstract

    Before launching a product in the rural market, it is important to conduct a proper market research and analyze the same to ensure that the product, its features and design suits the rural community's requirements. Most Fast Moving Consumer Goods (FMCG) companies in India are introducing customized products especially for rural areas. Thus the sale of FMCG products in rural markets is growing at a fast pace, even faster than that in the urban markets.

    Key Words

    Rural Market, Rural Marketing, Rural Household Income Per Capita, Rural household spending, Corporate Initiatives and Innovations for Rural Market, Challenges and Opportunities of Rural Marketing in India.

    Introduction

    India's rural market is gaining increasing importance day by day, mainly because of the large population and its gradually increasing purchasing power. Before launching a product in the rural market, it is important to conduct a proper market research and analyze the same to ensure that the product, its features and design suits the rural community's requirements. Most Fast Moving Consumer Goods (FMCG) companies in India are introducing customized products especially for rural areas. Thus the sale of FMCG products in rural markets is growing at a fast pace, even faster than that in the urban markets.

    The economies of India and China have a huge untapped market for better products/services. Both have large rural population. Many multinational companies are keen on entering India and China because of the demand for new products/services by the countries gigantic populations, accompanied with workforce or labor support for production and marketing. The Indian rural market is influenced by various sociological and behavioral aspects. India's rural population accounts for around 70% of the total population.

    Objectives of the Study

    * To Study the Challenges of Rural Marketing in India
    * To identify the Corporate Initiatives and Innovations to overcome Challenges of Rural Marketing in India.

    Research Methodology

    * Researcher has extensively relied on Secondary Sources of Data.
    * Research is limited to India.

    Brief Overview of Rural and Urban Market of India

    In numerical terms, India's rural market is indeed a large one; it consists of more than 740 million consumers. According to the 2001 census of India 73% of India's total population is rural. Of the 121 crore Indians, 83.3 crore live in rural areas while 37.7 crore stay in urban areas, said the Census of India's 2011 Provisional Population Totals of Rural-Urban Distribution in the country, released by Union Home Secretary RK Singh. "For the first time since Independence, the absolute increase in population is more in urban areas than in rural areas. The rural–urban distribution is 68.84% and 31.16% respectively," Registrar General of India and Census Commissioner C Chandramouli said.

    Facts state that India's 70 per cent of the population resides in hinterlands and 56 per cent of the overall consumption comes from there. Rural Indians are no more inferior to the country's urban clan. Increase in incomes, rising non-farm employment opportunities, higher aspirations and the Government's focus on rural sustainability schemes are major factors that have been driving the rural markets' growth. Rural spending was significantly higher at Rs 3,75,000 crore (US$ 67.57 billion) than urban consumption at Rs 2,99,400 crore (US$ 53.95 billion) between 2009-10 and 2011-12; wherein rural consumption per person outpaced its urban counterpart by 2 per cent, according to a study by CRISIL and preliminary data released for 2011-12 by the National Sample Survey Organization (NSSO).

    Understanding Rural Market of India

    According to the Census of India, villages with clear surveyed boundaries not having a municipality, corporation or board, with density of population not more than 400 Sq. Km. and with at least 75 percent of the male working population engaged in agriculture and allied activities would qualify as rural. According to this definition, there are 5,85,764 villages in the country. Of these, only 0.5 percent have a population above 10,000, and 2 per cent have a population between 200 and 1000, and another 18 per cent has a population less than 200.

    Interestingly, for FMCG and consumer durable companies, any territory that has between 20,000 and 99,999 population, is rural market. So, for them, it is not rural India which is rural. According to them, it is the Class-II and III towns that are rural.

    According to the data from the Census of 2011, cities and towns can be broadly classified as:[3]

    * Class I: 100,000 and above
    * Class II: 50,000 to 100,000 people
    * Class III: 20,000 to 49,999
    * Class IV: 10,000 to 19,999
    * Class V: 5,000 to 9,999
    * Class VI: Less than 5,000 persons

    Population List

    * >5,000,000- Megacity
    * 1,000,000-4,999,999 - Metropolis
    * 500,000-999,999 - Sub-Metropolis

    According to the 2001 census, there are 4,378 towns and cities in India. Of these 35 are metropolitan cities (population of 1 million plus) that are included in the total of 393 Class I cities with population exceeding 1,00,000. Together they account for 108 million of the urban population of 285 million. The rest live in towns with population of less than 100,000 going down to just 5,000. While urban India as a whole faces huge problems, particularly of infrastructure, to support a burgeoning population, the worse-off are these 4,738 urban centres that have to contend with the absence of basic services, inadequate new investment and entrenched poverty.

    Characteristics of the Indian Rural Market

    * Large and Diverse Market

    The Indian rural market is large and diverse. Therefore, the density of shops to market the products is less when compared to the total population.

    * Agriculture is the major source of Income

    The main source of income of the rural people is agriculture. If crops fail, then their income gets affected automatically and this reduces their purchasing power.

    * Traditional Outlook

    People in rural areas are traditional in their thinking; they are superstitious in their beliefs. This trend too is changing because of increasing literacy levels among the rural youth.

    * Diverse Socioeconomic Background

    Rural consumers are spread across different states in distant parts of India. Thus, their social norms and economic status differs widely from each other.

    * Change in Standard of Living

    Rural population has in general a low literacy rate, low per capita income and thus low savings. Many of the rural people's standards of living are below the poverty line and they are also socially backward. There is, however, a change for the better on these fronts as a result of reduced tax structures, Government subsidies and favorable regulations on pricing of farmers produce. Thus, their disposable income is increasing slowly.

    Challenges and Opportunities of Rural Marketing in India

    Latest data from the NSSO's 66th round of survey on household consumption expenditure has also revealed that the difference between the spending patterns of the urban and rural poor have narrowed down over the last two years with average spending by a rural household in 2009-10 at Rs 1,053.64 and urban households at Rs 1,984.46. Crisil, in its report, has pointed to a marked shift in spending on discretionary goods by rural households as against only necessities. The report states that more than half of India's stock of consumer durables and two-wheelers are now in rural India. "Rural consumption has outstripped urban consumption as a result of the government's strategy of inclusive growth, through programmes like MGNREGA ... The rise in prices of agricultural commodities as well as loan waiver scheme and stimulus packages benefited rural households," said NR Bhanumurthy, professor at National Institute of Public Finance and Policy, adding that the economic slowdown impacted urban incomes more than rural incomes.

    In addition to the consumption trends, the market potential of the rural market is considered to be the driver of the future growth by a number of companies.
  2. krishna

    krishna Banned

    The market size for the fast-moving consumer goods (FMCG) in the rural markets in India is estimated to be Rs. 6,500 billion; consumer durables at Rs. 500 billion, agricultural inputs (including tractors) at Rs. 4500 billion, and automobiles (two-wheelers and four-wheelers) at Rs. 800 billion, totaling to Rs 12,300 billion.

    Although rural markets offer immense potential, marketers need to recognize the fact that there are considerable differences in many respects, including the nature, characteristics buying patterns, and behavior of rural consumers, when compared with their urban counterparts.

    While the urban economy thrives mainly on secondary and tertiary activities such as manufacturing and services, the rural economy is driven mainly by primary activities such as agriculture, fishing, and forestry.

    The consumer demand and consumption patterns also differ across rural and urban areas. In India, for example, electricity reaches only 57.6% of the rural population and, therefore, the market for household and other electrical equipment such as televisions and fans is also restricted.

    Similarly, there are also differences in rural literacy and education levels; in India the rural and urban literacy levels are 58.7% and 79.9% respectively.

    Pattern of income levels in rural markets is yet another differentiating factor that affects the buying power and consumption behavior of rural consumers. About 80% of the rural households in India, for instance, have a monthly income of less than Rs. 3000.

    In addition, the dispersed nature of the population, the inadequacy of physical infrastructure like roads, the weak banking system, limited availability of credit facilities, and problems of storage infrastructure are additional challenges for marketers. These challenges need innovative solutions.

    Corporate Initiatives and Innovations in Rural Market of India

    * 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. Farmers can access latest local and global information on weather, scientific farming practices as well as market prices at the village itself through this web portal - all in Hindi. It also facilitates supply of high quality farm inputs as well as purchase of commodities at their doorstep.

    * Shakti is HLL's rural initiative. It seeks to empower underprivileged women of villages with populations of 2000 or less by providing income-generating opportunities, health and hygiene education through the Shakti-Vani program, and creating access to relevant information through the i-Shakti community portal. Shakti is a pioneering effort from the private sector in creating livelihoods for rural women. Started in 2001, Shakti has already been extended to about 50,000 villages in 12 states – Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Tamil Nadu, Chhattisgarh, Uttar Pradesh, Orissa, Punjab, Rajasthan, Maharashtra and West Bengal (respective state governments and several NGOs are also actively involved in the initiative). For HLL, it is "enlightened self-interest"—creating opportunities to increase the rural family income; putting more money in their (rural people) hands to purchase the range of daily consumption products-from soaps to toothpastes-that HLL makes. It also enables HLL to access hitherto unexplored rural hinterlands. (Kamath, 2003).

    * Maruti has been organizing road shows with film screenings. This is much like a travelling cinema that rural India is already quite familiar and fascinated with. The only difference being that the film is not set up in a tent, but inside a TATA truck fitted a Samsung LCD TV, an air conditioner and reclining seats. The film strikes a chord with the villagers because it tells a simple story of an average villager who buys a Wagon R after being persuaded by a friend who also bought a Wagon R.

    * " Gaon Chalo" by Tata Tea

    "Gaon Chalo" is a distinctive rural marketing initiative started in the year 2006 in Uttar Pradesh by Tata Tea. For penetrating the rural market, the company partnered with NGOs with wide reach among Uttar Pradesh's rural masses. The "Gaon Chalo project has created employment opportunities to the youth of villages and small towns. It has brought steady income to those who are distributors of Tata Tea. Tata Tea's consolidated market shares from rural areas rose from 18% to 26.6%.

    * Nokia's Low-Cost Handsets

    According to marketers, rural India has a huge progressive customer base for mobiles. As most rural consumers are price-sensitive, Nokia has launched seven handsets in the price range of Rs. 1500 to Rs. 5500 targeting rural customers. Further, Nokia is promoting a subscription-based service called "Life Tools" which provides information about agriculture and education that is helpful to rural people. It also provides entertainment services. The "life Tools" service is priced between Rs.30 to Rs. 60 per month, based on the package an individual opt for.

    * Dabur- Indian Oil Partnership

    In order to tap India's rural market, Dabur India Ltd. Has tied up with Indian Oil Corporation (IOC). According to the agreement between the two companies, IOC's retail outlets all over the country will stock and sell Dabur's products consisting of healthcare, oral care, personal wash, skin care and home care products. The Kisan Seva Kendra is a one-stop rural retail outlet of IOC, which offers fuel and non-fuel products like fertilizers, grocery, tools used for cultivation, seeds, personal care products, auto spares, etc. There are 1600 such IOC outlets across India.

    * Airtels's Telecom Revolution in Rural India

    Airtel's rural start up package offers its customers a Motorola handset for just Rs. 1599. Its recharge cards come in a minimum denomination of Rs.10, so that even daily wage earners can afford to use the service, Airtel is spreading awareness in villages by its roadside advertisements highlighting its red and white logo. It is also increasing its business network through commission-based retailers, who can be anyone who is selling cigarette, paan, textiles, etc. The company already has 55000 retailers in Bihar and Jharkhand, and is planning to expand the network by approaching 5000 more cigarette and paan sellers.

    * Mahindra-Leading Brand in Rural India

    After launching its Super Turbo 595 DI Tractor, Mahindra wanted to create awareness about its new technology and high efficiency to farmers and thereby sell the tractor. It, therefore, identified opinion leaders and progressive farmers and organized interactive discussions between the company (Mahindra) and its target audience (farmers and opinion leaders). It gave free test rides and thereby sold the tractor initially to opinion leaders. This marketing activity was carried out in Maharashtra, Haryana and Punjab. After using the tractor for a reasonable time period, the initial buyers were glad to have the product and expressed their positive word-of-mouth about the tractor to their friends, relatives and neighbors. This initiative has helped the company to a great extent.

    Table: Corporate Innovations for Rural Market


    Company

    Industry Segment

    Product/Program

    Description

    Impact

    Godrej & Boyce

    Consumer Durables

    ChotuKool
    Refrigerator



    Powered by battery, a perfect refrigerator for rural population. Does not require regular electricity supply unlike the conventional models.

    Providing the rural/ semi-urban areas with a high-end product, the company pays commission of US$ 3/ refrigerator to the rural agent; making rural population the last mile connectivity of its supply chain.

    Vortex

    Banking

    Low cost ATM



    Low-cost Automated Teller Machines (ATM) which provide banking solutions to people in rural/ semi-urban areas. The machine consumes very less power, and has an elegant, rugged and reliable Cash Dispense Module. A wide range of products meant for rural and semi-urban bankers makes the financial operations seamless and uncomplicated

    A wide range of products meant for rural and semi-urban bankers makes the financial operations seamless and uncomplicated
  3. krishna

    krishna Banned

    Tata Chemicals

    Consumer goods

    Water Purifier




    Swach range of water purifiers promise pure drinking water to the rural people at a very low cost of INR 999. It does not require running water or electricity to provide harmless, bacteria-free drinking water.

    The winner of the gold at the Asian Innovation Awards 2010 would be rolled out nationally and then in emerging markets across Africa, South-East Asia and Latin America.

    HUL

    FMCG

    Khushiyon ki Doli




    The multi-brand rural engagement module- Khushiyon ki Doli- initiated by HUL, provides various personal care and home care brands such as Wheel, Surf Excel, Fair & Lovely, Sunsilk, Vim, Lifebuoy and Close Up.

    The main objective of the campaign is to reach out to media dark villages with HUL brand messages to inculcate good personal hygiene habits among the people. Shakti distributors now account for 15 per cent of the company's sales in rural India

    Nestle

    FMCG

    Smaller packs of maggi noodles and tomato ketch-ups

    The initiative aimed at 'indianising' Nestle's global portfolio to propel its growth in the rural markets. The company promises nutritionally superior products for people residing in the hinterlands.

    With an aim to penetrate into rural markets, Nestle has strived to create products specifically for the consumers at the bottom of the pyramid. The taste maker introduced not only delights the taste buds, but also adds nutritional quality to the food.

    Nokia

    Software

    Nokia Life tools



    The mobile application, launched in June 2009, empowers people to have access to agricultural, educational and entertainment content

    Nokia has tied up with government organizations, NGOs and Reuters for this campaign and has partnered with Idea Cellular as the service provider. It has launched an ancillary microfinance campaign to facilitate handset purchase in the rural areas.

    ITC

    Agriculture

    e-Choupal



    An initiative by ITC, e-Choupal aims to empower farmers with up-to-date agricultural and marketing information through access to internet and computers. The campaign was launched in 2000 and targets to empower 10 million farmers by 2012.

    e-Choupal delivers real-time information and customised knowledge to improve the farmer's decision-making ability, thereby better aligning farm output to market demands; securing better quality, productivity and improved price discovery.

    GlaxoSmit hKline

    FMCG

    Asha- milk food drink



    GlaxoSmithKline's Asha, which is 40 per cent cheaper than the regular variant of Horlicks, is the first product from the UK-based MNC designed for rural consumers.

    Realising that right product needs to reach the right consumer in time, the company will continue to identify and bridge need gaps for BoP consumers, particularly in terms of nutrition products and their availability.

    Hero Honda

    Consumer Durable

    Splendor



    Hero Honda Motors Ltd., a joint venture between India's Hero Group and Japan's Honda Motor Co., has bet big on rural India by selling fuel-efficient motorcycles designed for shallow pockets. The Splendor, for instance, costs US$ 800.



    Late Dr C K Prahalad has rightly said that if we stop thinking of the poor as victims or as a burden and start recognising them as value-conscious consumers, a whole new world of opportunity will open up. He suggests that four billion poor can be the engine of the next round of global trade and prosperity, and can be a source of innovations.

    Limitations and Future Scope of the Study

    The present study is based on secondary data and has limitations of secondary data. Study is explorative in nature and there is scope for detailed study corporate wise with its success, challenges and failure rate.

    Conclusion:

    The key challenge that companies face in the rural market is to identify and offer appropriate products without hurting the company's profitability or margins. Companies should recognize that rural consumers are quite discerning about their choices and customize products and services accordingly. Product awareness campaigns and advertising communications too need to be designed and executed keeping in tune with the context. The products should not only be made available at the right time and at the right place but should also be affordable and acceptable to the rural people.

    Rural markets consisting of 70% of the total Indian population with thin density and inadequate infrastructure with low per household income poses unique challenges to marketers and calls for innovative marketing solutions.

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