Monday, March 16, 2009

India's Rural Market - " The Fortune At The Bottom Of The Pyramid "

For the last five days I was out for a market visit to some of the districts in south Tamil Nadu. I opted to travel by car covering thousands of kilometers through rural areas of Tamil Nadu. It was truly an experience to travel through the villages and my mind was stuck at the rural market - the so called untapped markets !

Each & every small shop I passed through reminded me the two books I have read on rural Indian markets, " The Fortune at the Bottom of the Pyramid" By C.K. Prahalad and " We are Like that Only " by Rama Bijapurkar. My eyes were surfing through the leading brands hanging at almost every shop in the villages which include products like Mineral Water, Cola's, Shampoo, Detergent Powder, Tooth Paste and even Packed Snacks.

There was a time when the whole world thought that the rural India was a land of snakes and holy men with magical powers, maybe its time to re-acquaint ourselves with the true identity of the rural side of our country. Coke / Pepsi or Chic / Pantene or Colgate / Close Up or Ariel / Surf or Lays / Cheetos are house hold brand names in rural markets today!

"The future lies with those companies who see the poor as their customers" says C. K. Prahalad in his book " The Fortune at the Bottom of the Pyramid " . He clearly pinpoints on the raw fact that there is vast potential for profits in the rural markets. He says, globally the bottom of the (economic) pyramid consists of 4 billion people living on less than $2 per day. If we stop thinking of the poor as victims or as a burden and start recognizing them as value-conscious consumers, a whole new world of opportunity will open up. Prahalad 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.

He cites numerous examples of companies that have generated wealth for the poor and profits for themselves by focusing on underserved rural markets. As urban markets become saturated, more businesses are retooling their marketing strategies, and in many a case their products targeting rural consumers with tiny incomes but rising aspirations, giving birth to a new era of rural marketing.

To expand the market by tapping the countryside, more and more MNC's are foraying into India's rural markets. Among those that have made some headway are Hindustan Lever, ITC, Coca-Cola, LG Electronics, Britannia, LIC, HDFC Standard Life, ICICI, Philips, Colgate Palmolive and most of the Telecom companies.

In this article let me share with you my views on Opportunities & Challenges for all the Companies targeting to tap this huge rural untapped markets.

Opportunity


The Indian rural market with its vast size and demand base offers a huge opportunity that companies cannot afford to ignore. We are a country with 1.12 billion people of which 70% live in rural areas which means more than 700 million people spread around 6,27,000 villages. India's rural population comprises of 12% of the world's population presenting a huge, untapped market.

The importance of the rural market for some FMCG and durable marketers is underlined by the fact that the rural market accounts for 55 per cent of LIC policies, 70 per cent of toilet soaps, 50 per cent of TV, Fans, Bicycles, Tea , Wrist Watches, Washing soap, Blades, Salt, Tooth Powder and 38 per cent of all Two-Wheelers purchased. Of the two million plus BSNL connections, 50% is from small towns/villages and out of 20 million Rediffmail signups, 60% are from small towns ! Let me also give you the gigantic market size of rural markets (in Indian Rupees) : FMCG - 6500 Billion, Agri-Inputs - 4500 Billion, Consumer Durable's - 500 Billion, Automobiles ( 2 & 4 Wheelers ) - 800 Billion ! The figures tell us that the rural market is growing much faster than the urban counterpart. A recent forecast revealed that the Indian Cellular Services revenue will grow at a rate of 18.4 per cent with most of the growth coming from rural markets.

In 2008, the rural market has grown at an impressive rate of 25 per cent compared to the 7–10 per cent growth rate of the urban consumer retail market. According to a McKinsey survey conducted recently, rural India, with a population of 700 million, would become bigger than the total consumer market in countries such as South Korea or Canada and it would grow almost four times from its existing size in the next few years.

Understanding the Rural Market


I believe understanding the characteristics that make the people and the market in rural India unique, can help companies to enter this market with success. With an average income of less Rs.2000/- per month (Rs.24,000/- per annum), rural Indians have a very low disposable income. Most rural homes have minimal storage space and no refrigeration. Very few people own or have access to cars. As a result, rural Indian purchasing habits tend to be of an "earn today, spend today" mentality.

Rather than buying in bulk, which would mean paying more for a large quantity upfront, rural Indians tend to buy what they need for short segments of time. These factors result in consumers buying products locally, in small quantity on a daily basis. Before a company considers entering the rural market, understanding the types of products and packages that rural Indians typically use is crucial. By taking into account the low disposable incomes and the unique product and package needs of this market, consumer products that are designed and packaged for this market have great potential.

Approach

The rural market may be alluring but it has got its own problems like: Low per capita disposable incomes that is half the urban disposable income; large number of daily wage earners, seasonal consumption linked to harvests and festivals and special occasions; poor roads; power problems; and inaccessibility to conventional advertising media.

In her book, " We Are Like That Only ", Rama Bijapurkar points out, the main problem with the MNC's entering India is that they think the world is one homogenous market. They believe, what works in America, Europe, Asia has to work in India too. Its because of such thoughts that many of the multinationals have not managed to penetrate the Indian markets. After spending billions and being in India for more than 15 years, Coke and Pepsi still don't make profits.Another notable flop in the Indian market is Kellogs Cereals. The company couldn't understand that Indians prefer a hot steaming breakfast every morning, instead of cereals dunked in cold milk. Even if the lady in the household is working, the kitchen in an Indian household starts buzzing very early in the morning.

The rural consumer is different from his urban counterpart in many ways. I think the biggest challenge for any MNC's are meeting the four aspects in rural marketing: Availability, Affordability, Acceptability & Awareness.

Availability

The first challenge is to ensure availability of the product or service. India's 627,000 villages are spread over 3.2 million sq km; 700 million Indians live in rural areas, finding them is not easy. However, given the poor state of roads, it is an even greater challenge to regularly reach products to the villages. Over the years, India's largest MNC, Hindustan Lever, has built a strong distribution system which helps its brands reach the interiors of the rural market. To service remote village, stockists use autorickshaws, bullock-carts and even boats in the backwaters of Kerala. Coca-Cola, which considers rural India as a future growth driver, has evolved a hub and spoke distribution model to reach the villages. LG Electronics defines all cities and towns other than the seven metro cities as rural and semi-urban market.

Affordability

The second challenge is to ensure affordability of the product or service. With low disposable incomes, products need to be affordable to the rural consumer, most of whom are on daily wages. Some companies have addressed the affordability problem by introducing small unit packs. Godrej recently introduced three brands of Cinthol and Fair Glow in 50-gm packs, priced at Rs. 4-5 meant specifically for rural markets. The success of Cavin Kare has become a very notable case study. It is a company that began in a small way. It started the Chic shampoo sachet for 50 paise when shampoo was available at Re.1, and it revolutionised the market.

Hindustan Lever, among the first MNC's to realize the potential of India's rural market, has launched a variant of its largest selling soap brand, Lifebuoy at Rs.2 for 50 gm. Coca-Cola has addressed the affordability issue by introducing the returnable 200-ml glass bottle priced at Rs.5. The initiative has paid off: Eighty per cent of new drinkers for coke now come from the rural markets.

Acceptability

The third challenge is to gain acceptability for the product or service. Therefore, there is a need to offer products that suit the rural market. One company which has reaped rich dividends by doing so is LG Electronics. It developed a customized TV for the rural market and was a runway hit selling 100,000 sets in the very first year. Because of the lack of electricity and refrigerators in the rural areas, Coca-Cola provides low-cost ice boxes — a tin box for new outlets and thermocol box for seasonal outlets.The insurance companies that have tailor-made products for the rural market have performed well. HDFC Standard LIFE topped private insurers.

Awareness

Since large parts of rural India are inaccessible to conventional advertising media, building awareness is another challenge. Hindustan Lever relies heavily on its own company-organized media. Godrej Consumer Products, which is trying to push its soap brands into the interior areas, uses Radio to reach the local people in their language. Coca-Cola uses a combination of TV, Cinema and Radio to reach rural households. LG Electronics uses vans and road shows to reach rural customers. Philips India uses wall writing and Radio advertising to drive its growth in rural areas.

With all the above facts & figures the question is, can we afford to ignore rural India and move ahead? Well the answer is, we will not be able to survive without rural India in future! It is estimated that the rural India will consume 60% of the goods produced in the country.

For most of us, rural India is an unknown entity even today, and it calls for a lot of investment. Initially, the ratio between investment and returns will not be the same as we see in urban India. But eventually, we will get the returns. In today's corporate world, all the entrepreneurs and managers, looks for quick returns and depend on their quarterly results. They only look at what gives them immediate success. I think freebies have no meaning in rural India. Indian rural market is undoubtedly complex but there are some simple truths that we need to accept. The rural consumers are very value-conscious. They may be poor, but they are not backward and they can make a difference to our products and brands.

Gone were the days when a rural consumer had to go to a nearby town or city to buy a branded product. The growing power of the rural consumer is an opportunity for us to flock to the rural markets. At the same time, they also threw up major challenges. Gandhiji believed that India's future lay in her villages and it goes without saying those among us who can bring innovations in marketing mix with rural markets in mind will take away the " fortune at the bottom of the pyramid " !

Shamim
Visit : www.winnerinyou.in

14 comments:

Anonymous said...

Hi Shameem,
Interesting topic. Lots of inputs and thanks for the same. I was in search for C.K Prahlads book. Will find and read it. Keep blogging.
Sam

antony said...

Kerala is not rural. Its semi-urban continuam. Entire kerala is a big market. All major brands do thier market research in kerala before pushing thier products to the shelves.

Shamim Rafeek said...

Dear Dr.Antony,
True, Kerala is unique and got either urban or semi-urban markets. It goes without saying Kerala continues to be purely a consumer state. But interestingly the latest reviews says several rural markets in south and north India is emerging as much bigger consumer market than Kerala. Thanks for your feedback.
Shamim

Thangachan said...

hi shameem,
This is very difficult for the MNC's to afford the price of land to set up their companies in urban areas thats why they prefer rural areas and one day the paddy field which used to grow for entire country will disappear and only MNC's will remain which is very bad for the country.
Anthony. T

Anonymous said...

Dear Shamim,
I dont think I know u.Still I say ur articile is gd.Congrats!Iam a writer., freelance softskills trainer in Chennai & Kerala.
Best wishes,
Dr. Lalitha

Anonymous said...

Dear Shamim,

Good work and informative. Your effort needs real appreciation. Add on with more
works.

Best regards,
Adv.Sathisan

Anonymous said...

Very informative sir. Incidentally todays Economic Times carry similar news on companies foraying into rural market. Please write more on this topic. http://economictimes.indiatimes.com/Retailing/Marketers-offer-special-schemes-for-rural-mkts/articleshow/4295144.cms

Good luck
Adv.Manu

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tanvee said...

Sir

It is really very important area which is somehow ignored by several companies...and your views with several example of rural India is very much valid and highly appreciating.

ipsita said...

i am doing a project on rural marketing as a part of my college academic work. i am interested to know how can i make a survey on it. what kind of sample should i select for such a survey?? if u could help it would be great..!!

Abhirup S, TocH Institute, Cochin said...

Dear Mr Shamim,
I m doing a project in rural marketing.I found that your article was like a tablet form of the best marketing books and i am sure many would be benefited out of this. It has been written in a very nice and interesting way. Please write more article on Marketing.

dinesh said...

Hi sir

I am pleased to getting your input related rural india.However I would like know from you about Indian Rural agriculture future opportunities and current hurdles..As per my suggestion our govt should have explore the opportunities of Agriculture should not exploit .Sir If you have perfect survey reagarding future of Agriculture then Requesting to you for share with us.It would be helpful .


Thanks

Dinesh Bachhav
dineshbachhav007@gmail.com.

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