Vinay Jha

Rural India The Market Size

Rural India The Market Size Source : Census of India 2001 Distribution of National Population 12.2% of the world's consumers live in rural India.

Rural India The Changing Face The “culture of non-indulgence” and abstinence in consumption is well and truly over Rural India buys 46% of all soft drinks sold [Coca-Cola is growing at 37% in rural markets with only 25% penetration, compared with 24% in urban areas] 49% of motorcycles and 59% of cigarettes Source: MART

Rural Markets: the next frontier:  Rural markets are the places to watch out

for, as this is the next battleground for the organizations to fight for increasing their market shares, with urban markets getting saturated, and farmers getting richer, it is no wonder that there is an impulse to go rural among the marketers particularly FMCG and

Consumer Durable companies. But the urban marketing strategy does not fit into the rural marketing structure and it needs a reorientation by looking at the competitive landscape and challenges of the rural market.

They have tried tinkering with all the four 'P's of the marketing mix i.e. Product, Pricing, Promotion and Place [ E.g. HUL has been a pioneer in reaching out to the smallest of villages with innovative products such as single-use packets of shampoo] To sell in villages, products must be priced low, profit margins must be kept to the minimum and the marketing message must be kept simple.

  However, the area where innovation has

moved to center stage is in the fourth P -- place (or distribution). Distribution channels can make or break a company's rural marketing efforts. Companies know it far too well that unless they come up with some innovative distribution channels that grasp the rural nuances well, all their rural efforts will come a cropper. Some of the examples of how India Inc has moved on a path-breaking manner to tap this market are ITC’s Choupal Sagar HLL’s Project Shakti DCM Shriram’s Hariyali Kisaan Bazaar Godrej’s Aadhaar Stores Mahindra’s ShubhLabh Stores Oil major IOC’s Kisan Seva Kendras

The Distribution Challenge Large and Scattered Markets

Dispersed population and trade Low density of shops/village and high variation in their concentration Inadequate Transport Facilities Lack of Retail Infrastructure Poor visibility and display of product on rural shop shelves Highly credit driven market and low investment capacity of retailers Inadequate bank and credit facilities for rural retailers Lack of proper warehousing facility Multiple Tiers (large no. of intermediaries) leading to higher costs *[ Though it depends on Cost/Benefit ratio of the individual organization] Poor Communication of due to Poor Reach of Media

Response to the Issues Large and Scattered Markets

Inadequate Transport Facilities Marico and HLL have started using delivery vans

to cater to rural markets. Coca Cola has opted for a ‘hub and spoke’ distribution system. [Coke bottles were transported from the bottling plants to the hubs (large distributors) and from hubs to spokes (smaller distributors) situated in small towns. Further distribution is done from there.]

Response to the Issues

Large and Scattered Markets Inadequate Transport Facilities Companies with relatively fewer resources can

come together through syndicated distribution through co-partnering with non-competitive marketers for the same market. E.g. Samsung has tied up with IFFCO. Motorola and Nokia have partnered with ITC e-choupal Aviva life Insurance has tied up with BASIX, an NGO

Response to the Issues   Large and Scattered Markets Inadequate Transport Facilities

Companies follow a strategy called "co-opetition", in which they come together to synergize their resources in rural markets for benefit of both the partners and yet, can compete in the urban markets for market share. E.g. Procter & Gamble has tied up with Godrej and Marico industries and now it is planning one with Nirma for distribution of Camay soaps. ICICI collaborating with P & T to open ATMs

Response to the Issues

Lack of Retail Infrastructure Lack of proper warehousing facility The concept of

‘rural mall’, first introduced by ITC as Choupal Sagar is proving to be an effective way out. Along with ITC’s Choupal Sagar, few more companies have taken initiative in same direction. To name a few are TATA Kissan Sansar, Delhi Shriram’s Kissan Haryali Bazaar, Godrej’s Aadhar and Manthan.

Response to the Issues

Multiple Tiers: Poor Communication due to Poor Reach of Media

ITC’s e-Choupal is an innovative, technology based way to address this issue where Intermediaries are avoided Direct contact with the consumer is established, thereby empowering the farmer, to decide when to sell, and reducing the information asymmetry, by providing real time data on latest rates at mandi and CBOT.

HLL’s Project Shakti showed another smart way of reaching 10 lakh homes directly in the villages through the use of Self Help Groups where traditional communication/distribution system is neither efficient nor cost-effective.

Distribution in Indian rural markets is indeed a great challenge but can be tackled by designing and adopting effective strategies and  proper use of resources: e-chaupal(ITC), shakti amma(HUL), ICICI bank, Dabur, Casas Bahai, Jaipur foot, Aravind eye hospital, Parry’s, have made significant progress in penetrating the rural market.