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Rural Marketing in India Economy

'''Building sustainable market linkages for rural products: Industry’s

role, scope, opportunities and challenges'''

Introduction:

Marketing today has changed the dynamics of the business. As the consumers are getting
informative, the business is becoming competitive day-by-day. Marketers are seeking
fresher challenges everyday and are looking to increase their realm. The urban consumer
has been coddled till now but this market is shrinking, prompting the marketer to now
explore the rural consumers, which promises a huge potential. The market has enough
scale to offer, and enough desire to consume. The consumer in the Indian hinterland is
ready and waiting to be served.

Rural Markets are defined as those segments of overall market of any economy,
which are distinct from the other types of markets like stock market, commodity markets
or Labor economics. Rural Markets constitute an important segment of overall economy,
for example, in the USA, out of about 3000 counties, around 2000 counties are rural, that
is, non-urbanized, with population of 55 million. Typically, a rural market will represent
a community in a rural area with a population of 2500 to 30000

Rural products of India are unique, innovative and have good utility and values

Large number of these rural products (like handicraft items, food products, embroidery,
clothes & other products) sustains a significant segment of the population in the rural
areas. Several attributes of rural products can be identified, for which, it has a demand in
the market. Out of the lots, ‘ethnic origin’ and ‘indigenous design & appearance’ are two
traits of rural products, attracting a premium in the market.
What Constitutes the Rural Market?

The census of India defines rural as any habitation where the population density is less
than 400 per sq. km, and where at least 75 per cent of the male working population is
engaged in agriculture, and where there isn't any municipality or board.

Having said that, there are about 600,000-odd villages in India Leaving aside Hindustan
Lever and ITC, most FMCG Sector would define rural as any place with a population
below 20,000. Similarly, durable and agri-input companies consider any town with a
population below rural, primarily because the adjoining villagers come to shop there for
say a television set.

The Rural Market Potential

But, contrary to this, the non-uniformity of rural products (from one another) and lack of
its quality control measures has been creating a negative demand. Besides, the small
sized and dispersed production units of these rural products hinder realization of the
economies of scale in marketing and result in high transaction costs per unit of output.
Niche-based products have no local market.
Products in local use are also not marketed horizontally; they often first travel down to
market through a long chain of intermediaries and then up to more difficult locations in
the rural areas. In the process, the people in rural areas suffer from both low prices as
producers and high prices as consumers. In this conflict, rural products loss its
equilibrium and the supply side becomes exponentially high. Because of this hazard, rural
entrepreneurs face acute economic loss and rural markets become stagnant. Therefore,
there is an emergent need for Building sustainable market linkages for rural products, so
that, it can be connected to larger markets and farmers can get a sustainable livelihood.
The rural market has been growing steadily over the past few years and is now even
bigger than the urban market. At present 53 per cent of all FMCGs and 59 per cent of all
consumer durables are being sold in rural India. The biggest FMCG Company in India
HLL derives more than half of its Rs. 12,000 crore revenues from the rural markets.
Though there is a high component of sales in some particular product categories like
radios, watches, cassetteplayers, the penetration levels are abysmally low, and therefore,
offer tremendous potential for growth.
The rural market is an enigma for the companies. Due to the
lack of deeper insights into the psyche of the rural consumers, companies are
hesitant to explore this territory. But local brands, like "Ghadi" detergent in
Kanpur, have been able to successfully tap the potential of rural markets in India:
-

• About 285 million reside in urban India as compared to 742 million in rural
India.
• The number of middle income and high-income household in rural India is
expected to grow from 80 million to 111 million by 2007 while urban India
is expected to grow from 46 million to 59 million.
• 53 per cent of all FMCGs and 59 per cent of all consumer durables are
sold in rural India.
 • Number of poor household is expected to shrink by half to 28 million in
2006-07 from 61 million in 1997-98, taking rural people from poverty to
prosperity.
• Rural marketing involves addressing around 700 million potential
consumers, over 40 per cent of the Indian middle-class, and about half the
country's disposable income.
• The Indian rural market is almost twice as large as the entire market of
USA or Russia.

The rural market for FMCG is Rs. 65,000 crore, for durables Rs. 5,000 crore, for
tractors and agri-inputs Rs. 45,000 crore and two- and four-wheelers, Rs. 8,000
crore. In total, a whopping Rs. 1,23,000 crore. Opportunities presented by this
market.

A look at some facts, which will clear the doubts of skeptics about the

Thus, looking at the opportunities, which rural markets offer to the marketers. it
can be said that the future is very promising for those who can understand the
dynamics of rural markets and exploit them to their best advantage

The concept of Rural Marketing in India Economy has always

played an influential role in the lives of people. In India, leaving out
a few metropolitan cities, all the districts and industrial townships
are connected with rural markets.

The rural market in India is not a separate entity in itself and it is

highly influenced by the sociological and behavioral factors operating
in the country. The rural population in India accounts for
around 627 million, which is exactly 74.3 percent of the total
population.

The rural market in India brings in bigger revenues in the country, as

the rural regions comprise of the maximum consumers in this
country. The rural market in Indian economy generates almost more
than half of the country's income. Rural marketing in Indian
economy can be classified under two broad categories. These are:

• The market for consumer goods that comprise of both durable

and non-durable goods
• The market for agricultural inputs that include fertilizers,
pesticides, seeds, and so on
THE CONCEPT OF RURAL MARKETING

The concept of rural marketing in India is often been found to form

ambiguity in the minds of people who think rural marketing is all
about agricultural marketing. However, rural marketing determines
the carrying out of business activities bringing in the flow of goods
from urban sectors to the rural regions of the country as well as the
marketing of various products manufactured by the non-agricultural
workers from rural to urban areas. To be precise, Rural Marketing in
India Economy covers two broad sections, namely:

• Selling of agricultural items in the urban areas

• Selling of manufactured products in the rural regions

Some of the important features or characteristics of Rural Marketing

in India Economy are being listed below:

• With the initiation of various rural development programmers

there have been an upsurge of employment opportunities for
the rural poor. One of the biggest cause behind the steady
growth of rural market is that it is not exploited and also yet to
be explored.
• The rural market in India is vast and scattered and offers a
plethora of opportunities in comparison to the urban sector. It
covers the maximum population and regions and thereby, the
maximum number of consumers.
• The social status of the rural regions is precarious as the
income level and literacy is extremely low along with the range
of traditional values and superstitious beliefs that have always
been a major impediment in the progression of this sector.
• The steps taken by the Government of India to initiate proper
irrigation, infrastructural developments, prevention of flood,
grants for fertilizers, and various schemes to cut down the
poverty line have improved the condition of the rural masses.
The Traditional Rural Market

Since ancient times, Indian villages had the concept of village markets popularly
known as the village "Haats". The "haats" are basically a gathering of the local
buyers and sellers. The barter system was quite prevalent, which is still
continuing in a number of places even today. Haats are basically a weekly event
and are central to the village economy.

Page - 4

Companies like Mahindra have devised their marketing plan keeping in mind the
importance of haats in villages. They set up stalls in the villages coinciding with
the village haats and promote their tractors. This serves a dual purpose - getting
the attention of a large number of their target market as well as getting critical
insight about the rural consumer’s behavior.

The village mandis and the seasonal melas are other important
occasions for the marketers to tap.

What is happening in Rural Markets?

• While the rural market provides tremendous opportunities to the

marketers,
• it is not easy for any company to enter this market and walk away with a
sizeable share of the market. In reality, the rural market suffers from a
variety of problems including that of distribution and marketing
communication. Companies have been trying to tackle these issues in a
number of innovative ways. Be it the "e-choupal" initiative of ITC or
"Project Shakti" launched by HLL, the aim is to come closer to the rural
consumer. To capture the alluring rural market, companies need to
formulate strategies, which can deal with issues pertaining to consumer
psychographics and appropriate marketing mix.

For FMCG major HLL, around 50% of its revenues is coming from the rural
market. The company found from a study that in about 35% of FMCG products,
the local retailer is influencing purchases. Therefore, if the company was able to
maintain the supply of stock with the retailers, it would be able to control brand
choice, volumes, and in turn, market share. HLL's "Project Shakti" was aimed at
creating opportunities to increase rural family incomes, which puts more money
in their hands to purchase the range of daily consumption products from soaps to
toothpastes.

If we look at the traditional method of rural marketing in India, we can find that it
is basically comprised of: - Page - 5
 • Modifications in product (making it look rugged and durable) and
sometimes make it inferior to the product being sold in the urban markets
• Lower the price of the product
• Offer the products in small units (e.g., sachets)
• To advertise your product use the same commercial and simply dub it in
the region-specific language
• Using the traditional questionnaire method to get insights into the minds of
rural consumer

However, companies tend to forget that the requirements of the rural

market are totally different. The companies need to develop special products and
strategies for the rural consumer. If a company wants to force cornflakes in the
rural market place, it is doomed for failure. Using generic advertising to attract
the rural consumer is not going to market. You have to go vernacular to
effectively convey the message, just like the advertisements of Coke featuring
Aamir Khan.

Rural Consumers Buying Behavior

With the increase in the rural literacy levels and the exposure to media, people in
rural media are also becoming conscious about their buying decisions like their
urban counterparts. There has been a significant rise in the brand awareness
among the people. As a result they are becoming choosier and demanding than
ever before, so any company has to properly analyze the psychographics before
entering this market. Infact, if we look at the rural consumers shopping basket,
we can see that of the expenditure on consumer goods in rural household,
approximately, 44% is on food articles such as biscuits, tea, coffee and salt, 20%
on toiletries, 13% on washing material, 10% on cosmetics, 4% on OTC products,
and 9% on other consumables.

• Brand Awareness
Studies indicate that there has been a visible shift in the people's
preference for brands. People are upgrading from the use of tooth
powders to tooth pastes, and from using traditional mosquito repellants to
using mats and coils. Also there is shift from low priced brands to semi-
premium brands.Page - 6

• Rural consumers buy lower priced goods

This is one of the most prevalent myths about the rural market. However,
what rural consumers are looking for are not cheap goods but they want
value for money, and if a brand fits into this category, they are ready to
pay for it. Also when they can afford, they experiment with brands.

• Rural consumers will buy what we sell to them

 The brand loyalty for rural consumers is quite strong in some particular
segments and brands, like Colgate toothpastes and powders. However,
if a company becomes complacent and takes the rural consumers for granted
it is ultimately going to lose in the market. The companies have to constantly
innovate and make their products appealing to the consumers to succeed.

• Rural India has common tastes

Some companies have the misconception that the tastes and preferences
of the rural consumers are all same for the rural market. But it is not so.
Infact, it is more varied that the urban consumers. Mind you, we are not
talking about the differences due to geographies. Infact, in North India, the
preferences of a Punjabi farmer will be quite different from his
counterparts in Bihar or Uttar Pradesh. So the companies have to design
strategies to tackle this issue

Page - 7

Heterogeneity in the Rural Market

One important question, which ails the marketer, is the heterogeneity of the rural
market place. The heterogeneity is mainly on account of the geography, varied
income levels, cultural differences of the consumers. In case of urban
consumers, the tastes are not that varied say between that of a youth in Delhi
and a youth in Chennai.

To see this more clearly, we will segment the market into following
categories: -

The Villages in Punjab & Haryana

The Punjabi farmer is lively has a better standard of living as compared to
farmers in Bihar and U.P. (Refer Exhibit 2). The literacy rate is also at par
with those in the urban areas. The Punjabi farmer likes to spend a lot. Also
the spending is more during the harvesting season. He is quite aware about
different brands due to more penetration of television and also due to visits of
family members from abroad.

The Villages in Bihar, UP & MP

Theses villages are characterized by lower literacy rates and lack of
 infrastructure, especially electricity (Refer Exhibit 2) .The people are quite
religious and god-fearing. The villages are divided on the basis of castes. The
spending power is also less as compared to rich northern states. These
states are ideal markets for products like radios, torches, lanterns, etc.

The Villages in Bengal & Orissa

The villages in these states are characterized by a lower literacy rates and a
sizeable amount of population is engaged in fishing. The average size of land
holdings is very small and the people are very possessive about their cultural
heritage. Their diet consists mainly of rice and fish. Page - 8

• The Villages in South India

The villagers in South India are better educated than those in North India.
Women occupy an important role in the society and more often than not
are responsible for a number of product decisions. People are quite aware
about different brands in the market mainly on account of someone from
family or neighborhood commuting regularly between the cities.

The marketer has to understand that there is no shortcut to grab a

share of the rural market place. He has to formulate different strategies for
different regions, as there is very little commonality between each of these
segments.

Significance

In recent years, rural markets have acquired significance in countries like China and
India, as the overall growth of the economy has resulted into substantial increase in the
purchasing power of the rural communities. On account of the green revolution in India,
the rural areas are consuming a large quantity of industrial and urban manufactured
products. In this context, a special marketing strategy, namely, rural marketing has taken
shape. Sometimes, rural marketing is confused with agricultural marketing – the later
denotes marketing of produce of the rural areas to the urban consumers or industrial
consumers, whereas rural marketing involves delivering manufactured or processed
inputs or services to rural producers or consumers. Also, when we consider the scenario
of India and China, there is a picture that comes out,huge market for the developed
products as well as the labor support. This has led to the change in the mindset of the
marketers to move to these parts of the world.

Also rural market is getting an importance because of the

saturation of the urban market. As due to the competition in the urban market, the market
is more or so saturated as most of the capacity of the purchasers have been targeted by
the marketers.So the marketers are looking for extending their product categories to an
unexplored market i.e. the rural market. This has also led to the CSR activities being done
by the corporate to help the poor people attain some wealth to spend on their product
categories. Here we can think of HLL (now, HUL) initiatives in the rural India. One of
such project is the Project Shakti, which is not only helping their company attain some
revenue but also helping the poor women of the village to attain some money which is
surely going to increase their purchasing power. Also this will increase their brand
loyalty as well as recognition in that area. Similarly we can think of the ITC E-Chaupal,
which is helping the poor farmers get all the information about the weather as well as the
market price of the food grains they are producing.In other view these activities are also
helping the companies increase their brand value. So as it is given above the significance
of the rural market has increased due to the saturation of the urban market as well as in
such conditions the company which will lead the way will be benefited as shown by the
success of HUL and ITC initiatives.
Market linkages for rural products:

There are, broadly speaking, three ways in which they can be connected to the markets.
They can do it on their own — through cooperatives. Or, the state can do it for them —
through its procurement engines.

Stages one and two, in a manner of speaking. Today, developmental thinking on market
linkages has reached stage three — linkages through companies or industries. Rural
markets are regarded as organizations for marketing of non-farm products in a traditional
setting. Developing rural markets is one of the major concerns of government and Non-
governmental organization in India. This subject has attracted large number of research
studies over past. Among which noted contributions are made by Rajagopal, PhD, FRSA;
faculty members of Institute of Rural Management Anand, IIMA and others.

Across India, previous attempts to create such linkages have floundered. Take Assam and
other eastern states itself. Around the Eighties, the state government here decided that
cooperatives were a great way to consolidate its political base. Loans went to the
undeserving. Debts were written off. The institutions slowly got corrupted. As for the
linkages provided by the state, these offer uncertain sustainability. Given this context,
one can conclude that profit-oriented industry linkages are a more sustainable, more
scalable alternative. In this scenario, companies can use the social infrastructure (the self
help group et al.) as an alternative procurement and distribution chain and vise versa.

Industry’s role in building market linkages:

To make an effective market linkage, industries have to play as an engine of market,

which can generate a brand image of the rural products. This initiative of industries will
also strengthen the backward and forward linkages of the rural market, besides,
accelerating the innovations of the rural products. Definitely, this strategy will also give a
remarkable dividend to the industries & profit making companies. In micro level, it is
observed that to create a sustainable market linkage for rural products, industries can
develop an ecosystem of Self Help Groups (SHGs) by involving the local communities
through village level empowerment. It is nothing less than the next phase in the
democratization of commerce. Under this paradigm, industries can create a network with
viable marketing channels covering all the linkages from villages to the global level. This
architecture provides the right value of procurement through the village procurement
centres and rural entrepreneurs can sell their products faster with better price realization.
This model is also capable of generating a consumer business and an output business in a
win-win scenario, where rural producers can get a wide marketing horizon and the
industries shall get a new, lower cost ‘salesforce’. Another role of industries in building
market linkages for agro-based rural products can be the ‘dynamic contract farming’. If a
conventional industry can kick off a contract farming business, and export niche
horticulture crops like cucumbers, the small and marginal farmers who could grow these
small cucumbers would make Rs 30,000 in profits in a year. KRBL, one of India’s largest
basmati exporters, has contract farming agreements with 24,000 farmers; Global Green
buys from about 12,000 farmers. Moreover, in the current era of information technology,
industry and private companies can also creatively use ICT for building sustainable
marketing linkages.

ITC e Choupal

This approach creatively leverages information technology (IT) to set up a meta-market

in favour of small and poor producers/rural entrepreneurs, who would otherwise continue
to operate and transact in 'unevolved' markets where the rent-seeking vested interests
exploit their disadvantaged position. ITC e Choupal is the best example in this context.
Through creative use of Information Technology, ITC eChoupal has been creating
sustainable stakeholder value by reorganizing the agri-commodity supply chains
simultaneously improving the competitiveness of small farmer agriculture and enhancing
rural prosperity. eChoupal also sidesteps the value-sapping problems caused by
fragmentation, dispersion, heterogeneity and weak infrastructure. ITC takes on the role of
a Network Orchestrator in this meta-market by stitching together an end-to-end solution.
It eliminated the traditional 'mandi' system which involved lot of middlemen as a result of
which farmers failed to get the right value for their produce. The solution simultaneously
addresses the viability concerns of the participating companies by virtually aggregating
the demand from thousands of small farmers, and the value-for-money concerns of the
farmers by creating competition among the companies in each leg of the value chain.

Scope & opportunities: The basic scope of this novel initiative will be the mutual
benefits of the rural entrepreneurs and industries. The entrepreneurs – primary
beneficiaries, SHGs – bridge with the community, participating companies/industries and
rural consumers have befitted through a robust commercial relationship. These models of
marketing linkages demonstrate a large corporation which can play a major role in
reorganizing markets and increasing the efficiency of a rural product generation system.
While doing so it will benefit farmers and rural communities as well as shareholders.
Moreover, the key role of information technology—provided and maintained by the
industry/company for building linkages, and used by local farmers—brings about
transparency, increased access to information, and rural transformation. Besides, this
strategy of market linkage, addresses the challenges faced by rural entrepreneurs due to
institution voids, numerous intermediaries and infrastructure bottlenecks. Moreover, the
prime scope of this model is the creation of opportunities for the rural entrepreneurs for
product differentiation and innovation by offering them choices. Because of this
sustainable market linkages, rural producers can participate in the benefits of
globalization and will also develop their capacity to maintain global quality standard.
Nonetheless, it creates new stakeholders for the industry sector. And subsequently, they
become part of the firms’ core businesses. The involvement of the private /industry sector
at the rural product and market development can also provide opportunities for the
development of new services and values to the customers, which will find application in
the developed markets. It will be worth mentioning that building a sustainable market
linkage through industry’s intervention will also empower the rural mass (producers,
farmers & entrepreneurs) to cope with socio-economic problems in the rural society and
will ensure economic self –reliance.

Challenges: There are significant challenges to the entire process the most important
being the capacity building of the rural entrepreneurs. For decades, the entrepreneurs
associated with very conventional/traditional knowledge of business, humiliation with
government, so they are likely to look at these initiatives with skepticism. Only consistent
performance can convince the skeptics. Therefore, the industries must play a catalytic
role to cope with this challenge and should also train the entrepreneurs to develop their
managerial and IT skills. On the other hand, the products of the existing and popular
brand also stand as threat to the rural products. These global giants (brand) may try to
suppress the rural products in the markets with its communication hype. Therefore,
developing alternative and additional market linkages for these products is an absolute
necessity. Moreover, the low volumes of rural products, high operating cots, high
attrition, and absence of local know how and relationships may also create problem in the
process. Henceforth, it is essential to make a way out to cope with these odds.

Present position

Rural markets, as part of any economy, have untapped potential. There are several
difficulties confronting the effort to fully explore rural markets. The concept of rural
markets in India, as also in several other countries, like China, is still in evolving shape,
and the sector poses a variety of challenges, including understanding the dynamics of the
rural markets and strategies to supply and satisfy the rural consumers.

Conclusion: These issues gain added complexity under globalization, where markets are
characterized by extreme competition and volatility. While rural products has been
perceived traditionally as catering to the local market, or at best, to a wider national
market through limited formal channels, the reality of globalization since the 1990s
introduced a new dimension to the market for such products. The issue of rural product
generation through industrialization, therefore, needs to be viewed from a new angle and
on far more scientific lines. The core of a scientific approach is to understand the market
opportunities for rural products along with the country's development priorities and to
chalk out a strategy where rural industries have an important role to play. While rural
products are forced to increasingly become part of global supply chains, these products
need to adapt themselves, not only according to the changing tastes of the national
market, but also according to changes in tastes in the international market. Therefore, a
process is essential to explore the market linkages and capacity building for SHGs
through a bottom up approach and continuous dialogue with stakeholders of rural
enterprise. This process should ensure the participation of rural people as consumers and
producers in the globalization mechanism, with better livelihoods and global access to
markets. The real challenge of building a sustainable market linkage starts here.

Innovative uses of the product

The rural market is quite innovative in the uses of products. Several products are
being used successfully for doing jobs what they are not meant for, like using
washing machines to make "lassi" in Punjab or using Iodex on animals to relive
them of muscular pain. The rural market is an enigma for the marketer and he
has to see that the marketing communication is done in the relevant way.

There is no doubt that the rural India offers tremendous opportunity for any
company to tap. However, companies face many challenges in tackling the rural
markets. Some of the important factors being an understanding of the rural
customers' needs, a reliable distribution channel, and an effective marketing
communication strategy to put their message across to the rural consumer.

This calls for a paradigm shift in the thinking of the top management of the
companies, which have been reluctant to realize the potential of rural markets.
The mantra for success can be further augmented by the Four A Framework
(Affordability, Acceptability, Accessability & Awareness). These factors will go a
long way in providing the company with market value coverage along with a
steady source of revenues. The companies which are going to keep in mind the
above stated factors are sure to emerge as winners in the rural markets.

Exhibit Number 1: Number of Villages in India

Population No. of Villages % of Total Villages

Less than 200 92,541 15.6
200-500 127,054 21.4
501-1000 144,817 24.4
1001-2000 129,662 21.9
2001-5000 80,813 13.5
More than 5000 18,758 3.2
Total No. of Villages 593,145 100.0
Source: MART

Exhibit Number 2: Comparison of the Villages in Various States

 No. of Rural Rural Working Rural
State
Villages Population Literacy Population
Punjab 12729 16043730 65% 40%
Haryana 6955 14968850 64% 43%
MP 55392 44282528 58% 47%
Bihar 45113 74199596 44% 35%
UP 107452 131540230 54% 34%
W. Bengal 40793 57734690 64% 38%
Kerala 1364 23571484 90% 33%
Karnataka 29483 34814100 60% 49%
Source: Business world Marketing White book 2005

Page - 10

Exhibit Number 3: Monthly Income Comparison Across States

% of Total % of Total % of Total

MHI Households Households Households
in Bihar in Punjab in Kerala
Upto Rs.3000 85.1 52.4 71.9
Rs.3001-6000 10.6 38.7 21.8
Rs.6001-
3.3 6.5 5.3
10,000
Rs.10,001-
7.7 1.7 0.9
15,000
Rs.15001-
0.3 0.5 0.2
20,000
Rs.20,000+ 0 0.1 0
Source: Business world Marketing White book 2005