Future of Rural Marketing: A Perspective
By Tushar Choudhary, IIM Kozhikode Batch 03-05
The Indian rural market is a complex mosaic of mind-sets, cultures, and lifestyles. While education, employment, income, agricultural land ownership may still be the major deciding factors accounting for social differentiation, they do not yield reciprocal cohort behavioral patterns, with respect to consumption patterns, purchasing decisions and priorities of product ownership. At 125.2 million (1999-00), India has more rural households than all households in Western Hemisphere combined. Half of India 's GDP comes from rural and semi-urban areas. The per capita annual income in rural India is Rs 9,481, against urban India 's Rs 19,407. But, lower education and housing expenses makes the disposable income almost equable.
Rural markets represent a distinct dynamic in how they come into being and make unique demands on how the product is designed and how the brand is positioned and promoted. Greater the strategic attention to these unique demands, assure greater the chances of product's success in the rural market. Fringe acceptance of consumer products or brands is no indication of market potential. It actually would only result in higher incidence of brand and product mortality as more firms try to choke those segments with competing brands.
The effort has to be directed towards reaching out to more and more of rural population offering them the products which they find value for money and are converted to brand loyalist in due course of time. But the hurdles faced are plenty. Distribution and presence of counterfeits products being among the most important. So the emphasis has to come in the form of innovative strategies in not only promoting the product and the brand to the villagers but also making it available once the pull effect starts working at its fullest. Also partnership with retailers at the rural level must be formulated to tackle counterfeits, which dilute the hard-earned brand equity.
High distribution costs, high initial market development expenditure, lack of market research, thinly populated and widely spread villages in the Indian mainland make it difficult for the marketer to deliver the goods at reasonable costs. Mass Communication and promotion programs which eventually lead to brand building are difficult to achieve which ultimately results in low level of exposure to different product categories and product brands in the presence of counterfeits and spurious products all around the rural market and at times you have more than a dozen substitutes for a branded product.
An essential element of rural marketing is wide distribution of products. In fact, the successes of Chik shampoo, the second largest shampoo brand, and Ghadi detergent, the third largest detergent brand, show that distribution, more than advertising, is the key of building volumes. HLL with its best distribution network reaches just over 1 lakh villages in total of 6.38 lakh villages.
Solution lies in the formation of marketing agencies, delivering the value of old saying “United we stand, Divided we fall”. Our organizations and academic institutions are built on a competitive culture in which withholding information is a powerful asset. But rural marketing needs collaboration. The traditional command/military structure of corporations operating in urban markets must change at strategic, executive and operational decision-making levels. It's a rational choice for all companies to pool in their meager resources to form an independent agency to make a distribution and logistics network.
These agencies would run as separate entities or companies with seed capital from the participants. This newly formed agency would deliver products of partnering companies in the most cost effective manner with maximum utilization of space available in cargo trucks. An otherwise cost inefficient route would suddenly become very attractive for 12-15 companies combining their cargos. This is based on hypothesis that fully loaded 10 ton delivery truck is cheaper than 20 half filled 1 ton trucks, deployed by as many different companies.
Distributing agency would drive its profits from the pre-fixed common distributor margins, making agency totally impartial. Agency would maximize its profits by allocating the best mix of products as well as correct service route and by carrying the products timely, pulled by the demand by village Kirana Wala . Being profit driven, Agencies would handle the most demanded products by Kirana Wala and can even add or drop existing brands. So a heavily advertised product would ultimately capture maximum space in the cargo truck as well as on shopkeeper's shelf.
Variable margins depending on the cargo space would make it suitable for all companies to distribute from shampoo sachets to television sets. The participating companies using sophisticated warehousing systems would service warehouses.
Another major plague of rural marketing has been widespread availability of fakes. Shopkeeper plays a very important role here, as consumer asks for things, not brands like “ Laal wala sabun dena, Lal Dant Manjan Dena”. To counter this nuisance agency would certify specific village Kirana Wala as Genuine Products Store. Failure to comply at surprise checks would result in immediate termination of contract.
In return, Agency would provide special incentives to these stores with better margins, up gradation of store and longer credit period. In this way more and more stores can be brought in the preference bracket, mitigating the danger of stores selling cheap fakes. Store advertisement campaigns could be funded by the agency like reaching every village household through free sample sachets using local school children. Special incentives could be given to all genuine product stores on reaching sales target. Genuine Product Stores could be collectively advertised at the end of every participating company's advertisement, educating people about them.
There is huge potential and definitely there is lot of money in rural India but the smart thing would be to weigh in the roadblocks as carefully as possible. The companies entering rural market must do so for strategic reasons and not for tactical gains as rural consumer is still a closed book. It is only through unwavering commitment that the companies can make a dent in the market.
However it is beyond doubt that the treat rural markets are not dumping grounds for low-end products basically designed for an urban audience. The winning strategy is to design rural specific products as well as to leverage on combined resources of all otherwise competing companies.
About the Author:
He is an electrical engineering graduate, did his marketing majors at Indian Institute of Management Kozhikode . He iscurrently working with UTI Bank, Mumbai as a product manager. His academic interest includes retailing, supply chain management and portfolio management. He like traveling, cooking, reading and tracking equity market.
Tushar Choudhary, IIM Kozhikode Batch 03-05
UTI Bank Ltd. Mumbai