1 EMERGING FACE OF RURAL INDIAN MARKETS Purba Basu ∗ Days have gone when only a selected household consumed branded goods, whether its tea or jeans and a rural consumer had to go to a nearby city to buy ``branded products and services". Earlier big companies flocked to rural markets to establish their brands. But today, rural markets are critical for every marketer - be it for a branded shampoo or an automobile. In earlier days the marketers thought van campaigns, cinema commercials and a few wall paintings would suffice to entice rural folks under their folds. Thanks to television, today a customer in a rural area is quite literate about countless products that are on offer in the market place. An Indian farmer going through his daily tasks wearing jeans may sound idiotic. Not for Arvind Mills, though. When it launched the Ruf & Tuf kits, it had created quite a sensation among the rural within few months of their launch. Rural Indian market and the marketing strategy have become the latest marketing buzzword for most of the FMCG majors. The rural India has a plethora of opportunities all waiting to be tied together. Many of the FMCG companies are busy formulating their rural marketing strategy to tap the chance .To name few companies showing deep interest in rural India, there are HLL, Marico industries, Colgate-Palmolive and Britannia Industries etc. Titan, the company, which expects about 17 per cent growth to sell six million watches during 2003-04, is also planning to reposition its Sonata brand for the vast rural market. Rural market, thus, is gaining more and more importance over the years. The Coca Company by introducing 200 ml pack and its strategy of laying emphasis on the rural market resulted in increasing sales volume. Services like cellular and insurance are also spreading their hands into rural markets. Cell-phone operators like Escotel Mobile Communications Ltd., a joint venture between Hong Kong based investment firm First Pacific and New Delhi-based Escorts Ltd., are finding new customers all over rural India. Fishermen in coastal Kerala in the South India use the phone service to find the best prices for their catch, a practice that can earn them up to 50% more. Escotel now controls 14% of India's non-metro cellular market, providing service to 500,000 subscribers in 3,240 towns and villages. Why Rural India? 70 % of India’s population lives in 627000 villages in rural areas. 90 % of the rural population is concentrated in villages with a population of less than 2000, with agriculture being the main business. This simply shows the great potentiality of rural India in bringing the needed sales ∗ Faculty Associate, Icfai Business School, Bangalore, Sri Krishna Avenue, No. 64, 13th Cross, 6th Main, J. P. Nagar, 3rd Phase, Bangalore - 560 078, Tel : 26582279 / 26593416, E-mail : ibsbng@ibsindia.org, purbabasu@ibsindia.org 2 volumes and helps the FMCG companies to bank upon the volume –driven growth. This brings a boon in disguise for the FMCG Company who has already reached the plateau of their business curve in urban India. As per the National Council for Applied Economic Research (NCAER) study, there are as many 'middle income and above' households in the rural areas as there are in the urban areas. There are almost twice as many 'lower middle income' households in rural areas as in the urban areas. At the highest income level there are 2.3 million urban households as against 1.6 million households in rural areas. According to the NCAER projections, the number of middle and high-income households in rural India is expected to grow from 80 million to 111 million by 2007. In urban India, the same is expected to grow from 46 million to 59 million. Thus, the absolute size of rural India is expected to be double that of urban India. Marketing Strategies for Rural Indian Markets "The real strength two to five years from now lies in rural markets" Pradeep Tognatta, Former Vice President, LG Multinational corporations are fanning out into the countryside, where 70% of India's population-- some 700 million people--still lives. The effort to reach those consumers represents one of the largest marketing efforts in Asia, a push led by such firms as Coca-Cola, Samsung, and Honda. These giants are lured to the countryside for a very simple reason. The economic growth in India's agricultural sector in last year was over 7%, compared with 3% in the industrial sector. This implies a huge market potentiality for the marketer to meet up increasing demand. Factors such as village psyche, strong distribution network and market awareness are few prerequisites for making a dent in the rural markets. The rural psyche The keep-it-cheap-and-simple sales strategy carries over to bigger sales ticket items for rural marketers. After a decade of experimentation, the companies have settled on a strategy: Think small, and keep the product simple. The model is of the stolid Anglo-Dutch conglomerate Unilever Group, which has enjoyed a century-long presence in India through its subsidiary Hindustan Lever Ltd. It was Hindustan Lever that several years ago popularized the idea of selling its products in tiny packages. Its sachets of detergent and shampoo are in great demand in Indian villages. Britannia with its low priced Tiger brand biscuits has become some of the success story in rural marketing. The strategy revolves around what attracts the rural customers to a product. For e.g. packaging, the rural customers are generally the daily wage earners and thus they don’t have the monthly incomes like their urban counterpart has .So it makes sense, packaging in smaller units and lesser-priced packs to increase their affordability. Color that attracts them is also important. Convenience is the other key word. Here Colgate is the apt example. First of all it made sachets as was required by their income streams. Secondly –since many households don’t have proper bathroom and only have a window similar things so it made sense to cap these sachets for convenience of storage while use. 3 Distribution channel Recent study on buying behavior of rural consumer indicates that the rural retailers influences 35% of purchase occasions. Therefore product availability can affect decision of brand choice, volumes and market share. Some of the FMCG giants like HLL took out project streamline to significantly enhance the control on the rural supply chain through a network of rural sub- stockiest, which are based in the villages only. Apart from this, to acquire further edge in distribution, HLL has started a project called Shakti in partnership with Self Help groups of rural women. In the service sectors also, many banks, Mutual Funds Company and other financial institutions are opening their branches in rural area, only to tap those untapped customer by making the services available at their door steps. Private and foreign banks are tying up with nationalized banks to reach rural people. For example, very recently, HDFC Mutual Fund and Union Bank have put their hands together to co-promote HDFC Standard Life Insurance and New India Assurance in the rural areas. This alliance with UBI will help HDFC to enhance accessibility of their products by UBI’s huge network, especially in the rural and semi urban markets across India Awareness Another important tool to reach to the rural audience is through effective communication. A rural consumer is brand loyal and understands symbols better. This also makes it easy to sell goods that look – alike. The rural audience has matured enough to understand the communication developed for the urban markets, especially with reference to FMCG products. Television has been a major effective communication system for rural mass and, as a result, companies should identify themselves with their advertisements. Advertisements touching the emotions of the rural folks, it is argued, could drive a quantum jump in sales. There is a need to differentiate the brand according to regional disparities. The differentiation may not necessarily be in terms of product content. It may also be in terms of packaging, communication or association with the brand. The brand has to be made relevant by understanding local needs. Even offering the same product in different regions with different brand names could be adopted as a strategy. At times it is difficult to pass on an innovation over an existing product to the rural consumer unlike his urban counterpart-like increased calcium or herbal content or a germ-control formula in toothpaste. Strategies for increasing the buying power of Rural Indian Customers From the above discussion, it is clear that the Indian rural market right now is the best trading ground for both Indian and multinational corporations. The burgeoning, untapped market is stretching the length and breadth of the Indian subcontinent. Traditionally, disposable income is perceived as the one critical factor that drives consumer demand. However, household income is no longer the single most important factor in determining the demand for high value as well as fast moving consumer goods. Factors such as availability of cheap finance, and easy way of accessing ones own funds are few that are controlling consumer demand today. In recent days, the top three income groups - middle, upper middle, and high - have grown from 10% in 1986 to 20% of the population and covers over 52 million families. The number of high-income households is growing very rapidly, more so in the rural areas. The most encouraging sign about 4 the Indian rural market is that it has buyers who have tremendous purchasing power, and they remain largely untapped. For easy access of one’s own funds, ICICI bank has developed a low cost Automated Teller Machine (ATM) designed for rural areas and aimed at increasing micro finance in rural India. To arrange easy finance for rural consumers, companies are nowadays tying up with banks and financial institutions. The Indian car giant Maruti Udyog, to cater to rural areas, has entered into a strategic alliance with SBH which has wide presence in the rural areas of Andhra Pradesh, Maharashtra and Karnataka. FMCG giant Hindustan Lever Ltd has targeted reaching 100 million rural consumers through its women focused rural marketing initiative ‘Project Shakti’ with the help of State Bank of India for providing micro-finance. Role of NGOs in improving the quality of life in rural India Non Government Organizations (NGOs) in India are playing a passive role to the government as an intermediary agent, rather than as institutional reformers in the rural India. However, the serving self-help groups (SHGs) in rural areas, promoted by NGOs, are emerging as a successful means of improving the socio-economic conditions of rural families with very little administrative expenses. Banks with the help of NGOs and SHGs by a small amount of credit can reach out to the needy, without having a fear of loans becoming non-performing assets. Some NGOs have been successful in creating awareness among illiterate rural women and enabling them to improve their socio-economic conditions. Few NGOs have taken steps to empower women. These organizations have accomplished the task what the State-sponsored poverty alleviation programs could not achieve through concessional credit and sumptuous subsidy. Taking IT to rural Indian Markets The Indian policy makers have identified the different regions as the priority areas for launching science and technology based poverty eradication program using ICT in a significant way. The micro credit supported micro enterprise revolution triggered by SHGs has provided with a hope that a new deal can be extended to the self-employed. For SHGs to become sustainable SHGs, it is essential that forward linkages with markets and backward linkages with research institutions and data management centers are established. ICT has a major role in sustaining and extending this self-help revolution. Further more, there is a need for developing a master plan coupled with a business plan for extending the benefits of ICT to all the 600,000 villages in India by 2007, which marks the 60th anniversary of our independence. The master plan should help to link technology-knowledge-rural women and men in a symbiotic manner. The investment needs will have to be estimated and business plans prepared. A National Alliance for ICT for Poverty Eradication may be established for launching the Every Village a Knowledge Centre movement. Such an alliance should include the private sector, cooperatives, NGOs, R&D institutions, women’s associations, mass media and appropriate government agencies. 5 Learning from past experience in rural areas, the Indian policy makers have found a need for increasing India’s competitiveness in domestic software applications. Government projects mainly provide static information. What is needed by rural families is dynamic information relating to weather, markets, health and other day-to-day information needs. So, internet, cable TV, local vernacular press and the All India Radio, community radio stations and ham radio will be of immense help in communicating up-to-date information. NABARD has been operating a program in Himachal Pradesh with support from the Rural Infrastructure Development Fund (RIDF). This program has helped to promote both e-governance and e-commerce. There is a similar initiative in Uttaranchal with the help of IIT, Roorkee. Scope for using RIDF in other States should be explored. This will help to convert the concept of every village a knowledge centre into reality. Future ahead The marketers who understand the rural consumer and fine tune their strategy are sure to reap benefits in the coming years. In fact, the leadership in any product or service is linked to leadership in the rural India except for few lifestyle-based products, which depend on urban India mainly. Definitely there is lot of money in rural India. But there are hindrances at the same time. The greatest hindrance is that the rural market is still evolving and there is no set format to understand consumer behavior .Lot of study is still to be conducted in order to understand the rural consumer. Only companies with deeper pockets, unwavering rural commitment and staying power will be able to stay longer on this rural race.