The Road into Rural India

1. The Road into Rural India Understanding rural marketing

2. Rural Marketing • Understanding the Rural environment  - Session 1 • Rural v/s urban marketing- Session 2 • Rural marketing v/s marketing of rural products- Session 2 • Problems/ Challenges in rural marketing- Session 3 • Rural marketing strategy- Session 4 • Analysis and presentation of case on issues in rural marketing (group exercise)- Session 5

3. Genesis of Rural India • India Pre Independence was largely agrarian. • Pandit Jawaharlal Nehru’s vision of Industrialized India led to creation of the Public Sector corporations. • High dependence on agriculture meant that wealth in Rural India was a subset of crop cycles. • Poor irrigation facilities leading to over dependence on monsoon. • Absence of a organized banking system led to rise of Money lenders and dalals who ensured that the poor stayed poor. • Agriculture practices were backward and medieval with no access to knowhow on the same. • Poor productivity led to poor yields. • Illiteracy levels were high with no access to schools and colleges. • Tightly regulated land reforms. • Division of land among led to smaller holding. • Poor infrastructure such as roads, electricity.

4. Market Segmentation Environmental Scan Tractor Penetration 38% 18% 1% Total Land Holding-116 M Ha Source: NSSO 05-06 Source: CMIE Report 4

5. Bottom end of the Pyramid Environmental Scan 5

6. Rural Market Has Arrived • 742 million people • Rural is bigger than urban • FMCG's 53% • Durables 59% Source: NCAER,2002 • Estimated annual size of the rural market • FMCG Rs 65,000 Crore • Durables Rs 5,000 Crore • Agri-inputs (incl. tractors) Rs 45,000 Crore • 2 / 4 wheelers Rs 8,000 Crore • Total Rs 1,23,000 Crore Source: Francis Kanoi, 2002

7. Rural Market Has Arrived • Some impressive facts about the rural sector. • In 2001-02, LIC sold 55 % of its policies in rural India. • Of two million BSNL mobile connections, 50% in small towns/villages. • Of the six lakh villages, 5.22 lakh have a Village Public Telephone (VPT)

8. Rural Market Has Arrived • 41 million Kisan Credit Cards issued (against 22 million credit-plus-debit cards in urban) with cumulative credit of Rs 977 billion resulting in tremendous liquidity. • Of 20 million Rediffmail signups, 60 % are from small towns. 50% transactions from these towns on Rediff online shopping site • 42 million rural HHs availing banking services in comparison to 27 million urban HHs. • Investment in formal savings instruments: 6.6 million HHs in rural and and 6.7 million in urban

10. Rural Income Dispersal Projection All figures in % Projections Based on 7.2% GDP Growth

11. Town Class Population No of towns % of total towns Class I 1 lac and above 423* 8.2 Class II 50,000-99,999 498 9.6 Class III 20,000- 49,999 1386 26.9 Class IV 10,000- 19,999 1560 30.2 Class V 5,000- 9,999 1057 20.5 Class VI less than 5000 237 4.6 Total no of towns 5161 100.0 Distribution of Towns in India 90 % of durables purchased by rural people are from these 1900 towns *10 lakh+ : 27, 5-10 lakh: 42, 1-5 lakh: 354 Source: Census 2001

12. Rural Consumer Insights • In rural India, brands rarely fight with each other, they just have to be present at the right place. • Many brands are building strong rural base without much advertising support. • Chik shampoo, second largest shampoo brand. • Ghadi detergent, third largest brand. • Fewer brand choices in rural : number of FMCG brand in rural is half that of urban. • Buy value for money, not cheap products

13. Rural Consumer Insights • Rural India buys. • Products more often (mostly weekly). • Buys small packs, low unit price more important than economy. • Distribution and pricing are the mantras to success in rural India. Even expensive brands like Close up, Marie biscuits, Clinic shampoo are doing well because of deep distribution.

14. Big Landlords Traders,Small Farmers Marginal Farmers Laborers, Artisans MYTH 1: Rural Market Is a Homogeneous Mass REALITY • Heterogeneous population • 16 languages • State wise variations in rural demographics • Literacy (Kerala 90%, Bihar 44%) • Population below poverty line (Orissa 48%, Punjab 6%) Source: Planning Commission, GoI

15. MYTH 2: Disposable Income Is Low REALITY • Number of middle class HHs (annual income Rs 45,000- 2,15,000) Rural 27.4 million Urban 29.5 million • Per Capita Annual Income Rural Rs 9,481 Urban Rs 19,407 Total Rs 12,128 Source: NCAER,2002 • Rural incomes CAGR was 10.95% compared to 10.74% in urban between 1970-71 and 1993-94 Source:ETIG,2002-03

16. MYTH 3: Individuals Decide About Purchases REALITY • Decision making process is collective • Purchase process- influencer, decider, buyer, one who pays can all be different. So marketers must address brand message at several levels • Rural youth brings brand knowledge to HH

17. Distribution of Villages Hardly any shops in these 2.2 lac villages 17% of villages account for 50% of rural population & 60% rural wealth *Inhabited villages, total number of villages is 638, 691 Source: Census 2001

18. THE NATURE OF BOP MARKET There is money at BOP. Access to BOP markets. The BOP markets are Brand – Conscious. The BOP market is connected. BOP consumers accept advanced technology readily

19. THE MARKET DEVELOPMENT IMPERATIVE Create the capacity to consume. The need for new goods and services. Dignity and choice. Trust is a Prerequisite

20. PRODUCTS AND SERVICES FOR THE BOP • A philosophy for developing products & services for the BOP - small unit packages - low margin per unit - high volume - high return on capital employed

21. 12 Principles Of Innovation For BOP Markets Price Performance Innovation : Hybrids Scale of Operations Sustainable Development : Eco-Friendly Identifying Functionality : Is the BOP different from Developed Markets? Process Innovation Deskilling Of Work

22. Education Of Customers • Designing for Hostile Infrastructure • Interfaces • Distribution : Accessing the Customer • BOP markets essentially allow us to challenge the Conventional Wisdom in Delivery of Products and Services

23. Changes in Farmer Lifestyle Mobile phone for easy connectivity Two-wheeler for smooth ride Tiller for physical comfort *Source: Shining Emotional Surplus 23

24. Factors driving change • Rapid fragmentation of land. Hence sustainenance on land alone is difficult. Hence multiple revenue options. • Younger generation looking for easier, better and faster options. • Labour availability getting increasingly difficult to due more attractive earning options for all classes of people. • Shortage of labour driving mechanization. • Increasing focus of Govt and NGO towards rural India (Banks, Agri Universities, Farmer Co-ops, SHG etc) • Rapidly penetrating cell and internet network which opens up window to information. • Food Inflation across the world helping in realizing better prices for crops hence better liquidity. • Infrastructure projects like Golden quadrilateral, dams driving up land prices and opening up avenues for usage of locally available farm machinery.

25. Impact of Corporate in Rural Agri-space • ITC E- choupal, Frito Lays, Essar Non fuel initiatives, Mahindra Shubhlabh, Rallis. • Improved cultivation through better quality of seeds, fertilizers knowhow. • Sourcing of crops at higher prices and higher volumes. • Imparting knowhow of modern Agri-practices like drip irrigation, soil testing, water testing. • More honest and transparent dealings as compared to local agents such as brokers, grain traders.

26. Infrastructure Improving Rapidly • In 50 years only 40% villages connected by road, in next 10 years another 30%. • More than 90 % villages electrified, though only 44% rural homes have electric connections. • Rural telephone density has gone up by 300% in the last 10 years, every 1000+ pop is connected by STD.

27. Infrastructure Improving Rapidly • 70% of R1,R2, R3 can be reached through mass media.

28. Climbing Social Indicators Between 1981 to 2001 • Number of pucca houses doubled from 22% to 41% and kuccha houses halved (41% to 23%) • Percentage of BPL families declined from 46% to 27% • Rural Literacy level improved from 36% to 59%

29. Opportunity & Challenges

30. Marketing Opportunities • Low penetration rates in rural % of rural HH Durables Urban Rural Total • CTV 30.4 4.8 12.1 • Refrigerator 33.5 3.5 12.0 FMCGs Urban Rural Total • Shampoo 66.3 35.2 44.2 • Toothpaste 82.2 44.9 55.6 Source: NCAER 2002

31. Marketing Opportunities • R1 - 4% • R2 - 11% • R3 - 37% • R4 - 48% • Low rural consumption in FMCGs (rich HHs) urban rural • Annual consumption Rs 13,000 Rs 9,400 • Rural consumption volumes (R1+R2+R3) • Toothpaste 88% • Toothpowder 79% • Shampoo 88% So this half of the population consumes over 75% of FMCG volumes

32. Challenges in the Future • Reaching the product to remote rural locations and entering more rural homes (penetration) • Increasing rural incomes (market growth)

33. Challenges in the Future • Making effective use of the large available infrastructure • Post offices 1,38,000 • Haats (periodic markets) 42,000 • Melas (exhibitions) 25,000 • Mandis (Agri markets) 7,000 • Public distribution shops 3,80,000 • Bank branches 32,000

34. Challenges in the Future Using IT to transform markets • ITCs e-choupal and other IT initiatives (EID parry, Amul dairy information system kiosk) • STD revolution/ mobile connectivity

35. Challenges in the Future • Proliferation of large format rural retail stores • DSCL Haryali stores • M & M Shubh Labh stores • TATA/Rallis Kisan Kendras • Escorts rural stores • Warnabazaar, Maharashtra (annual sale Rs 40 crore)

36. Rural v/s urban marketing • Rural Marketing: The marketing of products and services in areas designated as Rural is defined as Rural Marketing. • Urban Marketing: The marketing of products and services in urban areas is defined as Urban marketing.

37. Rural v/s urban marketing • Are the two really different?????

38. Rural v/s urban marketing Areas with a population ranging between 1 to 10,000 where in people will be predominantly engaged in agriculture can be called a Rural Area. Areas with a population ranging between 10,000 to a Lac are called Semi Urban. They can represent characteristics of both a village and a town depending on their location. E.g. Sangli, Nasik, LG Electronics defines all areas other than the 7 metros as Rural.

39. THE MARKET DEVELOPMENT IMPERATIVE Create the capacity to consume. There is a latent need for new goods and services.

40. Hierarchy of Needs

41. URBAN RURAL MARKET R U PRODUCTION

42. 4 P- The Basics

43. Rural Consumer Classification

44. Characteristics of Rural Customer • Age and Stage of Life • Occupation and Income • Economic circumstances • Lifestyle: • Activities: e.g. farming with kirana shops, LIC agents, teachers, working at local industries. • Interests: Cinema, Natak, Nautanki, Kushti, Cricket, football • Opinions: Political and others • Demographics: Age, education, locations, community etc.

45. Classification of Needs • Needs can be bifurcated into 2 categories: • Articulated : Needs which are stated and addressed by the product or service. • Unarticulated: Needs which are not stated but are fulfilled with the purchase of the product or service. • Both Articulated and Unarticulated needs can be: • “REASONS TO BUY”

46. 4Ps to 4As • Acceptability: • A product or service being offered has to be acceptable to the segment for which it is being produced. • Levels of the Products/ services being offered: • Core Benefit • Basic Product • Expected Product • Augmented Products • Potential Products

47. Classification of Products in Rural Areas

48. Customizing Products for Rural Areas • Long shelf life • Ability to withstand extreme weather/ harsh conditions • Safe storage • Choice of quantity in which it is to be used. • Robust and attractive packaging which does not corrode the features and benefits of product.

49. New Product Development • Adaptation/ Innovation: Existing products being altered to suit rural usage conditions. • Creation: building a new product around needs from ground up.

50. 4Ps to 4As • Affordability: • Parameters of Affordability: • Right Price • Choice of quantity