Rural Marketing in India Economy

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 Registrars of Companies in different states chiefly manage: 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 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 programmes 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.
Why Companies See Bright Prospects in Rural India
Published: June 18, 2009 in India Knowledge@Wharton

In late May, when India's GDP numbers were released,

many were happily surprised. In the fourth quarter of the
fiscal year (January-March 2009), the economy grew
5.8% against expectations of less than 5%. For the year,
growth was 6.7%, less than the 9% recorded in 2007-
2008, but still very respectable during a global downturn.
Multinational banks and brokerage houses rushed back to
their spreadsheets to raise their growth forecasts for
2009-2010.
But why were the estimates so pessimistic in the first place? A possible explanation is
that most analysts work in cities, and their views are colored by what is happening
around them and in the corporate world. That picture has been bleak: During the last
quarter of 2008-2009, manufacturing shrank 1.4%. In contrast, agriculture grew 2.7%.
The feel-good factor in urban India is returning only now with a new, stable government
and a sharp jump in the Bombay Stock Exchange Sensitive Index (Sensex).
In the villages and small towns, it has been a very different picture. "The rural market is
insulated from the global meltdown," says Harish Bijoor, CEO of brand and business
strategy consultants Harish Bijoor Consults. "The rural part of our economy has been
untouched by credit cards and mortgages as known in the West."
"The slowdown experienced by India on account of the IT (information technology), real
estate, financial services and automobile sectors was an urban phenomenon," says Ajay
Gupta, founder and CEO of ruralnaukri.com, which focuses on jobs in the rural sector.
(See "ruralnaukri.com's Ajay Gupta: 'Rural Jobs Can Provide Momentum to the Wheel of
the Economy'"). "However, the negative impact of all this on urban India has been more
than offset by encouraging performance in rural areas. The rural economy has provided
a cushion. Overall sentiment in the country was different from other parts of the world
where each household had at least one person with a pink slip."
"Several factors have led to an increase in rural purchasing power," says Pankaj Gupta,
practice head, consumer & retail, Tata Strategic Management Group. "The increase in
procurement prices [the government sets the minimum support price -- MSP -- for many
farm products] has contributed to a rise in rural demand. A series of good harvests on
the back of several good monsoons boosted rural employment in agricultural and allied
activities. Government schemes like NREGS [National Rural Employment Guarantee
Scheme, which guarantees 100 days of employment to one member of every rural
household] reduced rural underemployment and raised wages. Also, farmers benefited
from loan waivers [introduced in the last Union Budget]. The increase in rural purchasing
power is reflected in rural growth across a number of categories. For example, in the
financial year 2009 [April-March], FMCG [fast moving consumer goods] rural volume
growth is estimated to be 5% to 12% higher than urban growth across a number of
categories."
A Short-lived Renaissance?

Some academics agree with these upbeat views of a rural resurgence. "Policy measures
like the waiver of agricultural loans to the tune of US$13.9 billion and the NREGS have
really put cheer into the rural economy," says Devi Singh, director of the Indian institute
of Management Lucknow (IIML). "The Bharat Nirman program with an outlay of
US$34.84 billion for improving rural infrastructure is another step that has helped the
rural economy. To some extent, the growth of organized retail can also be held
responsible for the rural economy's growth, as this has ensured that farmers get a better
price for agricultural produce. The MSP set by the government has been rising further,
fuelling rural growth by putting more money into the hands of the rural population."
Singh adds a caveat, however. "While the statement that the Indian economy has been
saved from the slowdown due to rural growth is true to a certain extent, this is not the
only factor," he says. "India's growth has been fuelled more by domestic demand than
exports. Also Indian spending and saving habits differ from other parts of the world.
Indians by their very nature always save for their future and this holds them in good
stead during times of crisis. The Indian buyer is more finance conscious than his global
peer. The Indian banking system, due to the so-called non-reforms, is actually more
resilient and the level of delinquencies is far lower than in other parts of the world."
Some observers are skeptical about the durability of rural demand. "There is a worrying
groundswell of optimism that rural consumers will come to the rescue of an Indian
economy which is in the midst of a sharp slowdown. This optimism may be misplaced,"
suggest consumer behavior expert Rama Bijapurkar and Rajesh Shukla, a senior fellow
at the National Council for Applied Economic Research. Writing in business daily Mint,
they continue: "Hearing phrases such as 'rural renaissance' or 'rural India to the rescue'
makes us nervous. Such talk bears overtones of the 'Great Indian Middle Class' story of
the 1990s, where we declared victory at least a decade before we should have." Their
question: How sustainable, stable and volatility-free is the growth in income and
consumption?
Bijapurkar and Shukla note that "periodically, India has seen a consumption spurt
because of a one-time burst of a combination of events. This recent spurt seems no
different. Over the past four years, the monsoon has been good; the support prices for
crops have grown at 10% to 15% CAGR [compounded annual growth rate] in 2005-2008
compared with 2.5% to 4% in 2002-2005. In addition to a healthy flow of farm credit,
there has been a one-time loan write-off of US$13.9 billion as well as a sizeable cash
outlay from the NREGS. This doesn't show intrinsic growth in rural India: This growth is,
instead, owing to a combination of acts of God and acts of government. What we must
never do is make the same mistake with rural India that Western multinationals make
with India as a whole -- assume that it will evolve the same way with a 10-year lag. The
rural Indian market and consumer call for sophisticated new marketing strategies and
paradigms, not a transplant of old ideas."
What Rural Means

Even as this debate continues, the term "rural" is being re-defined. "'Rural' is difficult to
define any more," says Bijoor of Bijoor Consults. "Typically, from an Indian census point
of view, rural has been defined with a 'deprivation' orientation, rural being a landmass
without access to continuous electricity, water, the stock market. There has been a
correction in this view, however. Marketers today define rural as people living a different
lifestyle as opposed to that of those who have settled in the bigger cities and towns.
Rural is defined as pastoral in nature and as a mass of people who relate their income
closely to the lands they till or use to raise their cattle and livestock. I, personally, define
rural differently. I believe rural is a mindset. Those who possess it are rural and those
who do not are urban. To that extent, in Bangalore city, just off the old airport road, are
a whole set of people who live by farming on their lands. If you visit their homes, their
lifestyles are totally rural. Similarly, there are people who live in villages, who have
access to the best of it all. These are urban folk. Rural is not a geography; it is a
mindset."
"Definitions for rural India abound while the most convenient remains, 'anything that is
not urban'," says Gupta of ruralnaukri.com. Singh of IIML adds: "Rural India comprises
all places that are not urban." This definition by exclusion for what is the much larger
part of the country has its roots in the government's own approach. "The Census of India
defines urban India," says Gupta of TSMG. "Urban India constitutes places with a
population of more than 5,000, a population density above 400 per square kilometer, all
statutory towns, that is, all places with a municipal corporation, municipal board,
cantonment board, notified area council, etc. and with 75% of the male working
population engaged in non-agricultural employment. All non-urban is rural."
Such definitions leave marketers cold. "The traditional definition of rural may be of little
use to marketers in terms of providing consumer insights," says S. Ramesh Kumar,
professor of marketing at the Indian Institute of Management, Bangalore (IIMB). "Given
the diversity of culture and lifestyle/aspirational changes that are taking place across
non-metro consumers, the non-metro areas need to be segmented into tiers of varying
urban orientation using psychographic and lifestyle analysis along with demographics.
The digital 1 or 0 type of urban and rural definitions is unlikely to yield consumer
behavior nuances. For example, district headquarters [towns] in Tamil Nadu are likely to
be significantly different from those in Karnataka or Maharashtra."
Many others agree that census-style definitions are no longer enough. "My
understanding of rural India is a less developed countryside where the infrastructure is
primitive, houses are of mud or brick but rarely painted well, the primary source of
livelihood is agriculture, employment opportunities in the organized sector are negligible,
eating choices are restricted to home-cooked, simple food, schools are far away, health
facilities are rudimentary and -- importantly -- the youth, while energetic and ambitious,
are to be seen playing cards the whole day," says Gupta of ruralnaukri.com.
"We recognize rural India by certain characteristics," says B.N. Garudachar, general
manager, corporate communication and investor relations at Voltas, a Tata group
company in air-conditioning and engineering services. "These are: low population
numbers, low median income, poor infrastructure [roads, electricity, communications],
and agrarian rather than industrial activity. Such rural areas are within the sphere of
influence of neighboring cities and metros. This influence determines their aspiration
levels and their viability as markets."
Massive Market

View it as you may, few people dispute that the rural market is massive. According to
Singh, 12.2% of the world's consumers live in India. "Rural households form 72% of the
total households. This puts the rural market at roughly 720 million customers." Gupta of
TSMG extrapolates the Census 2001 numbers and comes up with an estimate of 790
million. "Total income in rural India (about 43% of total national income) is expected to
increase from around US$220 billion in 2004-2005 to US$425 billion by 2010-2011, a
CAGR of 12%," he says.
Bijoor explains that this is entirely disposable income unlike what it would be in urban
India. "If a farmer in rural Holenarsipura earns US$1, all of it is his to dispose off as he
pleases. The same income in the hands of an urban person, who is possibly a tech
worker, is actually not US$1 of disposable income. It is most likely 67 cents; the rest
goes as tax. The farm economy, with zero-tax on farm income, creates far more
disposable income. Buying power in the hands of the rural rich is higher than the buying
power of the urban rich."
Gupta of ruralnaukri.com provides some telling statistics. "The purchasing power of rural
India is more than half for fast moving consumer goods [US$17 billion]," he says. "The
durables and automobile sectors contribute US$2.5 billion each, and agri-inputs
(including tractors) about US$1 billion. Some 42 million rural households [use] banking
services against 27 million urban households. There are 41 million Kisan credit
cardholders [credit cards issued to farmers for purchase of agricultural goods] against
some 22 million card users in urban markets. Be it automobile, telecom, insurance,
retail, real estate or banking, the future drivers of growth are rural. No marketer can
afford to ignore the possibilities of rural India."
Bijoor adds some growth numbers. "Our rural folk have bought a lot more of FMCG; this
part of the market has grown at a robust rate of 23% [last year]," he says. "As durables
shrink in urban India, the rural market is witnessing a 15% growth rate. Some 60% of
the durables market lies in rural India. Telecom in rural India is growing at 31%." It
depends on the product, of course. "Just the sheer population numbers don't mean very
much from a marketing point of view," says Garudachar of Voltas.
Across product categories, however, there seems to be a lot of action. Media --
particularly TV -- has been a great leveler. Even in small villages, people who have seen
the urban lifestyle on television seem to want similar goods and services. Companies
have realized this and are going all out to tap this latent demand.

Consider some examples:

The State Bank of India (SBI) has started a zero-balance bank account program for
villagers. Called the SBI Tiny account, there are no physical branches or officials, just a
paid volunteer who is equipped with a small box and a cellphone. The box enables
biometric measurements (fingerprints), at the time of opening the account to confirm
the account holder's identity. The cellphone enables communication with the zonal office
to check on available balance. Payments under programs such as the NREGS and
pensions are made directly to these accounts. The advantage for the villagers is that
they can withdraw money from their accounts at any time of the day or night.
(Withdrawals are never more than a few dollars.) SBI hopes to cover 100,000 villages by
2012. The bank has tied up with India Post for some services.
India Post, the public sector postal network, has its own plans. It has been hard hit in
urban areas because of the more efficient (though more expensive) private sector
courier services. Now it is looking at consolidating its hold on the rural areas. Project
Arrow has been launched to IT-enable post offices in the hinterland. A pilot project
involving 500 post offices -- the country has more than 150,000 -- has been kicked off.
It will focus on banking, money remittance, and transmission and delivery of
information.
Products for Rural Markets

Maruti Suzuki, India's leading automobile manufacturer, today sells 5% of its vehicles in
the rural markets. The company expects this number to rise to 15% in the next two
years. "This is not just our wish, but reflects market demand," says director (marketing
& sales) Shuji Oishi.
In telecom, service providers are making a beeline for the villages. That's where the
growth in what is now the world's fastest growing mobile market lies. According to
industry estimates, 70% of all new subscribers will come from rural areas. (See NTT
DoCoMo's Tata Deal: Why Global Telecom Firms Want to Dial India.)
Mobile device manufacturers are also tailoring their products to this market. Nokia had
earlier launched a basic handset with a torch (large parts of rural India don't have
electricity) and an alarm clock. (see How Did Nokia Succeed in the Indian Mobile Market,
While Its Rivals Got Hung Up?) In December 2008, it went one step further with the
launch of Nokia Life Tools. "Nokia Life Tools is a range of agriculture, education and
entertainment services designed especially for the consumers in small towns and rural
areas of emerging markets," says the company. "Aimed at providing timely and relevant
information customized to the user's location and personal preferences directly on their
mobile devices, Nokia Life Tools is the first step towards bridging the digital divide."
The mobile phone is a new-age product; gold jewelry is as old as the hills. Here, too,
there has been a rural move. According to World Gold Council figures, 60% of India's
US$15 billion annual consumption of gold and gold jewelry is from rural and semi-urban
areas. The Tatas have launched a mass-market jewelry brand -- GoldPlus. The Tatas
train unemployed youth and send them to the villages as brand ambassadors. The
problem with gold in India is that it is often adulterated. In rural areas, gold jewelry is
not for ornamentation; it is a safety net for emergency situations. Thus, the Tata seal of
good housekeeping is taking the brand places. "GoldPlus is an interesting example of the
brand addressing the non-metro jewelry culture with its ethnic touch with regard to its
designs and retailing," says Ramesh Kumar of IIMB.
"There is substantial scope to create products that are oriented towards non-urban
sectors," notes Kumar. "These can be in terms of functional appeal or cultural aspects or
both. Chik shampoo created the jasmine variant [in tune with the culture of women
using jasmine flowers to style their hair in a few parts of the country]. TVS mopeds
created functional value in tune with the 'all purpose' vehicle culture existing in several
parts of the non-metro areas. Philips is moving forward with the creation of gas stoves
and lanterns that will be useful to such markets."
Singh of IIML talks about pricing successes: The Chik shampoo sachets sells for 2 cents,
the Parle G Tikki biscuit packs at 4 cents and the Coca-Cola 200 ml glass bottle for 10
cents. Singh notes that successes in rural areas can be transplanted to urban areas also.
"The shampoo in sachets created a new product segment," he says. "All shampoo
manufacturers today retail in sachets, and the demand from urban India for this
category is very strong."
The sachet is as much a packaging (product) strategy as a price strategy. But, asks
Garudachar of Voltas, have companies done enough about the core product? The
shampoo sachet is a case in point. "Villages in India have hard water," he says. "But the
shampoo that you get in sachets sold in villages is the same that you get in towns.
Manufacturers should have tailored the products to suit the environment."
It doesn't apply across the board, of course, particularly as manufacturers have moved
away from the mindset that along with cutting price, you can cut quality. "Product re-
engineering was an issue five years ago," says Bijoor. "I do not believe this is an issue at
all today. The quality on offer needs to be the same all over. One company tried to pass
off inferior quality tea leaves in rural markets and superior quality grades for urban
markets under the same brandname. This fell flat."
But re-engineering is necessary in a different sense. According to Bijoor, "Companies are
realizing that the urban and rural want is largely the same. However, the rural person is
savvier and demands real value for money. To offer this, marketers are re-engineering
products. Look at the auto segment. The urban man wants a car as does the rural man.
Both have the same amount of money. The rural person, however, believes spending
US$12,000 on a car is a sin. He wants it at US$3,000. The Nano is a solution. Every
category needs to operate on the Nano paradigm. The needs are all the same, across
rural and urban. The solutions have to be different."
Distribution and promotional channels also need to be different for rural markets.
Companies are getting their act together here, too. Private sector companies like ITC
have set up the IT-enabled eChoupal network, and Hindustan Unilever has project
Shakti, under which women's self-help groups act as the last link of the retail chain.
(See Marketing to Rural India: Making the Ends Meet.) As mentioned earlier, India Post
wants to convert itself into a retail chain for a variety of products. Even fair-price shops,
which form part of the government's rationing system, are trying to expand beyond
supplying just basic foods like rice and wheat.
In the area of promotion, television has invaded rural India. TV reaches even very small
villages through community sets. But advertising on national channels is wasteful if you
are trying to target rural areas. Garudachar of Voltas says his company is trying to sell
air conditioners to the rural rich. "Difficulties in penetration are due to the widespread
and scattered nature of the territory," he says. "At one time, basic conservatism and
diehard thrift would also have been factors, but exposure to TV has changed all that, and
created aspirations where once there was resistance to change."
From Four P's to Four A's
Gupta of TSMG notes that the traditional four P's of marketing -- product, price, place
and promotion, as outlined above -- have been replaced by a different framework for
analysis. "A number of companies have worked on various elements of the marketing
mix to improve the four A's -- affordability, awareness, availability and acceptability --
for rural markets," he says. "FMCG companies innovated on package sizes to introduce
low price points. They have customized promotional strategies for rural markets using
local language and talent. Some FMCG players continue to expand rural penetration
[HUL's Project Shakti, Tata Tea's Gaon Chalo]. Coca-Cola's Parivartan program has
trained more than 6,000 retailers to display and stock products. Dabur has created a
training module ASTRA [advanced sales training for retail ascendance] in several
regional languages. A number of auto companies have launched rural-specific
campaigns."
Gupta of ruralnaukri.com offers more examples:
• Affordability -- Godrej introduced three brands of Cinthol, Fair Glow and Godrej
(soap) in 50-gram packs, priced at 10 cents; Adidas and Reebok increased their
sales by 50% in rural markets by reducing prices.
• Size and design changes -- Videocon introduced a washing machine without a
drier for US$60; Philips launched a low-cost smokeless chulha(stove); DCM
Shriram developed a low-cost water purifier especially for rural areas.
• Improving product acceptance -- LG Electronics developed a customized TV
(cheap and capable of picking up low-intensity signals) for the rural markets and
christened it Sampoorna. It sold 100,000 sets in the first year; Coca-Cola
provided low-cost iceboxes as regular power outages meant families could not
depend on refrigerators.
Perhaps the ultimate sign that rural India has arrived is in the allocation of talent. "In the
old days, the weakest people in organizations, the ones without a star career path, held
the reins of the rural marketing divisions," says Bijoor. "Today, things have changed.
Sharper and sharper brains from within the organization are being diverted to rural
strategy formulation." When the whiz kids go to villages, you know the cows have come
home.

Rural Market

Last Updated: December 2010

The rural Indian economy is showing impressive growth in consumption, with a number of factors supporting this
growth. These factors include increasing incomes due to good monsoons and government initiatives and schemes;
employment opportunities in infrastructure and industry projects across the country and; emphasis on local
employability.
This new consumption will include a high share of packaged foods, personal care, consumer durables and IT
products, two- and four-wheelers, and fashion accessories, among others. Over the last five years, some consumer
product companies have recognised the potential of rural markets and invested time and resources to tap into this
opportunity - understanding and segmenting the consumer, based on their spends and lifestyles.
Some companies have re-engineered products, pricing and packaging to customise features and value relevant for
these markets. For instance, LG has Sampoorna, a customised TV; Godrej soaps has introduced 50-gm packs and
Samsung has launched Guru - a mobile that can be charged with solar energy. Some players have developed new
communication and distribution channels within the hinterland (HUL's Project Shakti; Tata Tea's 'Gaon Chalo')
and some have created completely new products.
The Union Budget for 2010-11 has hiked the allocation under the National Rural Employment Guarantee Act
(NREGA) to US$ 8.71 billion in 2010-11, giving a boost to the rural economy.
FMCG
According to a study by research firm The Nielson Company, the fast moving consumer goods market (FMCG) in
rural India is tipped to touch US$ 100 billion by 2025 on the back of "unrelenting" demand driven by rising
income levels. According to the study, rural India now accounts for more than half of sales in some of the largest
FMCG categories.
The study found that:
 • Rural purchasing power has grown faster than urban in the last six quarters
• Faster growth in rural is not limited to penetration; today the rural consumer’s frequency of
consumption is growing faster as well, demonstrating their entrenchment in these categories
• Instant noodle sales are growing nearly twice as fast in rural India compared to urban in both
penetration and frequency
• Seemingly ‘urbane’ brands in categories like deodorant and fabric softener are growing much
faster in rural India than urban
Several FMCG firms, including ITC and DCM, have been registering faster and higher growth 1`in the sales of
their goods in the rural markets as compared to the urban markets.
Some of the FMCG companies such as Godrej Consumer Products, Dabur, Marico and Hindustan Unilever
(HUL) have increased their hiring in rural India and small towns in order to establish a local connect and increase
visibility.
Swiss FMCG giant, Nestle plans to make further inroads into the rural markets. The company has asked its sales
team to deliver "6,000 new sales points every month in rural areas" to expand its presence in Indian villages,
according to Antonio Helio Waszyk, Chairman and Managing Director, Nestle India.
At present, rural consumers spend about US$ 9 billion per annum on FMCG items and product categories such as
instant noodles, deodorant and fabric, with the pace of consumption growing much faster than urban areas, as per
the findings.