Rural Marketing IPER - Bhopal

4th Feb 2012

Welcome to your module on: Rural Marketing

Instructor: Prashant Gupta
Working with ITC Ltd as Branch Manager B.Com (Hons),University of Delhi; MBA (ISB - Hyderabad)

Work Experience: I worked across multiple consumer goods categories and professional services sector. My experience spans functional areas of Sales, Trade Marketing, Business Development and Supply Chain Management. I have been a key member in projects and organizational initiatives like ITC e-choupal the innovative rural retail program, and ITC Infotech the consulting division of ITC.

Coordinates
Mobile :9893598101 Email: prashgt@rediffmail.com

Today
Intro and Admin details
Course Overview Teaching Style Grading details

Background Emerging India

A nation currently in a period of economic growth and transformation. Worlds largest democracy. A Trillion $ economy the 4th largest in the world. Amongst a handful of nations to have its Flag stationed on the Moon. Aspiring to be a Permanent UNSC member

Background Emerging India

Socio-economic divide between the growing urban middle class and the large population of rural India.Descriptors us of them Rapidly expanding population. Rising Food Prices Weak Infrastructure Depleting Environmental Resources In search of The New India which converges the expectation of all stakeholders.

Enter Rural Marketing

What is Rural ?????

Is there a definition for Rural??

Urban As per GOI

The definition of urban area adopted is as follows: (a) All statutory places with a municipality, corporation, cantonment board or notified town area committee, etc. (b) A place satisfying the following three criteria simultaneously: i) a minimum population of 5,000; ii) at least 75 per cent of male working population engaged in non-agricultural pursuits; and iii) a density of population of at least 400 per sq. km. (1,000 per sq. mile).

Is Rural India = BOP?

Ownership of Life Insurance
18.6% - Rural 38.1% - Urban

Average Household Income

INR 51,922 - Rural INR 95,827 - Urban

In Rural India
64.3% dont own a Ceiling Fan 72.5% dont have a toilet or bathing facility at home 40.2% still dont have electricity 39% dont even own a Wall Clock

Looks like the answer is Yes

Source: Max-NCAER Indian Financial Protection Survey & IRS 2007 R2, Hansa Research

Rural India

Indian Agriculture has Excellent Resources

Plenty of arable land Rich & Diverse Agro-climatic Zones Strong Agricultural Research Large & growing markets

Indian Farmers Resourcefulness is also Legendary

Works very hard (whole family is on the farm) Takes risk (on weather, yield, price) Is innovative (technology adoption, risk mgmt)

Yet majority of Indias Farmers are Poor

Because of Fragmentation, Dispersion, Heterogeneity

Most of them are small (1.5 ha average holding) They do not have bargaining power All of them live in hinterlands (600,000 villages) They do not have access to real time information The circumstance of each one is very different (agro-ecological conditions, resources) They cannot get customized knowledge advice

Further compounded by weak infrastructure

Physical, Social, Institutional To access markets, these farmers have to take the help of middlemen

Traditional Transactions
Sell: sunk costs, inconvenience,
other losses
Price Discovery @ Sell Transaction
Video

Mandi
Transaction

Farmer

Market
Financing Information (Aggr)

Money Lender Extension Center

PRODUCT & SERVICE PROVIDERS

VILLAGE
Knowledge (Use)

Middleman

TOWN Buy: high prices, spurious goods, information not timely

The Problem Faced by FarmerThe 2 Ds

DEEP SEA Institutional support - Information on farming best practices/ weather -Quality and information on Inputs

DEVIL Middle Men - Price Discovery -Quality and weighment -Handling Loss -Time

An Entrenched Cycle of Abject Poverty

Land and labor available to the poor are of minimal economic value

Market Failures

Usurious Lending Practices

Unbreakable debt cycles cause by interest rates >120% Bonded labor

Failed Govt Policies & Corrupt Officials

Those with capital and power have little incentive to invest in the productive assets that would break the cycle

Farmers account for almost HALF of the Indian workforce

Indias Labor Force
Primary (Agriculture, net of Mining)
Agriculture 48.1%

Secondary (Industry/Manufac turing, etc.) Tertiary (Services)

but farming contributes LESS THAN 20% of the gross value of the Indian economy.
Indias GDP Composition

Agriculture 18%

Primary (Agriculture, net of Mining) Secondary (Industry/Manufac turing, etc.) Tertiary (Services)

2.50

An farmer is significantly less productive (in terms of relative GDP contribution) than the average Indian worker
Relative Productivity Ratio (Agricuture % of GDP/Agriculture % of Workforce) Relative Productivity Ratio (Industry % of GDP/Industry % of Workforce)

2.00

Relative Productivity Ratio (Services % of GDP/Services % of Workforce)

1.50

1.00

0.50

This line (1.00) represents the productivity of the AVERAGE worker in India

0.00

a trend which has only gotten worse over the past 20 years

Indian service industry workers are significantly more productive than Indian farmers

The average Services worker contributes 4.57 times as much to the Indian economy as the average Farmer.

The average IT Services worker contributes 20.5 times as much to the Indian economy as the average Farmer.
as such, an IT worker would expect to earn 20+ rupees for every 1 rupee a farmer earned. Stated another way, on average, a farmer earns 4.9 paise for every rupee earned by an IT worker.

A Vignette: Paharias in the Rajmahal Hills

Dharmi Paharini is four feet three inches tall and weighs less than the 40kg of firewood on her head. She had to walk 31 km to cut and fetch the wood and bring it to market. She will get 8 or 9 rupees for it. Some strains of beans cultivated here fetch high prices in Bombay. Not for the Paharias, though. I have to sell my crop to the mahajan who gave me a loan. A study estimates that 46% of a Paharias earnings go directly to the mahajan to repay debt, with an additional 39% going to the lender indirectly.

No water supply systems exist here. Years of neglect have ensured that. So the Paharias suffer from a range of water-borne diseases.

Adapted from The Hills of Hardship, p. 169 - 174

But still C. K. Prahalad may suggest

THERE EXISTS A MARKET AT THE BOTTOM OF THE PYRAMID

AND A FEW MYTHS ABOUT IT TOO

New Horizons New Hopes

Agri prices have more than doubled in the last 5 years Agriculture production has started to improve . Good Monsoons over the last few years. Increased Govt spending in Rural area ex. NEREGA etc

Growing Rural Wealth

100% 90%
80%

Rural:Percent of each Income Group

20.6

32.5 42.7
57.2

70% 60% 50%

42.5
43.1

40% 30% 20% 10% 0% 8.6 3.1 2.1 1995-96 29.0

39.5
22.3

10.1
4.1 3.6

13.7
5.0 5.2

6.5 8.1 2009-10

2001-02

2005-06

Upper (> Rs,1,40, 000) Middle (Rs.70,000-1,05,000) Lower (Rs.<35,000)

Upper Middle (Rs.1,05,000-1,40,000) Lower Middle (rs.35,000-70,000)

Source: We are like that only, Rama Bijapurkar

Rural Economy
1. Increase in Urban Household consumption of Rs 100 leads to an increase of Rs 39 in the rural household income.

2.

During the last decade, the rural economy is estimated to have grown
by 7.3% as compared to 5.4% of urban economy.

3. The rural economy is nearly as big as the urban. In 2000, the rural

economy accounted for 49% of the Indias GDP.

4. Share of agriculture in Rural economy has dropped from 72% in 1970s to 64% in 1980s to 51% in 2000

5. The rural-urban migration has fallen from 6.5% in 1981 to 2.8% in 2001.

Source: Merinews.com

Trends in Rural India

The consumption of FMCG products increasing. Govt. focusing more rural credit more than doubled in 3 years. Allocated US$67 billion for 2009-10 Corporate farming and food processing are focus areas for corporate.

Education, Health and Conveyance are major spending items in rural

India Child Centricity is high in villages

Source:

Availability Of Finance
Availability of microfinance SKS National Bank for Rural and Urban development Basix National Mission for Sustainable Agriculture Public Private Partnerships for rural infrastructure

Women Self-Help Groups

Segmentation Of Rural Market

Population Population Size as indicator of market consumption. Geography/ Location Proximity to Urban Centre Industrial Complex. Tourist Location Sea/ Highway Socio Economic Factors

Size of Land Holding

Literacy Levels Position of Women in Society

Consumption Behavior -Rural Market

Need Based Lifestyle & Product Usage Limited by infrastructural constarints Brand Conscousness SBI Ghadi Parle

GoldFlake
Aspirational

Rural Vs Urban Market- A change in Mindset

Myth I Lack of Spending Power

They spend, but in smaller quantities
Pay premiums to get smaller quantities Sachets made 67% of the tonnage for Shampoos

Myth II Impossible to reach

They are accessible
Media dark is a thing of the past Project Shakti an alternate distribution system

Myth III Will buy what is cheap

But are very Brand Conscious
Aspiration to be like the rest Value seeking as well

Myth IV They are disconnected

Connected through various media
Wireless Technologies (Cell Phone and DTH) Cadburys Worm controversy

Myth V Technology is not for them

Grasp advanced technologies
Nothing to unlearn, hence easy to learn ITCs E-Choupal & Kerelas Fisherwoman

Theres lots more to the Rural Economy then just poverty, the need is to pick the opportunity and cater to it well

 Theres lots more to the Rural Economy then just poverty, the need is to pick the opportunity and cater to it well