Rural Marketing: Targeting the Non-urban Consumer [2nd ed.] 0761935886, 9780761935889, 9788178299754

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Rural Marketing

2 Rural Marketing

Rural Marketing Targeting the Non-urban Consumer

Second Edition

SANAL KUMAR VELAYUDHAN

Copyright © Sanal Kumar Velayudhan, 2002, 2007 All rights reserved. No part of this book may be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval system, without permission in writing from the publisher. First published in 2002 by This Second Edition published in 2007 by Response Books Business books from SAGE B1/I1, Mohan Cooperative Industrial Area Mathura Road, New Delhi 110 044 Sage Publications Inc 2455 Teller Road Thousand Oaks, California 91320 Sage Publications Ltd 1 Oliver’s Yard, 55 City Road London EC1Y 1SP Sage Publications Asia-Pacific Pte Ltd 33 Pekin Street #02-01 Far East Square Singapore 048763 Published by Vivek Mehra for Sage Publications India Pvt Ltd, typeset in 10.5/13 pt ITC New Baskerville by Star Compugraphics Private Limited, Delhi and printed at Chaman Enterprises, New Delhi. Library of Congress Cataloging-in-Publication Data Velayudhan, Sanal Kumar, 1955– Rural marketing: targeting the non-urban consumer/Sanal Kumar Velayudhan—2nd ed. p. cm. Includes bibliographical references. 1. Marketing—India. 2. Consumer behaviour—India. 3. India—Rural conditions. I. Title. HF5415.12.I5V45 ISBN:

658.800954'091734—dc22

978-0-7619-3588-9 (PB)

2007

2007032916

978-81-7829-749-1 (India-PB)

The Sage Team: Leela Kirloskar, Neha Kohli and Vijaya Ramachandran

Fondly dedicated to: My parents, Rajamma Nair and Neilakanta Velayudhan Nair for educating me on the Social Processes and Devika and Akshaya who gave me enough reasons to re-examine the Social Processes

6 Rural Marketing

Preface to the First Edition

7

Contents

List of Tables List of Figures List of Boxes Preface to the Second Edition Preface to the First Edition

8 10 11 14 16

1

Rural Marketing: Opportunities and Challenges

19

2

Profile of the Rural Market

40

3

Rural Consumer

57

4

Researching Rural Markets

80

5

Value Offering

94

6

Communicating in the Rural Market Landscape

110

7

Communication: Language and Culture

125

8

Operationalising Communication Strategy: Issues and Approaches in Media

136

9

Retailer as a Route to the Rural Market

163

10 Haats, Melas and Mobile Traders

181

11 Access the Rural Consumer: Emerging Channels

195

12 A Competitive Strategy for Rural Markets

211

Appendix: Reference for Cases on Rural Marketing Bibliography About the Author

240 242 250

8 Rural Marketing

List of Tables

1.1 1.2 1.3 1.4 1.5

Growth in Rural Markets by Product Categories Households Owning Specified Consumer Durables Rural Market Share Rural Market Share of Consumption Average Annual Growth Rates of Rural Households in Different Income Groups (%)

23 26 27 28 29

2.1 2.2 2.3 2.4 2.5 2.6

Number of Towns and Villages in India Population Distribution in Urban and Rural Regions Households and Houses Over Time in Rural Regions Household Size and Sex Distribution Literacy Rate by Geography and Gender Distribution of Households by Occupation in Rural India Distribution of Households by Occupation of the Head of the Household (1999–2000) Distribution of Households by Income Distribution of Households by Income and Region Income Distribution by Occupation Per Capita Consumption Expenditure Ownership of Durables Expenditure per Household for 22 Consumer NonDurables by Income Group Penetration Rates for 22 Consumer Non-Durable Items among Rural Households Fast Moving Consumer Goods (FMCG) Penetration

41 41 42 42 43 43

2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 2.15

44 45 46 46 48 51 51 52 54

Tables Preface to theList FirstofEdition

9

3.1 Occupation and Consumption Patterns 3.2 Percentage of Products Bought from Nearby Towns Rather than within the Village itself 3.3 Preference for National Brands 3.4 Penetration of High Priced Brand of Washing Powders and Toilet Soaps 3.5 Loyalty Levels 3.6 Multiple Brand Usage in Rural Households 3.7 Distribution of Households by Categories

62 63

72 73 75

5.1 Households Using Multiple Brands

98

71 72

8.1 Reach of Mass Media 8.2 Reach of Mass Media by Income Group 8.3 Viewership Patterns on DD1

137 140 141

9.1 Dealer Penetration and Market Share 9.2 Size Distribution of the Rural Retailers 9.3 Distribution of Rural Retail Stores by Number of Product Categories Stocked 9.4 Distribution of Rural Retailers by Monthly Sales

164 171 172 173

10.1 Mark-Up on Wholesale Price by Trader

189

12.1 Population Distribution by Village Size

213

10 Rural Marketing

List of Figures

1.1 Types of Markets

34

2.1 Distribution of Households by Annual Income 2.2 Expenditure per Household for Non-Durables

45 52

3.1 Influences on Consumer Behaviour and its Implications 3.2 Social and Behavioural Influences 3.3 Distribution of Households by Socio-economic Classification

64

5.1 Product and Price as Critical Factors 5.2 Variations Influencing Multi-brand Strategy

65 77 95 98

6.1 The Communication Process Model 6.2 Taxonomy for Communication Strategies

114 118

7.1 Message Decisions

127

8.1 8.2 8.3 8.4

137 139 144 148

Overall Media Reach Media Effectiveness Recall of Advertising by Media Communicating using Non-conventional Media

9.1 Retailer System and Channel Decisions

169

10.1 Type of Traders in Periodic Market

186

12.1 Competitive Scenario 12.2 Measures to Counter Duplicates and Imitations

219 230

Preface to the First Edition

11

List of Boxes

1.1 Increasing Importance of Rural Markets 1.2 The Growing Rural Market for Television 1.3 Cellular Czars Rework Marketing Strategies

22 23 31

3.1 Influence of Situational Factors on Consumer Needs and Use Pattern 3.2 Behaviour Variations of Watch Buyers 3.3 Strategy to Reflect the Social-Cultural Influences on Behaviour 3.4 Is Tradition Among Rural Consumers Giving Way to Modernity? 3.5 How Cultural and Social Practices Influence Marketing Decisions on Product and Promotion 3.6 Perceptions Suggest Rural Market Strategies Differ from those for Urban Markets 3.7 ICICI Bank Segmentation of Rural Markets 3.8 Consumer Surprises Marketer with Innovative use of Products

58 61 64 67 69 69 75 77

4.1 Impact of Changing Brand Name 4.2 ASTRA Ole 4.3 Cattle Owner Behaviour: Purchase of Inputs and Sale of Milk 4.4 Sampling by NCAER

82 84 86

5.1 Value Offer from Amrutanjan 5.2 Occupation Drives Preferred Features 5.3 Oscar Television’s Offering to the Rural Markets

95 99 100

91

12 Rural Marketing 5.4 Product Design that Responds to Consumer Perceptions 5.5 Responses to Consumer Behaviour 5.6 Cellular Phone: Value for Money 5.7 Usha International Ltd. 6.1 Variation in the Comprehension of Communication in Rural and Urban Markets 6.2 Selective Comprehension of Communication: A Study of Farmers in Rajasthan 6.3 Launch of Cigarettes: The ITC Story 6.4 A Study on Consumer Response to Launch Strategies 6.5 Launch of a New Tractor Model 6.6 Pulling Ahead: Demonstrating the Superiority of a Brand 7.1 7.2 7.3 7.4 7.5 7.6 7.7

101 106 107 108 110 115 119 120 122 123

The Perceived Influence of Advertising Creating Rural-specific Messages Complex Communication as Barriers to Reception Study on Effectiveness of Pictorial Advertisement Signs and Symbols in Rural Markets Message Characteristics Influence of Source Characteristics on Purchase of Motorcycles 7.8 Context in Advertisements

126 128 129 130 131 131 133

8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9

139 141 145 146 149 151 153 153 154

Media Effectiveness Depends on the Audience Audience Response to T.V. Commercials Rural Consumer Lends an Ear to the Retailer Non-Conventional Media Capturing the Attention of the Rural Consumers Contests Involving the Consumer Types of Puppet Theatre in India Folk Theatre/Song Forms in India Demonstration and Sampling to Build Brand Preference

134

List of Boxes

13

8.10 Colgate-Palmolive’s Promotion through Video Vans 156 8.11 Audio-Visual Promotion 158 8.12 POP Channels 160 9.1 9.2 9.3 9.4 9.5 9.6

Distribution Efforts Increase Sales Channel-support a Key to Distribution Effectiveness HLL’s Effort to Reach Rural Retailers Promotion to Consumer and Servicing Retailers Village Shops Limiting the Number of Dealers to Prevent Undercutting

164 165 166 168 171 176

10.1 Channel Variants in Rural Markets 10.2 Organising the Mobile Traders

182 192

11.1 Innovation in Distribution 11.2 Exide Industries Ltd. to woo Unorganised Sector

197 207

12.1 Focus on Selective Locations 12.2 Intensified Effort for Market Share: Access and Affordability 12.3 Identifying a Need Gap in the Market 12.4 Creating Space in the Village Shop 12.5 Symbiosis as an Entry Strategy 12.6 Market Development Strategy of HLL 12.7 Uttam Beedis 12.8 Typical Strategy in Rural Markets: Crane Supari 12.9 Competing with the Unorganised Sector 12.10 Ensure Dealer Return and Prestige to Retain Channel Interest 12.11 P&G Initiates Raids on Brand Pirates 12.12 Key Influences to Communicate Advantages and Diffuse the Product 12.13 Pricing and Packaging as a Relative Advantage 12.14 Consumer Perceived Relative Advantage Hastens Diffusion

213 216 220 221 222 223 224 226 227 228 231 231 232 233

Preface to the Second Edition

Rural markets have changed considerably since the first edition of this book. This edition has revisions and additions to meet the challenges that the managers marketing products and services to rural markets face because of the changes in the environment of these markets. This revised edition retains the managerial perspective of the earlier version. The first edition had provided a framework to structure the subject of Rural Marketing. It is gratifying to note that the book created interest in the subject which is now offered as an independent course of study in many business schools. The topic is also of growing interest to students from developed countries wanting to understand such markets in India with the book used as recommended text in courses offered to management students in Europe and the US. The first edition had examined issues in the rural markets and also explored managerial options for the issues faced by the marketer. This edition examines in greater detail the concept of rural markets and rural marketing and explores some more methods that marketers use to access the rural consumer. The conceptualization and decision options reflect the changes in the socio-economic and technological environment of rural markets. The revised edition has a new chapter that examines the emerging channels that marketers are using to access rural markets. The effectiveness of these channels in accessing the rural markets and the reasons for their effectiveness are examined in this chapter. Structural variation in this edition is the reorganisation of material on rural consumers. A chapter on ‘profile of the rural market’ gives the reader an understanding of the rural market through data on the market size, demographics,

Preface to the Second Edition

15

consumption expenditure, and penetration levels for products. Such a presentation helps the reader to easily identify quantitative data. The reader will not lose continuity in the presentation if he/she prefers to skip this chapter initially and come back to it later. A few other books on rural marketing have followed the first edition of this book. The distinguishing feature of this book is that it continues to be a highly readable book with a strong managerial orientation. The conceptual framework developed for the subject of rural marketing in this book sets it apart from the other books that have tried marrying this framework and that of the standard marketing textbooks. The revised edition was prepared over the last one year but the additions cover the last five years, i.e., since the time of the first edition. Students with their questioning minds and managers who shared their experiences are the significant contributors to the revised edition. I am grateful to them and to the readers who provided valuable comments on the earlier edition and which helped shape the second edition. Sanal Kumar Velayudhan

Preface to the First Edition

The discovery of an eighth of the world population as potential consumers by the organised sector is a recent one. With such a large untapped market potential, the rural marketer would wonder at the purpose of this book. The major objective is to provide guidelines for decision making in rural markets by: Highlighting critical issues in rural markets; Providing options for marketers; Developing insights into the behaviour of the rural consumer; Understanding rural institutions of retailer, haats and melas (rural markets and fairs); Addressing these issues using insights into consumer behaviour and the rural institutions. The rural marketer is faced with an entirely different set of conditions when marketing in rural areas as compared to urban areas. Managing a rural market environment becomes difficult because of the: Limited literature and absence of a framework to guide decision making in rural markets; and Culture variations that require not only new methods, but also unlearning old ones, and attitude changes. These problems are compounded by the logistics which form a barrier to the rural market. The ‘not-for-us’ philosophy and the attitude of ‘we tried, but is not worth the effort’, thus finds

Preface to the First Edition

17

favour in the face of these challenges. Pioneers in the rural market command consumer loyalty and retail shelf space. Discovering the distant market early is therefore critical. The marketer cannot afford to wait, hoping to tap the potential at some later date. Entrenched competition will make entry into rural markets at a later point very difficult. An organised framework that understands these markets is needed to guide decision-making. I realised this when I was working on an assignment for ‘village adoption’ as early as the late seventies. While researching the market for credit we faced problems in methodology and implementation. One amusing situation we faced was that questions to a respondent brought responses from any one of the many other people surrounding us in the group. The difference in consumer behaviour therefore affects not only marketing to the rural consumers but also researching the rural consumer. The use of standard research methodologies has only limited relevance. The effort to understand this market has been, and is, a continuing pursuit. In 1993, while at XLRI, Jamshedpur, I had launched the first Management Development Programme on ‘Rural Marketing’. The programme was continued for three years till I left XLRI in 1997. I then joined the Administrative Staff College of India (ASCI), but did not relaunch this programme till 1999. Today, the programme designed by me at ASCI is not the same as the one in operation in 1993. The rural market environment has changed between 1993 and 1999. The issues in 1993 were simpler, but today with the novelty value of products gone, rural markets stubbornly refuse to take just any product and service created for urban markets. Understanding rural consumers and using the appropriate research approach to these markets has become as important as logistics of rural marketing. The need for a systematic approach to Rural marketing is keenly felt. My book is an effort to bridge this gap. It draws on my work in this field and the interaction with marketers serving the rural consumers. I expect this book to start as well as strengthen the process of conceptualising and developing the framework for rural marketing.

18 Rural Marketing The book was conceived and produced over the past year and a half, but the concepts, the short cases and information have been accumulated over a number of years. I wish to thank several individuals and organisations who have made this book possible. The participants in the programme on ‘Rural Marketing’, both at XLRI, Jamshedpur and at ASCI, have contributed valuable insights. The questioning minds of the post graduate students in Business Management at XLRI were also of enormous help. Research work carried out on behalf of many organisations was a rich source of information. Many persons in these organisations contributed to the work. Special mention must be made of C. Paul Francis, Sitaram Textiles, P. Srinivas, Uttam Beedis, Radhe Shyam of Crane Supari, Raju of Milma, S. Venkatesan, Ministry of Personnel & Training, Government of India, Verghese Mathew, K.S.O. Finally, my special thanks to Komala Raj for her help in typing several drafts of the book before it took this final shape. Sanal Kumar Velayudhan

Rural Marketing: Opportunities and Challenges

19

1 Rural Marketing Opportunities and Challenges This chapter captures situations that reflect the growing interest and enthusiasm of business towards rural markets. Opportunities in the rural market are examined in the light of intense and growing competition in urban markets. The market opportunities are clearly perceived through a comparison of consumption patterns for durables as well as non-durables between the rural and urban markets. Identifying opportunities and clarity in decision-making requires an unambiguous definition of rural marketing. Rural marketing and rural markets are conceptualised to clearly distinguish them from urban marketing and urban markets. Limitations in the approach used for identifying the rural markets are also examined.

THE ROAD MAP India’s vast rural market offers a huge potential for a marketer facing stiff competition in the urban markets. The rural market environment is very different from the familiar surroundings of the urban market. Rural consumers have customs and behaviour that the marketer may find difficult to contend with.

20 Rural Marketing The understanding of India’s rural markets is an important objective of this book. The other major objective is to comprehend influences on this market with emphasis on understanding consumer response to marketing decision variables. The third objective of the book is to develop appropriate methods to research rural markets. Appropriate research methods are important in the context of the rural market for two reasons: (a) the consumers’ ability to discriminate varies; and (b) the reference points used by rural consumer differ from those of the urban consumers. The research methods to measure perception, attitudes and behaviour in rural markets vary from the approach used in researching urban markets. Research methods unsuitable in rural markets create a distorted picture of the consumer and result in failure of marketing efforts. The opportunities in the rural market are demonstrated by comparing consumption levels in urban and rural markets for different product categories. Their volumes and growth show the importance of this market. Understanding demographic profiles of consumers and their response to brand offering is a useful approach to analyse the rural market. A large number of caselets in the book capture the consumer response to brand offering. The need for appropriate methodology for researching consumers is demonstrated by non-applicability of the urban reference points and measures in the context of rural markets. Literature available on rural development provides alternative methods to research rural markets. The understanding of the rural consumers is utilised in decision-making situations. Organising the chapters according to ‘marketing decision variables’ provides the focus on ‘decision-making’. The critical aspect of reaching the consumer with the message and the product offered is examined in great detail. Short cases and data illustrated later in this book provide the decision-maker with important criteria for evaluation of options in these markets. The influence of consumer perceptions on product design in different product–market situations

Rural Marketing: Opportunities and Challenges

21

is identified. Consequently, the concepts and the framework developed are relevant for marketing decisions. The use of the existing network of channel members in rural markets is the key to connecting with the rural heartland. Haats and melas, which are unique to rural markets, supplement the retailer route to rural markets. The interaction between consumers and these unique institutions provides information for use in marketing decisions. The marketing strategy is examined in the context of the competitive situations in the rural market. Competition is categorised into (a) generic competition, (b) competition with the unorganised sector, (c) new entrants, and (d) meeting the challenges created by imitations. The challenges faced by the marketer in these competitive situations lead, at the same time, to the opportunities available in rural markets.

CORPORATE INTEREST IN RURAL MARKETS When rural customers discover the new and exciting choice of brands available in urban markets, a demand for these brands is created in rural areas. Marketers have entered the rural markets by extending the distribution of their existing offering or developing a separate marketing strategy for the rural markets. When Titan, the watch manufacturer, found rural consumers purchasing their Sonata brand of quartz watches, they formulated a marketing strategy tailored to the requirements of the rural market. There is an increase in the launch of new products and brands in rural areas. In many product categories like cigarettes, biscuits, soaps, etc., specific brands are developed only for rural markets. The rural market, in both durables and non-durables, can be developed through new products and suitable positioning (see Box 1.1).

22

Rural Marketing

BOX 1.1 Increasing Importance of Rural Markets Insect repellant major Godrej Sara Lee plans to double sales in the rural market by the end of the financial year 2006–07. The company sees saturation of demand for their product in the urban markets and growth is expected from rural markets. An innovative approach to the rural market is to drive the growth strategy. The company brought in single-coil sachets of Good Knight for rural markets. It also created communication for targeting rural areas. Distribution to rural markets is planned through the Godrej group’s rural outlets ‘Aadhaar’, ITC’s e-Choupal and Reliance’s rural retail network (Sangani, 2006). K.V. Kamath, MD and CEO of ICICI Bank (India’s second largest bank), has identified rural markets as one of the key drivers of revenue growth. The rural markets provide opportunity, as banks are yet to serve a large part of that market. As much as 58 per cent of rural households do not have a bank account and only 21 per cent have access to credit from a formal source. The Deputy Managing Director of ICICI Bank, Nachiket Mor, is in charge of the rural marketing effort. In six years the bank’s rural portfolio went up from nothing to Rs 163,000 million. Portfolio of ICICI Bank in Rural Market Year 2003–04 2004–05 2005–06

Portfolio in Rural Market (Rs Million) 42,000 75,000 163,000

Yearly Growth (%)

Share of Total ICICI Bank Assets (%)

– 78 117

2.9 4.0 6.4

The bank has a presence in 220 districts and plans to increase it to 450 districts by 2008. The marketing effort has innovations in distribution, product design and technology (Banerjee, 2006).

REASONS FOR THE INTEREST There are quite a few reasons for the growing interest in rural markets. A very straightforward reason is the growth of these markets, as in the case of the television market (see Box 1.2).

Rural Marketing: Opportunities and Challenges

23

BOX 1.2 The Growing Rural Market for Television The Consumer Electronics and TV Manufacturers Association executive expects a growth rate of 25 per cent for television in the rural markets compared to 5 per cent growth in the urban markets. Market research firm Francis Kanoi said in a report (on consumer electronic market growth and projections) that the top seven metros contributed 24.1 per cent of total sales in 2002, followed by towns with a population of over 1 million, where 12.0 per cent of the sets were bought. The remaining 63.1 per cent of sales in 2002 came from cities and smaller regions with a population of less than 1 million. For the year 2004, metro sales were expected to be 22.6 per cent and for the smaller regions the share was expected to be 64.3 per cent. According to LG’s Singh, ‘Electrification of villages and an increase in awareness among the people, a good harvest and a booming economy will help drive growth. The rural market should see a growth that is three to four times that in the urban markets’. ‘The potential is high as the penetration levels are low, and hence our efforts towards creating a bigger market here,’ said Devender Saini, Senior Product Manager (Television), Philips India Ltd. ‘If we look at the penetration levels in rural markets, it is less than 10 per cent. This is lower than the all-India average of 21 per cent and the urban markets which are at 35 per cent to 40 per cent’ (Ghosh and Verma, 2003).

The growth in the television market is also because of the low penetration levels of the product in the rural market. A number of products exhibit a growth rate of more than 10 per cent in the rural market (see Table 1.1). TABLE 1.1 Growth in Rural Markets by Product Categories Product Category After shave lotions Jams/Jellies Butter/Margarine Napkins

Growth (%) 51.9 37.8 36.4 32.3

(Table 1.1 continued)

24 Rural Marketing (Table 1.1 continued) Product Category Acne preparations Sanitary napkins Air fresheners Phenyls Packaged atta Perfume/deodorant/cologne Shampoo Hair dyes Hair remover

Growth (%) 28.3 24.6 24.5 20.8 17.3 16.3 14.2 14.1 11.0

Source: Dobhal, 2005.

The vast untapped potential, increasing income and purchasing power, improved accessibility and the increasing competition in urban markets make rural markets an attractive destination for jaded marketers of products and services. Entry into rural markets reduces the risk of depending only on the urban market.

Untapped Potential Rural markets offer a great potential for marketing branded goods and services for two reasons: The large number of consumers: A pointer to this is the larger volume sales of certain products in rural areas as compared to sales of the same products in urban areas. Largely untapped markets: The penetration levels for many products are low in rural areas.

Market Size, Penetration and Potential The estimated size of India’s rural market stated as a percentage of world population in 2007 is 12.4 per cent (GeoHive, 2007; Central Statistical Organisation, 2003). This means that 12.4 per cent of the world’s consumers live in rural India. In numbers, this

Rural Marketing: Opportunities and Challenges

25

works out to about 120 million households. In India, rural households form about 72 per cent of total households. The rural market consists of 742,706,609 persons out of the total population of 1,028,830,774 in the country (Central Statistical Organisation, 2003). This is a huge market by world standards. The consumption expenditure is higher in rural areas compared to that in urban areas, though slightly less in relation to population size. Rural India accounts for two thirds of the country’s annual private consumption expenditure of over Rs 2,500 billion (Businessworld, 1997). The per capita expenditure is slightly less in rural market compared to the urban market. Rural consumers own only 52 per cent of available consumer durables, even though they form 72 per cent of total households in India. On an average, a rural household owns three consumer durables as compared to seven owned by an average urban household (NCAER, 1998). The gap clearly indicates the untapped potential in the large number of rural households.

Unmet Needs/Low Penetration Increase in the consumption of various types of products in rural markets creates opportunities for marketers. Moreover, products that were considered suitable only for urban markets are now in demand in rural markets as well.

Non-durables Consumption levels for certain products continue to be low for non-durables despite the growth in rural markets. ORG-MARG figures indicate the pharmaceutical sales in rural India to be Rs 28.71 billion compared to the total domestic sales of Rs 155.34 billion. Rural sales, thereby, work out as 18.5 per cent of total sales in the country. While per capita annual drug expenditure in India is Rs 151, in rural areas this figure is a meagre Rs 39 per person. The demand for health care, if anything, is higher in rural markets than in urban markets. According to a National Council for Applied Economic Research (NCAER) survey, the

26 Rural Marketing prevalence rate of illness for men is higher in rural areas at 105.5 per 1,000 population as against 98.2 in the urban areas. For women, it is at similar levels in urban and rural areas—at 108.4 per 1,000 population (Gothivarekar, 2003). The cellular phone industry has a large number of subscribers in rural areas. Out of its consumer base of 540,000 subscribers, BPL has close to 200,000 subscribers in rural areas of Maharashtra, Kerala and Tamil Nadu. In Andhra Pradesh and Karnataka, Bharti has about 30 per cent of its total subscriber base in smaller towns and villages (Law, 2000). The share of 30 per cent is low compared to the potential for cellular phones in rural market, and this is reflected in the high growth in the sales figures for the product in the rural markets.

Durables While sales figures are useful to understand the consumption levels for non-durables, ownership is the appropriate measure for consumption of durables. The ownership level of durables in rural areas is low compared to urban areas. While 81 per cent of urban households own at least one ‘asset’, as defined by the Census of India, less than 60 per cent of rural households can lay claim to ownership of at least one consumer durable item (see Table 1.2). TABLE 1.2 Households Owning Specified Consumer Durables Households (%) Sl. No.

Consumer Durable

1 2 3 4 5 6 7 8

Radio, transistor Television Telephone Bicycle Two-wheeler Car, Jeep, Van None of the specified assets At least one of the assets

Source: Census of India, 2001.

Rural

Urban

31.5 18.9 3.8 42.8 6.7 1.3 40.5 59.5

44.5 64.3 23 46 24.7 5.6 19 81

Rural Marketing: Opportunities and Challenges

27

The estimated demand for consumer non-durables reflects the potential in the rural markets waiting to be tapped. The market size for nail polish is estimated to be around Rs 270 million in rural areas as against only Rs 81 million in urban markets. The potential rural market for lipsticks is estimated at around Rs 250 million in rural areas as against Rs 131 million in the urban segment. Face cream demand in the rural market is estimated at about 1,099 tonnes compared to about 426 tonnes in the urban market. The potential market for shampoo in rural areas is about 2,257 tonnes while it is about 718 tonnes in urban markets. The rural market for mosquito repellents is estimated at around Rs 173 million as against Rs 79 million for urban market (Guha Ray, 1998).

Current Consumption a Pointer to Potential The purchase and use of certain durables and non-durables by consumers in rural areas is more than that by consumers in urban areas. Some of these items are sewing machine, cassette recorder, radio/transistor, bicycle, wristwatch, table fan, black-and-white television and pressure cooker (NCAER, 1998). In the case of all fast moving consumer goods (FMCGs) taken together, sales in rural markets contribute to 30 per cent of the overall sales. The sales from various segments is shown in Table 1.3. TABLE 1.3 Rural Market Share Market Metro Class-I Small towns Rural

Population (in millions)

Contribution to FMCG Sales (%)

110 90 90 750

28.7 18.7 22.4 30.1

Source: Shukla and Srivastava, 2006.

While for all FMCGs the percentage contribution to sales is more than 30 per cent, there are at least five products where the rural market has a larger share than the urban market (Table 1.4).

28 Rural Marketing TABLE 1.4 Rural Market Share of Consumption Non-Durable Product Washing cakes/bars Batteries Blues Iodised salt Safety razor blades Washing powders Toilet soaps Tea Biscuit Shampoo Toothpaste

Share of Rural Market (%) 65 64 57 54 53 47 44 43 39 38 31

Source: Dobhal, 2005.

Increasing Income and Purchasing Power India’s rural population of 74 per cent has 58 per cent of the country’s total disposable income. The rural markets also indicate increasing incomes, with agricultural output increasing from 176 million tonnes in 1991 to 215 million tonnes in 2004 (IBEF, 2004). The agriculture development programmes of the government have helped to increase income in the agriculture sector. This, in turn, has created greater purchasing power in rural markets. Studies by NCAER provide evidence of the increased income of rural households. Households in the lower income group have become less while there is a strong growth in the number of upper middle and higher income households (see Table 1.5).

Accessibility of Markets The attraction of a market depends not only on its potential but also on its accessibility. A market that cannot be exploited is a case of ‘sour grapes’. The development of infrastructure facilities and marketing institutions has increased the accessibility of these markets.

Rural Marketing: Opportunities and Challenges

29

TABLE 1.5 Average Annual Growth Rates of Rural Households in Different Income Groups (%) Income Group (Annual Income (Rs) at 1998–99 prices < = 35,000 L 35,001–70,000 LM 70,001–105,000 M 105,001–140,000 UM >140,000 H Total

1985–86 to 1989–90 –0.20 4.91 17.82 16.39 13.9 2.04

1992–93 to 1995–96 –3.03 10.22 3.11 12.25 15.68 1.44

1995–96 to 1998–99 –4.51 7.71 7.82 8.61 14.31 1.29

Source: NCAER, 2003. Note: L = lower; LM = lower middle; M = middle; UM = upper middle; and H = high.

The road network has facilitated a systemised product distribution system to villages. In the past, companies relied on a ‘trickle down’ of stocks to the buyer in interior villages, which resulted from the active participation of channel members. In this system, the village retailer made fortnightly visits to a bigger retailer in the nearest tehsil (sub-division of a district) level town to make purchases and the large retailer in the tehsil town procured goods from the district headquarters. The district headquarters were, therefore, the terminal point of the company distribution channel. Today, an increasing number of companies are supplying village markets directly. Increasing direct contact with villages helps product promotion and availability of the product in the village shop. Marketers of durable goods use direct contacts as a means to promote and attract consumers to dealer points in large feeder villages or towns, locations from where a large number of interior villages get their products. Delivery-cum-promotion vans traversing eight to 10 villages a day and covering haats or mandis (markets) is a widely used method of direct contact in rural areas.

Competition in Urban Markets Intensified competition in urban markets increases costs and reduces market share. Rural markets are, therefore, increasingly

30 Rural Marketing attractive in relation to urban markets. The automobile market brings this out clearly. Motorcycles, certain models of scooters and vans find ready acceptance in rural markets as compared to urban markets, where there is a proliferation of brands.

Consumer Behaviour Changes Increased literacy and greater awareness in rural markets create new demands and discriminating buyers. This is observed more in the younger generation. In villages today, this segment of buyers consumes a large variety of products, both durable and non-durable. There is a visible increase in the consumption and use of a variety of products. The younger generation appears to seek variety and is more discriminating. The young adult in a village likes to sport a fashionable watch and the preferred brand of toilet soap for the youth is not necessarily Lifebuoy, the brand preferred by the elders.

Risk Reduction During recession in urban markets, the rural markets help to reduce risk. Companies selling to both urban and rural markets better withstand fluctuations in demand. The situation faced by the colour television industry in 2001 is an example. While the growth in the market for colour televisions in urban India was a low 5 per cent, the growth in the rural markets was 16 per cent as compared to 10 per cent in 2000. The factors that affected the urban economy—the stock market crash or the threat of war—did not affect the rural markets. The positive growth in demand for colour televisions in rural markets was due to good monsoon rains and increased income levels in the rural areas (Paul, 2001). The demand for certain products in rural areas is steady unlike in urban areas, which exhibit cyclical demand. An example is the case of cement where the demand comes in spurts, depending on a major project or business cycle. In rural areas, the demand for cement is stable as houses in villages are not completed in

Rural Marketing: Opportunities and Challenges

31

one go; there is periodic addition or expansion as the family gets bigger or as the farming surplus increases (Kant, 2002).

ORGANISATIONS REWORK THEIR STRATEGIES FOR RURAL MARKETS Marketers have reworked their marketing strategies developed for the urban markets to suit the rural markets (see Box 1.3). BOX 1.3 Cellular Czars Rework Marketing Strategies Cellular operators across the country are seeing more than 50 per cent of all incremental growth in their cellular business coming from small towns and rural areas. And this is not the customary mobiletotting rich farmers atop tractors. Cell phones have reached the man on the cycle, the fisherman and the village sarpanch (village headman) in the not-so-prosperous villages and towns in India. So much so, that some operators say they do not even need to explain in detail what a cell phone is—the villagers already know about it. Out of the 540,000 total subscribers, BPL has close to 200,000 subscribers in small markets across Maharashtra, Kerala and Tamil Nadu. Out of 204 towns outside Mumbai that the company has a presence in, 160 are small towns and villages. In Andhra Pradesh and Karnataka, Bharti has about 30 per cent of its total subscriber base in smaller towns and villages, and the growth in these markets is much faster. Marketing strategies are being reworked with plans for lower tariff. According to the Head of Bharti’s mobile operations across circles: ‘Our average tariffs are lower in the smaller towns at Rs 2.75 per minute as against Rs 4 per minute in Delhi. This is possible because our investment in creating the infrastructure in smaller towns is far lower. We are taking the Airtel brand to smaller markets through a multilingual advertising campaign’. Hutchison is trying to figure out how to expand the list of 1,850 villages and small towns where it currently offers cellular services. It, too, is looking at introducing localised tariff structures (Law, 2000).

32 Rural Marketing It is not only the price but the message, media, channel and products are also tailored to meet the needs of the rural markets. Union Carbide has heavy brass torches for the rural markets instead of the slick plastic torches it has for the urban markets. Velvette shampoo was introduced in sachets and helped develop the rural market for shampoos as it was readily accepted. Castrol, an engine oil brand, has developed a movie with the lead characters having brand names and the message for the product woven into the story. This approach reflects the recognition by marketers of the differing characteristics of rural markets and urban markets. Rural markets are unique for the following reasons: The wants of rural consumers are not necessarily the same as those of urban consumers. These wants are shaped by a number of factors, including the environment. The rural consumer who buys a vehicle for meeting his transportation needs may want a rugged rather than a sleek vehicle. Marketers today are alert to these preferences. Social and cultural practices have an important influence on rural consumer behaviour. A marketer cannot ignore the influence of community on purchase and use behaviour as this can affect the product and the advertising message used. The presence of a community washing-place would mean that washing soaps are not products used in private but used in front of others. Again, television viewing is still largely community viewing and hence rural audiences are not comfortable with sensuality or sexuality. Culture influences perceptions and behaviour. The preference for colour, size, shapes and taste are all influenced by culture. The perceptions of products vary because of these influences. An example of this is the perception of value

Rural Marketing: Opportunities and Challenges

33

according to size. Philips introduced large music systems instead of the compact ones it has for urban markets. The influence of culture on communication is an important factor in promotion decisions. The importance and respect for elders influence the message source. The meaning that symbols carry needs to be taken into account in promotional decisions. Marketers, thus, use names and symbols from the epic Mahabharat for promotion. The nature of occupation also influences the marketers’ strategy. Agricultural workers prefer to pay a smaller purchase price because of the prevalence of a daily wage system. The popularity of small packs is a result of this. Rural institutions are different from those in urban areas. The social, political and economic institutions are significant for marketers. An important rural institution that influences marketing is the weekly village market. Recognising the importance of this institution marketers use them to reach the rural consumer. Colgate-Palmolive, for example, uses the weekly village markets to promote its products.

DEFINING RURAL MARKETING AND RURAL MARKETS Need for Rural Marketing as a Separate Area of Study Is the difference between urban and rural markets significant enough to justify rural marketing as a separate area for study? The justification for a separate treatment lies in the differences in the behaviour of the rural and urban consumer. Justification for rural marketing on behaviour variation suggests a definition of rural marketing based on consumer behaviour rather than on geographical location. This would suggest that mentality, and not locality, is the identifier for rural markets (Challapalli, 2005).

34 Rural Marketing The subject of rural marketing has relevance because of the need for a different marketing approach necessitated by variation in consumer behaviour and income levels, as also by differences in the macro- and micro-environment of consumers located in rural areas. The important aspects of the micro-environment are the type of channels available in serving rural markets and also the type of media available to promote products in rural markets. The type of infrastructure in rural areas has implications for marketers. The geographically spread-out nature of markets also requires different approaches to these markets. Rural marketing is, therefore, not limited to behaviour and attitude of customers but also includes the influences on marketing decision variables that result from the non-urban location. It is convenient to classify transactions as flow of products or services between rural and urban locations. In Figure 1.1, the rural and urban location from which the product originates is indicated on the vertical axis and the horizontal axis indicates the FIGURE 1.1 Types of Markets

Rural

3

To

Urban

2

From

1

Urban

Rural

Source: Jha, 1999.

4

Rural Marketing: Opportunities and Challenges

35

location where the product is sold or consumed. Each quadrant represents a flow of products from one location to another. This then results in four possible flows, as shown in the figure, in two dimensions. Rural marketing excludes the Urban-Urban flow, that is, quadrant 4, and could include quadrants 1, 2 or 3. The rural to rural flow is the marketing of products produced locally and is a relatively simple exchange management process. The products made and sold in rural areas are milk and milk products, locally manufactured toothpowder, cloth, etc. Managing the rural to urban flow has similarities with current marketing literature in that its focus is on understanding the urban consumer, competition and channels serving that market. The products made in rural areas and sold to urban centres are khadi cloth, hand-crafted products, etc. The focus of this book is therefore on quadrant 3 of Figure 1.1, that is, the urban to rural flow—for example, selling in rural areas battery cells manufactured in urban areas.

Rural Market This definition of rural marketing based on ‘flows’ between rural and urban locations requires defining the rural area. A simple method of differentiating rural and urban areas is to examine the notification of the settlements as made by the concerned state government. The advantage of this method is its simplicity. The drawback of this method, however, is that the notification does not always reflect the nature of the settlement. The Constitutional Amendment in 1993 required the state governments to notify the settlements as ‘urban’ or ‘rural’. States like Tamil Nadu and Uttar Pradesh, out of convenience, notified all the then existing ‘town panchayats’ and ‘town committees’ as ‘municipal bodies’. Many of these were small settlements and may require to be classified as rural and not urban areas. Certain other state governments have notified small towns as ‘panchayats’ in order to obtain Central government assistance for these areas. The desire to avoid taxation has also been an important motive

36 Rural Marketing in resisting the formation of municipalities. Different charges for services and subsidies are also a problem. The criterion used by the Indian Census is, therefore, useful in such a context. Rural is defined as ‘that which is not urban’. Indian Census classifies settlements as ‘urban’ if they meet the following three conditions: (a) a minimum population of 5,000; (b) a population density of at least 400 per sq km; and (c) 75 per cent or more of male working population engaged in nonagricultural employment. These are termed as ‘census towns’. The settlements classified as ‘municipalities’ but not meeting the above criteria are listed as ‘statutory towns’ by the Census department. The ‘statutory towns’, therefore, are more likely to have the characteristics of a rural area than that of an urban area. Similarly, non-municipalities listed as ‘census towns’ are likely to have urban characteristics even though they are not declared as ‘municipalities’ by the state government (Sivaramakrishnan, 2002). The definition that is best suited is the one used by the Census as it has advantages of relevance, simplicity, and measurability. The identification of rural areas as defined by the Census is restated: rural is that which is not urban. Urban is: (a) All locations with a municipality/corporation, cantonment board or a notified town area. (b) All other locations satisfying all of the following criteria: (i) a minimum population of 5,000; (ii) at least 75 per cent of male working population engaged in non-agricultural activities; and (iii) a population density of over 400 per sq km. The use of geography to define rural markets is relevant from the perspective of a marketing manager. Rural markets require a different marketing approach because of variation in consumer behaviour and income levels as also differences in macroand micro-environment of consumers located in rural areas. The important aspects of the micro-environment are the type of channels available in serving rural markets and also the type of media available to reach out to the rural markets. The type of

Rural Marketing: Opportunities and Challenges

37

infrastructure in the rural areas has implications for marketers. The geographically spread-out markets also requires different approach to these markets than the ones suitable for the urban markets. Rural market is, therefore, the set of consumers who are located in rural area and who exhibit behaviour that is different from the behaviour of consumers in urban areas. The marketing issues and, therefore, the marketing decisions in serving the rural markets vary considerably compared to marketing for the urban consumers.

PERSPECTIVE USED The decision-maker’s perspective is used throughout this book. A decision maker is required to understand the market, identify critical issues that need to be addressed, and develop options to resolve these issues. These processes are examined for the rural marketing system. Elements of the rural marketing system include rural consumers, competitors in rural markets and the channel members serving rural markets. The marketer is interested in understanding consumers and competition. Marketing options are relevant for the decision variables, which include product decisions, channel decisions, decisions on media, message and pricing decisions. To reflect these, the book is organised into the following sections: Environment of rural markets Researching rural markets Developing suitable value proposition, products and price Reaching rural markets Competitive strategy for rural markets The sequence reflects the need to look outwards at the environment of rural markets before examining options in each of the marketing decision areas. The strategic marketing decision integrates decision variables to reflect elements of the rural marketing system.

38 Rural Marketing DECISION IMPLICATIONS The attitude towards rural markets should be that of an investor. The growing market provides the opportunity and the approach should be one of ‘Market Seeding’. The marketer has to invest to develop a separate marketing programme to meet rural consumer needs. The market provides opportunities and options for the rural marketer and low penetration levels suggest opportunities. The marketer needs to have information systems that track sales to different markets and helps to identify potential. Improvements in infrastructure have created opportunities and the alert marketer is ready to develop concepts to meet the changing and growing consumer needs in rural markets. The marketer can use mass marketing or niche marketing to tap this potential. With knowledgeable and discriminating rural buyers, the suitable approach is to have product variants, differentiation and multiple brands.

References Banerjee, Gargi. 2006. ‘Banking the Hinterland’, Businessworld, 11 September. Businessworld. 1997. ‘Boom Time in Backwaters’, 28 February. Census of India. 2001. Census of India 2001. March. New Delhi: Office of the Registrar General and Census Commissioner of India, Government of India. Chapter 1, Introductory Note, at http://www.censusindia.net/data/ chapter1.pdf, accessed 25 July 2007. Census of India. 2003. Census of India 2001. April. New Delhi: Office of the Registrar General and Census Commissioner of India, Government of India. Table H-1 India and Table H-4 (Appendix) at http://www.censusindia. net/2001housing/S00-001.html, accessed 25 July 2007. Central Statistical Organisation. 2003. Statistical Abstract India 2003. New Delhi: Ministry of Statistics and Programme Implementation, Government of India. Challapalli, Sravanthi. 2005. ‘The Great Rural Goldrush’, at http://www.blonnet. com/catalyst/2005/08/04/stories/2005080400180100.htm, 4 August 2005, accessed 1 February 2006. Dobhal, Shailesh. 2005. ‘The New Rural Consumer’, Business Today, 30 January. GeoHive. 2007. Current World Population (ranked), at http://www.xist.org/ earth/population1.aspx, accessed 21 August 2007. Ghosh, Partha and Payal Verma. 2003. ‘TV Firms Gear up for Rural Market’, at http://inhome.rediff.com/money/2003/nov/22spec2.htm, November, accessed on 26 October 2006.

Rural Marketing: Opportunities and Challenges

39

Gothivarekar, Nutan. 2003. ‘Rural Market Waits to be Tapped by Drug Industry’, The Economic Times, 5 March. Guha Ray, Shantanu. 1998. ‘The Great Rural Bazaar’, at http://www.rediff.com/ business/1998/aug/25rural.htm, 25 August 1998, accessed on 6 February 2006. India Brand Equity Foundation (IBEF). 2004. ‘How Coca Cola Conquered Rural India’, at http://www.ibef.org/artdisplay.aspx?cat_id=496&art_id=4489, 13 December, accessed on 24 April 2006. Jha, Mithleshwar. 1999. ‘Rural Marketing: Some Conceptual Issues’, Rural Scan, April, 1(2): 5–8. Kant, Krishna. 2002. ‘Even Cement Companies Bet on the Rural Sector Now’, The Economic Times, 5 May. Law, Vivek. 2000. ‘Rural India Rings a Bell for Mobile Majors’, The Economic Times, 21 December. NCAER. 2003. India Market Demographics Report, 2002. New Delhi: National Council of Applied Economic Research. Paul, Mahuya. 2001. The Economic Times, 6 November. Premsingh, Manika. 2004. ‘Country Cousins Still Don’t Own Enough Durables’, The Economic Times, 10 August. Sangani, Priyanka. 2006. ‘Godrej Sara Lee Eyes Rural Market’, Business Standard, 6 September. Shukla, Archana and Pallavi Srivastava. 2006. ‘Confessions of a Rural Marketer’, Business Today, 13 August. Sivaramakrishnan, K.C. 2002. ‘Turning Urban, Staying Rural’, The Hindu, 27 February.

40 Rural Marketing

2 Profi le of the Rural Market The attractiveness of the rural market is its size. The number of individual consumers and households in rural markets is compared with that in the urban markets. The demographic profile indicates the heterogeneity of rural consumers in terms of occupation, income and literacy. The literacy levels are also examined by gender and the variations observed suggest a two-level segmentation of rural markets. The market volume is also examined in terms of consumption expenditure. The per capita consumption expenditure and also the total consumption expenditure are compared between the rural and urban markets. The consumption levels between the rural and urban markets are examined for both markets. The size of rural markets, demographic profile of the rural market and market volume help us to draw a broad mental picture of the rural markets. The number of villages, population and the number of households indicates the market size. The demographic profile of the rural market is described in terms of household size, sex distribution, literacy levels, occupation and income.

Market Size The number of villages, population and number of households captures the rural market size.

Profi le of the Rural Market

41

Physical Coverage The number of villages in India is more than .64 million. The number of villages or locations that are to be served is 124 times that of the urban markets as the number of urban locations or towns is 5,161 (Table 2.1). TABLE 2.1 Number of Towns and Villages in India Item

Year

Number

No. of towns No. of villages

2001 2001

5,161 *640,000

Source: Census of India, 2001. Note: * Approximate

The large population and number of households suggest a large potential in the rural market (see Table 2.2 and Table 2.3). TABLE 2.2 Population Distribution in Urban and Rural Regions (In millions) Year

1971

1981

1991

2001

All India Urban Rural

548 109.1 438.9

683 159.1 523.9

846 217.4 628.6

1029 286.1 742.9

Source: Central Statistical Organisation, 2004a.

The large number of villages indicates a widely spread out market and it is a challenge for the marketer to service this dispersed market.

42 Rural Marketing TABLE 2.3 Households and Houses Over Time in Rural Regions (In million) Year

No. of Households

No. of Occupied Residential Houses

1971 1981 1991 2001

79.6 90.9 111.6 138.27

72.7 86.1 107.9 135.1

Source: 1. Central Statistical Organisation, 2004b. 2. Census of India, 2003.

Demographic Profi le of the Market The demographic profile of the rural market is captured by the household size, sex distribution, literacy level, occupation and income (Table 2.4). TABLE 2.4 Household Size and Sex Distribution Item Average household size Average no. of adults per household Average no. of children per household Sex ratio (no. of females per thousand males)

Rural

Urban

5.07 3.25 1.82 951

4.43 3.11 1.32 901

Source: National Sample Survey Organisation, 2005.

Literacy Rate Literacy rate is available from National Sample Survey (NSS) 60th round ( January–June 2004), listed in Table 2.5. The rural markets have lower levels of literacy as compared to the urban markets.

Profi le of the Rural Market

43

TABLE 2.5 Literacy Rate by Geography and Gender (In percentage) Location

Male

Female

All

Rural Urban

72 88

49 75

61 82

Source: National Sample Survey Organisation, 2005.

The difference in literacy between the rural and urban markets is much more among the female population than the male population. The reach of the print media in rural markets is therefore limited; and this is more so for the female population when compared to the male population.

Occupation The details on occupation are available from National Sample Survey (Table 2.6) and NCAER data (Table 2.7). Although majority of the rural population is employed in agriculture, yet a large percentage of more than 30 per cent employed is in the non-agricultural sector. Salary earners in the rural areas are a significant group with more than 11 per cent of the head of the households as salary earners (Table 2.7). About 50 per cent of the rural population is TABLE 2.6 Distribution of Households by Occupation in Rural India (Nos. per thousand households) Occupation Self-employed in non-agriculture Agricultural labour Other labour Self-employed in agriculture Others

July 2000–June 2001 (NSS 56th round)

January–June 2004 (NSS 60th round)

145 267 110 368 110

144 274 89 356 135

Source: National Sample Survey Organisation, 2005.

44 Rural Marketing TABLE 2.7 Distribution of Households by Occupation of the Head of the Household (1999–2000) (In per cent) Households Occupation of Head of Household

Urban

Rural

All

Housewife Cultivator Wage earner Salary earner Professional Artisan Petty shopkeeper Businessman Others Total

0.84 3.45 20.93 40.72 3.59 6.90 16.05 3.68 3.85 100.00

1.01 40.86 35.28 11.28 0.73 3.41 4.97 0.46 1.98 100.00

0.96 29.99 31.22 19.84 1.56 4.42 8.19 1.40 2.52 100.00

Source: NCAER, 2003.

self-employed. The income stream for the self-employed differs from those working for others. The labour constitutes more than 35 per cent of the population and their income is on daily basis. In addition to designing suitable pricing, the marketer needs to design suitable product and also delivery channels to take into account the variations in the rural market. The need for segmentation and targeted marketing strategy is clearly indicated.

Income It is short-sighted to view rural markets as an extension of urban markets. The issue facing the rural marketer is not of adequate consumers who can afford what the urban market consumes. The situation, instead, requires the marketer to identify and reach out to consumers with offers that meet variations in their ability to purchase. In rural India, about half the households are in the income category of less than Rs 35,000 per annum but more than 17 per cent

Profi le of the Rural Market

45

of the households have annual income that exceeds Rs 70,000 per annum (see Table 2.8 and Figure 2.1). TABLE 2.8 Distribution of Households by Income (In per cent) Annual Income (Rs) at 1998–99 Prices < = 35,000 35,001–70,000 70,001–105,000 105,001–140,000 >140,000

Income Class

1992–93 Urban

Rural

1998–99 Total

Urban

Rural

Total

Lower 38.4 65.5 58.2 19.0 Lower Middle 33.0 22.6 25.4 33.8 Middle 16.1 8.2 10.4 22.6 Upper Middle 7.6 2.3 3.7 12.2 High 4.9 1.4 2.3 12.5 Total 100.00 100.00 100.00 100.00

47.9 34.8 10.4 3.9 3.0 100.00

39.7 34.5 13.9 6.2 5.7 100.00

Source: NCAER, 2003.

FIGURE 2.1 Distribution of Households by Annual Income 3% < = 35,000

4%

35,001 70,000

10% 48% 35%

70,001 105,000 105,001 140,000 >140,000

This distribution pattern is true for the north and south regions. In the eastern region, the number of households with less than Rs 35,000 income is more than 50 per cent and those with income over Rs 70,000 is 11 per cent. In contrast, in the western region only about a third of the households are with income of less than Rs 35,000 and more than one fourth households have income exceeding Rs 70,000 per annum (see Table 2.9).

46

Rural Marketing

TABLE 2.9 Distribution of Households by Income and Region (Percentage) Annual Income < 35,000 35,001–70,000 70,001–105,000 105,001–140,000 >140,000 Total

North

South

East

West

46.50 34.89 10.84 4.01 3.76 100.00

49.17 34.76 10.14 3.71 2.21 100.00

57.97 30.97 6.90 2.28 1.89 100.00

34.14 40.44 15.17 6.03 4.21 100.00

Source: NCAER, 2003.

Income Distribution by Occupation The data for income distribution by occupation is available from NCAER (Table 2.10). TABLE 2.10 Income Distribution by Occupation Income Class Occupation of Head of Household

Lower

LowerMiddle

Middle

UpperMiddle

High

All

Housewife Cultivator Wage earner Salary earner Professional Artisan Petty shopkeeper Businessman Others Total

33.43 39.33 61.26 23.93 12.60 41.11 35.91 1.12 37.03 44.74

38.18 36.64 31.41 39.28 24.33 36.87 38.74 5.19 31.34 34.88

18.32 13.02 6.36 22.01 22.90 17.64 16.14 30.00 20.76 12.36

7.43 5.76 0.69 8.40 20.81 3.12 5.58 33.72 7.85 4.47

2.64 5.26 0.28 6.38 19.37 1.25 3.63 29.97 3.01 3.56

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Source: NCAER, 2003.

The profile indicates lower literacy levels and lower income with agriculture as the main occupation. A small percentage of the rural population includes businessmen, professionals and wage earners who are in the middle income or the higher income groups. Slightly less than one-fourth of the cultivators are

Profi le of the Rural Market

47

in the middle and higher income groups. The middle and highincome groups in the rural areas are the high potential consumers and these total more than 17 per cent of the population. The middle-income and high-income group constitute 47.3 per cent of the urban population, but in terms of number the group is 135.3 million in size. In rural areas, the population in this group is 128.5 million. The potential in the rural market is, therefore, close to that of the urban market in terms of middle and highincome groups. The income distribution suggests two distinct audiences for communicating with in rural India: (a) the rural rich, and a set of educated middle class with exposure to mass media and purchasing power; (b) a vast majority of illiterate and poor and who cannot be easily reached through mass media (Rajan, 2005).

Market Volume The market volume is an indication of the market attractiveness and this is influenced by the market size and also the market profile. The large population and increasing incomes make the rural markets an attractive proposition for marketers. The market volume is captured by the consumption expenditure. The ownership of consumer durables is useful in understanding market volume; and in the case of consumer non-durables the consumption expenditure pattern is a useful measure of market volume.

Consumption Expenditure Rural-urban Differences in Consumption Expenditure The all-India average monthly per capita expenditure (MPCE) is Rs 565 and Rs 1,060 for rural and urban areas respectively (see Table 2.11). Thus, the average MPCE for urban areas at the all India level is 88 per cent higher than that in rural areas.

48 Rural Marketing TABLE 2.11 Per Capita Consumption Expenditure Monthly Per Capita Expenditure (Rs) Item Group Cereal and cereal substitutes Pulses and their products Milk and milk products Edible oil Egg, fish and meat Vegetables Fruits Sugar and salt Spices Beverages, refreshments and processed food Food total Paan, tobacco and intoxicants Fuel and light Clothing and footwear Education Medical Misc. consumer goods Misc. consumer services Rent Taxes and cess Durable goods Non-food total All items

Rural

Urban

103 17 48 26 19 33 10 13 12 24 305 14 54 45 16 35 32 40 3 1 19 260 565

106 23 83 38 28 44 23 16 15 65 441 16 96 74 69 58 71 132 55 10 38 619 1060

Source: National Sample Survey Organisation, 2005.

For rural India, the average MPCE of Rs 565 comprises Rs 305 for food and Rs 260 for non-food items . Share of food in total expenditure is 54 per cent in rural areas and 42 per cent in urban areas. Expenditure per person on cereals and cereal substitutes is not very different for rural and urban households. For all other item groups, the urban figure is higher than the rural figure. The differential is highest for rent—Rs 3 for rural compared to Rs 55 for urban. The differential is also high for education—Rs 16 for rural compared to Rs 69 for urban India. For consumer services, per capita urban consumption is more

Profi le of the Rural Market

49

than three times the rural figure (the urban figure is Rs 132 against the rural figure of about Rs 40). For most of the food groups shown in Table 2.11, the per capita urban spending is within Rs 5 to Rs 15 of per capita rural spending. The exceptions are ‘milk and milk products’ (Rs 48 for rural and Rs 83 for urban), fruits (Rs 10 for rural and Rs 23 for urban) and ‘beverages, refreshments and processed food’ where the urban figure is 2.6 to 2.8 times the rural (Rs 25 for rural compared to Rs 65 for urban). The consumption expenditure gap between urban and rural India has widened. The urban consumers spend about 88 per cent more than the rural consumers according to the 60th round survey report of the National Sample Survey Organisation ( January–June 2004). In the previous round of the survey ( January–December 2003), the gap between spending was 85 per cent, with average monthly per capita consumer expenditure of Rs 1,022 in the urban areas and Rs 554 in rural areas. One part of the reason for the wide gap is the difference in price levels in rural and urban areas. On an average, the price levels in urban areas are assumed to be 15 per cent higher than in the rural areas. If the urban spending were adjusted for the difference in price levels, the gap would narrow to about 63 per cent. Also, the relatively bigger rise in consumer spending in urban areas at 3.7 per cent, from the previous round of the survey, compared to 2 per cent rise in rural areas has widened the gap between rural and urban spending (The Economic Times, 2005).

Use of Consumer Durables Rural consumers exhibit a skewed use of consumer durables possibly reflecting the lack of suitability of the current products available in the market. The rural consumers require products suited to their needs. Rewards await the marketer willing to invest in understanding their needs and translating them into products and services. Rural markets, with a share of 71 per cent of the population, own about 54 per cent of the total stock of consumer durables.

50 Rural Marketing The opportunity for marketers of durables is present as the average number of durable goods owned per rural household is only 3.84 compared to 8.19 in urban areas. The use pattern, however, is skewed. For instance: More than half the rural households own bicycles and mechanical wristwatch. About 49 per cent of the rural households have radios or transistors. Of the 22 durables examined in a study by NCAER, 10 had penetration levels above 10 per cent. The ownership of these durables is given in Table 2.12. A barrier to adoption of a number of consumer durable goods that require electricity to operate, is the lack of electricity in many rural households. Thirty-seven per cent of the rural-urban difference in the penetration levels for consumer durable products is explained by the lack of the spread of electricity in rural areas.

Expenditure on Consumer Non-durables The estimated market size of a basket of 22 products for rural markets was Rs 415.5 billion in 1998–99 at 1995–96 prices compared to Rs 371.3 billion for urban markets. In 1995–96, the market for the basket of goods in rural area was Rs 378.6 billion and for urban areas it was 292.5 billion. The rural buyers consume certain non-durable products regularly, and this buying behaviour reflects their lifestyles. The rural household spends, on an average, Rs 3,384 per year for 22 consumer non-durable products that include toiletries, cosmetics, packaged foods, washing products, etc. The urban households spend on an average Rs 7,559 a year for the 22 consumer non-durables. The average expenditure among rural households in the eastern region was the lowest at Rs 2,744; and in the western region, it was the highest at Rs 4,060 per annum for the 22 consumer non-durables. The rural household in the lowest income group spent Rs 2,639 a year and the highest income group spent Rs 9,381 a year (see Table 2.13 and Figure 2.2).

Profi le of the Rural Market

51

TABLE 2.12 Ownership of Durables (Per 1,000 households) Product

Rural (1998–99)

Bicycle Cassette Recorder Electric Iron Fan (Ceiling) Fan (Table) Geyser (Instant) Geyser (Storage) Mixer/Grinder Motorised 2 Wheeler (Moped) Motorised 2 Wheeler (Motor Cycle) Motorised 2 Wheeler (Scooter) Pressure Cooker Pressure Pan Radio (Portable) Refrigerator Sewing Machine TV (B&W) TV (Colour) VCR/VCP Washing Machine Wrist Watch (Mechanical) Wrist Watch (Quartz)

605.8 246.1 109.2 280.3 177.7 0.5 0.7 43.9 24.2 28.1 29.0 178.1 4.3 491.6 34.6 71.1 195.5 48.4 2.8 9.8 823.9 400.9

Source: NCAER, 2003.

TABLE 2.13 Expenditure per Household for 22 Consumer Non-durables by Income Group Income Group < 35,000–L 35,001–70,000–LM 70,001–105,000–M 105,001–140,000–UM >140,000–H Total Source: NCAER, 2003.

Expenditure per Household (Rs) 2,639 4,176 5,846 8,158 9,381 3,921

52 Rural Marketing

Expenditure

FIGURE 2.2 Expenditure per Household for Non-durables 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000

40

1–

>1

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