CHAPTER 1: Introduction To Rural Marketing

1.1 Definitions Marketing: Identifying needs of customers and potential customers, providing products/services that satisfy these needs and developing efficient processes or systems to deliver your product/service to the market when, where and how consumers want it. Rural marketing: Can be defined in terms of the location (villages) and occupation (mainly farming) A large variety of transactions are considered a part of rural marketing These are marketing of: 1. Agricultural inputs like fertilizers. Pesticides, farm equipment. 2. Products made in urban centers and sold to rural areas like soaps, toothpastes, TVs etc. 3. Products made in rural areas sold to urban centers like khadi cloth, handcrafted products etc. 4. Products made and sold in rural areas like milk and milk products. Locally manufactured toothpowder, cloth etc. *We are going to concentrate only on point numbers 1. And 2. Types of rural markets RURAL R U R A L From U R B A N 3 (FMCGs, durables Services, AgriculturalInputs) 4 To URBAN

*We are concentrating on Block 3

Definition of a Rural Area (by planning commission, Insurance Regulatory Development Association {IRDA}): That which is not urban Population of less than 5000 At least 75% of the male workforce is engaged in agricultural activities Absence of a municipality/ corporation Density of population is less than 400 per sq km It is important to remember that a definition for a rural area does not exist, so the definition that is used is the exact opposite, of the definition of an urban area. 1.2 Rural Population Population of India Rural v/s Urban Population % In To Crores total Year Rural 1971 43.9 197 1 80 20 100 Population % In To Crores total 1981 50.2 15.62 65.82 198 1 76.3 23.7 100 Population % In To Crores total 1991 64.1 20.3 84.4 199 1 76 24 100 Population % in To Crores total 2001 74 29 103 2001 73 27 100

Urban 10.91 Total 54.8

A perspective: Total world population: 6 Billion Rural population in India: 740 million, which is 12.6% of world population. Urban population in India: 290 million, which is 4.4% of world population. 1.3 Hurdles and constraints vis--vis marketing 1.3.1 Deprived people and deprived markets: The number of people below the poverty line has not decreased in any appreciable manner. Thus, poor people and consequently under developed markets characterize rural markets. A vast majority of rural people is tradition bound and they face problems like inconsistent electrical power, scarce infrastructure, and unreliable telephone system, politico-business associations that hinder development efforts. 1.3.2 Lack of Communication Facilities: Even today most villages in the country are inaccessible during the monsoons. Moreover 3 lakh villages in the country have no access to telephones. Other communication infrastructure is also highly under developed.

1.3.3 Transport: Many rural areas are not connected by rail transport. 50% of the roads have been poorly surfaced and majority are severely damaged by the monsoons The use of bullock carts is inevitable even today Camel carts are used in Rajasthan and Gujarat in both Rural and Urban sectors Out of the 15 million carts 12 million are estimated to be in the rural areas transporting as much as 6 billion ton KM of freight per year 1.3.4 Many Languages and Dialects: The number of recognized languages is 16; the dialects are estimated to be about 850. The languages and dialects vary from state to state, region to region and probably from district to district. Since messages have to be delivered in the local language it is difficult for marketers to design promotional strategies for each of these areas. Facilities such as phone, telegram and fax are less developed in villages adding to the communication problems faced by marketers. 1.3.5 Dispersed Markets: Rural populations are scattered over a large land area. And it is almost impossible to ensure the availability of a brand all over the country. 7 Indian states account for 76% of the countries rural retail outlets. District fairs are periodic and occasional in nature. Manufacturers and retailers prefer such occasions as they allow greater visibility and capture the attention of the target audience for larger spans of time. Advertising in such a highly heterogeneous market is also very expensive. 1.3.6 Low per capita Income: Even though about 33% to 35% of the GDP is generated in rural areas it is shared by 74% of the population. Moreover demand in rural markets depends on the agricultural situation, which in turn depends upon the monsoons. Therefore the demand is not stable or regular. Hence, the per capita income is low in Villages compared to urban areas. 1.3.7 Low levels of Literacy: The levels of literacy are lower compared to urban areas. This again leads to a problem of communication in these rural areas. Print medium becomes ineffective and to an extent irrelevant since its reach is poor. 1.3.8 Prevalence of spurious brands and Seasonal Demand: For any branded product there are a multitude of local variants, which are cheaper and hence more desirable. Also due to illiteracy the consumer can hardly make out a spurious brand from an original one. Rural consumers are cautious in buying and their decisions are slow they generally give a product a trial and only after complete satisfaction do they buy it again. 1.3.9 Different way of thinking:

There vast difference in the lifestyles of the people. The choice of brands that an urban customer enjoys is not available to the rural customer, who has usually 2 3 choices. As such the rural customer has a fairly simple thinking and his decisions are still governed by customs and traditions. It is difficult to make them adopt new practices. 1.3.10 Distribution problem: Effective distribution requires village level shopkeeper, taluka level wholesaler/ dealer, district level stockist/ distributor and company owned depot at state level. So many tiers increase the cost of distribution. Rural markets typically signify complex logistical challenges that directly translate into high distribution costs. Also there is relatively slower growth of demand and lack of adequate institutional mechanism for retail operations. Bad roads, inadequate warehousing and lack of good distributors pose as the major problem to marketers. Area Under Cultivation 70% for food crops - Food security - 50% retained for self consumption by farmer 30% for non- food crops (cotton, sugarcane etc.) - Entirely marketed - Generates disposable income The above pattern shows that the Indian farmer is extremely food security oriented and is not willing to allocate more than one-third of his land to growing cash crops, which generates additional income for him. Whereas in countries of America and Europe the farmers use most of their land for cash crops and hence they have greater incomes. Monsoon and Food grain Production Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 Rainfall (% of normal) 93 100 110 100 103 102 105 96 92 Food-grain output (million tones) 179 184 191 180 199 192 203 209 196

2001 98 212 2002 (drought year) 81 184 It is observed that in the drought year along with low rainfall food grain output has also decreased. 2003-projected 96% rainfall, the normal figures are between 98% and 102% Grain Pain: - Public investment in agriculture has been stagnant for the past 10 years - Indian farmers are grappling with problems of declining soil fertility and water salinity and the rise of complex pest pathologies. Poor agricultural growth leads to: - Fall in rural incomes - Higher food prices reduce consumers purchasing power - Even Non-agricultural GDP falls (due to last years drought, non-farm GDP decelerated) 1.4 Characteristics of rural markets Out of the total 6,30,000 villages in India less than 500 people live in 50% of these villages 40% (300 mn) live in 7% (50,000) villages Only 1% (6300 villages) have more than 5000 people Owner/ farmers constitute 34% of the house hold sectors in rural India and they account for 65% of TV purchases Even though literacy levels are on the rise in rural India it is of limited meaning in terms of marketing as by definition literate people can only sign their names Economic Status The average household income of the urban population (Rs.36,000p.a) is thrice that of the rural (Rs.12,000p.a). According to NCAER (National Council of Applied Economic Research) the lower income group (<70,000) will shrink by 55% in 2006-2007 and upper income groups (>1,40,000) will double in 2006-2007 The aspirants, lower middle and middle class are the largest segment and are the largest base for durables and FMCG goods The well off segment like the wheat farmers in Punjab are as of today a negligible base The destitute i.e. the lowest income group have a very low purchasing power. % Of per capita expenditure on food in the rural area is 61% as compared to urban which is 50% For other items it is: FMCG 15% (URBAN) 10% (RURAL) Durables 5% 3%

Demand The demand for goods is irregular as it is seasonal and agriculture dependant It depends on the harvest periods. Their cash flows are better after harvest. It is festival and marriage linked. For e.g. The demand for sweets would go up during Durga pooja in villages in Bengal. Companies like Heinz use festivals to sponsor pandals at various pooja sites and indirectly promote their products.

1.5 Changing Scenario The table below is indicative of a move from an agrarian to a service economy: Component Agriculture Industry Services 1981 38% 21% 41% 1992 32% 27% 41% 1995 29% 29% 42% 2000 26% 22% 52%

Aspirations to improve lifestyles with increased purchasing power and disposable incomes Growth in demand for durables, services Bank branches, schools, primary health centers at nodal points Government focus on rural development (outlay of Rs.45,000 cr in 9 fiveyear plan from Rs. 14,000 cr. In 7th five year plan) Rural markets growing at five times the rate of urban market especially category III durables. Marketers efforts New employment opportunities (IRDP :Integrated rural development program, Banks) Green, white revolution, WTO removals of quantitative restriction for exports of food produce. Improved penetration of mass media has resulted in creation of awareness among rural consumers. (Press, TV, hoardings, radio etc.) Increased Food grain Production Green revolution Scientific methods, increased crop yields 200 million tones if food grains P.a. Increased exports of Indian agricultural produce because of WTO support Increased rural purchasing power Government Initiatives

 Self sufficiency (Operation Flood, white revolution; blue revolution) Integrated Rural Development Programme (IRDP); TRYSEM (Training Rural Youth for Self-Employment); REP (Rural Electrification Programme) REP gave impetus to consumer durables industry, it also aims at having electricity in almost all villages by 2010 PSU and Co-op banks lend farmers (with Kisan credit card by Canara & Andhra bank, a person can borrow up to 50,000 with these credit cards.) Co-operatives and corporate support Amul, Campco (initiated co-operative movements) Contract Farming: companies give High Yielding Variety HYV seeds and tied up with farmers to cultivate crops and sell them back to the company. $ 2billion World Bank loans in this fiscal year The World Banks first loan of $ 150 million for 2003-04 will go to the Andhra Pradesh rural poverty reduction project it is expected to benefit 2million Households. District poverty initiative started in 2000 includes an expansion of the geographical area from six districts to the entire state and a sharper focus on poorer and more vulnerable rural consumers for sectors like power, road, and poverty reduction. 1.6 Distinctive features of rural markets vis--vis urban markets Features Demand pattern Spread Literacy level Per Capita Income Awareness of needs | Infrastructure Sources of information, communication Supply Product info guidance Consumer Protection Rural Seasonal Scattered Low Low Not entirely known Poor Word of mouth personal/ direct selling, TV, radio, unconventional media Erratic, untimely Needed No awareness Urban Uniform Concentrated Moderate Moderate Known Moderate All Timely Adequate Increasing awareness

1.7 Are Rural markets an opportunity? Green revolution has highly increased the disposable income of farmers, there are many farmers in high income group Purchasing power has increased tremendously (Administered price mechanism APM) ensures that the farmers get the correct/fixed prices for their produce through the government.(usually for cash crops) In addition

to this when the farmer wants to buy inputs like fertilizers, the govt. gives it to him at a fixed price. Vast size- Majority of Indias population still lives in villages (Demand Base) A growth rate of 3-4% adds 1 million rural consumers every year Steep rise in support price of paddy, wheat 10 consecutive good monsoons (except 2001-2002) so increased income

1.8 Rural Demand Pattern Rural product portfolio Category I II III (Items costing more thanRs.6,000) CTV (S) CTV (R) VCRs VCPs Scooters Mopeds Motorcycles Refrigerators Washing machines

Pressure cookers 2 in 1 (mono_ Pressure pans 2 in 1 (stereo) Mono cassette recorders B & W TV (S) Bicycles B&W TV (R) Wrist watches (mech) Instant geysers Wrist watches (Quartz) Storage geysers Radio/ transistors Sewing machines Electric Irons Vacuum cleaners Ceiling fans Mixer/ grinders Table fans SOURCE: NCAER (Economic Times)

CTV sales 65% in rural India Rural share of durables about 60% (esp. bicycles, wrist watches, radios/ transistors) Share of category I is declining and II and III is increasing. Purchase of goods under category III has increased by 25 % over the previous year, category II has increased by 15% and category I by 3% Preference for brands Segment % of consumers who preferred branded items Necessity/ pop ular < 40% 40 80% >80%

Coconut oil

Iodized salt Tea Washing cakes Biscuits Blues (neel)

Toilet soaps Washing powder Analgesics Toothpaste Razor blades

Premium

Refined oil

Hair oils Bulbs

Shampoo Batteries Rubs, balms Skin cream Toothbrushes Antiseptics Chyavanprash Digestives Mosquito repellents Shaving creams Tube lights

Of The 740 Million rural consumers realistically about 200 million have the propensity to spend. However, it is claimed that disposable incomes in higher income classes in rural areas is higher than in urban areas since many services such as housing, health and education (leaving quality issues aside) cost far less.