RURAL MARKETING

Service Innovations for Rural Markets

Rural India, with a population of over 740 million spread over 640,000 villages, offers as much potential for goods and services as the urban markets. While FMCG marketers have been quick to seize this opportunity and have already made significant inroads into rural markets, their services counterparts have a lot of catching up to do. This article examines the potential offered by rural markets for services, strategies to be adopted by services marketers for being successful in rural markets, and success stories of some of the early movers.

The services sector contributes close to 60% of India's GDP, and has evolved as the major sector of the Indian economy. Marketing of services requires a totally different approach as opposed marketing of tangible goods, the nuances of which marketers are still trying to master. Their efforts in reaching out to rural markets have been more by way of trial and error.

What are Rural Markets?

While there are several definitions, the one which is widely accepted is "those markets which are not urban." This includes both rural and semi-urban markets. For the sake of clarity, a village is defined as a revenue unit with a population less than 5000. (Some villages have a population as low as 200).

in India, there are 642,000 villages spread over an area of 3.5 million sq km. While agriculture used to be the major source of income in rural areas, over the past 10-12 years, the dominance of agriculture has been rapidly declining. The contribution of agriculture to India's GDP was less than 20% in 2008-09. There is a sizable population of self-employed persons in the hinterland and quite a few of them are into services such as repair and maintenance of motors and pump sets, televisions and other electrical appliances, farm equipment, tractors and two wheelers. Some are also engaged in other services like hospitality, transport, entertainment, etc.

The annual per capita income in rural India is about $550 per annum, which is half of that in urban India. However, the fact that 70% of India's population lives in rural areas makes the rural markets much larger in several product categories, as compared to the urban markets.

According to National Sample Survey (NSS), 35% of households in rural India are engaged in non-agriculture activities. This apart, a number of agro-based industries have been set up in rural areas, providing employment mostly to the local people.

Opportunities for Marketers

It is interesting to note that the FMCG sector has been growing at 18% in rural India, as compared to 14% in urban areas.

The following facts help us understand better, the increasing significance of India's rural markets:

 53% of FMCG sales happen in rural India.

 LIC sells about 50% of its policies to rural customers.

 The number of Kisan credit cards (which are close to 40 million) are the same as the number of credit cards held by urban Indians.

 Hero Honda had 50% of its sales coming from the rural market during the financial year 2008-09.

 Out of the 120 million bank accounts in India, 70 million are in rural areas.

As a result of the fast changing socioeconomic conditions in rural India, only 48% of the rural income is now contributed by the agriculture sector, the balance coming from services (including self-employment) and industry. Though the growth of agriculture has slowed down considerably (it has not been more than 2% in the past 10 years), the growth of rural NDP (Net Domestic Product) has been more or less the same as that of urban NDP at 6.5% per annum, which is a testimony to the increasing dominance of alternate avenues of income generation in rural India.

The reduced dependence of rural consumers on agriculture as a source of income, coupled with the steady growth of rural NDP, translate into the following opportunities for marketers:

 Consumers in rural markets are far more insulated from the wide fluctuations in disposable incomes caused by vagaries of nature than ever before, and their incomes are, not only stable, but growing at a steady pace. Accordingly, demand for goods and services in rural markets will also increase.

 Changing needs and aspirations of consumers who are more economically independent and relatively more mobile than the traditional farmers and farm labor will be the major drivers of demand for consumer goods in rural markets.

 Improved standard of living will result in increased demand for services, such as banking, communications, insurance, education, housing, health care, utilities and entertainment.

More significantly, agriculture economy and rural economy will no more be synonymous. As aptly put by Rama Bijapurkar and Omkar Goswami, "The age-old dominant picture of rural India _ that of highly indebted, underfed peasants ploughing their handkerchief-sized fields with emaciated bullocks under the blazing heat of the midday sun may still be true of the agricultural economy, but not of the rural economy."

Constraints and Challenges

Despite the huge potential offered by rural India, marketers entering the rural markets face the following challenges:

Lack of Basic Infrastructure

The majority of villages are still not accessible by road, particularly during the monsoon. Even those villages connected by road are difficult to reach due to the pathetic condition of the roads. More than 100,000 villages in India are yet to be electrified. Protected drinking water and cooking gas are still out of reach for the vast majority of villagers. Proper sewerage and drainage systems are as yet a distant dream for most of the villages.

Inadequate Marketing Infrastructure

No authentic data is available on the demand/consumption patterns of various categories of goods and services in rural markets. Unlike in urban markets, distribution of products in rural areas is indeed a difficult task due to lack of a well developed distribution system.

Ineffectiveness of Traditional Channels of Communication

Print media and electronic channels, which marketers traditionally depend upon, may not be adequately effective in rural markets due to low rates of literacy and greater reliance on word-of-mouth communications than one-to-many channels.

No Bulk Purchases

Rural consumers, the majority of whom earn wages on a daily/weekly basis, lack the capacity to buy in bulk and look for low-unit-price (LUP) packages of both goods and services.

Sociocultural Factors

Unlike in urban areas, the sociocultural bonds are very strong in rural areas. It is not uncommon to find each community living in a separate basti. Non-adherence to customs and norms of the community is viewed very seriously. Often, it is the community leaders who approve a new product before others start using it. Superstitions and irrational behavioral patterns pose added challenges to marketers, particularly for services such as healthcare and insurance.

How Services Marketers Can Win in Rural Markets

A good marketer converts all the threats and constraints into opportunities. Instead of waiting for government agencies to address the problems listed above, particularly for the creation of infrastructure which may take a long time, marketers should address these problems in a different way.

While it may not be possible for private players to invest heavily in infrastructure development, which is one of the prime responsibilities of the state, they can join hands with the government agencies through the PPP (Public-Private Partnership) route. This opens a window of opportunities in education, healthcare, housing, sanitation, etc. Commitments on the part of private players to this cause are certainly going to be huge in terms of time, money and other resources. While this may sound more idealistic than pragmatic, corporates with a sense of social responsibility may not outright reject such opportunities without subjecting them to normal investment analysis.

For instance, Microsoft India is participating in the roll-out of tele-center kiosks across 100,000 villages, with each kiosk serving a cluster of six villages. According to company sources, Microsoft is working with the government agencies and private sector companies including start-up companies, such as Comat, for setting up such kiosks. The company has already invested $20 mn over the last four years in rural India on "programs to transform education systems, foster local innovation and enable job opportunities," and is committed to investing a similar amount in the next four years.

Rural Markets as a Pure Business Opportunity

Before going into the details of strategies and tactics for winning in rural markets, one should not harbor the wrong notion that marketers entering rural markets are doing the rural consumers a big favor. On the other hand, they are doing a favor for themselves and their stakeholders by being present in rural markets. This is because rural markets have a huge untapped potential, unlike urban markets which are showing signs of saturation. Anyone ignoring such a large market, citing reasons such as lack of marketing infrastructure and consumers who are not mature enough, is no better than an ostrich that buries its head in sand, being oblivious to what is happening around.

As such, the concept of holistic marketing does not approve of marketers taking decisions that are guided solely by the profit motive. Prudent marketers first take care of the unmet needs of their customers, for which they may be required to make some idiosyncratic investments, the returns on which will follow in due course. Rural customers, whose needs are taken care of by marketers, not only become their loyalists for a life time, but will also be instrumental in influencing a number of others to patronize their goods and services; and this, is the ultimate objective of relationship marketing.

Some Success Stories

While rural initiatives such as ITC's e-Choupal, HUL's Project Shakthi and Basix's microfinancing are quite popular among rural folks, it will be interesting to look at the way some other enterprising organizations ventured successfully into rural markets through their innovative strategies.

Hindustan Petroleum

One of the major constraints faced by cooking gas companies in penetrating rural markets is the high cost of logistics. In spite of the huge potential, the business model that worked for urban markets could not be replicated in rural areas, as the customers were spread out thinly across a vast area and quite a few of the villages were not accessible by road. While supplying gas in mini (i.e., low unit price) cylinders was uneconomical for the gas companies, consumers on the other hand lacked the financial capability to pay for large cylinders.

HPCL (Hindustan Petroleum Corporation Ltd) overcame this problem by setting up the rasoi ghar (community kitchen). Rasoi Ghar is established in a puccahouse, with six to eight gas stove stations, and a meter to record the usage of gas, allowing several villagers at a time to cook their daily meals comfortably, safely and quickly, and pay on the basis of their actual usage (Exhibit 1). The hourly charge is as low as Rs. 6. Village panchayats and women's Self Help Groups (SHGs) in rural areas are roped in as franchisees. The first rasoi gharwas set up in 2002, and as of now, rasoi ghars are operational in over 1500 villages, benefiting 20,000 households. Though the progress so far has been rather slow, mainly on account of the initial resistance to this novel concept by local bodies, HPCL is planning to speed up this project and establish rasoi ghars in 80,000 villages in India. This is an example of a simple but innovative solution to a problem that initially appeared to be insurmountable.

Comat Technologies

Companies that contribute to the betterment of society need not compromise on their financial viability.

Comat Technologies Pvt. Ltd., operating from Bangalore, proved this beyond doubt. Comat offers e-governance, satellite-based education services and retail insurance products to rural consumers in 10 different states in India (Exhibit 2). The rural business centers set up by Comat are primarily access points for rural people who have all along been `informationally disabled.' Technology is made use of to deliver these services, thereby improving the quality of life for the rural citizens.

The business model is quite simple. Government departments, educational institutions and insurance majors, like Life Insurance Corporation, make use of Comat's services to reach their services to rural clients. The principal service providers do not have to invest heavily on marketing infrastructure, which is taken care of by Comat, which charges a nominal fee from the villagers for the services rendered. This model has successfully adapted the outsourcing pattern prevalent in urban markets to rural India, with consumers being the ultimate beneficiaries in a win-win situation for all.

Google India

Google launched the Google Map Maker in India in August 2009, a tool to map small local businesses and help non-government organizations identify focus areas in semi-urban and rural locations.

The company is also test marketing another new application, a voice-based search that deciphers Indian accents. Once this service is launched commercially, users in India, particularly those in the hinterland, will be able to access Google's search capability by dialing a toll-free number, without the need for a computer. Such an innovative service will be a real boon for farmers and small traders in rural India, who cannot afford to have their own computers and lack the technical skills to access search engines through conventional means. In terms of reach and acceptability, this service will be far ahead of e-Choupals set up by ITC in select villages.

According to Prasad Ram, Center Head of Google India, "We came in with products and services attuned to developed markets and found that India had large numbers of semi-literate people who use phones and may not want to use computers."

Max New York Life Insurance Company

Max New York Life is launching a scheme tailor-made for consumers with cyclical income flows. The product, Max Vijay, being test marketed in Allahabad district, is targeted at low-income consumers. An initial payment of Rs. 1000 followed up with minimum premium amounts as low as Rs. 10, covers the policy holders against any eventuality (Exhibit 3). Even if a Max Vijay customer relocates to a different place in search of work, he can still make payments at collection centers such as local kirana (general merchant) stores and mobile phone recharge centers.

Between 15 to 18% of the company's total income is expected to come from non-urban markets in three years time, an indication of the ongoing shift in LIC's strategy. Max Vijay is ideally suited to rural and semi-urban customers whose cash flows are not regular and income levels comparatively low, as compared to that of urban customers.

Villgro Stores

Villgro is a rural retail chain for selling innovative products to rural consumers. After starting operations in January 2007 in TN Palyam, a small town near Gobichettypalyam in the Erode district of Tamil Nadu, Samruddhi (later on the name was changed to Villgro) has set up five more stores at different locations in rural Tamil Nadu.

The objectives of Villgro are to enhance livelihood assets of rural people through adoption of innovations, and to showcase a scalable and replicable model for marketing innovations.

Villgro primarily focuses on four sectors - agriculture, dairy, energy and water. The products offered are innovative in nature and in line with the objective of making innovations accessible to the end users.

The marketing model of Villgro focuses on Village Level Entrepreneurs (VLEs) who are named as Samruddhi Ammas and Samruddhi Ayyas. "VLE is the last mile access channel to scale up and market innovations at the grassroots level."

Some of Villgro's fast moving products include Oorja stoves, organic fertilizers for agriculture like Super Hume, Bio-Phos, Bio-Potash, Nemate, Megacal, etc (Exhibit 4). Each store covers a radius of 7-8 km and supports six to eight commission agents. It is retailing with a difference, which focuses on selling innovative products to the rural folk and, in the process, creating employment opportunities for local people.

Conclusion

The above examples establish beyond doubt that the marketing strategies designed for urban markets cannot be directly scaled down and applied in rural markets. A thorough understanding of the social, cultural and economic factors specific to rural markets will go a long way in formulating strategies that are tailor-made for rural consumers. With the gradual saturation of urban markets, marketers cannot any more afford to overlook the semi-urban and rural markets that account for a sizeable portion of the total amount spent by Indian consumers. Instead of complaining about lack of proper infrastructure, marketers need to come out with innovative solutions to overcome the unique problems associated with the rural markets. Adopting a long-term perspective, becoming partners in the social transformation process and offering cost-effective solutions are the three mantras for success in rural markets. Organizations that are quick to realize this will enjoy a distinct advantage over their competitors.

-- Shailendra Dasari 
Faculty Member, IBS Bangalore.
The author can be reached at 
shailendra.dasari@gmail.com

Reference # 10M-2010-04-04-01.