Rural Marketing Essay Example
Rural Marketing Essay Example

Rural Marketing Essay Example

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  • Pages: 16 (4200 words)
  • Published: November 8, 2017
  • Type: Business Plan
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The terms 'Rural' and 'Marketing' have varying interpretations, causing a lack of clarity in understanding rural marketing issues. This confusion often leads to ineffective diagnoses and recommendations. However, the Indian rural market is extensive and offers great potential for marketers. Rural areas are home to two-thirds of the country's consumers and contribute nearly half of the national income, making them a vital part of India's overall market.

Our nation is divided into approximately 450 districts and around 630,000 villages. These areas can be categorized based on literacy levels, accessibility, income levels, penetration, distances from nearest towns, etc. Although rural marketing and urban marketing share a basic marketing structure, rural markets have their own unique characteristics and challenges compared to urban markets. With the recent increase in rural incomes and the potential for further growth due to impro


ved production and higher prices for agricultural commodities, there is a great opportunity for concentrated marketing efforts in rural markets. The rural markets dominate the Indian marketing scene and require special attention to expand marketing activities and improve the lives and welfare of rural communities. Thanks to the development programs implemented under the five-year plans and other initiatives, the rural market now presents a vast untapped potential. Improvements in agriculture, health education, communication, rural electrification, etc have enhanced the lifestyles of the poor and illiterate, leading some market agencies to predict that rural demand will surpass urban demand in the near future.

Fast changing pattern and demand

The needs and requirements of rural consumers have experienced a quick transformation over the last decade. Initially, they sought low-end products for their basic necessities. However, due to technological advancements,

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people's preferences have evolved, leading to a shift towards luxurious products.

Large and scattered market

The rural market in India is incredibly vast, with more than 600 million people as its consumer base. This market is spread across different locations and is distinguished by its wide geographical dispersion.

India's market is both vast and geographically diverse, encompassing not only metropolitan cities but also countless villages. This scattered market stretches across 5,70,000 villages throughout the country. In terms of business generated, it is a significant market, with non-food consumer goods worth 22000 crore rupees being sold annually. However, it is crucial to recognize that rural India is not uniform; there are notable differences among states. A study conducted by IMRB sheds light on the varying conditions of rural areas in different states. This study gathers data on factors like health and education facilities, public transport accessibility, electricity transmission, banking services, post offices, water supply, and others to assess the development index points for each state.

The study found that each facility in every village was assigned a weight based on its importance in industry and level of development reached. The research indicated that the average development index points for Indian villages is 33, with Kerala having an average score of 88, Bihar averaging at 22, while MP, Rajasthan, and UP are similar to Bihar. Maharashtra, Haryana, and Karnataka range from 40 to 50.

Regarding the demand for various products, it is heavily influenced by agriculture and follows seasonal trends.

Despite the unpredictability of agriculture in many parts of India, which relies on monsoons, rural demand is not only dependent on harvests but also influenced by festivals that often align with the harvest

season. Furthermore, rural consumers in India exhibit considerable diversity shaped by religious, social, cultural, and linguistic factors. Despite facing various challenges, the rural market in India has consistently shown growth over time.

The data presented earlier shows that the market has experienced both quantitative and qualitative growth. New products have been introduced in the rural market, especially among upper segment consumers who are now purchasing a variety of consumer goods that were previously unfamiliar to them. It is no longer valid to believe that the rural market is restricted to traditional consumer products and agricultural inputs. The profile of rural consumers has undergone a change.

The table below displays the population size of India's rural consumer group at different time periods:
1971 - 43.4 crores (100% of total)
1981 - (Percentage data not provided)
1991 - (Population data not provided)

Based on the available data, it can be observed that currently, 76% of India's total population resides in rural areas. When examining state level statistics, several states including Uttar Pradesh, Madhya Pradesh, Rajasthan, and Kerala have a rural population exceeding 80%. On the other hand, Bihar and Orissa have a rural population comprising as much as 90% of their total populations.

Moving on to the characteristics of rural consumers, they generally possess traits such as low purchasing power, low standard of living, low per capita income, low literacy levels, and an overall low economic and social status.

Traditional factors such as religion, culture, and superstition greatly influence the consumption habits of rural consumers in India. To effectively compete with multinational corporations in the lower-end market segment, Indian brands provide Colgate Herbal toothpaste at reasonable prices. This includes a 50

gm tube priced at Rs. 12, a 100 gm tube priced at Rs. 2, and a 200 gm tube priced at Rs. 41.

The advertising campaign for the white Colgate cream variant is widely popular among rural individuals, focusing on technology and natural qualities rather than calcium content. The campaign highlights these characteristics through the character "Billoo".

In India, there are 570,000 villages where the rural population resides, while the urban population lives in 3,200 cities and towns. Statistics reveal that out of these 570,000 villages, only 6,300 have a population exceeding 5,000 people. Moreover, more than 55% of all villages (over 3 lakh) have a population of 500 or fewer individuals.

Around 25% of the total, or approximately 500,000 villages, belong to the category of having a population of 200 or less. This indicates that rural demand is spread out over a wide geographical area, in contrast to urban demand which is concentrated in specific locations. Colgate's success in dental care products exemplifies this phenomenon. Despite operating in rural areas with small populations (compared to densely populated regions where villages have an average of 5,000 residents), Colgate has established itself as the brand recognized for its tube enclosed in a red and white box. Consequently, they have maintained the same color scheme for their packaging for more than fifteen years.

The literacy rate in rural India is estimated to be 23%, while the overall country's rate is 36%. To address this issue, the government has implemented an adult literacy program specifically targeting rural areas. It is important to consider two aspects:

1) In terms of numbers, there are 11.5 crore literate individuals residing in rural India, compared to

12 crore in urban India.

2) Furthermore, the literate population in rural India is increasing by 60 lakh annually. This presents an opportunity for companies like Coco Care, which has successfully developed a marketing strategy focused on local languages prevalent in various Indian villages.

As an illustration, Coco Care utilized Marathi as their mode of communication for flyer distribution in Maharashtra. Analysis of income patterns among rural communities indicates that approximately 60% of their income stems from agriculture. Therefore, agricultural prosperity directly correlates with rural prosperity and discretionary spending capacity for consumers living in these areas.

Promoting agricultural prosperity will not only enhance the income levels of the rural population but also contribute to an increased spending capacity among them.

The dominance of agriculture in income patterns has an additional significance: rural demand is more seasonal. Additionally, statistics show that rural consumers have increasingly adopted the habit of saving in recent years. Commercial banks and cooperatives have been promoting saving habits in rural areas for a considerable period of time. Similarly, rural godowns, which make up the third tier, have also contributed to this trend.

None of these tiers act as public warehousing agencies; they only offer warehousing services to their members. Consequently, a business must either work with the CWC/SWC network that ends at nodal points or establish its own depots or stock points managed by stockists/distributors. However, by doing so, the firm loses the commercial benefits of using a public warehousing agency like CWC/SWC. Communication challenges arise due to inadequate communication infrastructure in rural areas, comprising posts, telegraph, and telephones. Insufficient communication infrastructure creates difficulties, especially in physical distribution, which is crucial for efficient marketing. These problems undoubtedly

impact the physical distribution efforts of any business entering the rural market, affecting both service quality and costs.

The challenge of maintaining service levels for product delivery at retail locations is highly difficult due to various factors. One major obstacle arises from the fact that rural consumers, who make up 80% of the population, reside in villages with populations of less than 1,000 people. This dispersion increases the costs associated with physically distributing products. Furthermore, the geographical distance between rural markets and urban production centers adds to difficulties in transportation, warehousing, and communication. Consequently, there are larger quantities of products stored in pipelines and warehouses, resulting in higher expenses for transportation, inventory carrying, and losses during transit and storage. Additionally, distribution channel costs are significantly elevated in rural areas compared to urban areas. Therefore, the average total distribution cost per unit is 50% higher in the rural market as opposed to the urban market.

The distribution cost is much higher in rural areas compared to urban areas, with some companies spending 2.5 times more. To address this issue, marketers must find cost-effective solutions that ensure satisfactory service for consumers. Collaborating with stockists or C&F agents who handle physical distribution tasks is one potential option for companies. However, relying solely on remote control marketing is not feasible for firms aiming to succeed in rural marketing. Merely depending on banks for managing goods and bill settlements falls short; establishing a robust market presence is essential.

While it may not be necessary to have our own network of stock points throughout the marketing territory, it is important for our firm to have a network of stockists or clearing cum forwarding agents

(C agents) at strategic locations. This will facilitate physical distribution, which can be shared by both the firm and the stockists. It can be advantageous to combine different modes of transportation. For long distance movement, a system of rail-cum-trucks can be used, while trucks can be used for medium/short distance movement. Delivery vans and bullock carts can effectively serve the purpose of local haulage. Water transport also has a role to play in specific areas. It is crucial for business firms operating in rural markets to recognize the significant role that bullock carts play in secondary transport.

They are ample in quantity and are suited for rural roads. Companies like Hindustan Lever, Tomco Brooke bond – Lipton, and ITC, who are pioneers in rural marketing in India, have successfully tested the use of company delivery vans to address distribution issues in the rural market. These vans transport products to retail shops in all corners of the rural market, resolving delivery problems and serving secondary purposes such as establishing direct sales contact with rural consumers and aiding in sales promotion. However, operating these vans is expensive.

The success of the proposition depends on the market's ability to generate enough business to cover associated costs. Companies like HLL and ITC recognized that sustained marketing efforts and a strong market presence were necessary to achieve this level of business. These companies had both the resources and determination to remain in the market. By using delivery vans, they not only solved transportation issues but also contributed to market development. They viewed the costs as a long-term investment. However, firms with fewer resources may struggle to implement this idea easily.

Syndicated distribution

offers a potential solution to these cases, as it allows firms to collaborate and support an independent agency that operates delivery vans. In this scenario, the delivery van functions as a syndicated service. Additionally, the company can receive assistance from stockiest who own or rent vans or trucks for distributing goods to retailers and dealers. The company may need to provide financial support for such projects. It is crucial for the Central Warehousing Corporations (CWC) and State Warehousing Corporations (SWC) to prioritize establishing suitable warehousing facilities in rural areas. Currently, CWC and SWC primarily focus their warehousing activities in major markets.

The smaller markets are managed by cash-strapped gram panchayats or Satellite municipalities. It is crucial to have adequate warehousing facilities in local markets. These facilities should be provided either by the government or by companies operating in specific regions. One possible solution is for a consortium of companies to collaborate and establish shared warehousing facilities. The cooperative rule can also contribute to ensuring good warehousing facilities in rural areas.

Sorting out communication problems in the villages can primarily be done by the government. The government needs to understand the significance of rural markets and the need for a network of post, telegraph, and telephones. There are instances of successful private telephone exchanges in certain areas, but their potential is limited. Recently, the government has taken steps towards corporate partnerships in printing and distributing postal and telegraphic materials.

However, the experiment of rural marketing doesn't seem to have gained popularity. Moreover, organizing an efficient distribution channel in rural markets is another significant challenge. Unfortunately, this task is also plagued with numerous distinctive issues.

Problems in Channel Management in rural

areas involve multiple tiers, resulting in higher costs and administrative issues. The distribution chain in rural areas requires more tiers compared to urban areas due to the long distances and scattered locations of consumers. At a minimum, the distribution chain in rural areas includes village level shopkeepers, mandi level distributors, and wholesalers/stockists in town. Additionally, manufacturers need their own warehouses/branches at selected centers in the marketing territory. This complex structure increases costs and poses challenges in channel management. Manufacturers have limited opportunities for direct outlets like showrooms or depots in the rural market, unlike in urban areas. Establishing and managing such outlets becomes expensive and challenging.

Dependence on intermediaries is increased in rural areas due to the lack of direct outlets, making it challenging to control such a vast network. Control is mostly indirect, requiring careful selection of channel members. Furthermore, the availability of suitable dealers is often limited, creating additional problems for many firms.

Even if the firm is willing to start from scratch and try out rank newcomers, the choice of candidates is extremely limited. The poor viability of the retail outlets in the rural market results in additional expenses for manufacturers on distribution. However, the retail outlets still find the business to be unprofitable. The scattered nature of the market and the chain's multiple tiers consume the manufacturer's additional funds, with no additional remuneration for any group. Furthermore, the business volume is insufficient to sustain profitability for all groups, with the retail tier being particularly affected.

In rural markets, the lack of sufficient banking and credit facilities negatively impacts the distribution process. In order to facilitate remittances and timely replenishment of stocks, as well as

receiving supplies through banks and securing credit, rural outlets require banking support. However, due to inadequate banking facilities in rural areas, the rural dealers face limitations in all these aspects. The current estimation indicates that there is only one bank branch available for every fifty villages.

Analysis indicates that many companies are hesitant to enter rural markets due to distribution issues. They perceive the cost of selling, transportation, sub-distribution, and outlet servicing as too high in rural areas. To effectively manage channels in the rural context, firms should consider the following approaches. The Indian rural market consists of 22,000 primary rural markets and 20 lakh retail sales outlets, including approximately one lakh fair price shops affiliated with the Public Distribution System.

One retail shop serves an average of 60 to 70 families in rural areas. The structure involves stock points in feeder towns to serve these retail outlets in the villages. The stock points are owned by either the manufacturer or the marketer/distributor for the specific area. Regardless of ownership, the stock point in the feeder town plays a crucial role in rural distribution.

Currently, there are several channel choices available in rural markets, including private shops, cooperative societies, Fair Price Shops (FPS) operated by either cooperatives or private entities, and village shandies or weekly markets. Cooperative societies primarily focus on distributing agricultural inputs, while FPSs are responsible for distributing essential commodities consumed by the general public. The "village shandy" is a popular channel in the rural market, although its effectiveness in marketing branded products is somewhat limited.

The Private Village Shops are the primary channel for a wide variety of consumer products in rural markets. They are not

only the cheapest option but also the most convenient for aligning with. In this regard, we will examine how business firms utilize these shops in their rural distribution effort. According to a census conducted by the Operations Research Group (ORG), there are 2.02 million sales outlets in rural India, with a significant portion being private shops. It is noteworthy that private village shops are regarded as one of the least expensive distribution channels worldwide, despite the challenges faced by Indian village shopkeepers.

Due to the need for his operations to be economically viable, he is required to handle a large variety of products, resulting in a larger inventory. The extended lead time for restocking from the urban production source further increases the amount of inventory he must hold. Additionally, as his sales fluctuate throughout the year, he must retain the inventory for a longer duration. All these factors contribute to tying up his capital. The possibility of offsetting the increased costs through higher markups is limited. He is unable to apply a higher markup to many of the products he manages since the consumer base he serves cannot afford higher prices.

The rural shopkeeper faces several challenges including low turnover, with an average daily turnover often less than Rs200. To generate even this level of turnover, the shopkeeper often extends credit to customers. Additionally, the shopkeeper incurs expenses for frequent trips to supply points in town/market centers. Despite these challenges, the village shopkeeper operates efficiently thanks to their innate ability for astute money and resource management. The shopkeeper also puts in long hours, keeping the shop open for 14 hours a day compared to urban shops which

provide only 8 hours of service.

The private village shops in India operate all year round, supported by the shop owner's wife and children, in order to maximize sales. These shops rely heavily on the unpaid labor of the owner and his family, making them one of the most cost-effective distribution channels in the world. Consequently, companies desiring a strong presence in rural markets willingly utilize these village shops as the primary component of their distribution network. The village shops serve as a crucial link between rural consumers and urban-based producers. However, establishing a distribution network through these private shops requires diligent efforts on the part of the company. They must carefully select existing shopkeepers as outlets or recruit new individuals to fill this role.

The choices for personnel are typically limited to the following categories: existing traditional private shops, money lenders willing to branch off to trade, land owners willing to branch off to trade, and educated unemployed persons. The firm must choose individuals from these groups based on the product line and other relevant factors, and then train and develop them into competent dealers.

To establish a distribution channel in the rural market, the concept of satellite distribution can be implemented. Initially, the firm appoints stockists in feeder towns who handle financing, warehousing, and sub-distribution of goods in the area covered by the feeder town. The firm also assigns a number of retailers in and around the feeder towns who are associated with the stockists.

The firm provides goods to stockists through cash, credit, or consignment. Stockists are responsible for sub-distribution according to the firm's terms. Retailer sales volume varies based on the area and

dealer capacity. Some retailers may see growth in their business. If these retail points also serve as transportation centers within the feeder town, the firm promotes them to stockists. The original stockist's area of operation decreases, but their business volume remains unchanged.

The growth in demand and deeper market penetration leads to the achievement of this in practice. If an original stockist has a network with twenty retailers, over time, five or six of them become stockists. Depending on location, service convenience, and other relevant factors, some retailers remain connected to the original stockist while others are connected to the new stockists. This process continues as long as the market continues to expand, similar to the second-generation stockists. Eventually, a set of third-generation stockists is established. At any given time, a particular stockist always has enough retail points around it.

Hence, the name satellite distribution refers to the system that facilitates market penetration in the interiors of the rural market, providing a main advantage. However, it is crucial for the firm to ensure that the motivation of the earlier generation stockists is not destroyed by prematurely and overzealously elevating the retailers into stockists. To gain insight into running an efficient distribution channel in rural markets, we can analyze the experience of Hindustan Lever Ltd. (HLL) and Lipton India, both pioneers in rural marketing in India. HLL's rural distribution system has the following salient features: The products move from the factories to approximately 40 C & F agents.

From there, Lipton's products are distributed to 3,500 stockists in small towns with populations of up to 20,000. These stock points then supply even the most remote rural markets, either

through semi-wholesalers or by directly sending stocks to village shops. Salesmen from the company spend 30% of their time visiting rural dealers and consumers. Specific distribution methods are used to accommodate different regions, climates, and villages with varying degrees of accessibility. The products are sold at the same price in all 3,500 towns and 70,000 rural locations. Lipton India, now known as Brooke Bond-Lipton India Ltd, has a large rural marketing outfit and currently boasts the largest rural market network. In fact, Lipton's network alone consists of 660,000 selling outlets including 430,000 dealers and 230,000 catering points, all serviced by a network of 3,000 redistribution stockists.

The network is extensive and covers a wide range of distribution and market coverage. A large sales force of 1,260 salesmen services many of the 230,000 catering points each day, with others serviced on a weekly basis. This mammoth distribution outfit gives Lipton a unique advantage in the rural market, known as 'bazaar power'. Unlike most big business firms that generate the majority of their sales turnover from 12 major cities with populations over one million, Lipton's sales are mainly derived from semi-urban and rural areas, accounting for over 70% of their sales. Only 11% of their sales come from the 12 major cities. In order to promote the profitability of retail outlets in rural areas, it is crucial for Lipton to ensure the network of retail outlets is maintained effectively in the long run. Additionally, the company should support and encourage these outlets to diversify their product lines for improved viability.

The retail dealer often lacks the ability to organize such activity on his own, but the firm can help.

In fact, the firm can go further and collaborate with other firms to create a joint retailing offer, thus promoting the viability of the retailer's operations. Additionally, the firms and government should work together to develop retail outlets and arrange loans for willing retailers to take ownership. The companies can offer financial assistance through credit and initial write offs. They should also provide free assistance for handling and training in areas unfamiliar to rural retailers.

The manufacturers and government should collaborate to provide essential infrastructural facilities, such as construction material and know-how. Loans with low interest rates can be offered for this purpose. Retailers should receive adequate training to enhance their sales efficiency. The company should organize special workshops, training jamborees, and refreshers for motivated rural retailers.

Village cooperatives should be promoted for the distribution of consumer goods, and the stockists can supply directly to these cooperatives. This benefits the stockists as they do not have to pay local taxes on the products they supply to the cooperatives. To further incentivize the stockists, an amendment to the cooperative act could be suggested, which would provide them with a discount on a percentage of goods supplied elsewhere. Additionally, in the rural market, it is essential to focus on personal selling and sales force management.

When it comes to rural marketing, an intense personal selling effort is typically involved, which sets it apart from urban marketing. In order to excel in rural marketing, salesmen need to possess certain unique traits. While empathy, enthusiasm, communication skills, and knowledge of selling techniques are important for both urban and rural salesmen, the latter also require additional capabilities to adapt to the specific conditions

of the rural market. One crucial trait for rural salesmen is the willingness to live and work in rural areas. It is well-known that rural areas lack modern amenities compared to urban areas, making salesmen reluctant to work in these centers. To address this issue, some firms choose to locate their salesmen in towns and allow them to cover their assigned rural areas from there.

Experience has proven that this type of arrangement is not effective.

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