“The rules of the game remain the same; the way we play the game and
adopt strategies ought to be different to adapt to rural and urban grounds”
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Rural market – A Land of opportunities
Rural India accounts for around 68%
of the total Indian population. It also accounts for 56% of the national
income, 64% of the total expenditure and 33% of the total national savings.
Rural economy has shifted from agriculture focused to more non-agricultural
activities. This has resulted in increasing income levels and rising education.
Also with saturating urban markets and rising income levels, rural India
presents a huge opportunity for the companies to enlarge their market. This
market is projected to provide an opportunity of US $100 billion in the next
fifteen years for retail spending. These figures stated present an
opportunistic picture for the marketers to look to the rural market to increase
their product sales.
Unlike the urban market which is
well served and competitive, the rural market is poorly served and
uncompetitive with very few players in this market. This fact may seem
lucrative for the companies to increase its penetration into the rural market
but only companies which understand the changing aspirations and growing needs
of the various segments of rural consumers will make the cut or rather hit the
bull’s eye.
Rural and Urban – the difference, will it change the preference
The census
of India uses three metrics to distinguish between urban and rural areas. The areas that fall under these criteria are classified as
urban areas and the remaining come under rural frame.
a.
Population size: Greater than 5000
b.
Population Density: Greater
than 400 per square kilometer
c. Economic
activity: At least 75% of the male working
population involved in non-agricultural employment.
The foundation
for understanding the market differences has to come from where exactly the
competition lies from companies’ perspective and accordingly what exactly
should be their focus spot. For the marketers, the difference in urban and
rural market can be understood in terms of various factors: Infrastructure,
availability and reach, Income and lifestyle of the people, communication
channels, culture, tradition and mind-set of the consumers. All these factors
can be explained through 4P’s for the urban market. Rural market can be well
understood by 4 A’s namely:
1. Acceptability / Product
2. Affordability / Price
3. Availability / Place
4. Awareness / Promotion
Acceptability/Product:
The urban
India can be defined as a market which is in a state of ready acceptance with
regards to new products and services
while the rural Indian mind-set still revolves around cultural restrictions and
practices and is not ready to embrace new unleashes at one go.
Companies
that want to access the rural markets need to build an emotional and
sentimental connect with the rural consumers to increase their product
acceptability. In rural India, Innovation is the route to come out with
relevant propositions.
TATA
designed a water purifier that requires no electricity keeping in view the
problems of electricity in rural India thus addressing the key constraints of
rural areas effectively in its product design. Understanding that half of
India’s gold consumption happens in rural areas, TATA group launched a mass
market jewelry brand, Gold Plus. This Tata seal protected consumers against
affliction of adulterated gold.
Affordability/Price:
Coming to
the earning and spending, the income level of urban and rural people has a
direct relation to the spending pattern of the excess penny. Most of the rural
buyers do not have a ‘cash fund’ problem as much as a ‘cash flow’ problem as it
is a function of the crop cycle. The Monthly per capita expenditure of the
rural India has increased by 19% as compare to 42% rise in urban spending since
1987-88. This figure shows that rural population is still price savvy and looks
for value for money products unlike their urban counter parts that look for
Brand values. Companies that can provide tailored products at affordable price
with the potential of very large volume supplies can survive in this market.
Videocon
introduces a washing machine without a drier for a much lower price especially
for the rural markets. Similarly, Philips launched a low cost smokeless chulla
(stove) for rural consumers.
Awareness/Promotion:
The rural
consumers are less educated and less tech savvy. To communicate the product
value propositions to these customers, marketers need to adopt some effective
routes to reach customers. Rural consumers are aware of brands. Marketers can
reach these consumers and communicate exact brand propositions to them through
various media channels. Communication needs to be simple and relevant when
addressed to rural audiences.
Availability/Place:
The
availability / reach, if considered as a separate factor, play a very strategic
role because of the weight it has towards the marketing strategy formulation.
This factor is also inter-connected
and inter-dependent with all of the
other market factors. The urban infrastructure in India is relatively well
developed and established which
allows for easy
launch of products. The rural
infrastructure is not so well- developed compared to urban India but is
definitely in a phase of developing spree at present. The reach in rural India
is not just about the logistics development. The retail format in rural India
is mostly traditional with limited shelf space and limited stocks. Therefore,
creative packaging options have to be employed in order to make products
available at this burgeoning marketplace.
Serving rural consumers profitably
The three major things which are
required to serve the rural consumer profitably are:
1.
Understanding demand
2.
Creating supply
3.
Building trust Understanding demand Novel value proposition:
Understanding demand
Novel value proposition:
Understanding demand is essential to
define and create effective value proposition to consumers. The value
proposition created for urban sector will not work for the rural sector.
Companies which have succeeded in serving rural consumers profitably have done
so by creating novel value proposition through their strong innovation and
R&D.
Godrej, the leading Indian
refrigerator manufacturer understood the above fact well that it cannot remove
some of the features from the refrigerator designed for the urban segment to
cut prices and serve the same to the
rural segment. Not
only will such
a product underperform but
will be rejected
on basis of aspirational trade-offs as no one would
be willing to buy a poor-man’s fridge. The same was witnessed by Tata Nano. Godrej
was wise enough to carry out consumer research to understand demand. The key
insight of the research was that
rural people need
refrigerator to preserve food
and necessities for at most two nights. Also, the electricity
supply is inconsistent in rural areas, so the refrigerator should survive power
outages and surges. Another important
insight was portability in this segment.
Keeping all these things in mind,
Godrej came up with “ChotuKool”, a refrigerator priced at Rs. 3700- about half
the price of normal refrigerator made by the company. The size of this
refrigerator is 1.5 feet X 2 feet, and thus caters to small living space. To
adjust to power surges and outages it uses small chip and a fan, same as a
computer instead of a compressor. The case of ChotuKool clearly proves that the
value proposition for urban segment will not work for the rural segment.
Balance
between prices & needs:
Another thing to be kept in mind is
that the value proposition for rural
segment should not revolve around low cost alone. The value
proposition should be based on aspirations, performance and unmet needs.
Striking a balance between prices (a higher price will take the product out of
the consumer’s reach) and aspirations are the key to the success in rural
markets. Bajaj boxer is a beautiful example of striking this balance. Bajaj, in
the year 2011, launched its new bike Boxer 150cc. The bike was positioned in a
higher power segment (150cc) than its competitors (100cc) at a lower mileage.
The rationale behind providing more power was twofold. The first was to deal
with poor village roads and multiple people riding the bike and the second was
to target rural youth who aspired for more power and control.
Heterogeneous
market:
The last thing to be kept in mind
while creating value proposition for the rural consumer is that rural market
cannot be considered homogeneous. There are differences based on religion, age
and language. Thus, customized products and services need to be created but
they should be based around scalable platform. Thus, selecting an appropriate
decoupling point is essential for success in rural markets.
Creating supply
Creating supply, which is the second
most aspect to serve rural consumers profitably, is challenging. The challenges are because of the gaps lying
in the credit systems and supply chain. To fill these gaps, companies need to
come up with innovative business model by forming partnership with key players
in unorganized sector.
How
Nokia, ITC & Bajaj used brick and motor infrastructure to facilitate
supply?
Channel mix is important - brick and motor
infrastructure is as important as technology. When Nokia launched Nokia money,
the service mainly targeted towards rural India, it partnered with retailers
(both franchisees and self-run) to educate its prospective customers. Other than
its technology, the bricks and motors infrastructure of banks (also used to
educate prospective consumers) came handy. On similar lines, ITC’s physical
presence was important for the success of the e-Choupal project. It formed
partnership with villagers who managed the large number of internet kiosks
which served as classrooms for internet training. To target village consumers,
Idea built a network of 1,520 branded service center and 7,00,000 multi-brand
retail outlets to generate economies of scale.
To fill the gap in the credit system,
it was Bajaj Boxer which emerged as a champion once again. Bajaj introduced
Direct Cash Collection system. This ensured that credit was available even in
the remotest of the villages so that all the bikes are accessible to rural
customers. Under this system, the authorized service centers owners served as
the single point of contact with the clients after the sale of bikes. Using this method, Bajaj lost just 0.2% of
its installments as the model
helped in building
good rapport between consumers and authorized service
centers owners who collected the installments. The center owners were incentivized
by sharing 50% of the profit.
The lesson to be learnt from Nokia,
ITC, Idea and Bajaj is common- to serve rural consumer profitably, gaps
existing in credit system and supply
chains need to
be overcome by forming local partnerships, and network
of brick and motor infrastructure is as important as technology.
Building Trust
The final step after creating value
proposition and supply is building trust. To build trust, partnership with the
proxies of trust is the only solution. Bajaj came out with an innovative way to
build trust for its motorcycle, boxer. They contacted around 300 ‘sarpanchs’
and showed them the bike manufacturing process and facility. This helped in
spreading word of mouth publicity and building trust, as the village heads are
considered as figures of trust and reliability.
Bajaj went a step further and made
local Authorized Service Centre as bike dealers. This resulted in dual
advantage: increasing reach and building rapport with villagers. Similarly
local money lenders and other community leaders can also serve as proxies of
trust.
Considering the challenges cited in
the article, companies need to re-evaluate the means to measure their success
and growth in rural sector. Companies need to be proactive and design some un-conventional
matrices based on risk–taking ability, partnership with local players, and
collaboration with proxies of trust to measure growth and accomplishment in
this sector. But still, the rules of the game will remain the same, the
difference lies in the way we play the game and how well we adopt strategies to
adapt to the rural and urban grounds.
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