Title of Research topic: Understanding the rural and urban consumer


By

Mr. Sunil V. Chaudhary
Faculty
SEMCOM
V.V. Nagar
 


Abstract

* The Indian rural market with its vast size offers a huge opportunity with 128 million households and the rural population is nearly three times the urban.  India today has about 6.4 lakh villages. All except about 15,000, have a population below 5000. Looking at marketer defined classification, most companies in the FMCG sector would define any area with primarily agriculture based occupation and with a population of less than 20,000 as rural. Rural areas exhibit several distinctive characteristics that are different from the urban areas. Literacy levels, family structure, occupational patterns, social customs and norms, and several other features are unique to rural India. A complex set of factors influence rural consumer's behavior. Social norms, traditions, castes, and social customs have greater influence on the consumer behavior in rural areas than in urban areas. The seasonality of agricultural production influences the seasonality of rural consumers' demand. Although rural areas offer attractive opportunities to marketers at an aggregate level, about 68 percent of these markets remain untapped mainly due to inaccessibility. It is uneconomical to access a large number of small villages with a very low population density spread over a large geographic area. Factors such as limited physical access, low density of shops, limited storage facilities, need for a large number of intermediaries in the distribution channel to reach the end customers, and low capacity of intermediaries to invest in business (investments for keeping stock, storage facilities, vehicles for distribution) make the tasks of reaching rural consumers very complex. It is in this context we need to understand the importance of alternative means of reaching rural consumers through periodic village markets (or haats), agricultural markets (mandis), and rural fairs (melas). According to National Council for Applied Economic Research (NCAER) survey the number of middle and high income households in rural India is expected to grow from 80 million to 111 million by 2007. In urban India, the same is expected to grow from 46 million to 59 million. Thus, the absolute size of rural India is expected to be double that of urban India.

* A survey by NCAER shows that the rural market is growing faster than the urban market in several products. These include packaged tea, detergent powder, washing soap and detergent cake. Growth in motor cycles too has been more in rural market than the urban market.

Introduction

Rural market is dynamic and has stood for centuries on its own. Nobody can ignore rural India which comprises one tenth of the world population. A revolution is sweeping the Indian countryside which has compelled companies to go rural. The rural consumer is discerning and rural markets are vibrant. The Indian rural market with its vast size offers a huge opportunity with 128 million households and the rural population is nearly three times the urban.  Rural India has a large consuming class with 41 percent of India's middle-class and 58 percent of the total disposable income. According to a study by Chennai based Francis Kanai Marketing Planning Services Pvt. Ltd. the rural market for FMCG is Rs 65000 crore, for durable Rs 5000 crore, for tractors and agri-inputs Rs 45000 crore and two and four wheelers Rs 8000 crore. In total a hopping Rs. 123000 crore.

There is no official definition of what constitutes a rural area. However, an urban area is defined as per the census of India as "all places with a municipality, corporation, cantonment or a notified town area" and "all other places satisfying the following criteria:

a) Minimum population of 5000,

b) At least 75 percent of male working population in non-agricultural pursuit, and

c) Density of population of at least 400 persons per square kilometer. Therefore, an area that does not satisfy the criteria specified above can be considered a rural area.

Taking on from the above, a habitation is defined as rural if

* It has a population density of less than 400 per sq. Km.
* At least 75 percent of male working population is engaged in agriculture related activities, and
* There is, in the location, no municipality or municipal board.

India today has about 6.4 lakh villages. All except about 15,000, have a population below 5000. Looking at marketer defined classification, most companies in the FMCG sector would define any area with primarily agriculture based occupation and with a population of less than 20,000 as rural.  The construct called rurban is the overlap between rural and urban, with physical features closer to urban areas and proximity to large urban centers, but with deep rural social moorings.

Characteristics of Rural Markets

Rural areas exhibit several distinctive characteristics that are different from the urban areas. Literacy levels, family structure, occupational patterns, social customs and norms, and several other features are unique to rural India. Some of the features having important implications for marketers are:

Demographic Characteristics of Rural India

There are 6,39,000 villages in India with a total population of 743 million people, accounting for about 72 percent of India's population. This population, however, is distributed across a large number of villages, where many are sparsely populated. In table 1 , is given the distribution of population in villages.

Table 1 Distribution of Population in Villages in India

Population (Number)

No. of Villages

Proportion of Total Villages (%)

Less than 500 people

236,004

37.00

Between 500 and 999

158,124

25.00

Between 1000 and 4999

221,040

35.00

Between 5000 and 9999

15,058

2.00

More than 10,000

3,976

1.00

Total

634,202

100.00


Source: Census of India

* About 62 percent of villages have a population below 1,000 and only 3 percent  of  the villages above 5000. Most villages with less than 500 people do not have any shops. These characteristics point toward the complexities of distribution and logistics management.

Characteristics of the Rural Economy

Income levels in the rural areas have increased over the years. About 67 percent of the rural households had an annual income of less than Rs. 35,000  in 1989-90 whereas by 1998-99, this proportion decreased to about 48 percent. Proportion of households with an annual income of above Rs. 70,000 constituted about 9 percent in 1989-90 and by 1998-99, this proportion had increased to about 27 percent. Thus, the households belonging to the middle-income and above categories that constitute the bulk of the consuming class had been increasingly steadily over the years. The fact is that the urban consumers have to incur a higher cost of living while the rural population has higher levels of disposable income for the same levels of income. For marketers this is an encouraging fact.

The consumption patterns of the rural consumers are also undergoing a shift. In 1983, the per capita consumption expenditure in rural areas was Rs. 112 per month whereas it was Rs. 166 in the urban areas. In 2001, the per-capita monthly expenditure increased to Rs. 486 in rural areas and to Rs. 855 in urban areas. Moreover, there is a shift in the expenditure pattern of rural consumers. In 1983, about 66 percent of the per capita consumption expenditure was on food and, by 2001, this proportion declined to about 59 percent. This trend indicates that while incomes as well as expenditure in rural areas have increased, their spending on nonfood items have also increased. The increasing demand for many products can be accounted for this by changing pattern. However, the rural income is seasonal in nature and to a great extent influenced by non-controllable factors such as draughts and floods, crop failures due to pests, and similar factors. For the working class in rural areas, wages are distributed daily, weekly, or fortnightly and come in small installments. Demand for many products in rural areas, thus, is seasonal in nature.

Social and Cultural factors

Social hierarchy, traditions, social norms and customs play significant roles in determining individual and collective behavior in rural India. One of the most important determinants of social hierarchy in the rural areas is the caste system. The Caste system determines the social status of the individuals and families, and this has important implications for individual and social behavior. However, within the caste system itself, there are sub-castes, religious groups and sub-groups, making the social hierarchy more complex. Manifestation of social hierarchy is exemplified by the pattern of household settlements. While in the urban areas, household settlements are often referred to as low-income group (LIG), middle-income group (MIG), or high-income groups (HIG), in many parts of rural India, geographic demarcation of household settlements is based on caste affiliations. In some parts of India, these settlements are known as harijan basti (harijan colony) or thakur gaon (village of the upper-caste Thakurs). Social interactions and norms of behavior are governed by considerations in rural areas. In some rural areas, even the common facilities like well water or grazing land is demarcated based on caste. People belonging to some castes are prohibited from accessing common facilities demarcated for other caste groups. Any violation of these norms can lead to social tensions. Unlike in urban areas, these behavioral norms are strictly implemented in rural areas.

Traditions are rigidly followed in rural areas. For example, in many rural areas (and even in some sections of the urban society), women are expected to cover their head with the end portion of their sari as a mark of pious behavior. Talking directly to men who do not belong to the immediate family is not considered to be good behavior.

Consumer Behavior in Rural Areas

A complex set of factors influence rural consumer's behavior. Social norms, traditions, castes, and social customs have greater influence on the consumer behavior in rural areas than in urban areas. The seasonality of agricultural production influences the seasonality of rural consumers' demand. Given the fact that the landless laborers and daily-wage earners get their income in installments, their purchasing is restricted to small quantities of products at a time, mostly on a daily basis or once in two or three days.

Purchase-decision processes and preferences also show certain characteristics that implication for marketers. Exhibitions and road shows act as some of the key triggers for information-search behavior. Opinion leaders and people who are perceived to be knowledgeable play an important role as information providers and advisors. Word of mouth has more significance in purchase decisions of rural consumers. Family members, relatives, and friends are consulted before making purchase decisions of higher-value products. However, as the exposure to mass media and information technology is increasing, rural consumers are becoming more informed about products and services, and their dependence on traditional reference groups is gradually waning. As a result of the increasing role of self-help groups and other government institutions involved in developmental activities, professionals working for such agencies act as reference sources. They tend to exhibit greater trust in products and services endorsed by the government and its agencies. Rural consumers also tend to be more loyal as brand switching has greater perceived risk.

Compared to the urban counterparts, rural consumers have different interpretations of colors, symbols, and social activities. Rural consumers show a preference for bold, primary colors; red color connotes happiness and auspiciousness, and green color prosperity. Ownership of a large tractor, large house (pucca house), telephone and other higher-value consumer durables, and education of children in cities are considered as status symbols.

Marketing Infrastructure in Rural Areas

Although rural areas offer attractive opportunities to marketers at an aggregate level, about 68 percent of these markets remain untapped mainly due to inaccessibility. It is uneconomical to access a large number of small villages with a very low population density spread over a large geographic area. Factors such as limited physical access, low density of shops, limited storage facilities, need for a large number of intermediaries in the distribution channel to reach the end customers, and low capacity of intermediaries to invest in business (investments for keeping stock, storage facilities, vehicles for distribution) make the tasks of reaching rural consumers very complex. It is in this context we need to understand the importance of alternative means of reaching rural consumers through periodic village markets (or haats), agricultural markets (mandis), and rural fairs (melas).

Haats are a "public gathering of buyers and sellers of commodities, meeting at an appointed or customary location at regular intervals. Most of these periodic markets are held once a week. Haats function as physical markets for selling agricultural surplus as well as retail points for buying daily-use items and supplies for farming activities. The number of haats in rural areas in India is about 42,000. On an average, one haat covers 20 to 50 villages, has about 300 outlets, and is visited by more than 4,500 people.

Mandis or agricultural markets are set up by the state governments for facilitating exchange of agricultural produce (providing information on prices and arrivals of produce, meeting of buyers and sellers) and for procurement of food grains by the government agencies. There are about 6,800 mandis in India, each catering to about 0.14 million people. Companies use mandis to promote their brands by setting up "stalls" for carrying out sales promotion activities and for gathering market-research information.

Melas or fairs are an integral part of human life. There are different types of fairs: commodity fairs, cattle fairs, and fairs in connection with religious festivals. Although there are more than 25,000 fairs, about 90 percent of them are held in connection with religious festivals and, hence, have limited marketing value. But the remaining fairs are used by companies to promote their products and brands.

Characteristics of Rural Consumer Group

* A scattered market: The rural market of India is a geographically scattered market. Whereas the urban population of India is concentrated in 3200 cities and towns, the rural population is scattered across 570000 villages. And of them, only 6300 villages, or less than 1.1 per cent have a population of more than 5000 each.

* Socio-economic position: By and large, rural consumers continue to be marked by low purchasing power/low per capita income. Similarly, they continue to be tradition-bound community, with religion, culture and tradition strongly influencing their consumption habits. A sizeable segment of rural consumers defy this description. Nearly 60 per cent of rural income comes from agriculture. More than half the households are in the income category of less than Rs 25000 per annum, but about 14 per cent of the households have an annual income that exceeds Rs 50000 per annum.

* Culturally a diverse and Heterogeneous market: The diversity is manifest in a more intense manner among the rural segments. It can be said that heterogeneity is the No 1 hallmark of the rural market-5,70,000 villages, half a dozen religion, 33 languages, 1,650 dialects and diverse sub-cultures characterize the market.

* State to state variation in extent of development: There is also a great deal of difference between different states in extent of development. A recent study conducted by IMRB provides development index points for each state, after collecting village-level data on various parameters, such as availability of health and education facilities, availability of public transport, electricity, TV transmission, banks, post offices, water supply and so on. According to the study, while the average village in India has 33 development index points, villages in Kerala had an average of 88 points while those in Bihar had just 22; M.P, Rajasthan and UP were close to Bihar; and states like Maharashtra, Haryana, Karnataka had points ranging between 40 and 50.

* Literacy Level: It has been estimated that rural India has literacy rate of 28 percent for the whole country. The rate is certainly on the low side. However, such statistics do not reveal the whole picture.

- Year-to-year too, there is a change. Every year about eight million people get added to rural India's literate population.

- The adult literacy programmes launched in the rural areas are bound to enhance the rural literacy rate in the years to come.

- In absolute numbers, already there are more literate people in rural India (16.5) in urban India (16 crore).

* Lifestyle : By and large, the rural consumers are marked by a conservative and tradition-bound lifestyle. But, what is striking today about this matter is not the basic conservative characteristic, but the fact that the lifestyle is undergoing is significant change.

Lifestyle undergoes major change: The lifestyle of a sizeable segment of rural consumers has already changed significantly in recent years, and that of a much larger segment is currently going through the process of change. As such, the

earlier practice of bracketing all rural consumers as people with a tradition- bound lifestyle does not hold goods in the new context.

The change can be attributed to several factors such as:

* Growth in income and change in income distribution
* Growth in education
* Enlarged media reach (particularly television)
* Growth interaction with urban communities
* Marketer's efforts to reach out the rural market

SWOT ANALYSIS OF RURAL MARKETING

* STRENGTHS

* According to National Council for Applied Economic Research (NCAER) survey the number of  middle and high income households in rural India is expected to grow from 80 million to 111 million by 2007. In urban India, the same is expected to grow from 46 million to 59 million. Thus, the absolute size of rural India is expected to be double that of urban India.

* There has been a phenomenal improvement in rural incomes and rural spending power. Successive good monsoon has led to dramatic boost in crop yields. Tax exemption on rural income too has been responsible for this enhanced rural purchasing power.

* Rural consumers normally do not make brand discrimination but once induced to buy and use a product, he becomes loyal to the brand provided he is satisfied about its functional utility, such a loyal user may even make efforts to get the whole village use it.

* Few business houses like Hindustan Lever, Lipton, ITC, Tatas, Coca-cola, LG etc are capitalizing the marketing opportunities in rural sector.

* A survey by NCAER shows that the rural market is growing faster than the urban market in several products. These include packaged tea, detergent powder, washing soap and detergent cake. Growth in motor cycles too has been more in rural market than the urban market.

* According to an NCAER survey, against seven consumer durables owned by urban households on an average, rural households own three. Rural India's market for consumer durables is estimated at Rs 4500 crore with an average annual growth rate of 8 per cent.

* According to IMRB survey the rural market share is above 50% in respect of washing cakes, bathing soaps, batteries, razor blades, radios and bicycles. While for glucose powder, tea, torch lights, premium soaps and washing powders its share is 25% to 50% and it is 10% to 25% in respect of milk powder, antiseptic liquids, toothpaste, hair oils, tooth powder and talcum powder, etc.

* The literacy level in rural India according to the 1991 census was 41.2 per cent. It has gone up to 59.4 per cent in 2001.

* WEAKNESSES

* About 62 percent of villages have a population below 1,000 and only 3 percent  of  the villages above 5000. Most villages with less than 500 people do not have any shops. These characteristics point toward the complexities of distribution and logistics management.

* It is uneconomical to access a large number of small villages with a very low population density spread over a large geographic area. Factors such as limited physical access, low density of shops, limited storage facilities, need for a large number of intermediaries in the distribution channel to reach the end customers, and low capacity of intermediaries to invest in business (investments for keeping stock, storage facilities, vehicles for distribution) make the tasks of reaching rural consumers very complex.

* Usually rural consumers are price conscious and they purchase simple and low priced goods. Further, the brand loyalty is very low in rural areas.

* Adequate roads have not been developed in rural areas. Even today about 36% of the villages in the country do not have roads and over 65% of our villages are without an all-weather roads. Further, road conditions in rural areas is worst during rainy season.

* In rural areas, banking and credit facilities are not extensive. It is estimated that for every 16 villages there is one bank. Due to lack of credit facilities retailers in rural areas cannot carry adequate stocks and which, will in turn, affect consumer credit.

* There are communication problems with regard to the marketing information to the rural consumers. The level of literacy among rural people is low. Further, there are different languages in different areas. The low literacy and different languages pose problems in promotion and advertising of goods in rural areas.

* OPPORTUNITES

* The Indian rural market with its vast size offers a huge opportunity with 128 million households and the rural population is nearly three times the urban.  Rural  India has a large consuming class with 41 percent of India's middle-class and 58 percent of the total disposable income.

* The increased income/ purchasing power of the rural consumer and the improved income distribution have enhanced rural demand for several products. Better access to many modern products/brands have added to this growth.

* The heat of competition in the urban market actually serves as the strong driver behind the growing interest of Corporates in the rural market. The fact that the rural market is still largely an untapped and virgin market and the fact that the early entrants can tap it without having to face intense competition as in the case of urban market, makes the rural market all the more attractive to them. For example, penetration level for toothpaste in the urban market has now reached close to 80 per cent. In contrast, it is below 30 percent in the rural market. Obviously, any substantial further growth in the product can come only from the rural market.

* In the FMCG category, half of the revenue of Hindustan Lever and Colgate comes from the rural market. It  can also be seen that about one-fifth of Pharma sales occur in rural India. In respect of high-priced durables, about one fourth of the television sales happen in rural India; Kinetic sells about 30 per cent of its scooters, Toyota nearly half of its vehicles and Hero Honda 40 per cent of its bikes.

* At the moment, radio transmission is available to almost 100 per cent villages while TV transmission covers about 87 per cent territory of the country. According to the national readership survey 2002 about 28.5 rural households in the country own T.V sets, and 34 per cent of  TV homes also have cable connections.

* Contrary to the popular belief, the R-panel found that the rural demand is not overwhelmingly unbranded. In categories such as shaving products, toothpastes, toilet soaps, biscuits, the share of branded products is higher than the unbranded or local products.

* According to ORG-MARG data 90 per cent of all shampoo and about 65 per cent packaged tea sales in rural areas comes sachets/small packs.

* THREATS

* Rural demand is more seasonal compared to urban demand. The pre-dominance of agriculture in the income pattern is one main reason for this. The relatively greater influence of marriages and festivals on the purchase pattern is another.

* Besides being seasonal, rural demand is somewhat irregular as well. The pre-dominance of agriculture in the income pattern is again the main reason for this.

* The share of unbranded products is higher in necessity items, mainly food products.

Buying Behavior

* Influence of Culture: Culture and tradition influences perception and buying behavior. For example, the preference in respect of color, size and shape is often the result of cultural factors.

* Geographic Location: Rural consumer behavior is also influenced by the geographic location of the consumers. For example, nearness to feeder towns and industrial projects influence the buying behavior of consumers in the respective cluster of villages.

* Exposure to urban lifestyles: Extent of exposure of rural consumers to urban life styles also influence their buying behavior.

* The way the consumer uses the product: The situation in which the consumer utilize the product also influences their buying behavior. Since rural consumers cannot use washing powders/ detergent powders that much, as they wash their clothes in streams or ponds, they go in more for washing bars and detergent cakes.

* Place of Purchase: Buying behavior of rural consumer also varies depending on the place of purchase. Different segments of rural buyers buy their requirements from different places/outlets. Some buy from the village shopkeepers; some from village markets/hats/melas; others buys from town that serves as the feeder to the rural area.

* Involvement of others in the purchase: In the past, the head of the family used to make purchase decision all by himself. In contrast, the involvement of the other members of the family in the purchase decision has been growing in recent years. An increase in literacy coupled with greater access to information has resulted in this development.

* Buying Behavior Undergoes Major Change: The buying behavior of rural consumers has been undergoing a change. We need to exercise care even in contrasting the buying behavior of rural consumers in a general manner from that of  the urban consumers. In recent years, some convergence in aspirations seems to be taking place between the urban and rural markets.

Conclusion

It is said India lives in villages. Rural market with 70% of the total population of country offers opportunities and challenges for marketers. The opportunity is to tap vast rural market with right kind of product, price, place and promotion. The challenge is that majority of villages are thinly populated compelling marketers to think about innovative ways to reach rural consumers. Melas, Haats and self help groups are one of the way to reach rural markets cost effectively.

References

(1) V S Ramaswamy and  S Namakumari, Marketing Management, (Macmillan India Ltd. New Delhi 2006)

(2) P Kotler, et. al., Marketing Management, ( Pearson Prentice Hall, New Delhi 2007)

(3) J. S. Panwar, Beyond Consumer Marketing, (Response Books A division of Sage publications, New Delhi 2004)

(3) H.S.Grewal, S.N. Mahapatra and Sanjay Pandey, Role of Rural Melas and Haats in Modern Marketing, Organizational Management, Vol. XXII. No.1. April-June 2006, pg.9

(4) R.G. Suri, A.S. Sudan, Rural Marketing-Some issues, Indian Journal of Marketing, Vol: XXXIII No.10 October 2003, Pg.23

(5) P. Indrasena Reddy, Rural Marketing in India Problems and Prospects, Indian Journal of Marketing, Vol: XXV No.2-3 Feb, March 1996, Pg.23
 


Mr. Sunil V. Chaudhary
Faculty
SEMCOM
V.V. Nagar
 

Source: E-mail January 16, 2010

          

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