Significance of the Bottom of Pyramid for Corporates

By
Ritesh Sud
Pritesh Y. Chothani
Batch of 2006
IMT, Ghaziabad
E-mail: riteshsud@gmail.com
 

This paper traverses through the path of rural marketing. Rural marketing is the Buzzword now, but does this word really hold the potential or it's just a passing fad. The paper presents some of the insights on rural market, which will help in identifying the element of truth in the buzzword. The paper provides some of the challenges and opportunities that the rural market holds for the companies. The paper starts with defining the rural market and then it goes on to explore the underlying potential of the rural markets. It talks about the traditional rural market, the concept of "haats", when and how "haats" started (rural super-markets) and how different companies like Mahindra has cashed on this concept. Though rural market provides tremendous growth opportunities, it is not going to be a cakewalk. The companies need to understand the rural environment and put in place its distribution and communication strategies. Companies have been trying to tackle this issue in number of innovative ways, be it the ITC's "e-choupal" or HLL's "Project Shakti", the aim is to come closer to the rural consumer.

With the increase in the rural literacy levels and the exposure to media, people in rural areas are also becoming conscious about their buying decisions like their urban counterparts. This makes it even more challenging for the companies to understand the buying behaviour, the consuming pattern, the need and wants of the rural consumer. One important question, which ails the marketer, is the heterogeneity of the rural market place. The heterogeneity is mainly on account of the geography, varied income levels, cultural differences of the consumers. This factor of heterogeneity is shown with the help of comparison among villages in different states. The marketer has to understand that there is no shortcut to grab a share of the rural market place. He has to formulate different strategies for different regions, as there is very little commonality between each of these segments.

The mantra for success for any company going rural can be the Four A Framework (Affordability, Acceptability, Accessability & Awareness). These factors will go a long way in providing the company with market value coverage along with a steady source of revenue. The companies which are going to keep in mind the above stated factors are sure to emerge as winners in the rural markets.

Introduction

Marketing today has changed the dynamics of the business. As the consumers are getting informative, the business is becoming competitive day-by-day. Marketers are seeking fresher challenges everyday and are looking to increase their realm. The urban consumer has been coddled till now but this market is shrinking, prompting the marketer to now explore the rural consumers, which promises a huge potential. The market has enough scale to offer, and enough desire to consume. The consumer in the Indian hinterland is ready and waiting to be served.

What Constitutes the Rural Market?

The census of India defines rural as any habitation where the population density is less than 400 per sq. km, and where at least 75 per cent of the male working population is engaged in agriculture, and where there isn't any municipality or board. Having said that, there are about 600,000-odd villages in India (Refer Exhibit 1). Leaving aside Hindustan Lever and ITC, most FMCG Sector would define rural as any place with a population below 20,000. Similarly, durable and agri-input companies consider any town with a population below rural, primarily because the adjoining villagers come to shop there for say a television set.

The Rural Market Potential

The rural market has been growing steadily over the past few years and is now even bigger than the urban market. At present 53 per cent of all FMCGs and 59 per cent of all consumer durables are being sold in rural India. The biggest FMCG Company in India HLL derives more than half of its Rs. 12,000 crore revenues from the rural markets. Though there is a high component of sales in some particular product categories like radios, watches, casette players, the penetration levels are abysmally low, and therefore, offer tremendous potential for growth.

The rural market is an enigma for the companies. Due to the lack of deeper insights into the psyche of the rural consumers, companies are hesitant to explore this territory. But local brands, like "Ghadi" detergent in Kanpur, have been able to successfully tap the opportunities presented by this market.

A look at some facts, which will clear the doubts of skeptics about the potential of rural markets in India: -

• About 285 million reside in urban India as compared to 742 million in rural India.
• The number of middle income and high-income household in rural India is expected to grow from 80 million to 111 million by 2007 while urban India is expected to grow from 46 million to 59 million.
• 53 per cent of all FMCGs and 59 per cent of all consumer durables are sold in rural India.
• Number of poor household is expected to shrink by half to 28 million in 2006-07 from 61 million in 1997-98, taking rural people from poverty to prosperity.
• Rural marketing involves addressing around 700 million potential consumers, over 40 per cent of the Indian middle-class, and about half the country's disposable income.
• The Indian rural market is almost twice as large as the entire market of USA or Russia.
• The rural market for FMCG is Rs. 65,000 crore, for durables Rs. 5,000 crore, for tractors and agri-inputs Rs. 45,000 crore and two- and four-wheelers, Rs. 8,000 crore. In total, a whopping Rs. 1,23,000 crore.

Thus, looking at the opportunities, which rural markets offer to the marketers. it can be said that the future is very promising for those who can understand the dynamics of rural markets and exploit them to their best advantage.

The Traditional Rural Market

Since ancient times, Indian villages had the concept of village markets popularly known as the village "Haats". The "haats" are basically a gathering of the local buyers and sellers. The barter system was quite prevalent, which is still continuing in a number of places even today. Haats are basically a weekly event and are central to the village economy.

Companies like Mahindra have devised their marketing plan keeping in mind the importance of haats in villages. They set up stalls in the villages coinciding with the village haats and promote their tractors. This serves a dual purpose - getting the attention of a large number of their target market as well as getting critical insight about the rural consumers behavior. The village mandis and the seasonal melas are other important occasions for the marketers to tap.

What is happening in Rural Markets?

While the rural market provides tremendous opportunities to the marketers, it is not easy for any company to enter this market and walk away with a sizeable share of the market. In reality, the rural market suffers from a variety of problems including that of distribution and marketing communication. Companies have been trying to tackle these issues in a number of innovative ways. Be it the "e-choupal" initiative of ITC or "Project Shakti" launched by HLL, the aim is to come closer to the rural consumer. To capture the alluring rural market, companies need to formulate strategies, which can deal with issues pertaining to consumer psychographics and appropriate marketing mix.

For FMCG major HLL, around 50% of its revenues is coming from the rural market. The company found from a study that in about 35% of FMCG products, the local retailer is influencing purchases. Therefore, if the company was able to maintain the supply of stock with the retailers, it would be able to control brand choice, volumes, and in turn, market share. HLL's "Project Shakti" was aimed at creating opportunities to increase rural family incomes, which puts more money in their hands to purchase the range of daily consumption products from soaps to toothpastes.

If we look at the traditional method of rural marketing in India, we can find that it is basically comprised of: -

• Modifications in product (making it look rugged and durable) and sometimes make it inferior to the product being sold in the urban markets
• Lower the price of the product
• Offer the products in small units (e.g., sachets)
• To advertise your product use the same commercial and simply dub it in the region-specific language

However, companies tend to forget that the requirements of the rural market are totally different. The companies need to develop special products and strategies for the rural consumer. If a company wants to force cornflakes in the rural market place, it is doomed for failure. Using generic advertising to attract the rural consumer is not going to market. You have to go vernacular to effectively convey the message, just like the advertisements of Coke featuring Aamir Khan.

Rural Consumers Buying Behavior

With the increase in the rural literacy levels and the exposure to media, people in rural media are also becoming conscious about their buying decisions like their urban counterparts. There has been a significant rise in the brand awareness among the people. As a result they are becoming choosier and demanding than ever before, so any company has to properly analyze the psychographics before entering this market. Infact, if we look at the rural consumers shopping basket, we can see that of the expenditure on consumer goods in rural household, approximately, 44% is on food articles such as biscuits, tea, coffee and salt, 20% on toiletries, 13% on washing material, 10% on cosmetics, 4% on OTC products, and 9% on other consumables.

• Brand Awareness
  Studies indicate that there has been a visible shift in the people's preference for brands. People are upgrading from the use of tooth powders to tooth pastes, and from using traditional mosquito repellants to using mats and coils. Also there is shift from low priced brands to semi-premium brands.
• Rural consumers buy lower priced goods
  This is one of the most prevalent myths about the rural market. However, what rural consumers are looking for are not cheap goods but they want value for money, and if a brand fits into this category, they are ready to pay for it.
• Rural consumers will buy what we sell to them
  The brand loyalty for rural consumers is quite strong in some particular segments and brands, like Colgate toothpastes and powders. However, if a company becomes complacent and takes the rural consumers for granted it is ultimately going to lose in the market. The companies have to constantly innovate and make their products appealing to the consumers to succeed.
• Rural India has common tastes
  Some companies have the misconception that the tastes and preferences of the rural consumers are all same for the rural market. But it is not so. Infact, it is more varied that the urban consumers. Mind you, we are not talking about the differences due to geographies. Infact, in North India, the preferences of a Punjabi farmer will be quite different from his counterparts in Bihar or Uttar Pradesh. So the companies have to design strategies to tackle this issue.
• Innovative uses of the product
  The rural market is quite innovative in the uses of products. Several products are being used successfully for doing jobs what they are not meant for, like using washing machines to make "lassi" in Punjab or using Iodex on animals to relive them of muscular pain. The rural market is an enigma for the marketer and he has to see that the marketing communication is done in the relevant way.

Heterogeneity in the Rural Market

One important question, which ails the marketer, is the heterogeneity of the rural market place. The heterogeneity is mainly on account of the geography, varied income levels, cultural differences of the consumers. In case of urban consumers, the tastes are not that varied say between that of a youth in Delhi and a youth in Chennai.

• To The Villages in Punjab & Haryana
  The Punjabi farmer is lively has a better standard of living as compared to farmers in Bihar and U.P. (Refer Exhibit 2). The literacy rate is also at par with those in the urban areas. The Punjabi farmer likes to spend a lot. Also the spending is more during the harvesting season. He is quite aware about different brands due to more penetration of television and also due to visits of family members from abroad.
• The Villages in Bihar, UP & MP
  Theses villages are characterized by lower literacy rates and lack of infrastructure, especially electricity (Refer Exhibit 2) .The people are quite religious and god-fearing. The villages are divided on the basis of castes. The spending power is also less as compared to rich northern states. These states are ideal markets for products like radios, torches, lanterns, etc.
• The Villages in Bengal & Orissa
  The villages in these states are characterized by a lower literacy rates and a sizeable amount of population is engaged in fishing. The average size of land holdings is very small and the people are very possessive about their cultural heritage. Their diet consists mainly of rice and fish.
• The Villages in South India
  The villagers in South India are better educated than those in North India. Women occupy an important role in the society and more often than not are responsible for a number of product decisions. People are quite aware about different brands in the market mainly on account of someone from family or neighborhood commuting regularly between the cities.

The marketer has to understand that there is no shortcut to grab a share of the rural market place. He has to formulate different strategies for different regions, as there is very little commonality between each of these segments.

Conclusion

There is no doubt that the rural India offers tremendous opportunity for any company to tap. However, companies face many challenges in tackling the rural markets. Some of the important factors being an understanding of the rural customers' needs, a reliable distribution channel, and an effective marketing communication strategy to put their message across to the rural consumer.

This calls for a paradigm shift in the thinking of the top management of the companies, which have been reluctant to realize the potential of rural markets. The mantra for success can be further augmented by the Four A Framework (Affordability, Acceptability, Accessability & Awareness). These factors will go a long way in providing the company with market value coverage along with a steady source of revenues. The companies which are going to keep in mind the above stated factors are sure to emerge as winners in the rural markets.

Exhibit Number 1: Number of Villages in India

Exhibit Number 2: Comparison of the Villages in Various States

Exhibit Number 3: Monthly Income Comparison Across States

Ritesh Sud
Pritesh Y. Chothani
Batch of 2006
IMT, Ghaziabad
E-mail: riteshsud@gmail.com
 

Source : E-mail October 5, 2005

Occasional Papers Main Page