Session 8

Rural Marketing with a focus on distribution

Selling in rural India

An important phenomenon in India’s consumer culture is the emergence of the rural market for several basic consumer goods

Three-fourths of India’s population lives in rural areas, and generates one-third of the national income

The rural market has been growing steadily over the years and is now bigger than the urban market for FMCG’s (53% share of the total market) with an annual size in value terms currently estimated at around 50,000 crore

Contd. NCAER projects that the number of middle

and high-income households in rural India are expected to grow from 100 million to 130 million by 2010

The higher income group in Rural India is growing at a phenomenal rate

Changing rural customer Different SEC groups are being exposed to similar

media influences owing to Cable & TV penetration

People prefer time & convenience besides better bargains

The concept of brand & quality are very much prevalent

Rural market penetration levels

DurableDurable Rural share % Rural share % ProductProduct Penetration Penetration %%

Refrigerator Refrigerator 24.30 24.30 Coffee Coffee 77

Black and white Black and white television television

62.65 62.65 Biscuits Biscuits

60.160.1

Washing machine Washing machine 14.64 14.64 Toilet soap Toilet soap

91.691.6

Pressure cooker Pressure cooker 51.51 51.51 Toothpaste Toothpaste 35.635.6

Instant Water heater Instant Water heater 2.04 2.04 Talcum Talcum powder powder

16.416.4

Mixer/grinder Mixer/grinder 27.43 27.43 Hair oil Hair oil 16.016.0

Colour television Colour television 28.7728.77 Shampoo Shampoo 39.839.8

ScooterScooter 28.56 28.56 Razor blade Razor blade

47.147.1

MotorcycleMotorcycle 47.87 47.87 Skin cream Skin cream 15.515.5

Rural Distribution in India

Challenges for Marketing in Indian Hinterland

Lack of infrastructure, big geographical areas and wide dispersion of the villages makes regular redistribution uneconomical for the companies.

Challenges of targeting the BOP Mind boggling logistics – 638,365 villages,

24.3% have a population of 200-499 and 25.5% have a population 500 – 999.

That means 50% of the villages have 2-3 small shops as the market. – How will a distributor generate enough business?

Huge geography on which they are spread. – How can small volumes of sales support high transportation cost?

Challenges – contd… Infrastructure? Till date only 36% of these

villages are connected by a pucca road. – How can you actually send the goods there?

Low purchasing power – Apart from food & clothing, other categories tend towards luxuries rather than necssities.

That means almost 16 crore of India’s population is inaccessible or unprofitable to reach. - Challenge? Opportunity?

Product and Branding

Do the rural customers only look at price? Can the same product be given in smaller

quantities at lesser price points? Can the core product be given with only the basic

offering and strip it of peripheral features? Adaptability, Availability, Affordability,

Awareness

Retailer – The key element in rural business

Companies are realizing that rural retailer holds much bigger control over the shopping behavior than urban because of the following factors:

Khaata – Monthly account held at the retailer for all rural customers. Big influence on what they purchase.

Vishwaas – Perception that dealer is more knowledgeable as he interacts with the outside world more. Becomes their advisor.

Even for purchase of agri-machinery like tractors, they buy from local dealer.

How to engage or co-opt him into the distribution?

Rural Distribution adopted by most of the companies

Rural buying behaviour is different from urban customers. The major income comes only at the harvesting time. Majority of the bulk buying happens when the farmers go to the

nearby towns for selling the produce while daily consumption items are bought from local retailers / Haats.

Durables, clothing, 2-wheeler companies limit their coverage to these hub towns.

FMCG companies have direct distribution in towns with a minimum population size.

More use of the indirect coverage channel i.e. wholesalers in the feeder towns from where rural retailers buy.

The existing rural distributionchannels

More levels in the channel required. Challenge to ensure their profitability.

Wholesalers – Mostly village retailers buy from some feeder town close by.

Traveling agents – Commission workers collecting orders from village market and bringing the material from the feeder town.

Trade Melas – Once or twice a year event with big crowds; generally tied to a festival. There are 47000 Haats, 6800 Mandis and 25000 Melas as per the Government records. Cos. are asking the feeder town distributors to put up stalls at weekly haats.

Some other strategies Video Vans – Run by companies for adv & ready

selling. Combined promotion and selling activities. Apportionate the expenses over selling & marketing budget.

Another solution – use of cycle based salespersons, but their reach & suitability to all products is limited.

Recognize other qualitative factors – shraddh months, other inauspicious / auspicious occasions.

Effective PR – Utilize the strong influence of Sarpanch and the village elders (Opinion Leaders)

Growing trends Using non-motorized transportation – Usually bullock

carts, rickshaws & push carts, camels in desert areas, elephants in NE.

Innovative ways like combining the buying and the retailing activity - rural hypermarkets like Haryali Kissan Bazaar, Choupal Sagar

Going the e-way – e-choupal. ITC becomes a trusted partner in their lives.

Entrepreneurial empowerment – HUL Shakti. Engaging MFI, SHG & NGOs

Special products / packs by some companies

Britannia Biscuits Annapurna Salt Cold drinks Sachet Packing of Detergents, Shampoos, Hair

Oils etc. Sampoorna TV from LG

Some Innovative Strategies LIC, cement and fertilizer manufacturers push

their brand through tractor dealers. Titan has tied up with HLL van for distribution

of its Sonata range in small towns and villages. Chik shampoo’s demonstration program. Dabur Chayawanprash organizes bowling

games where nine pins represent nine diseases which it fights.

Understanding ‘ rural’

Government classification on the basis of population and the primary occupation is not adequate.

Within all metros, there are rural pockets. Migrated people living in slums in big cities will

be similar in psychographics to their rural cousins.

Targeting the urban BOP Rural population in urban areas is easier to

reach. Existing distribution but different products can

do the trick. The last-mile delivery to the retailers in such

pockets has to be usually by a manual mode. Promotion generally through nukkad nataks,

Ram Lilas and puppet shows etc.

Illustration

Rural distribution of LPG – Indane Gas

Research on Opportunities in Rural Insurance

Commissioned by LIC in 2006

Key Findings of the Research – Opportunities in Rural Insurance

Rural sector offers a huge business opportunity for insurance companies

Savings ratio is a healthy 30% of income across all socio economic segments

Awareness about Life Insurance is near universal 51% of all respondents have expressed intention to purchase

a life policy There are a total of 124 million rural households Nearly 20% of all farmers in rural India own a Kissan Credit

Cards. The 23 million credit cards issued till date offer a huge data base and opportunity for insurance.

Macro Study

Key Findings of the Research (contd.) Delivery infrastructure in the form of District

Cooperative Banks, Cooperative Societies, NGO’s and Self Help Groups already exists in most villages.

Rural connectivity through IT. E-choupal of ITC and other similar initiatives are

available as additional delivery channels of insurance

An extensive rural agent network for sale of Life insurance products exists

The agent plays a major role in creating awareness, motivating purchase and rendering other insurance services

Macro Study

Key Findings of the Research (contd.) 78% of respondents prefer various combinations of life

insurance like life + accident, life + loan, life + health + accident.

Flexibility in Premium payments is important. Security of income and bulk returns, especially for

daughter’s marriage and children’s education are major persuasions for taking life policy.

While individuals are undecided about purchasing insurance from private players, members of different groups are favorably disposed to purchasing group insurance through a private player vetted by the group… Herd mentality…Safety in numbers.

Macro Study

Name of the institution/instrument

Accessibility/ coverage of each branch

Rural presence/ penetration

Regional Rural Bank 15-20 villages 5000+ pop size village

Commercial bank (Rural Branch)

5000 account holders spread over (35-40 villages)

5000+ pop size village

Post office 5-6 villages 2000+ pop size village

Cooperative society 10,000 members spread over 20-25 villages

5000+ pop size village

*ITC E choupal 5 to 7 villages Prosperous village

District cooperative bank 7500 accounts Block head quarter

Kissan Credit Card 12% of total no. of farmers in rural area

Farmer of any village

* E-choupals manned by a “Sanchalak” provided with computer and internet connectivity for procurement of agri produce and giving information on variety of services to villagers.

Complementary Delivery Systems

Macro Study

Evaluation Criteria

Available Channels

Feasible Channels

Banks

Panchayats

NGO’s & SHG’s

Cooperatives

Agents

Post Offices

Industrial Fin Inst.

Cybermediaries

Eco Exchange Pts

Brokers

Coop Banks

Panchayats

Cooperatives

Agents

Reach

Support requirements

Business acquisition capability

Influence on target segment

Operational discipline

Customer servicing

Financial transaction handling

E-Bima

New Channel

Trust & reliability

Distribution Channels

Micro Study

BLOCK COORDINATOR (14)

Coop BankPanchayatsCooperativesAgentsE-Bima

DISTRICT COORDINATOR (1)

385201

No of Channel Units per Block

Insurer’s Resources

Suggested Strategy Model

Av. No. of Agents per LIC Dev Officer : 37

Micro Study

Infrastructure• A Van• A Computer with a Printer• Video-Audio Facility

Human Resources• One Driver• Two sales cum administrative staff / agent

Site and Mode of Operation• Moves Village to Village• Parks at Panchayat, Local School , Village Chaupal• Visits 2 Villages and one haat a day• Works 8 Hours a day

E-BIMA

Micro Study

Role

• Awareness Programmes

• Relationship Building and Management

• Business Acquisition

• Policy Servicing and Business Retention through Premium Collection facilities

Other Benefits

• Support to other Channels for Policy Servicing, Premium Collection, Policy Query Handling, Complaint Handling, Assistance in Claim Processing

• Overcome limitations of channels

Role and Benefits of E-BIMA

Micro Study