Rural marketing involves the process of developing, pricing, promoting, distributing rural specific product and a service leading to exchange between rural and urban market which satisfies consumer demand and also achieves organizational objectives.
The Indian rural market with its vast size and demand base offers a huge opportunity that MNCs cannot afford to ignore. With 128 million households, the rural population is nearly three times the urban.
As a result of the growing affluence, fuelled by good monsoons and the increase in agricultural output to 200 million tonnes from 176 million tonnes in 1991, rural India has a large consuming class with 41 per cent of India’s middle-class and 58 per cent of the total disposable income.
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1. Meaning of Rural Marketing 2. Characteristics 3. Importance 4. Challenges 5. Environment 6. Channel Management 7. Factors Affecting the Growth of Rural Market 8. Challenges and Opportunities 9. Retailers 10. Problems.
Rural Marketing: Meaning, Characteristics, Importance, Factors, Features, Challenges, Opportunities and Problems
Contents:
- Introduction to Rural Marketing
- Meaning of Rural Marketing
- Characteristics of Rural Marketing
- Importance of Rural Marketing
- Challenges to Rural Marketing
- Rural Marketing Environment
- Channel Management in Rural Marketing
- Factors Affecting the Growth of Rural Market
- Rural Marketing – Challenges and Opportunities
- Retailers in Rural Marketing
- Problems in Rural Marketing
Rural Marketing – Introduction
The growth in the rural markets is perhaps the most significant feature of the marketing environment of India in recent time. The growth implies at once a great marketing opportunity as well as a great marketing challenge. Today, the rural market of the country accounts for a large share of the expenditure on manufactured on manufactured and branded consumer goods.
The marketing environment governing the rural markets has been undergoing vast changes in the last two decades. For example, tape recorders or ‘two-in-ones’ were practically unheard of in the Indian rural market twenty years ago. Today, they are seen everywhere in rural areas, even in the remotest of hamlets. The spread of bicycles and subsequently two-wheelers has been almost in the nature of a revolution. Even TV has entered the village homes in a big way.
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In clothing, there has been a remarkable change- preferences have shifted to blended fabrics, knitted apparels and readymade garments. Earthenware pots have yielded place to a variety of new kitchenware. Plastic products and stainless steel goods have become common consumer items.
The change in every sphere in visible, palpable. Recent times have seen a steady increase in the purchasing capacity of the rural people. Contrary to popular belief, the rural market is already consuming a variety of high priced consumer durables and other modern products. And more and more companies are today targeting the rural market.
While the rural market of India poses a great attraction, tapping the market is beset with a variety of problems. Marketing men find it a new market, involving a new customer and a new marketing situation. Evidently, there are two sides to India’s rural market; the market provides immense opportunities; it also displays intimidating challenges.
It does not lend itself to be tapped through an automatic transfer of the tools and techniques of marketing, which proved a success in the urban marketing context.
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There is a difference in the kind of media mix that is used to convey the messages to the rural customers there is a need to use different models and means to reach them as what appeals to the urban customer may not appeal to him due to varying lifestyles. The communication and the design of it are also different as what attracts one need not attract the other as well. Sercon has the understanding and the ability to conceptualize and execute effective promotions in the rural areas using various below the line mediums.
Rural Marketing Activities Consist of Campaign Design and Campaign Delivery:
The success of IDE’s (International Development Enterprises) programs depends on rural mass marketing, both product marketing to stimulate user investment in products and services and social marketing to motivate changes in health behaviors. IDE develops marketing campaigns with the same detail and accountability as the strategies employed for the sale of commercial products.
IDE doesn’t market products or behaviors; it markets dreams. In both product marketing and social marketing campaigns, instead of selling a product or a desired behavior, IDE links that product or behavior to the hopes and fears of the different target groups. The unique sales point for any campaign is never the product or habit itself, but rather the most motivating thing to the audience for that campaign. Marketing campaigns link products, techniques, and behaviors to values like prestige, wealth, health, and convenience.
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IDE conducts marketing campaigns with government mass organizations, extension services, schools, and other partners in addition to private sector enterprises.
Rural Marketing – Meaning (With Reasons for Improvement in Rural Areas)
It is a two-way marketing process wherein the transaction can be:
1. Urban to rural – It involves the selling of products and services by urban marketers in rural areas. These include pesticides, FMCG products, consumer durables, etc.
2. Rural to urban – Here, a rural producer sells his produce in the urban market. This may not be direct. There generally are middlemen, agencies, government cooperatives, etc., who sell fruits, vegetables, grains, pulses and others.
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3. Rural to rural – These include selling of agricultural tools, cattle, carts and others to another village in its proximity.
Rural marketing involves the process of developing, pricing, promoting, distributing rural specific product and a service leading to exchange between rural and urban market which satisfies consumer demand and also achieves organizational objectives.
Rural India buys small packs, as they are perceived as value for money. There is brand stickiness, where a consumer buys a brand out of habit and not really by choice. Brands rarely fight for market share; they just have to be visible in the right place. Even expensive brands, such as Close- Up, Marie biscuits and Clinic shampoo are doing well because of deep distribution, many brands are doing well without much advertising support — Ghadi, a big detergent brand in North India, is an example.
The Indian rural market has a huge demand base and offers great opportunities to marketers. Two-thirds of Indian consumers live in rural areas and almost half of the national income is generated here. The reasons for heading into the rural areas are fairly clear. The urban consumer durable market for products like colour TVs, washing machines, refrigerators and air conditioners is growing annually at between 7 per cent and 10 per cent.
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The rural market is zooming ahead at around 25 per cent annually. “The rural market is growing faster than urban India now,” says Venugopal Dhoot, chairman of the Rs.989 crore (Rs. in billion) Videocon Appliances. “The urban market is a replacement and up gradation market today,” adds Samsung’s director, marketing, Ravinder Zutshi.
Reasons for Improvement of Business in Rural Area:
1. Socio-economic changes (lifestyle, habits and tastes, economic status)
2. Literacy level (25% before independence – more than 65% in 2001)
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3. Infrastructure facilities (roads, electricity, media)
4. Increase in income
5. Increase in expectations.
Marketing and Research Team (MART), the specialist rural marketing and rural development consultancy has found that 53 per cent of FMCG sales lie in the rural areas, as do 59 per cent of consumer durable sales, said its head Pradeep Kashyap at the seminar. Of two million BSNL mobile connections, 50 per cent went to small towns and villages, of 20 million Rediffmail subscriptions, 60 per cent came from small towns, so did half the transactions on Rediff’s shopping site.
The rural markets in India are undergoing a silent but definite revolution in terms of vastly enhanced purchasing power, consumption priorities and overall volume of consumption of goods and services. The sheer size of the market, as large sections of rural population get converted into consumers, is enough to demand focused attention from both marketing practitioners and academics, to convert the emergent opportunity into realizable market shares and growth targets.
Rural Marketing –7 Important Characteristics: Large Markets, Major Income from Agriculture, Standard of Living, Rising Literacy Levels and a Few Others
The rural market of India consists of about 65 per cent of the population of the country spread over nearly 630000 villages.
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Rural markets may be considered as the nerve centres of the economic, social and cultural activities of the rural life of the country. It is scattered and widespread into many villages and unlike the urban market not confined to a handful of metros, cosmopolitan cities and towns. The demand for products including consumer non-durables and durables are seasonal and therefore uneven in a year.
i. Large, diverse and scattered market – The rural market in India is large and scattered into a number of regions. There may be less number of shops available to market products.
ii. Major income of rural consumers- agriculture – Rural prosperity is tied with agricultural prosperity. In the event of a crop failure, the income of the rural masses is directly affected.
iii. Standard of living and rising disposable income of the rural customers – It is known that a majority of the rural population lives below the poverty line and has a low literacy rate, low per capital income, societal backwardness, low savings etc., but the new tax structure, good monsoon, government regulation on pricing has created disposable incomes. Today the rural customer spends money to get value and is aware of the happening around him.
iv. Traditional outlook – Villages develop slowly and have traditional outlook. Change is a continuous process but most rural people accept change gradually. This is gradually changing due to literacy, especially in the youth who have begged to change the outlook in the villages.
v. Rising literacy levels – It is documented that approximately 45 per cent of the rural Indians are literate. Hence, awareness has increased and the farmers are well- informed about the world around them. They are also educating themselves on the new technology around them and aspiring for a better lifestyle.
vi. Diverse socio-economic background – Due to dispersion of geographical areas and uneven land fertility, rural people have disparate socio-economic background, which ultimately affects the rural market.
vii. Infrastructure facilities – The infrastructure facilities like cemented roads, warehouses, communication system and financial facilities are inadequate in rural areas. Hence, physical distribution is a challenge to marketers who have found innovative ways to market their products.
As part of a planned economic development, the government is making continuous efforts towards rural development. In this age of liberalization, privatization and globalization, rural market offers a big attraction to the marketers to explore markets that are untapped.
Unlike urban markets, rural markets are difficult to predict and possess special characteristics. The featured population is predominantly illiterate, has low income, characterized by irregular income, lack of monthly income and flow of income fluctuating with the monsoon winds.
Rural markets face the critical issues of distribution, understanding the rural consumer, communication and poor infrastructure. The marketer has to strengthen the distribution and pricing strategies. The rural consumer expects value for money and owing to has unsteady and meager status of weekly income; increasing the household income and improving distribution are the viable strategies that have to be adapted to tap the immense potential of the market.
Media reach is a strong reason for the penetration of goods like cosmetics, mobile phones, etc., which are only used by the urban people. Increasing awareness and knowledge on different products and brands accelerate the demand. The rural audience are however critical of glamorous ads on TV, and depend on the opinion leaders who introduce the product by using it and recommending it.
Opinion leaders play a key role in popularizing products and influence in rural market. Now- a-days educated rural youth also influences the rural consumers. Rural consumers are influenced by the life style they watch on television sets. Their less exposure to outside world makes them innocent and fascinated to novelties. The reach of mass television media, especially television has influenced the buying behaviour greatly.
Rural Marketing – Importance: Size of the Rural Market, Rural Market in Value Terms, Rural Target Population, Market for Agricultural Inputs and a Few Others
1. Size of the Rural Market:
An analysis of National Sample Survey data shows that of the total expenditure on manufactured consumer goods, 75 per cent is spent in rural India. The percentage has remained almost unchanged since 1960-61. Though per capita consumption and expenditure on manufactured consumer items is low in rural areas, the market is approximately three times larger.
On the assumption that ill persons or families above the poverty line form the market for some branded consumer goods, this market has a size of 42 million households. If we take Punjab, Rajasthan, Gujarat and Andhra, the target market of 72 million people is larger numerically than France, U.K. or West Germany.
2. Rural Market in Value Terms:
For non-food consumption items the size of the market (estimated by applying NSS proportions to central statistical organisation data) in current prices was Rs. 5,500 crore in 1970-71, Rs. 9,500 crore in 1974-75 and 13,500 crores in 1979-80. Assuming these items are mainly consumed by the rural population above the poverty line it represents an annual expense of Rs. 5.6 per head per annum.
In real terms, however, the growth has been very modest at 2.5 per cent per annum due to a number of factors such as:
(a) Lack of concerted effort by the organised sector to penetrate the rural market.
(b) Averages are misleading in this type of analysis as peak opportunities which occur in certain pockets may not be fumy realised.
(c) If the market for consumer products is considered as a whole it overshadows the opportunities that exist for selected products which may be growing at a much faster rate.
3. Rural Target Population:
Wealth distribution in rural India is uneven and the top 13 per cent of the farmers’ land holdings account for 37 per cent of cultivated area. Further, NSS data show that the top 10 per cent of the rural population accounts for above 37 per cent of the expenditure on consumer goods.
Not surprisingly the potential market is at the top of the spectrum. However with the increasing spread of the rural income, consumer goods are expected to make substantial penetration into the lower income strata by the normal percolation effect. Then there is an increasing cross flow of population between urban and project town centres which act as conducts for cross flow of products and ideas thus supplementing the demand for such products.
4. The Market for Agricultural Inputs:
There is a very rapidly expanding demand for agricultural inputs in rural market. This is borne out by the compound rate of growth in the off take of agricultural inputs between 1970-71 and 1980-81;
i. Fertilizers – 10 per cent
ii. Pesticides – 12 per cent
iii. Area under high Yielding Variety – 12 per cent
iv. Tractors – 15 per cent
v. Pumps and tube-wells – 11 per cent
A recent survey in Andhra, Punjab and Haryana revealed that over 90 per cent of the farmers interviewed felt that they should use more and more new farm practices. The study established that in these areas the farmers are eager to use newer agricultural technology for improving profits and are prepared to take calculated risks.
5. Sources of Rural Purchasing Capacity:
Following are the factors which contribute to purchasing capacity in rural areas:
(a) Marketable Agricultural Surplus and Rural/Urban Terms of Trade:
So far as manufactured consumer goods are concerned, regression analysis indicates that there is a 0.7 per cent rise in consumption for every one per cent increase in marketable surplus of food-grains. As the surplus is increasing every year, there will be increasing purchasing capacity with farmers.
(b) Remittances:
The traditional remittances from within the county are now being supplemented in several states by remittances from overseas. In 1978 total inward remittances in the state of Kerala were estimated at Rs. 400 crore. This creates new consumption and purchasing patterns.
(c) Dispersal of Industry:
The investment in the development of backward areas will greatly speed up the income generation process in rural areas.
(d) Government Expenditure:
Investments in flood control and irrigation facilities will be around Rs. 12,000 crore in 1983-1985 and central sector outlay for rural development and associated programmes will be Rs. 2,300 crore. These will generate income, and increased purchasing power of rural areas can be expected to support consumption of manufactured items.
Further, these investments are expected to augment the income generation process from land in future years, which in turn, will accelerate the growth of rural markets. The investment proposed during the VII plan for developing village and khadi industries is of the order of Rs. 2,000 crore. This too will encourage the income generation process.
6. Helpful in the Food Processing Industry:
India is a land of agricultural, horticulture, sericulture which produce a number of varieties of food-grains, fruits, vegetables, commercial crops and flowers. The government of India making its efforts to develop the food processing industry while giving a number of benefits including tax benefits, incentives, subsidies, transportation and marketing facilities.
Food manufacturers or processors are primarily engaged in adding farm utility to raw farm products. Wheat is milled into flour, livestock is converted into meat products, fruits and vegetables are canned or frozen. These firms play a vital role in transforming bulky, raw, perishable farm products into storable, concentrated, and more appealing good products.
In so doing, food processors become involved in several supportive marketing functions, such as transportation storage, and financing. Thus, food processors occupy a strategic position in the food industry. Through the purchase of farm commodities, their activities are closely linked to farmers.
As the source of many food product innovations and as the major brand advertisers in the food industry, they are also in close contact with consumer markets.
Punjab, Himachal Pradesh and Jammu & Kashmir are the main producers of fruits and vegetables, in south Gujarat, Kerala and Karnataka, Maharashtra are the producer of coconut, groundnut, bananas, cashewnuts and certain other products like tea and coffee.
Government is developing food processing industries in these states, which is being responded as per the expectations.
7. Helpful in Economic Development:
Rural marketing plays an important role not only in stimulating production and consumption, but in accelerating the pace of economic development. Its dynamic functions are of primary importance in promoting economic development. For this reason, it has been described as the most important multiplier of rural development.
The development of an efficient marketing system is important in ensuring that scarce and essential commodities reach different classes of consumers. Marketing is not only an economic link between the producers and the consumers; it maintains a balance between demand and supply.
The objectives of price stability, rapid economic growth and equitable distribution of goods and services cannot be achieved without the support of an efficient marketing system.
8. Increase in Farm Income:
An efficient marketing system ensures higher levels of income for the farmers by reducing the number of middlemen or by restricting the commission on marketing services and the malpractices adopted by them in the marketing of farm products.
An efficient system guarantees the farmers better prices for farm products and induces them to invest their surpluses in the purchase of modern inputs so that productivity and production may increase.
This again results in an increase in the marketed surplus and income of the farmers. If the producer does not have an easily accessible market-outlet where he can sell his surplus produce, he has little incentive to produce more.
The need for providing adequate incentives for increased production is therefore very important, and this can be made possible only by streamlining the marketing system.
9. Optimization of Resource Use and Output Management:
An efficient rural marketing system leads to the optimisation of resource use and output management. An efficient marketing system can also contribute to an increase in the marketable surplus by scaling down the losses arising out of inefficient processing, storage and transportation.
A well-designed system of marketing can effectively distribute the available stock of modem inputs, and thereby sustain a faster rate of growth in the rural sector.
10. Growth of Agro-Based Industries:
An improved and efficient system of rural marketing helps in the growth of agro-based industries and stimulates the overall development process of the economy. Many industries depend on agriculture for the supply of raw materials.
So many producers have installed their industrial units near the village side and are also interested to install the units in the rural areas so as to minimise the transportation cost, easily availability of raw materials and some benefits which are specially meant for rural producers. So growth of agro based industries constitute one of the most important segment of rural marketing.
11. Widening of Markets:
A well-knit marketing system widens the market for the products by taking them to remote corners of the country, i.e., to areas far away from the production points. The widening of the market helps in increasing the demand on a continuous basis, and thereby guarantees a higher income to the producer.
12. Price Signals:
All efficient marketing system helps the farmers in planning their production in accordance with the needs of the economy. This work is carried out through price signals. The government is announcing the minimum support price of the agriculture produce every year and also emphasising the importance of a particular farm products.
For examples during the past 5 years the government is stimulating the fanners to produce more commercial crops like sugarcane, soyabean, sunbean, groundnut, tobacco and tobacco products, sericulture products, fruits and vegetables, cotton and oilseeds. To fetch a good price the farmers are directed to produce as per the requirements of the economy.
13. Adoption and Spread of New Technology:
The marketing system helps the farmers in the adoption of new scientific and technical knowledge. Past experience shows that our rural areas were totally under-developed and under-utilised because of the lack of mechanisation of agriculture.
With the advancement of technology, mechanisation, introduction of high yielding varieties, development of fertiliser and pesticides and proper government policy has increased the agriculture production to a greater extent which is the back bone of rural industries.
14. Employment:
The marketing system provides employment to millions of persons engaged in various activities, such as packaging, transportation and processing. Persons like commission agents, brokers, traders, retailers, weightmen, hamals and regulating staff are employed in the marketing system.
A number of employees are working in the marketing system which is three tier system ranging from primary marketing society, central marketing committee and state marketing board. Side by side cooperative marketing system provides employments to a number of employees. Storage, warehousing, transportations, middlemen, provides employments to a number of prospects.
15. Better Living:
The marketing system is essential for the success of the development programmes which are designed to uplift the population as a whole.
Any plan of economic development that aims at diminishing the poverty of the agricultural population, reducing consumer food prices, earning more foreign exchange or eliminating economic waste has, therefore, to pay special attention to the development of an efficient marketing for food and agricultural products.
16. Contribution to National Income:
Marketing activities add to the nation’s gross national product and net national product. An estimate indicate that 14% of the gross national product comes from the rural sector and 11% is derived from rural industries.
Moreover there are number of activities which are called allied activities to rural sectors are also giving a reasonable contribution to the national net worth. Rural development means the development of the country cannot be over emphasised.
17. Utility Creation:
Marketing is productive, and is as necessary as the farm production. It is, in fact, a part of production itself, for production is complete only when the product reaches a place in the form and at the time required by the consumers. Marketing ads cost to the product; but, at the same time, it adds, utilities to the product.
The following four types of utilities of the product are created by marketing:
(a) Form Utility:
The processing function adds form utility to the product by changing the raw material into a finished form. With this change, the product becomes more useful than it is in the form in which it is produced by the farmer.
For example, through processing, oilseeds are converted into oil, sugarcane into sugar, cotton into cloth and wheat into flour and bread. The processed forms are more useful than the original raw materials.
(b) Place Utility:
The transportation function adds place utility to products by shifting them to a place of need from the place of plenty. Products command higher prices at the place of need than at the place of production because of the increased utility of the product.
(c) Time Utility:
The storage function adds time utility to the products by making them available at the time when they are needed.
(d) Possession Utility:
The marketing function of buying and selling helps in the transfer of ownership from one person to another. Products are transferred through marketing to persons having a higher utility from persons having a low utility.
Rural Marketing – 4 Important Challenges: Availability, Affordability, Acceptability and Awareness
The four A’s seek to address four important challenges linked to rural markets:
Challenge # 1. Availability:
Making products available to geographically scattered consumers is an important challenge for marketers. The geographical expanse of rural villages is over 3.2 million square kilometres. The problem of availability is further compounded by lack of adequate infrastructure.
The poor state or absence of roads poses a daunting task in terms of channels design, selection, and logistics of distribution. HUL has developed its own unique distribution network called ‘Project Shakti’ that involves local people distributing its products in interior villages with population less than 5,000 people.
Challenge # 2. Affordability:
Incomes disparity between rural and urban consumers creates two different levels of affordability. Low disposable income levels of rural consumers renders products designed for urban markets beyond their capacity. For instance, feature rich high quality products need to be scaled down to make them affordable to rural consumers.
This requires visiting the concept of ‘value for money’ from a fresh perspective. Rural consumers do not want cheap products per se; rather they expect good value for money. Therefore, products should be scaled down to an acceptable level of quality in order to render it within their reach.
Coca-Cola launched its five rupee bottle to cater to this market. Another affordability creation strategy is developing smaller affordable lower price point packs that do away with the need to invest bigger sums in buying bigger packs. Chik shampoo ushered in this revolution in India, which was followed by many other companies.
Prominent brands such as Britannia Tiger, Fair & Lovely, Surf, Himani Navratan Oil, Vaseline, and Cadbury Dairy Milk are now available in affordable packs that cost less than five rupees.
Challenge # 3. Acceptability:
It is wrong to assume that rural consumer needs and wants are same as that of urban consumers. For instance, erratic power supply and voltage fluctuation require electronic and electric appliances to be adapted as per the rural conditions.
For instance, LG and Onida have created value for money models of televisions customized as per rural markets that are marketed under different brands like ‘LG Samporna’ and ‘Igo’ respectively. Similarly, Tata and HUL have developed storage water purifiers that do not require electricity.
Challenge # 4. Awareness:
Unlike urban consumers, the rural consumers are difficult to reach out to in order to deliver communication messages. This is because the rural markets are not connected by media such as television, press, outdoor, and radio. Media penetration is abysmally low in rural areas.
Therefore, commonly used mass media becomes vastly incapable of reaching rural consumers. Unless consumers are informed and persuaded, brand building is not possible. There are some conventional ways such as cinema, haat, mandi, and mela which can be used to make consumers aware about brands.
Some companies use communication vans that combine product promotion with screening of movies to spread awareness. Posters, banners, painting walls, painted kiosks, and events are some ways by which awareness can be built in rural areas.
Rural Marketing – Changes in Environment: Social Changes, Economic Changes, Ethical Changes, Political Changes, Physical Changes and Technological Changes
The rural marketing environment is complex and is changing continuously. The marketing organization should foresee and adopt strategies to changing requirements in the market. An adaptive organization that makes its effective marketing plans and its own strategies or a creative one will prosper and create opportunities in the changing environment.
Rural marketing environment changes will be in the area of:
1. Social changes.
2. Economic changes.
3. Ethical changes.
4. Political changes.
5. Physical changes.
6. Technological changes.
The social changes consist of 3 factors:
i. Sociological factors – Consumer society or the community is important. The consumers’ lifestyle is influenced by the social set-up. The social constitution and changes influence customer habits, tastes and lifestyles.
ii. Anthropological factors – The regional cultures and subcultures and living patterns influence advertising, sales promotion, selling strategies and packaging. The consumers in East India have different tastes.
iii. Psychological factors – Consumer behaviour, attitudes, personality and mental make-ups are unique. The study of behaviour is vital to evolve marketing mix.
This force consists of three stages:
i. Competition – A good and healthy competition brings in good and overall improvement in economic activities. It also brings good quality, quantity and prices.
ii. Consumers – The consumers today are quite knowledgeable and choose. Their progress and well-being should be the aim of any economic activity.
iii. Price – Pricing is a delicate issue, which should be market- friendly, not too high or too little. The marketer has to keep in mind to get decent returns on investment and efforts of procedures and marketers.
Business minus ethical values brings degeneration. In the long run, it brings problems. Non-standardization, adulteration, exploitation and falsification are the main ethical issues in business organizations.
The government policies towards trade and commerce, internal taxation, external levies and preferential treatments have profound influence on the marketing strategies.
The infrastructure availability for movement and storage of goods play a significant role in the physical distribution of goods and in reaching the consumers.
The fast changing science technologies give a cutting edge to the marketing products. The change of processes reduces manufacturing, packaging and handling cost of products. The changes warrant changes in marketing, inputs and strategies.
The capital is made to work faster and harder. So is the case with the marketer. He has to use these new marketing tools and facilities in designing and implementing his marketing strategies, which are adaptive to the changing environment and ensure success.
Rural Marketing – Problems in Channel Management: Multiple Tiers, Higher Costs, Administrative Problems, Non-Availability of Dealers and a Few Others
Organizing an effective distribution channel is the second major task in rural marketing. This task too is beset with many unique problems.
As we shall first analyze these problems and then see how channel management can be handled in the rural context.
i. Multiple Tiers, Higher Costs and Administrative Problems:
In the first place, the distribution chain in the rural context requires a larger number of Ina tiers, compared with the urban context. The long distances to be covered from the unproductive points and the scattered locations of the consuming households cause this situation. At the minimum, the distribution chain in the rural context needs the village level shopkeeper, the mundi level distributor and the wholesaler/stockiest in the town.
And on top of them, it involves the manufacturers’ own warehouses / branch office operations at selected centers in the marketing territory. Such multiple tiers and scattered outfits push up costs and make channel management a major problem area.
ii. Scope for Manufacturers’ Own Outlets Limited; Greater Dependence on Dealers Inescapable:
The scope for manufacturers’ direct outlets such as showrooms or depots in the rural market unlike in the urban context. It becomes expensive as well as unmanageable. Dependence of the firm on intermediaries is very much enhanced in the rural context as direct outlets are often ruled out.
But controlling such a vast network of intermediaries is a difficult task. Control is mostly indirect. And because of these factors the firm has to be more careful while selecting the channel members in the rural context.
iii. Non Availability of Dealers:
In addition, there is the problem of availability of dealers. Many firms find that availability of suitable dealers is limited. Even if the firm is willing to start from scratch and tryout rank newcomers, the choice of candidates is really limited.
iv. Poor Viability of the Retail Outlets:
Moreover, sales outlets in the rural market at the retail level suffer from poor viability. A familiar paradox in rural distribution is that the manufacturer incurs additional expenses on distribution and still the retail outlets find that the business is unremunerative to them.
The scattered nature of the market and the multiplicity of tiers in the chain use up the additional funds the manufacturer is prepared to part with. And no additional remuneration accrues to any of the groups. Moreover, the business volume is not adequate enough to sustain the profitability of all the groups and the retail tier is the worst sufferer.
v. Inadequate Bank Facilities:
Distribution in rural markets is also handicapped due to lack of adequate banking and credit facilities.
Rural outlets need banking support for three important purposes:
(a) To facilitate remittances to principals and to get fast replenishment of stocks
(b) To receive supplies ‘through bank’ (retiring documents with the bank)
(c) To facilitate securing credit from banks
As banking facilities are inadequate in the rural areas, the rural dealers are handicapped in all these aspects. It is estimated that there is only one bank branch for every fifty villages.
vi. Inadequate Credit Facilities from Banks:
Inadequacy of institutional/bank credit is another constraint. The rural outlets are unable to carry adequate stocks due to lack of credit facilities. They are unable to extend credit to their customers. And the vicious circle of lack of credit facilities leading to inadequate stocking and loss of business, finally resulting in poor viability of outlets, gets perpetuated.
Analysis shows that many companies hesitate to venture into rural markets largely because of the problems on the distribution front. They find it uneconomic to operate outlets in rural areas as in their perception, cost of selling, cost of transportation, cost of sub-distribution and cost of servicing the outlets are all very high in the rural market.
vii. The Existing Market Structure:
It has been estimated that the Indian rural market is composed of 22,000 primary rural markets and 20 lakh retail sales outlets of which nearly one lakh are fair price shops of the Public Distribution System (PDS). One retail shop serves on an average 60 to 70 families in the rural areas.
The structure involves stock points in feeder towns to service these retail outlets at the village level. The stock points belong to either the manufacturer or the marketer / distributor for the area. In either case, the stock point in the feeder town is the key to rural distribution.
viii. The Available Channel Choices:
Today, the channel types that are available in the rural markets are as follows:
i. The private shops,
ii. The cooperative societies.
iii. The Fair Price Shops (FPS), (cooperatives or private), of the PDS.
iv. The village shandy or weekly market
Out of the above, the cooperative societies are mainly concerned with the distribution of agricultural inputs and the FPS with the distribution of essential commodities consumed by the common man. The Village shandy’ is a widely used channel of the rural market. But its role in marketing branded products is somewhat limited.
For a large variety of consumer products, the private shops are the main channel in the rural markets; they are also the cheapest and the most convenient channel to align with. As such, we shall examine in some detail how the private village shops are utilized by the business firms in their rural distribution effort.
According to a census of retail outlets carried out by the Operations Research Group (ORG), there are 2.02 million sales outlets in rural India, with a major chunk constituted 1 by the private shops. In fact, the private village shops of India are seen to be one of the cheapest distribution channels in the world this is quite striking, considering the many handicaps with which the village shopkeeper in India has to operate He is forced to deal in a large number of products in order to make his operations viable.
That means a larger inventory .The longer lead time for replenishments from the urban based production point enlarges the inventory holding further. And as his sales are not uniform throughout the year, he has to carry the inventory over a longer period of time. All these factors lead to the blocking up of his capital. The scope of compensating for the higher costs through increased markup is rather limited.
He cannot add a higher mark up on many of the products he is handling simply because the consumer he is catering to cannot afford to pay a higher price. Nor is he able to make up by increased turnover. The average daily turnover of a rural shop is often less than Rs 200. Even this level of turnover is generated only when he extends credit to his customers. And he incurs additional expenses for the frequent trips he has to make to the supply points in the towns/market centers.
But in spite of all these handicaps of low turnover, high inventory costs and inadequate marketing support from the principals, the village shopkeeper operates quite efficiently. He achieves this feat largely through his inborn ability for astute management of money and other inputs. He also puts in hard work. He keeps his shop open for 14 hours a day compared to the 8 hours service provided by the urban shops. And he keeps his shop open for 365 days in the year with the support of his wife and children and ensures that he does not miss a single possible sale.
In fact, it is mainly human labour, the cost of which neither gets accounted nor paid for that makes the traditional private village shops of India one of the cheapest distribution channels in the world.
It is quite natural that firms seeking an effective presence in the rural market, willingly embrace the private village shops as the major component of their distribution outfit. And on their part, the village shops function as an effective bridge between the scattered rural consumers and the urban-based producers.
Organizing one’s channel out of these private shops, however, requires assiduous efforts on the part of the firm. It has to select its outlets from out of existing shopkeepers or select a few fresher and appoint them as the outlets.
The choices are usually confined to the following categories:
i. Existing traditional private shops
ii. Money lenders willing to branch off to trade,
iii. Land owners willing to branch off to trade
iv. Educated unemployed persons
The firm has to select personnel from among the above groups depending on the product line and other relevant factors and then train them and develop them into competent dealers.
A concept that has come to be known as ‘satellite distribution’ can be tried in developing a distribution channel in the rural market. Under this system, to start with, the firm appoints stockiest feeder towns. They take care of financing of goods, warehousing of goods and sub distribution of goods in the area covered by the feeder town. The firm also appoints a number of retailers in the around the feeder towns and attaches them.
Managing the Rural Sales Force:
The special requirements with the rural sales force has to meet, the task of sales force management too caries certain added dimensions in the rural context. In selecting the salesmen, in giving them orientation, in motivating them and in developing them the sales manager has to adapt to the unique requirements of rural selling.
For example, while providing orientation to the newly recruited rural salesmen, the sales manager may have to devote a longer time. And mere classroom training will not meet the requirements of orientation of rural salesmen. The salesmen need comprehensive on- the-job coaching in selected village markets.
And they need to be educated about the rural marketing environment in addition to being trained in salesmanship and selling techniques. The rural sales manager must also support his salesmen with non-conventional means of market promotion suitable to the rural consumers. Rural salesmen also need more intensive sales training, as they have to handle a variety of products.
In short, sales force management in the rural context becomes an exacting job, especially when the firm has big stakes in rural marketing and when it operates on a nationwide basis. For example, Hindustan Lever’s rural salesmen have to cover 70,000 rural locations.
Administering such a large and scattered sales force, supervising them, supporting them in sales calls, coaching them on the job, attending to their official and personal problems and above all, motivating them for better results is an exacting task for the sales manager.
Rural Marketing – Factors Affecting the Growth of Rural Marketing in India
India is a land of agriculture and basically she resides in the villages. According to 1991 census more than 63 per cent of the population lives in villages. That this population makes its both ends by cultivating, selling the agricultural product, working on agriculture which is called agricultural labours, some are involved in the processing of agricultural products and allied activities.
Some are rendering the services to the villagers by providing those seeds, fertilizers, pesticides and some are doing the job work on agriculture. This conclude rural marketing has taken place only from the agricultural field. There are some factors which are responsible for the growth of rural marketing in India.
They are:
Factor # 1. Professionalisation or Specialisation of the Marketing:
Marketing has been recognised as profession in the early 1950. People are now preferring the jobs in the marketing department and accepting the challenges of the marketing management. People are now more interested to acquire knowledge of the marketing and apply it in the field of marketing.
The tendency towards increasing specialization by persons in certain jobs has resulted in an increase in their efficiency and the breakdown in the self sufficiency of the family unit. Specialization, thus, has resulted in increased production, which is the base for the growth of marketing.
The government is also motivating the people who are the graduates in marketing and also the institutions which are providing marketing education by allowing fellowship to the graduates and a huge amount of grants to the institutions.
Factor # 2. Urbanisation:
In the 1981 census the rural population was 69 per cent of the total population which fell down to 63% in the year of 1991. This indicates that the rural population is moving to the urban areas for the purpose of acquiring education seeking employment, business purposes and selling the agricultural and rural products in the urban areas.
As the demand of rural products in urban areas is more and by selling these products in the areas they can earn their livelihood. Urban people are the main buyers of agricultural commodities. The urban population of India and increased from 33.5 million in 1931 to 62.9 million in 1951, to 109.1 million in 1971, to 181.9 million in 1981 and 217.2 million in 1991. This has necessitated a faster growth of agricultural marketing.
Factor # 3. Development of Transportation and Communication:
The modern means of transport and communication is the most important tool of developing the size of rural marketing. Transportation and communication is just like a life blood in the human life. Transportation and communication make and help the process of marketing and minimizes the distance between the different centres.
The increasing transportation and communication facilities have widened the market for farm products. The length the breadth of the market to which a product is taken from the production areas have increased. In the absence of these facilities, the movement of produce from one area to another was limited, and the consumption of a product was restricted only to the areas of production or at the most to nearby area.
Factor # 4. Technological Change in Agriculture:
Technological developments in agriculture, such as the evolution of high- yielding varieties of seeds, increased use of modem inputs and cultivation practices in the agricultural sector, has resulted in substantial increase in farm production. The marketed surplus of the agricultural produce has therefore increased.
Production conscious farmers have also become income/price conscious. This has resulted in the growth of the marketing system. The importance of an efficient marketing system as a vital link between the farmer and the consumer was recognised way back in 1928 by the Royal Commission on Agriculture.
Since then, a good deal of progress has been made in organising agricultural marketing by the adoption of the various administrative and legislative measures by the Government from time to time.
The establishment of the Directorate of Marketing and Inspection in 1935, the enactment of the Act for the grading and standardization of agricultural commodities, the conduct of commodity market surveys, and the establishment of regulated markets in the country-these are some of the measures which have been taken upto improving the marketing situation and to make agricultural marketing as efficient as possible.
During the First and Second Five Year Plans, agricultural marketing did not receive importance. Whatever development that took place in the sphere of marketing was due to the gradual progress towards the commercialization of agriculture, as a result of its own dynamic nature, and not because of any specific Government efforts.
The National Commission on Agriculture (the first commission which suggested measures for the development of agriculture in the post-independent period) remarked- “There is an increasing awareness that it is not enough to produce a crop or animal product, it must be marketed well. Increased production, resulting in a greater percentage increase in the marketable surplus accompanied by the increase in demand from urban population, calls for a rapid improvement in the existing marketing system.”
Factor # 5. Cooperative Marketing and Government Efforts:
Marketing Committee system and cooperative marketing are the two parallel institutions framed for the purpose of rural marketing.
The marketing system is working under the direct control for the respective state governments having its three tier system, the apex institution is state marketing board, at district level central marketing committee and at block level primary marketing committees are functioning.
The cooperative movement as it was envisaged by the father of nation Mahatma Gandhi, in every state we are having the producer, commission agents, government nominees and the representative of local areas. These markets are working very successfully and as a result it has increased the share of sales of rural products in the regulated markets.
By this system we mean one for all and all for one. It teaches the principle of cooperation and fraternity. Moreover it is increasing the spirit of the producers as their interests are protected through the marketing system in India. So this is the main reason that rural marketing is gaining more and more attention in the Indian market scene.
Rural Marketing – Challenges and Opportunities
The Indian rural market with its vast size and demand base offers great opportunities to marketers. Two-thirds of countries consumers live in rural areas and almost half of the national income is generated here. It is only natural that rural markets form an important part of the total market of India. Our nation is classified in around 525 districts, and approximately 640000 villages which can be sorted in different parameters such as literacy levels, accessibility, income levels, penetration, distances from nearest towns, etc.
The success of a brand in the Indian rural market is as unpredictable as rain. It has always been difficult to gauge the rural market. Many brands, which should have been successful, have failed miserably. More often than not, people attribute rural market success to luck. Therefore, marketers need to understand the social dynamics and attitude variations within each village though nationally it follows a consistent pattern.
While the rural market certainly offers a big attraction to marketers, it would be naive to think that any company can easily enter the market and walk away with sizable share. Actually the market bristles with variety of problems.
The Problem Areas in Rural Marketing:
The main problems areas in rural marketing are:
(i) Physical distribution
(ii) Channel management.
(iii) Sales force management.
(iv) Promotion and marketing communication
Managing Physical Distribution in Rural Markets:
The special problems in physical distribution in the rural context relate to:
(i) Transportation,
(ii) Warehousing
(iii) Communication
Transportation infrastructure is quite poor in rural India. Though India has the fourth largest railway system in the world, many parts of the rural India remain outside the rail network. As regards road transport, nearly 50 per cent of the 576,000 villages in the country are not connected by roads at all. The Government had planned to connect at least the bigger villages, i.e., villages with a population of 1,500 and above, with all-weather roads by 1990.
Even this limited objective has not been accomplished. Many parts in rural India have only kacha roads and many parts of the rural interiors are totally unconnected by roads with any mundi level town. As regards carriers, the most common mode is the animal drawn cart. Because of these problems in accessibility, delivery of products and services continues to be difficult in rural areas.
In warehousing too, there are special problems in the rural context. Business firms find it quite difficult to get suitable godowns in many parts of rural India. And there is no public warehousing agency in the ‘interiors of rural India. The Central Warehousing Corporation(CWC) and the State Warehousing Corporations(SWCs) which constitute the top tier in public warehousing in India, do not extend their network of warehouses to the rural parts.
They go only up to the nodal points or major market canters. The warehouses at the mundi level which constitute the second tier in the warehousing chain are mostly owned by cooperatives. And the same is the case with rural godowns, which form the third tier. None of these tiers function as public warehousing agencies; they provide the warehousing service only to their members.
As such, a business firm has to manage with the CWC/ SWCs network which stops with the nodal points, or it has to establish its own depots or stock points run by its stockiest / distributors. Of course, in such cases, the commercial advantage of operating through a public warehousing agency like CWC/ SWC are lost to the firm.
Communication infrastructure; consisting of posts’ and telegraph and telephones, is quite inadequate in rural areas. Since communication is the first requirement of efficient! Marketing, lack of proper communication infrastructure poses difficulties, especially in physical distribution.
Cost-Service Dilemma Gets More Acute:
The effect of these problems on the physical distribution front is certainly felt by any business firm venturing into the rural market. They adversely affect the service aspect as well as the cost aspect. Maintaining the required service level in the delivery of the costs get escalated with 80 per cent of the total rural consumers living in the ‘less than 1,000 people’ category of villages.
The scattered nature of the market and its distance from the urban-based production points, compound the difficulty arising from the constraints in transportation, warehousing and communication. Larger pipeline stocks and bigger inventories in warehouses are the natural outcomes of these constraints.
It means higher costs of transportation, higher inventory carrying costs and transit and storage losses. And as we will see in detail in the next section, costs of distribution channels too are much higher in the rural context.
Consequently, the total distribution cost per unit is higher by as much as 50 per cent on an average in the rural market, as compared to the urban market. In fact, the experiences of some companies operating in the rural market show that the cost of distribution in rural areas is two and a half times that of urban areas.
The Firm can share physical distribution responsibility with its stockiest or C & F Agents. With a view to keeping the costs low, some firms’ try out remote control marketing. But experience shows that firms with major aspirations in rural marketing cannot depend on such remote control operations; they cannot take the route of ‘simply consigning the goods and retiring the bills through banks.’ For them, effective presence in the market is a must.
While it may not be necessary to have a network of own stock points throughout the marketing territory, the firm should have a network of stockiest or clearing-cum-forwarding agents (C & F agents) at strategic locations for facilitating physical distribution of its products in the rural areas. The advantage in this scheme is that the costs of physical distribution can be shared by the firm and the stockiest.
Combining Different Modes of Transport May be Advantageous:
As regards transportation, the system of rail-cum-trucks for long distance movement, trucks for medium/short distance movement and delivery vans and bullock carts for local haulage should effectively serve the purpose. Water transport too, has a role in specific areas. Bullock cart has a special role in rural distribution.
Business firms an operating in the rural market of the country have to appreciate that bullock carts play op’ a major role in secondary transport. They are cheaper; they are available in plenty and they are ideal for the rural roads.
Companies like Hindustan Lever, Tomco, Brooke Bond-Lipton and ITC who are the in pioneers in rural marketing in India, have successfully experimented with company undelivery vans, for resolving the distribution problems in the rural market.
The delivery van takes the products to the retail shops in every nook and comer of the rural market. Besides resolving the problem of product delivery, the van also serves certain vital secondary purposes- it enables the firm to establish direct sales contact with thousands of rural consumers; it also helps the firm in sales promotion.
But the cost of operating such vans is quite high. And the proposition can work only if the market/area assures No business substantial enough to cover such costs. In the case of HLL, ITC, etc., they knew In that such a level of business would accrue only out of a sustained and long-term marketing effort and market presence.
These firms had the resources, as well as the will and to stay in the market. Through the system of operating the vans, they were not just solving a transportation problem, they were developing the market. And they were Po viewing the costs as a long-term investment.
While company delivery vans are very useful in rural distribution, the idea cannot be easily implemented by firms with relatively less resources. Syndicated distribution may be of help in such cases, the firms can come together and encourage an independent agency to operate such delivery vans with a view to hiring its services. The delivery van here becomes a syndicated service.
Rural Marketing – Retailers in Rural Marketing: Shops within the Village, Shops Located on the Main Road, Kasba Market or the Tahsil Market
There are different kinds of retailers:
i. Shops within the village.
ii. Shops located on the main road and not exactly within the village.
iii. Kasba market or the Tahsil market.
The clientele for these markets also varies. For the shops within the village, the stocking pattern is very much dependent on the kind of investment the retailer can make in a one-time purchase.
Margins are very important to a rural retailer. The pushing by the retailers depends on margins and the pushing by the wholesalers depends on retailers. The gap is very wide because the local manufacturers do not undertake investments either in terms of advertising or anything. Hence they are very fast imitators.
For rural retailers, it’s the question of simple economics “Am I getting more money if I invest much less on these brands?” He decides based on this question regarding more the margin better choice to stock and sell.
The rural retailer stocks few brands in each category. This may have important implications for a company and its managers because whoever reaches the market first gets the share of the market. The rural retailer may keep some amount of area or space for a certain product category and he won’t keep more than one or two brands. So unless the marketer reaches there first and re-stocks at frequent intervals, he will not be able to sell more.
The other important development has been that more number of companies are offering smaller packs. The retailer today has far more shelf space than he had earlier. Shampoos are available in sachets. He can simply string the shampoo sachets and hang it.
Rural Marketing – Problems Faced by Manufacturer: Underdeveloped People, Lack of Proper Physical Communication Facilities and a Few More
The major problems faced by manufacturing and marketing men in rural areas are described below:
i. Underdeveloped people and underdeveloped market – Agricultural technology has tried to develop the people and market in rural areas. Unfortunately the impact of the technology is not felt uniformly throughout the country. In addition, the farmers with small agricultural land holdings have also been unable to take advantage of the new technology. Thus the rural markets by and large are characterized by underdeveloped people and consequently underdeveloped markets.
ii. Lack of proper physical communication facilities – Nearly 50 percent of the villages in the country do not have roads. Hence the distribution efforts put in by a manufacturer prove expensive and sometimes of no consequence. To be effective, the products have to be physically moved to the places of consumption or places of purchase.
iii. Media for rural communication – Among the mass media at some point of time, say, in the late 1950s or early 1960s, radio was considered to be a potential medium for communication to the rural people. This has been extensively used to diffuse agricultural technology to rural areas.
iv. Many languages and dialects – Even assuming that media are available for communication or the company commissions its own media vans, the number of languages and dialects vary widely from state to state, region to region and probably from district to district.
v. Hierarchy of markets – The rural consumers have identified marketplaces for different items of their requirements. Thus, depending upon the purchase habits of rural people, the distribution network for different commodities has to be different.
The innumerable problems can be classified into the following categories:
a. Consumer motivation and buying habits.
b. Location and degree of demand.
c. Dealer availability, attitude and motivation.
d. Mass communication media.
e. Logistics, storage, transport and handling.
f. Marketing organization and staff.
Any strategy for rural marketing should take the above problems into account, so that the investments made are easily recovered.