Reverse Innovation: The New Paradigm in Rural Marketing Challenges and Opportunities

Dr. Ram Kishen Y*, Ashutosh Kumar** and Astha Pasricha*** Executive Summary: With around 6,38,667 villages, India boasts of the highest number of villages in the world, hugely populated by 720 million people (72% of India lives in villages). It is a market which cant be ignored by the Marketers. Indian companies as well as MNCs think Rural Markets as the dumping grounds for their products. However, various studies have shown that what works in Urban Markets may not translate necessarily into Rural Marketing success. Organizations have to realign and re-focus their strategies in order to be successful in these vast and huge consumption markets. However, there is a catch. Although Rural Markets are goldmines for companies, they are paved with thorns and serving these markets is a different ballgame altogether. Corporates are trying out innovative ways to reach out to the Rural customers. HUL, Colgate, ITC etc. have pioneered Innovative Distribution Channels and experimented with various methods of Rural Distribution. Smart marketers are understanding the threats to succeed in these markets by designing products specifically for these markets and this process is called Reverse Innovation. Nokia1100, Philips Solar Lantern, D-Lite lighting solutions for Rural Markets are some of the standing examples which are following this approach. This Research Paper tries to explore and find out whether Reverse Innovation can be the future of rural marketing. Keywords: Reverse Innovation, Rural Markets, Marketing for the bottom of the pyramid.

Introduction
The global economic meltdown has taken its toll on the manufacturing and service sector of the economy, which, in turn, has slowed down the urban market. The companies cutting across sectors have discovered the importance of rural markets. With urban India in the grip of a slowdown, the rural market is helping industries like automobiles, cement, consumer electronics, textiles, telecommunications and FMCGs grow. While urban organised retail is in pain, its rural counterpart is thriving. All of a sudden, the consumer in the laid back Indian village is being spoilt for choice. The rural incomes are progressing, thanks to the Government initiatives like National Rural Employment Guarantee Scheme (NREGS) launched in 2006 which promised employment of at least 100 days to every member of a poor rural household. This served three purposes: It built rural infrastructure Plugged pilferage of funds Boosted the disposable incomes of rural families

The scheme was rolled out to all the 596 districts of the country. All told, Rs 66,800 crores has been earmarked for the programme. Another boost for liquidity among farmers came with the farm loan waiver of Rs 65,318 crores carried out by the Government last year. The bottom-line is clear. Customers in villages have their own set of aspirations and are willing to pay for the right services. Companies are understanding that to play the game in rural markets is to understand and innovate products exclusively for the rural consumers and after tasting success can also be replicated in the urban markets. For example, Tata Sky launched DTH (Direct to Home) primarily for the urban markets. However, in the rural entry, the package has been at Rs 99 per month which was a mini-thali of sorts with a bit of everything. The promotional campaigns included taking Aamir Khan as the brand ambassador who could easily appeal across the rural-urban divide and they also do a lot of promotions and demonstrations so as to motivate the local distributors who highlight the benefits of the service. Tata Sky has launched the Rs 99 pack in the urban markets as well.

Definition of Reverse Innovation in Rural Marketing

Reverse Innovation in Rural Marketing is Understanding the psyche of rural consumer and designing products and services, pricing strategy, distribution channels, promotional aspects by identifying his needs & wants and creating demand so as to generate value to the company as well as to the consumer.
- Dr. Ram Kishen Y

From the above mentioned definition, we can infer that 1) Reverse Innovation is an R&D process in the Rural markets, whereby the company has to understand the needs and wants of rural consumers 2) It also includes the pricing strategies, distribution channel designs, channel partner management and promotional aspects to specifically target the rural consumer.

Literature Review
The success of the e-Choupal initiative by the ITC has demonstrated the huge potential of the Indian rural sector for marketers [B. Bowonder et. al]. The International Business Division of the ITC started the initiative namely e-Choupal (village meeting place on an electronic platform). It is the largest e-market initiative undertaken by any corporate entity in India and has been immensely successful. By leveraging Information and Communications Technology (ICT), ITC has succeeded in coming up with a replicable and sustainable business model for the rural markets. This has forced many companies to relook and rework their strategies for the rural markets. Creating business channels that can create win-win situation for both business and farming community have huge economies of scope. Once a channel is created, it can be used for various other products and services.

The FMCG companies have realised that there is a big opportunity for them to enter the rural market [S John Mano Raj et. al]. The sector is excited about the rural population whose income levels are rising steadily and the lifestyles are changing. There are as many middle income households in the rural areas as there are in the urban areas. Thus the rural marketing has been growing steadily over the years and is now bigger than the urban market for FMCGs. Globally, the FMCG sector has been successful in selling products to the lower and middle income groups and the same is true in India. Over 70% of sales are made to middle class households today and over 50% of the middle class is in rural India. The sector is excited about the rural population whose income levels are rising and which is willing to spend on goods designed to improve lifestyle. Also with a near saturation and cut throat competition in urban India, many producers of FMCGs are driven to chalk out bold new strategies for targeting the rural consumers in a big way. And the rural penetration rates are low. This presents a tremendous opportunity for makers of branded products who can convert consumers to buy branded products. Many companies including MNCs and regional players started developing marketing strategies to lure the untapped market. By reverse-innovation process, innovations originally chartered for Rural Markets will be adapted and scaled up for urban markets. For companies it is the need of hour to focus on rural markets and be their solution providers. Reverse innovation isn't optional. It is oxygen [Govindrajans interview to DNA]. A reverse innovation, very simply, is any innovation likely to be adopted first in the developing world [Govindrajans blog]. Particularly in developing nations where divide between rich and poor is very high, Rural populations needs and desires are different, Affordability and Quality of product are two important decision variables of rural populations buying behaviour which companies cannot afford to ignore. They demand new, high-tech solutions that deliver ultra-low costs and good enough quality [Govindrajans website]. In present era, companies success will thrive on Reverse Innovation as it can drive the volumes not only in rural markets but also in urban markets. Low cost products created for rural markets can generate new demand in Urban Markets as well and hence on account of economies of scale, companies can churn huge profits. In addition to this masses and classes will also become benefiters of Reverse Innovation. Why companies are embracing Reverse Innovation?

Rural Consumers prefer products which are simpler and convenient to use. Eg- Nokia 1110. Small is Beautiful- Rural consumers are mainly daily wage earners and not salaried class. Rural packaging strategy have to provide the products at lower SKUs e.g.Sachets (Chik shampoo from CavinKare).

Distributions strategies in urban markets may not work in Rural Markets as markets there are fragmented, reaching to the nook and corner is very complex and complicated. Eg- Project Shakti by HUL, E-Chaupal by ITC are excellent examples of Rural Distribution networks. Talk to them in their language, Rigid Mindsets, strong civilization, lower levels of literacy have to be taken into consideration in the promotional decision of product/services that are marketed for rural markets. Symbols, colours and innovative packaging enhance the visual communication of brands. Strong punch lines-kuch meetha ho jaaye by Cadbuy,thanda matlab coca cola by Coca Cola make the product TOMA( Top of mind awareness). Be a part of their culture, Smart Marketers are using Nautanki, Lavani etc to promote brands in the villages weaving the product in their cultural aspects is an excellent way of selling across the idea of your product.

Strategic Framework for Reverse Innovation in Rural Markets

A strategic framework for Reverse Innovation for rural markets has been proposed (Ref. Figure 1). The Reverse Innovation Flow can be explained below:

Understand the importance of Reverse Innovation: Companies today are realising that rural markets cannot be ignored further. Urban markets have reached a saturation level and cant be exploited to a great extent. The opportunity today lies in the rural markets which have to be understood and acted upon by the marketers today. Reverse Innovations importance need to be understood by the companies. The products from urban markets cannot be simply dumped into the rural markets today. The needs, aspirations and affordability of the rural consumer need to be taken into account while developing products and services for the rural markets. Nokia, Philips and ITC are some of the best examples of companies which recognised this need much ahead of their competitors and have successfully capitalised on this.

Study the needs and wants of the rural consumer: The needs and wants of the rural consumer are different from that of the urban consumer. Companies, earlier, hadnt recognized this fact. They used to simply dump the products and services which they had produced for the urban markets into the rural markets. Thus the actual needs of the rural consumers werent being met efficiently and thus these companies would fail in the rural markets. For example: electricity is a big issue in the Indian villages. Many villages in India dont have electricity even today, and the ones which have electricity, power cuts are frequent. So, electrical devices wouldnt be much successful and popular in the rural areas. If a company introduces devices which run on solar power, it would be immensely popular in the rural areas, provided the right

pricing and distribution is in place. Philips solar stoves and lanterns are good examples of how companies need to assess the needs and wants of the rural consumers before developing products and services for the rural consumers.

Figure 1: Proposed Strategic Framework for Reverse Innovation in Rural Markets

Come up with Reverse Innovation Strategies (4Ps):

Design the product/service: The Product has to be designed in such a manner that it should serve as an answer to rural consumers unmet needs and for that marketer has to understand culture, language and occupation of the Rural Consumer. Catching Pulse of Rural consumer is a very daunting task as they cannot vocalize their thoughts clearly which is a big challenge for companies. Thus marketers need to get into Rural Consumers mindset and think like him to come up with any product innovation.

Design the pricing strategies: There is a very distinct Market Segmentation in Rural Markets as well, 3 types of rural consumers exist namely Rural Rich, Rural above Poverty Line, Rural below Poverty Line. So Marketers have to clearly identify their target market and then decide on pricing points. Rural

consumer want economically priced products which should not be too heavy on their pockets so companies can adopt a strategy of penetration pricing to attract consumer loyalty.

Design/Re-design the distribution channels: Speed to market is key to any companys success therefore companies need to alter their distribution network for rural markets as they have poor infrastructure. Moreover Supply chain management is very critical here as it is longer for rural markets and it involves larger number of partners compared to Urban Markets. To ensure reach ability to interiors, Marketers need to use those channels which are accessible to rural consumers. Distribution network can be strengthened if it contributes in augmenting the income of rural population. HUL was able to penetrate more in rural markets through its Project Shakti.

Design the promotional aspects: To get a slice in Rural Market pie, Companies need to understand that marketing communication must be in a language that rural people understand and relate to. Message should be decipherable and should communicate the benefits of product effectively. Touching emotional chord with rural consumers works the best. Moreover the medium chosen for communication should be able to position the product in sensitive minds of rural consumers. For that lot of unconventional mediums need to be used as Media penetration is poor in rural areas.

Implement the Reverse Innovation: After the product, pricing, promotional and placement strategies have been designed for the rural markets, the product/service should be launched. The company should try the product/service in a rural test market. After getting proper feedback from the various stakeholders (departments, distributors, salespeople etc.) and the test market consumers, it must relook at its strategies and refine them further. If the strategies work as expected, the product/service can be launched in a full-fledged manner in various other markets and the company should try to capture maximum market share in the rural markets.

Possibility of positioning the product/service in urban markets: After getting feedback from the rural markets about the extent of success of the product/service introduced, the company should assess if the same can be introduced in the urban markets. The demand for the product/service in the urban markets, the distribution channels, sales force availability and the companys commitment are necessary to introduce the product/service

effectively for the urban consumers. If any obstacles are identified, they need to be overcome to successfully introduce the product/service in the urban markets as well.

Adds incremental value to the company and consumers: Rural Markets can serve as testing ground for the company because companys success/failure on this small landscape does lot of value additions to company. It lets companies to innovate their processes and products which can be further replicated in urban environment. Also It is a win-win situation for consumers as they also get value added product and services at an affordable prices so consumerism can rise at a massive scale on account of Reverse Innovation.

Launch the product/service in urban markets: If the product/service introduced in the rural markets turns out to be a winner, the same can be introduced in the urban markets as well. The urban and semi-urban markets can be used to expand the companys sales and also to build a bigger brand value of the company. This exactly is the concept of Reverse Innovation. To apply innovations in the rural markets, and to take them to urban markets if the innovations are successful in the rural markets. The concepts need to be scalable and sustainable.

Scope for Future Research

Reverse Innovation is relatively a new concept in rural marketing. Companies are understanding that products specifically designed for rural markets are succeeding more, than dumping the urban brands into rural. Not much study has been undertaken in this phenomenon. Rural marketers, academicians and scholars should contribute more knowledge and skills in implementing Reverse Innovation successfully.

Conclusion
MNC s and Indian companies are joining the bandwagon to increase their footprints in the vast, untapped rural markets. Companies like Samsung are increasing their visibility in these markets by conducting the Samsung Dream Home and Road Shows and participating in local fairs and exhibitions. It is astonishing to note that LG gets 64% of their sales turnover from rural India. Intel has Reverse Innovated a laptop for only Rs 5000, exclusively for these markets. It is beyond doubt that rural market is the place to be. As the rural families have no plans to cut down the expenditure on weddings, pilgrimages and construction of houses. All this ought to be music to the ears of the companies which are struggling to find ways to beat the recession in the urban markets.

References

[1] B. Bowonder, Vinay Gupta and Amit Singh, Developing a Rural Market e-hub: The case study of e-Choupal experience of ITC. [2] S John Mano Raj and Dr. P Selvaraj, Social Changes and the Growth of Indian Rural Market : An Invitation To FMCG Sector. [3] http://www.dnaindia.com/money/interview_reverse-innovation-isn-t-optional-it-isoxygen_1293850 [4] http://blogs.harvardbusiness.org/hbr/hbr-now/2009/09/is-reverse-innovation-like-dis.html [5] http://www.vijaygovindarajan.com/2009/10/what_is_reverse_innovation.htm

Annexure: Case Study 1 Philips Solar Stoves and Lanterns: Simplicity that makes sense
Philips is a great example to show how companies can go that extra mile to come up with innovative products and solutions to tap the largely unexplored rural markets. Product innovation is not new to Philips, since it entered India in 1992. Solar products can be the next big thing for Philips. Having realised that the future growth will come from BRIC (Brazil, Russia, India, and China), it has decided to come up with innovative products to tap these markets. Around 30% of its revenues come from these countries. And now, Philips is ready to bring solar stoves and lanterns in the markets. The solar stove was developed jointly by the company and its Dutch parent, in a span of two years. It is made of steel and a fan, which runs on battery. The fan is fitted at the bottom. Due to the fan, the flame is claimed to be as good as that of a gas stove. The stove runs on wood and also on cow dung. The stove was developed along with an NGO, Tara, in Maharashtra. There are two variants of the stove the bigger one for Rs 2500 and the smaller one for Rs 1000. The high end stove cuts emissions by 95 percent whereas the smaller one cuts emissions by 75 percent. And they both cut fuel consumption by 45 percent. Since traditional stoves have been known to cause health hazards on account of the high smoke emissions, the new solar stoves can provide a better health to consumers on account of reduced emissions. Philips is also ready with its portfolio of solar lanterns for the rural market. They have been priced between Rs 1000 and 3000. There are two categories of lanterns available one, which can be charged on a solar panel; two, which can be charged on electricity. People feel more secure when there is light. These lanterns can be used in homes and they can be even carried to the fields. Mostly, village households use kerosene to light their lamps and

lanterns, which is unhealthy. By bringing out solar lanterns, Philips is addressing this health concern. Philips lanterns are market ready. Apart from its lighting network, it has partnered with the Lighting a Billion Lives initiative of The Energy and Resources Institute. It has distributed 2000 lanterns in 42 villages across 9 states. Also, 500 lanterns have been distributed in Myanmar. Also, Philips has got its timing right. There is the increased purchasing power of the rural households due to the high prices set for key agricultural products like wheat and rice by the Government. Also, cash has been given out under the National Rural Employment Guarantee Programme in all the districts across the country. These two examples are apt to show the promise of innovations for the rural markets. By designing products for the other end of the value chain, Philips is set to emerge out as a winner.

Case Study 2 Nokia 1100

Nokia Corporation is a Finnish Multinational and it is the world's largest manufacturer of mobile telephones. It started its India operations in 1995 and company has grown many folds over these years. The company has built as diverse portfolio to meet the needs of different consumer segments, ranging from entry level phones for the first time subscribers to advanced business devices. India is very important country for Nokia and it is amongst the top three markets for it global. In Year 1995-Indias first mobile call made from a Nokia handset on a Nokia supplied Network. Also in Year 2000 First phone with Hindi menu was launched(Nokia 3210). Going further Rural India was next big opportunity for growth as teledensity in rural areas was only 6%, which meant that there was a great big market for handsets and applications that could answer the needs of the rural Indian and this was realized by Nokia in early 2000s only. Customizing its product to suit Indian consumers helped Nokia to become one of the biggest brands in India in a short period of time. So, to address this rural market demand, Nokia came up with First ever Made for India phone, Nokia 1100. Nokia 1100 became the worlds top selling consumer electronics product. Over 200 million Nokia 1100 cell phones have been sold since its launch in late 2003, making it the world's best selling phone handset, as well as the best selling consumer electronics device in the world, beating Sony's Play Station (138 million), Apple's iPod (170 million) and Motorola's RAZR (120 million).Stunning sales of Nokia 1100 is mainly due to its sterling success in India and China. It was tailor made for mass population with features like torch light. The 1100 and its followers -- 1101, 1108, 1110, 1110i, 1112 crept to the top of sales charts around the world without attracting much media attention.

In India Nokia 1100 penetrated rural markets in such a manner that Nokia had to stop its production as it became its biggest competitor. This low end phone from Nokia was used as Alarm, Radio, clock and flash lights by Rural Consumers. Strategy adopted by them was digital convergence at bottom of market. The demand emerging from rural market was of sturdy handsets that have strong battery life. Also, voice, language, ease-of-use and easy text messaging were other essential and important features that an entry-level phone required. So, Nokia launched the 1100 series keeping in mind the rigours of the hinterland. This India-specific model included a flashlight, dust cover, and slip-free grip (handy during India's scorching, sweaty summers). Nokia also addressed language concern by introducing software in seven regional languages for nonHindi speakers and added ringtones of patriotic songs such as the nationalist hymn India Is the Best. Company's marketers pitched the phones through ads tailored to India, with one early campaign showing burly truck drivers calling home on Nokia handsets. Nokia also promoted the SMS usage in local language (HindiSaral Mobile Sandesh) through its SaMaSa campaign. Nokia has always been at the forefront as far as extending affordability to consumers is concerned. Mobile Phone is fast catching on with a bicycle, radio, alarm clock to be the first durable that a rural Indian is purchasing. Keeping that in mind Nokia ran pilots and trials to gauge consumer response in select markets to come out with this offering so that buying mobile phones becomes more affordable. Contrary to popular belief, price is not the only driver for rural users as they seek a value for money proposition. So Nokia always kept three things in mind affordability, access, and availability. They targeted alternate distribution networks to reach the rural market, like tying up with local co-operatives to push handset sales in the rural segment. Success of Nokia 1100 was confined not only to rural boundaries but was a smashing hit in urban markets as well. Such is the brand value of Nokia that in emerging markets once a Nokia user always remains Nokia User.

About the Authors *Dr. RamKishen Y. is Faculty of Marketing at K J Somaiya Institute of Management Studies and Research, Mumbai. He has close to 6 years of teaching experience and 4 years of corporate experience. He holds a PhD. in the area of Rural Marketing. His consulting areas are Rural Marketing, Retail Management, Sales and Distribution and Brand Management. He has written two books: Rural and Agricultural Management and Management of Cooperatives both published by Jaico Books. He can be reached at ramkishen123@rediffmail.com ** Mr. Ashutosh Kumar is a First Year Student of PGDM (MBA) at K J Somaiya Institute of Management Studies and Research, Mumbai. He graduated in Mechanical Engineering and has 3 years of work experience in Cognizant. His research interests are rural marketing, brand management, advertising and business process re-engineering. He can be reached at ashu.cts06@gmail.com.

*** Ms. Astha Pasricha is a First Year Student of PGDM (MBA) at K J Somaiya Institute of Management Studies and Research, Mumbai. She graduated in Electronics and Communications Engineering and has 3 years of work experience Tech Mahindra. Her research interests are rural marketing, brand management and advertising. She can be reached at asthapasricha@gmail.com.