Marketing of Rural Products - Strategy for Ensuring Remunerative Prices to Producer Role of Middleman -

Problems and Possible Solutions

Introduction

Development of Small Scale Industries in India is being pursued since the beginning of the planning era in 1950-
51. The main objectives of the comprehensive plan of small industries is the creation of widespread employment
opportunities, reduction of inequities, addressing regional imbalances and creation of a base for entrepreneurial
development. In the 1950s, when the various programmes for promotion of small industries were formulated, the
emphasis was to gear up production with a view to cater to domestic requirements. As a result of the policy of
planned economic and industrial development followed during the last fifty years, village and small industries have
made a phenomenal progress in different parts of the country including rural, semi-urban and even hilly and
remote areas and are now making a significant contribution towards the National Economy, including export
earnings.

Significance in National Economy

The share of village and small industries in 2005-06 has been estimated at about 49% of gross value of industrial
output. This sector offers employment opportunities to about 28 million persons. In the field of exports, this sector
accounted for 36% of the total export of the country.

The VSI Sector consists broadly of :

i) Traditional industries
(e.g. handlooms, khadi and village industries and handicrafts, etc.) and

ii) Modem small scale industries

Development of modem small industries has been one of the most significant and characteristic features of
industrial development in the country. These industries now account for more than 60% of the output in the VSI
Sector. In 1985-86 small industries produced goods worth about Rs. 40,000 million and provided employment to
about 9 million persons. The following table shows the trends in growth of small scale industries in recent years:

Trends in Growth of Small Industries

Sr.No. Particulars 2002-03 2003-04 2004-05

1. No. of units (in million) 10.95 11.39 11.89
2. Production (Rs. million) 3119930 3577330 4182630
3. Employment (million Nos.) 26.01 27.14 28.29
4. Export (Rs. million) 860130 976440 1006500

Small industries now produce a large number of products ranging from simple consumer goods like readymade
garments, leather footwear, stationery items, soaps and detergents, domestic utensils, safety matches, preserved
fruits and vegetables, etc. to sophisticated items like car radios, radios, electro-medical equipments, automobile
parts and collapsible tubes etc.

In spite of phenomenal growth in the small scale and village industries sector, there has been relatively high rate
of mortality due to various factors. Apart from the other factors which have caused a high mortality rate, the most
important aspect of sickness has been identified by several studies as arising due to basic weakness in the
marketing function of the small enterprise as they exist today. While the technical financial and managerial support
provided to the small industry is controllable internally by the organisation, marketing is the only function which is
considerably influenced by external factors affecting the business. While all the other activities concerned with a
business enterprise involve spending of money, marketing is the most significant activity which leads to inflow of
funds which is essential for financial viability of the business.

Basic to the whole activity of an enterprise is the marketing of products. If the enterprise is not able to sell what is
produced, it will go out of existence.

General Problems of the Small Scale Sector as revealed in various studies

An important factor contributing towards sickness of the unit is low quality of product. A small manufacturer with
limited finance, technical knowledge and information about the market trends to knowingly or unknowingly sacrifies
quality. There is a credibility gap between the purchasing organisation, both in private and public sector and the
small scale suppliers regarding quality, delivery schedule, packaging, price, after-sales-service, etc. The increasing
awareness of the consumer about his expectations in regard to quality and performance is either being ignored or
not given the importance it deserves by small scale units.

The small scale producers have inadequate knowledge about the market trends, changes in tastes and consumer
preference. The pricing concepts are not aligned with consumer want and goods are produced without a proper
market surveyor ascertaining before hand whether there is a demand for a particular product.

Small Scale and Ancillary ~units suffer considerably from inadequate supply of raw materials and/or high cost. As
a result, the cost of production becomes disproportionately high, undermining the competitive edge. For numerous
raw material, the small scale units have to depend upon the large scale industries or multinationals which for
obvious reasons do not look after the former's interest.

Exploitation by middle man

The small scale units have to depend upon the existing distribution channels, need middle man or
wholesalers/distributors/retailers. The middlemen exploit the small scale units. They are only interested in
maximum commission. They invariably shift their loyalties based on their profitability. On many occasions, they
expect the manufacturer to receive their payments on consignment sales. This affects the viability of the units as
their cash flow is affected.

Government Policy and Support Services

Marketing has been recognised, even by the Government of India as a vital area, where extension of institutional
assistance is necessary to sustain the small scale industry in general and contain sickness in the sector in
particular.

Catalytic role of Promotional Agencies -

Government Support Services

The Government has launched marketing support programmes for the benefit of the Small Scale Sector as
enumerated below :-

1.Assistance to the small scale units for participation under the Government Purchase Programme - Govt. being
the single largest buyer in the country both Central and State Government and Govt. undertakings buy over Rs.
2000 crore annually.

1. Reservation of items for exclusive purchase from the Small Scale Sector.
2. Reservation of items for production in the Small Scale Sector.
3. Identification of 'tiny' units with investment upto Rs.2 lakhs in plant and machinery and located in towns
with population less than 50,000 for offering special incentives.
4. Liberalisation of procedures and conditions for financial assistance from commercial banks and other
institutions.
5. Special facilities for import of raw material and components.
6. Intensification of extension services through the Small Industries Service Institutes, Branch Institutes and
Extension Centres apart from Tool Rooms and Regional Testing Centres.
7. Provision of testing facility at the testing centres.
8. Supply of essential raw material through SSIDCs and also import raw materials.
9. Setting up of Trade Centres to provide outlets for the marketing of the products of the small scale sector.
10. Design Development Centres for Handloom and Small Scale Sectors.
11. Transfer of Technology by importing know-how and latest equipment/machinery.
12. Participation in the Exhibitions and Buyer-Seller Meet.

Promotional Agencies like Handicrafts and Handloom Development Corporation, Cottage Industries Emporium,
TDA, NSIC, SSIDC, Handloom Weaving Cooperative Societies, Super Bazars have been playing catalytic role in
extending support services in promoting the products of Small Scale & Village Sector.
To illustrate an example, the Handicrafts and Handloom Corporation have inducted the products of tiny sector into
the European market. They had arranged a tie-up with major Departmental Stores in the USA. The brand image
has helped in creating quality image of the product. European designs have been introduced and the product of
tiny sector is finding a regular market in the export markets. The master weavers have been trained in foreign
fashion trends.

In a similar manner, the growth of Garment Industry, Hosiery Knitwear Industry and Silk Industry are other
examples.

Involvemental Marketing

Marketing is a primary function of an entrepreneur. The concept of marketing is relevant throughout the functioning
of an enterprise, including the areas such as quality control and not merely at the stage of selling and distribution.
The primary responsibility for marketing shall invariably rest on the entrepreneur or the Manager at the helm of the
enterprise. The Government through its policy measures can only provide facilities and organisational support. As
already enumerated, some of the major problems in marketing of small industries products can be resolved
through well-planned marketing research activity for small industries.

The SIET Institute had conducted interviews with the successful entrepreneurs who have almost had no problems
in developing their industries. Contacts were made with 685 successful small industrialists and their success
stories recorded. These success stories were classified under certain broad categories. In every category,
involvement of entrepreneur is significant. This gave rise to the terminology "Involvemental Marketing".
Involvemental Marketing means the involvement of entrepreneur in his own organisation and also with the clients
organisation with a limited purpose to achieve market for his products.

Know the product well. About 15-20% success stories can be attributed to the entrepreneur's knowledge of his
products, its alternate uses, its salient characteristics, its substitute uses etc.

An instance is that of a chalk piece manufacturer in Karnataka who could not market his chalk pieces. He studied
the market of chalk pieces and then approached a big pharmaceutical company to use his chalk in one cubic inch
form in evaporating tower in the granulation department. He gave the comparative economics of using silicon jelly
and chalk pieces in the 1" cubic form. He proved that the use of chalk pieces in evaporating tower instead of silicon
jelly reduces expenditure by about 50%. Now this group of pharmaceutical concerns is using chalk instead of
chemical moisture absorbents.

Know thy marketing seasons well - A well-known engine valve manufacturer in small sector wanted to become
the original equipment supplier to a large automobile company. He tried his best but could not succeed. He was a
patient entrepreneur and had been following up with the organisation regularly. He found that at the end of the
financial year, the organisation was keen to reach the production targets. The entrepreneur at this time again
approached the organisation and helped them out at a crucial time by supplying the required number of organic
valves which he had deliberately kept in stock.

Govt. purchases are generally made in the months of February/March. Most of the small scale units have
understood this aspect and keep their material ready at the year ending i.e. February and March to cater to the
Government Departments who are anxious to see that the budget is not lapsed.

Know thy sales promotion methods - In the first stage, the entrepreneurs make a survey of the persons
connected with the purchase. They collect information about the strong and weak points of concerned persons. It
is surprising to note that the entrepreneurs from western region, particularly Maharashtra have a knack of using
health factors as a carrier of motivation. We have come across more than 20 entrepreneurs using health factor to
motivate customers.

In short, the entrepreneur will have to adopt all involvemental marketing techniques to promote his business. In our
opinion, there is lack of awareness of complete support programmes and the methodology to avail of the existing
benefits.

Besides, time has come when the market intelligence should percolate down the grass-root level. The existing
facilities like the opening of Market Development Centres, Super Bazars and other sales outlets should expand to
the interiors. This requires speedy expansion. This will provide platform to the tiny sector for sale of their products
and ensure remunerative price. With involvemental marketing the units could grow.
Prepared by Shri L.K.Baweja, Regional Manager, National Small Industries Corporation

Revised by Shri E.V.Murray, Member of Faculty, CAB

Marketing to rural India

Francis Xavier

In quantifying and tracking the growth of rural markets for various products and the
contribution of households with different incomes, NCAER and ORG-MARG have
demolished many myths.

They demonstrated that rural India is not really an ocean of poverty with a few wealthy
landlords floating around. They also demolished the myth that rural folk buy only the
cheapest of products.

Therefore, it is now almost universally accepted among marketers that the rural markets
have emerged. They are dominant in many branded segments and are large contributors
to most of the others.

After having gone this far, one would have imagined that there would be a stampede to
understand and target the rural markets. However, nothing of that sort has happened for
almost a decade since the importance of rural markets has been widely accepted.

Among the host of reasons why this is so is the fact that quantification of the contribution
of the rural market did not lead to its demystification. Villages remain remote,
inaccessible and alien to the minds of most of the marketers. There is this chasm between
cities and villages that has never been bridged.

Click here for Chart

The result is the kind of tokenism that we see. Rural marketing means a van campaign, a
badly made cinema commercial, a few wall paintings and occasional participation in
haats/shandies.

Recently, there was even the incredible suggestion that vans should take CTVs and
refrigerators to villages and sell them directly to the village folk!

Then there were those rare attempts at coming up with products for rural markets which
most often reflected the ignorance of the marketer about rural customers. Naturally, they
disappeared without a trace.

To understand this phenomenon, all we have to do is pick up 100 best-selling branded

consumer products in the rural areas. It is unlikely that we'll find even five of them as
those made originally for rural folk.

The hypothesis that the high degree of competition as a result of liberalisation and
globalisation would compel marketers to look at rural areas as an opportunity has not
worked either.

Competition has unleashed a battle of survival of the kind that marketers in the country
have never faced before and the almost reflexive reaction has been a total preoccupation
with the short-term.

And the marketing community, embattled thus, simply has not had the will or the
resources to embark on a journey into the unknown. The inclination to deal with the
perceived complexities or to come up with the required discipline in dealing with the
rural markets, which was not there during the leisurely period prior to liberalisation,
could hardly be expected now.

Given this background, the thesis of this presentation is that while the marketers have
steadfastly refused to go near the villages, the rural consumers have been moving closer
to the cities over the years. This movement has gathered momentum in the last decade
because of the socio-political upheaval happening in the villages.

The forces that have been unleashed are so powerful and the changes so rapid that
villages in many parts of the country bear no resemblance to what they were 10 years
ago, even though in physical appearance they may remain similar to what they were
earlier.

The point is that a marketer willing to have a closer look today is likely to find that rural
India is not all that complex, remote and alien as he believed it to be. On this basis, a
perspective is presented here which makes rural marketing truly viable.

The inputs for this analysis have come from my own exposure to villages over 26 years.
Francis Kanoi as a company has, on an average, covered some 5,000 villages a year, for
the last 10 years, interacting with possibly a million rural people. This apart, I was also
fortunate to be exposed to the holistic perspective that 120 Mudra Institute of
Communication Ahmedabad (MICA) students brought from villages across the country,
over two years, after each of them had spent two weeks living in the villages.

Click here for Chart

The classical understanding of rural communities:

A rigid hierarchical structure based on landholdings and caste and a very strong mooring
in traditions were the basic characteristics of a classical village.
The village represented a picture of unity and stability, with everyone knowing his/her
place and respecting tradition.

Within families, the patriarch called the shots and was obeyed without question. In other
words, the decision-making within families, and therefore within villages, was in the
hands of the elders.

Villages, per force, have had to be highly politically conscious because their dependence
on the Government is so direct and all encompassing. Water, power, crop prices, credit,
roads and jobs for their children, were all affected by Governmental action. Therefore,
the dominant sections of the villages were always politically allied. And this alliance
remained stable for a long time.

The villages have always had far too many people needing to be supported by far too
little of land. Therefore migrations to cities have always been there. The well-to-do in the
rural areas educated their children and got them Government jobs. In some States, they
even sent them abroad. The skilled workers found better remuneration for their skills in
the cities and the poor went wherever there was need for manual labour.

The revolution that is underway in rural India

The fragmentation that we see today in the political constituencies is a direct reflection of
the breakdown of the hierarchical structure of the villages.

The rigid hierarchical structure which compartmentalised people on the basis of their
caste, together with the huge disparities in the economic status of these groups, was a
fertile ground for a social revolution.

The drivers of this revolution were education, reservations and the coming of age of a
new generation which was educated, exposed to the world and therefore not intrinsically
inclined to accept either the hierarchical structure or the traditions.
They could readily see that the existing village structure, and the political order supported
by it, simply did not allow an outlet for their mounting aspirations. The middle groups,
which had seen the transformation of the sizeable sections of SC/STs through
reservations, wanted to share its benefits. They simply refused to wait in the hierarchical
queue and accept the crumbs that came to them. They were impatient and demanding and
they started realising the political clout that their numbers offered them.

Thus, the process of disintegration of hierarchies began in the States, with reservation
policies being extended to backward classes. And the Mandal issue broke the last line of
resistance in this regard.

The impact across States has not been uniform. But the bottom line is that the traditional
structures are either dead or dying.

What are the implications of this revolution on marketing? The impact of the breakdown
of hierarchical structures in rural India have been as follows:

The education and prosperity levels have percolated down.

Along with the hierarchical structure, the hegemony that elders had in decision-making at
family and community levels is also breaking down. Therefore the young are either
having a say in decision making or they have simply taken over the decision making.

The young are educated. An education beyond middle school has meant intense exposure
to urban influences.

The educated youth are the most exposed to TV and the satellite channels. This means
that they are not only exposed to metropolitan lifestyles in the capitals of their States or
the major cities of our country, they are also exposed to the world.
They have images, either real or of a celluloid kind, of how their counterparts in cities
live. Most of it is of the elite, and many of them aspire to similar lifestyles.

If they could, many of them would go to the cities. But the number of aspirants has gone
up exponentially and the opportunities in cities/towns by way of Government and public
sector jobs have shrunk. The village youth are at a disadvantage vis-a-vis the city youth
in competing for private sector jobs. In other words, the cities have become inhospitable
to them. Therefore, many are staying put in villages, setting up businesses there or in the
nearby towns and cities.

The implications of the above in marketing terms are:

The young and the educated in the villages are already large in number and their number
is increasing. Already 40 per cent of all those graduating from colleges are rural youth.

They are the decision-makers.

They are not very different in education, exposure, attitudes and aspirations from their
counterparts, at least in smaller cities and towns.

If we look at this group, in this fashion, most of the stereotypes in the minds of the
marketers that made the rural customer so forbidding, would simply disappear.

Villages of relevance to marketers of branded goods are urbanising rapidly

The act that signals the crossing of the threshold and an entry into what can be loosely
called middle class, through upward economic mobility, is the extent to which children
are educated.

Educating their children through high school can be seen as a cut off for the middle class
attitude.

Given the above, we can as well hypothesize that educated youth will encompass most of
the households which are significant consumers of branded goods.

Since the argument is that educated youth in the villages are urbanised, it follows that
almost all the households of relevance to the marketer are urbanised or have a strong
urban influence within. In other words, we can see such households as representing the
urbanised staying in the suburbs of districts called villages!

The cosmopolitan city dweller and the urbanised from the districts

Since marketing is to target the growing segments, we can see the urban-like village
dweller as an urbanised person from the districts. The point of such a perspective is that
we are reducing complexity and make targeting more feasible by looking at the market as
comprising just two segments -- the cosmopolitan city dwellers and the urbanised people
from the districts. The village then becomes a location or a suburb of a district. And the
district becomes the basic geographical entity.

Since the urban-like populations in the villages are taken as a part of the district, they will
represent the dominant part of the market in most of the districts. Thus, when we look at
the districts we are really looking at the new generation from the villages. In other words,
from this perspective, the rural customer gets the kind of attention that he/she never ever
got.

City markets and district markets

If we take the above logic forward, we can look at India as comprising large cities,
meaning those with a population of over 500,000 and other urban areas. The cut-off at
one to five lakh cities is not arbitrary. One to five lakh cities are the primary feeder
markets for small towns and rural areas in logistic terms. And because, individually, they
are not big enough and their economies are closely linked to the economies of villages,
they are unlikely to dominate the attention as the large cities do.

The next move will be to see districts as those with a large city and those without a large
city. And, we can call those with a large city simply as `city markets' and those without a
large city as `district markets'. If we then aggregate them along the respective lines, we
have two entities which are sizeable and reasonably homogeneous among themselves and
therefore become viable segments requiring focussed attention.

Take the example of colour television sets. The city markets represent 60 per cent of the
total and the district markets represent 40 per cent. The distribution of these markets
across the states vary, but they are individually sizeable in all states.

In the case of two-wheelers, the reverse is the case with districts markets accounting for
60 per cent of the total.

What is the point of a city/district segmentation in rural marketing terms?

1. The sway that big cities exercise on all aspects of marketing, in most companies, is
unbelievable. The very act of separating them will dramatically increase the attention
paid to consumers elsewhere.

For example, if Mumbai, Pune, Nagpur, Nasik, and so on, and rural Maharashtra were to
be the preoccupation of one person, rural Maharashtra has no chance at all of getting any
attention. Take the example of colour TVs (CTVs). Mumbai alone accounts for 400,000
units and the whole of rural Maharashtra, comprising thousands of villages, does not
account for even half this number.
But if you take out these cities, suddenly rural Maharashtra becomes very interesting.
Add rural Maharashtra to the smaller cities and towns which are not very different from
the villages as far as a CTV buyer is concerned, then the perspective changes completely.

2. In the districts marketing set-up, since rural areas will be the dominant contributors,
they will compel the kind of attention that they deserve.

3. A districts perspective removes the cobwebs of complexities, heterogeneity, access,

targetability, and so on that have hindered rural marketing initiatives.

4. Rural marketing requires every element of marketing including product, pricing,

packaging, advertising, media planning to have the rural customer as the target. And this
becomes possible when we have districts marketing as a separate entity.

Since the city and district markets will be different in every imaginable way, the logical
thing to do is to have two completely independent set-ups covering marketing, including
product management, sales and distribution for each of the entities from the HO to the
states.

Ultimately, markets are where people are. India is urbanising faster than what is revealed
by the statistics because the statistics don't count urbanised people either choosing or
being forced to live in villages.

These people are urbanised, but not the same as the city dwellers, But neither are they
anything like the rural folk that the stereotypes depict.

There is a huge opportunity out there in understanding them, addressing their needs and
going closer to them.

Doing this requires organisations to restructure themselves and to make a part of the
organisation totally dedicated to this task. And those who do it early and well, will really
enjoy the first-mover advantage in creating an organization that is best placed to cater to
the whole of the country.

Pic.: Mr Francis Xavier, Managing Director, Francis Kanoi Marketing Research.

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