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Faculty Associate, Icfai Business School, Bangalore, Sri Krishna Avenue, No. 64, 13th Cross, 6th Main,
J. P. Nagar, 3rd Phase, Bangalore - 560 078, Tel : 26582279 / 26593416, E-mail :,

Purba Basu

Days have gone when only a selected household consumed branded goods, whether its tea or jeans and a
rural consumer had to go to a nearby city to buy ``branded products and services". Earlier big
companies flocked to rural markets to establish their brands. But today, rural markets are critical for
every marketer - be it for a branded shampoo or an automobile. In earlier days the marketers
thought van campaigns, cinema commercials and a few wall paintings would suffice to entice rural
folks under their folds. Thanks to television, today a customer in a rural area is quite literate about
countless products that are on offer in the market place. An Indian farmer going through his daily
tasks wearing jeans may sound idiotic. Not for Arvind Mills, though. When it launched the Ruf &
Tuf kits, it had created quite a sensation among the rural within few months of their launch. Rural
Indian market and the marketing strategy have become the latest marketing buzzword for most of
the FMCG majors. The rural India has a plethora of opportunities all waiting to be tiedtogether.
Many of the FMCG companies are busy formulating their rural marketing strategy to tap the chance
.To name few companies showing deep interest in rural India, there are HLL, Marico industries,
Colgate-Palmolive and Britannia Industries etc. Titan, the company, which expects about 17 per
cent growth to sell six million watches during 2003-04, is also planning to reposition its Sonata
brand for the vast rural market. Rural market, thus, is gaining more and more importance over the
years. The Coca Company by introducing 200 ml pack and its strategy of laying emphasis on the
rural market resulted in increasing sales volume. Services like cellular and insurance are also
spreading their hands into rural markets. Cell-phone operators like Escotel Mobile Communications
Ltd., a joint venture between Hong Kong based investment firm First Pacific and New Delhi-based
Escorts Ltd., are finding new customers all over rural India. Fishermen in coastal Kerala in the
South India use the phone service to find the best prices for their catch, a practice that can earn them
up to 50% more. Escotel now controls 14% of India's non-metro cellular market, providing service
to 500,000 subscribers in 3,240 towns and villages.

Why Rural India?

70 % of India’s population lives in 627000 villages in rural areas. 90 % of the rural population is
concentrated in villages with a population of less than 2000, with agriculture being the main
business. This simply shows the great potentiality of rural India in bringing the needed sales
volumes and helps the FMCG companies to bank upon the volume –driven growth. This brings a
boon in disguise for the FMCG Company who has already reached the plateau of their business
curve in urban India. As per the National Council for Applied Economic Research (NCAER) study,
there are as many 'middle income and above' households in the rural areas as there are in the urban
areas. There are almost twice as many 'lower middle income' households in rural areas as in the
urban areas. At the highest income level there are 2.3 million urban households as against 1.6
million households in rural areas. According to the NCAER projections, the number of middle and
high-income households in rural India is expected to grow from 80 million to 111 million by 2007.
In urban India, the same is expected to grow from 46 million to 59 million. Thus, the absolute size
of rural India is expected to be double that of urban India.
Marketing Strategies for Rural Indian Markets

"The real strength two to five years from now lies in rural markets"

Pradeep Tognatta, Former Vice President, LG

Multinational corporations are fanning out into the countryside, where 70% of India's population--some
700 million people--still lives. The effort to reach those consumers represents one of the largest
marketing efforts in Asia, a push led by such firms as Coca-Cola, Samsung, and Honda. These
giants are lured to the countryside for a very simple reason. The economic growth in India's
agricultural sector in last year was over 7%, compared with 3% in the industrial sector. This implies
a huge market potentiality for the marketer to meet up increasing demand. Factors such as village
psyche, strong distribution network and market awareness are few prerequisites for making a dent in
the rural markets.

The rural psyche

The keep-it-cheap-and-simple sales strategy carries over to bigger sales ticket items for rural marketers.
After a decade of experimentation, the companies have settled on a strategy: Think small, and keep
the product simple. The model is of the stolid Anglo-Dutch conglomerate Unilever Group, which
has enjoyed a century-long presence in India through its subsidiary Hindustan Lever Ltd. It was
Hindustan Lever that several years ago popularized the idea of selling its products in tiny packages.
Its sachets of detergent and shampoo are in great demand in Indian villages. Britannia with its low
priced Tiger brand biscuits has become some of the success storyin rural marketing. The strategy
revolves around what attracts the rural customers to a product. For e.g. packaging, the rural
customers are generally the daily wage earners and thus they don’t have the monthly incomes like
their urban counterpart has .So it makes sense, packaging in smaller units and lesser-priced packs to
increase their affordability. Color that attracts them is also important. Convenience is the other key
word. Here Colgate is the apt example. First of all it made sachets as was required by their income
streams. Secondly –since many households don’t have proper bathroom and only have a window
similar things so it made sense to cap these sachets for convenience of storage while use.

Distribution channel

Recent study on buying behavior of rural consumer indicates that the rural retailers influences 35% of
purchase occasions. Therefore product availability can affect decision of brand choice, volumes and
market share. Some of the FMCG giants like HLL took out project streamline to significantly
enhance the control on the rural supply chain through a network of rural sub-stockiest, which are
based in the villages only. Apart from this, to acquire further edge in distribution, HLL has started a
project called Shakti in partnership with Self Help groups of rural women. In the service sectors
also, many banks, Mutual Funds Company and other financial institutions are opening their
branches in rural area, only to tap those untapped customer by making the services available at their
door steps. Private and foreign banks are tying up with nationalized banks to reach rural people. For
example, very recently, HDFC Mutual Fund and Union Bank have put their hands together to co-
promote HDFC Standard Life Insurance and New India Assurance in the rural areas. This alliance
with UBI will help HDFC to enhance accessibility of their products by UBI’s huge network,
especially in the rural and semi urban markets across India

Another important tool to reach to the rural audience is through effective communication. A rural
consumer is brand loyal and understands symbols better. This also makes it easy to sell goods that
look – alike. The rural audience has matured enough to understand the communication developed
for the urban markets, especially with reference to FMCG products. Television has been a major
effective communication system for rural mass and, as a result, companies should identify
themselves with their advertisements. Advertisements touching the emotions of the rural folks, it is
argued, could drive a quantum jump in sales. There is a need to differentiate the brand according to
regional disparities. The differentiation may not necessarily be in terms of product content. It may
also be in terms of packaging, communication or association with the brand. The brand has to be
made relevant by understanding local needs. Even offering the same product in different regions
with different brand names could be adopted as a strategy. At times it is difficult to pass on an
innovation over an existing product to the rural consumer unlike his urban counterpart-like
increased calcium or herbal content or a germ-control formula in toothpaste.

Strategies for increasing the buying power of Rural Indian Customers

From the above discussion, it is clear that the Indian rural market right now is the best trading ground for
both Indian and multinational corporations. The burgeoning, untapped market is stretching the
length and breadth of the Indian subcontinent. Traditionally, disposable income is perceived as the
one critical factor that drives consumer demand. However, household income is no longer the single
most important factor in determining the demand for high value as well as fast moving consumer
goods. Factors such as availability of cheap finance, and easy way of accessing ones own funds are
few that are controlling consumer demand today. In recent days, the top three income groups -
middle, upper middle, and high - have grown from 10% in 1986 to 20% of the population and
covers over 52 million families. The number of high-income households is growing very rapidly,
more so in the rural areas. The most encouraging sign aboutthe Indian rural market is that it has
buyers who have tremendous purchasing power, and they remain largely untapped. For easy access
of one’s own funds, ICICI bank has developed a low cost Automated Teller Machine (ATM)
designed for rural areas and aimed at increasing micro finance in rural India. To arrange easy
finance for rural consumers, companies are nowadays tying up with banks and financial institutions.
The Indian car giant Maruti Udyog, to cater to rural areas, has entered into a strategic alliance with
SBH which has wide presence in the rural areas of Andhra Pradesh, Maharashtra and Karnataka.
FMCG giant Hindustan Lever Ltd has targeted reaching 100 million rural consumers through its
women focused rural marketing initiative ‘Project Shakti’ with the help of State Bank of India for
providing micro-finance.

Role of NGOs in improving the quality of life in rural India

Non Government Organizations (NGOs) in India are playing a passive role to the government as an
intermediary agent, rather than as institutional reformers in the rural India. However, the serving
self-help groups (SHGs) in rural areas, promoted by NGOs, are emerging as a successful means of
improving the socio-economic conditions of rural families with very little administrative expenses.
Banks with the help of NGOs and SHGs by a small amount of credit can reach out to the needy,
without having a fear of loans becoming non-performing assets. Some NGOs have been successful
in creating awareness among illiterate rural women and enabling them to improve their socio-
economic conditions. Few NGOs have taken steps to empower women. These organizations have
accomplished the task what the State-sponsored poverty alleviation programs could not achieve
through concessional credit and sumptuous subsidy.
Taking IT to rural Indian Markets

The Indian policy makers have identified the different regions as the priority areas for launching science
and technology based poverty eradication program using ICT in a significant way. The micro credit
supported micro enterprise revolution triggered by SHGs has provided with a hope that a new deal
can be extended to the self-employed. For SHGs to become sustainable SHGs, it is essential that
forward linkages with markets and backward linkages with research institutions and data
management centers are established. ICT has a major role in sustaining and extending this self-help
revolution. Further more, there is a need for developing a master plan coupled with a business plan
for extending the benefits of ICT to all the 600,000 villages in India by 2007, which marks the 60th
anniversary of our independence. The master plan should help to link technology-knowledge-rural
women and men in a symbiotic manner. The investment needs will have to be estimated and
business plans prepared. A National Alliance for ICT for Poverty Eradication may be established
for launching the Every Village a Knowledge Centre movement. Such an alliance should include
the private sector, cooperatives, NGOs, R&D institutions, women’s associations, mass media and
appropriate government agencies.

Learning from past experience in rural areas, the Indian policy makers have found a need for increasing
India’s competitiveness in domestic software applications. Government projects mainly provide
static information. What is needed by rural families is dynamic information relating to weather,
markets, health and other day-to-day information needs. So, internet, cable TV, local vernacular
press and the All India Radio, community radio stations and ham radio will be of immense help in
communicating up-to-date information. NABARD has been operating a program in Himachal
Pradesh with support from the Rural Infrastructure Development Fund (RIDF). This program has
helped to promote both e-governance and e-commerce. There is a similar initiative in Uttaranchal
with the help of IIT, Roorkee. Scope for using RIDF in other States should be explored. This will
help to convert the concept of every village a knowledge centre into reality.

Future ahead

The marketers who understand the rural consumer and fine tune their strategy are sure to reap benefits in
the coming years. In fact, the leadership in any product or service is linked to leadership in the rural
India except for few lifestyle-based products, which depend on urban India mainly. Definitely there
is lot of money in rural India. But there are hindrances at the same time. The greatest hindrance is
that the rural market is still evolving and there is no set format to understand consumer behavior
.Lot of study is still to be conducted in order to understand the rural consumer. Only companies
with deeper pockets, unwavering rural commitment and staying power will be able to stay longer on
this rural race.
Opportunities and Challenges

This chapter captures situations that refl ect the growing interest and enthusiasm of business towards rural
markets. Opportunities in the rural market are examined in the light of intense and growing
competition in urban markets. The market opportunities are clearly perceived through a comparison
of consumption patterns for durables as well as non-durables between the rural and urban markets.
Identifying opportunities and clarity in decision-making requires an unambiguous defi nition of
rural marketing. Rural marketing and rural markets are conceptualised to clearly distinguish them
from urban marketing and urban markets. Limitations in the approach used for identifying the rural
markets are also examined.


India’s vast rural market offers a huge potential for a marketer facing stiff competition in the urban
markets. The rural market environment is very different from the familiar surroundings of the urban
market. Rural consumers have customs and behaviour that the marketer may fi nd diffi cult to
contend with.

The understanding of India’s rural markets is an important objective of this book. The other major
objective is to comprehend infl uences on this market with emphasis on understanding con-sumer
response to marketing decision variables. The third object-ive of the book is to develop appropriate
methods to research rural markets.Appropriate research methods are important in the context of the
rural market for two reasons: (a) the consumers’ ability to discriminate varies; and (b) the reference
points used by rural consumer differ from those of the urban consumers. The research methods to
measure perception, attitudes and behaviour in rural markets vary from the approach used in
researching urban markets. Research methods unsuitable in rural markets create a distorted picture
of the consumer and result in failure of market-ing efforts.The opportunities in the rural market are
demonstrated by comparing consumption levels in urban and rural markets for different product
categories. Their volumes and growth show the importance of this market. Understanding
demographic pro-fi les of consumers and their response to brand offering is a useful approach to
analyse the rural market. A large number of caselets in the book capture the consumer response to
brand offering. The need for appropriate methodology for researching consumersis demonstrated by
non-applicability of the urban referencepoints and measures in the context of rural markets.
Literature available on rural development provides alternative methods to research rural markets.
The understanding of the rural consumers is utilised in decision-making situations. Organising the
chapters according to ‘marketing decision variables’ provides the focus on ‘decision-making’. The
critical aspect of reaching the consumer with the message and the product offered is examined in
great detail. Short cases and data illustrated later in this book pro-vide the decision-maker with
important criteria for evaluation of options in these markets. The infl uence of consumer percep-
tions on product design in different product–market situations is identifi ed. Consequently, the
concepts and the framework developed are relevant for marketing decisions.The use of the existing
network of channel members in rural markets is the key to connecting with the rural heartland.

Haats and melas, which are unique to rural markets, supplement the re-tailer route to rural markets. The
interaction between consumers and these unique institutions provides information for use in
marketing decisions. The marketing strategy is examined in thecontext of the competitive situations
in the rural market. Com-petition is categorised into (a) generic competition, (b) competi-tion with
the unorganised sector, (c) new entrants, and (d) meetingthe challenges created by imitations. The
challenges faced by the marketer in these competitive situations lead, at the same time, to the
opportunities available in rural markets.


When rural customers discover the new and exciting choice of brands available in urban markets, a
demand for these brands is created in rural areas. Marketers have entered the rural markets by
extending the distribution of their existing offering or developing a separate marketing strategy for
the rural markets. When Titan, the watch manufacturer, found rural consumers purchasing their
Sonata brand of quartz watches, they formulated a marketing strategy tailored to the requirements of
the rural market.There is an increase in the launch of new products and brands in rural areas. In
many product categories like cigarettes, biscuits, soaps, etc., specifi c brands are developed only for
rural markets. The rural market, in both durables and non-durables, can be developed through new
products and suitable positioning (see Box 1.1)


Rural Marketing

BOX 1.1Increasing Importance of Rural Markets

 Insect repellant major Godrej Sara Lee plans to double sales in the rural market by the end of the fi
nancial year 2006–07. The com-pany sees saturation of demand for their product in the urban
markets and growth is expected from rural markets. An innovative approach to the rural market is to
drive the growth strategy. The company brought in single-coil sachets of Good Knight for rural
markets. It also created communication for targeting rural areas. Distribution to rural markets is
planned through the Godrej group’s rural outlets ‘Aadhaar’, ITC’s e-Choupal and Reliance’s rural
retail network (Sangani, 2006).

K.V. Kamath, MD and CEO of ICICI Bank (India’s second largest bank), has identifi ed rural markets
as one of the key drivers of revenue growth. The rural markets provide opportunity, as banks are yet
to serve a large part of that market. As much as 58 per cent of rural households do not have a bank
account and only21 per cent have access to credit from a formal source. The Deputy Managing
Director of ICICI Bank, Nachiket Mor, is in charge of the rural marketing effort. In six years the
bank’s rural portfolio went up from nothing to Rs 163,000 million.

Portfolio of ICICI Bank in Rural Market

Year Portfolio in Rural Market (Rs Million) Yearly Growth (%) Share of Total ICICI Bank Assets (%)
2003–04 42,000 – 2.9
2004–05 75,000 78 4.0
2005–06 163,000 117 6.4

The bank has a presence in 220 districts and plans to increase it to 450 districts by 2008. The marketing
effort has innovations in distribution, product design and technology (Banerjee, 2006).


There are quite a few reasons for the growing interest in rural markets. A very straightforward reason is
the growth of these markets, as in the case of the television market (see Box 1.2)

The Growing Rural Market for Television

The Consumer Electronics and TV Manufacturers Association ex-ecutive expects a growth rate of 25 per
cent for television in the rural markets compared to 5 per cent growth in the urban markets. Market
research fi rm Francis Kanoi said in a report (on consumer electronic market growth and
projections) that the top seven metros contributed 24.1 per cent of total sales in 2002, followed by
towns with a population of over 1 million, where 12.0 per cent of the sets werebought. The
remaining 63.1 per cent of sales in 2002 came from citiesand smaller regions with a population of
less than 1 million. For the year 2004, metro sales were expected to be 22.6 per cent and for the
smaller regions the share was expected to be 64.3 per cent. According to LG’s Singh, ‘Electrifi
cation of villages and an increase in awareness among the people, a good harvest and a booming
econ-omy will help drive growth. The rural market should see a growth that is three to four times
that in the urban markets’. ‘The potential is high as the penetration levels are low, and hence our
efforts towards creating a bigger market here,’ said Devender Saini, Senior Product Manager
(Television), Philips India Ltd. ‘If we look at the penetration levels in rural markets, it is less than
10 per cent. This is lower than the all-India average of 21 per cent and the urban markets which are
at 35 per cent to 40 per cent’(Ghosh and Verma, 2003).

The growth in the television market is also because of the low penetration levels of the product in the
rural market. A number of products exhibit a growth rate of more than 10 per cent in the rural
market (see Table 1.1).

TABLE 1.1Growth in Rural Markets by Product Categories

Product Category Growth (%)

After shave lotions 51.9

Jams/Jellies 37.8
Butter/Margarine 36.4
Napkins 32.3

Acne preparations 28.3

Sanitary napkins 24.6
Air fresheners 24.5
Phenyls 20.8
Packaged atta 17.3
Perfume/deodorant/cologne 16.3
Shampoo 14.2
Hair dyes 14.1
Hair remover 11.0

Source: Dobhal, 2005

The vast untapped potential, increasing income and purchas-ing power, improved accessibility and the
increasing competition in urban markets make rural markets an attractive destination for jaded
marketers of products and services. Entry into rural markets reduces the risk of depending only on
the urban market.

Untapped Potential

Rural markets offer a great potential for marketing branded goods and services for two reasons:

The large number of consumers: A pointer to this is the larger volume sales of certain products in rural
areas as compared to sales of the same products in urban areas.

Largely untapped markets: The penetration levels for many products are low in rural areas.

Market Size, Penetration and Potential

The estimated size of India’s rural market stated as a percentage of world population in 2007 is 12.4 per
cent (GeoHive, 2007; Central Statistical Organisation, 2003). This means that 12.4 per cent of the
world’s consumers live in rural India. In numbers, this

'Thanda' Goes Rural

In early 2002, Coca-Cola India (CCI) (Refer Exhibit I

for information about CCI) launched a new
advertisement campaign featuring leading bollywood
actor - Aamir Khan.

The advertisement with the tag line - 'Thanda Matlab

Coca-Cola4' was targeted at rural and semi-urban
consumers. According to company sources, the idea
was to position Coca-Cola as a generic brand for cold

The campaign was launched to support CCI's rural

marketing initiatives. CCI began focusing on the rural
market in the early 2000s in order to increase volumes.

This decision was not surprising, given the huge size of the untapped rural market in India (Refer Exhibit
II to learn about the rural market in India). With flat sales in the urban areas, it was clear that CCI would
have to shift its focus to the rural market. Nantoo Banerjee, spokeswoman - CCI, said, "The real market in
India is in the rural areas.

If you can crack it, there is tremendous potential."5

However, the poor rural infrastructure and

consumption habits that are very different from those
of urban people were two major obstacles to cracking
the rural market for CCI.

Because of the erratic power supply most grocers in

rural areas did not stock cold drinks. Also, people in
rural areas had a preference for traditional cold
beverages such as 'lassi'6 and lemon juice.

Further, the price of the beverage was also a major

factor for the rural consumer.

Coca Cola India's Thirst for the Rural Market

CCI's Rural Marketing Strategy

CCI's rural marketing strategy was based on three A's - Availability, Affordability and Acceptability. The
first 'A' - Availability emphasized on the availability of the product to the customer; the second 'A' -
Affordability focused on product pricing, and the third 'A'- Acceptability focused on convincing the
customer to buy the product.


Once CCI entered the rural market, it focused on

strengthening its distribution network there. It realized
that the centralized distribution system used by the
company in the urban areas would not be suitable for
rural areas.
In the centralized distribution system, the product was
transported directly from the bottling plants to retailers
(Refer Figure I). However, CCI realized that this
distribution system would not work in rural markets, as
taking stock directly from bottling plants to retail
stores would be very costly due to the long distances to
be covered.

The company instead opted for a hub and spoke distribution system (Refer Figure II). Under the hub and
spoke distribution system, stock was transported from the bottling plants to hubs and then from hubs, the
stock was transported to spokes which were situated in small towns. These spokes fed the retailers
catering to the demand in rural areas.

CCI not only changed its distribution model, it also

changed the type of vehicles used for transportation.
The company used large trucks for transporting stock
from bottling plants to hubs and medium commercial
vehicles transported the stock from the hubs to spokes.

For transporting stock from spokes to village retailers

the company utilized auto rickshaws and cycles.
Commenting on the transportation of stock in rural
markets, a company spokesperson said, "We use all
possible means of transport that range from trucks,
auto rickshaws, cycle rickshaws and hand carts to even
camel carts in Rajasthan and mules in the hilly areas,
to cart our products from the nearest hub."7

In late 2002, CCI made an additional investment of Rs 7 million (Rs 5 million from the company and Rs 2
million from the company's bottlers) to meet rural demand. By March 2003, the company had added 25
production lines and doubled its glass and PET bottle capacity.8...


A survey conducted by CCI in 2001 revealed that 300 ml bottles were not popular with rural and semi-
urban residents where two persons often shared a 300 ml bottle. It was also found that the price of Rs10/-
per bottle was considered too high by rural consumers...


The initiatives of CCI in distribution and pricing were

supported by extensive marketing in the mass media as
well as through outdoor advertising.

The company put up hoardings in villages and painted

the name Coca Cola on the compounds of the
residences in the villages.

Further, CCI also participated in the weekly mandies

by setting up temporary retail outlets, and also took
part in the annual haats and fairs - major sources of
business activity and entertainment in rural India...

Future Prospects

CCI claimed all its marketing initiatives were very successful, and as a result, its rural penetration
increased from 9% in 2001 to 25% in 2003. CCI also said that volumes from rural markets had increased
to 35% in 2003.

The company said that it would focus on adding more

villages to its distribution network. For the year 2003,
CCI had a target of reaching 0.1 million more villages.

Analysts pointed out that stiff competition from

archrival PepsiCo would make it increasingly difficult
for CCI to garner more market share.

PepsiCo too had started focusing on the rural market,

due to the flat volumes in urban areas.

Like CCI, PepsiCo too launched 200 ml bottles priced

at Rs. 5. Going one step ahead, PepsiCo slashed the
price of its 300 ml bottles to Rs 6/- to boost volumes in
urban areas...