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ANNAMALAI UNIVERSITY
DIRECTORATE OF DISTANCE EDUCATION
MBA Marketing Management

Second Year
RURAL MARKETING
LESSONS : 1 – 24
Copyright Reserved
(For Private Circulation Only)
MBA MARKETING MANAGEMENT
SECOND YEAR
RURAL MARKETING
Editorial Board
Members
Dr. E. Selvarajan
Dean
Faculty of Arts
Annamalai University
Annamalainagar
Dr. C. Samudhra Rajakumar Dr. C. Madhavi

Professor and Head Professor and Coordinator
Dept. of Business Administration Management Wing, DDE
Annamalai University Annamalai University
Annamalainagar Annamalainagar
Internals
Dr. S. Arulkumar Mr. R. Sritharan
Assistant Professor Assistant Professor
Management Wing, DDE Dept. of Business Administration
Annamalai University Annamalai University
Annamalainagar Annamalainagar
Externals
Dr. S. Sriram Dr. S. Gangadaran

Principal & Director Director of Management Studies
Agni School of Management Adhi Parasakthi Engineering College
Dindigul Melmaruvathur
Lesson Writers
Dr. G. Vedanthadesikan
Director
Centre of Rural Development
Annamalai University
Annamalainagar
1

SECOND YEAR
RURAL MARKETING
SYLLABUS
Objectives
To understand the differences and similarities between urban and rural Indian
markets. To develop and device the marketing strategies that is unique to rural
India.
Unit–I
Rural Marketing: Nature, Definition, Scope, Importance, challenges and
opportunities in India.
Factors influencing rural marketing: socio cultural factors, population
occupation, literacy level, land distribution and use development programme
infrastructure, communication media, credit availability, local requirements. Rural
markets: size and structure, segmentation of Indian rural markets.
Rural and urban market: a comparative analysis.
Unit–II
Rural markets – An overview understanding rural environment, rural
development and management of development institutes Accessing rural markets
physical infrastructure, institutions Dynamics of distribution process participation
in rural developments process, Types of intermediaries, Behaviour Dimensions,
physical distribution process.
Unit–III
Product – price – distribution strategies- product redesign- modification needs
Marketing of agricultural procedures and rural and cottage industry product
marketing of agricultural procedure – regulated markets- formation of cooperative
organizations – contract forming – agricultural exports zone (AEZ) – marketing rural
/ cottage industries – artisan products.
Unit–IV
Role of financial institution’s in rural marketing
Agricultural credit situation – types of credit rural credit institution – NABARD
- Commercial banks - state cooperative banks (SCB) – state cooperative agricultural
and rural development banks (SCARDP)- regional rural banks (RRB) – local area
banks – flow of institutional credit to agriculture- kissan credit card scheme –
impact of rural markets.
Unit–V
The future of rural marketing: focused marketing strategies, market research,
consumer finance, rural vertical retail and it models, public-private partnership, E -
rural marketing role of government and NGOs in rural marketing.
Unit–VI
Understanding agriculture markets, nature and scope, objectives of agriculture
marketing challenges in agriculture in marketing agriculture and its economic
importance, agricultural procedures and their markets.
ii
Reference Books
1) CGS. Krishnamacharyulu, Rural Marketing, Pearson education, 2012.
2) Badi R.V and Badi N.V Rural Marketing, Himalaya Publishing House Mumbai,
2010.
3) Gopalasamy , Rural Marketing in India Vikas Publishing House, 2009.
4) Pradeep Kashyap and Siddhartha Rant The Rural Marketing Text Book,
Peareson Education, 2008.
Journals and Magazines
1) Journal of Marketing
2) Journal of Business Management & Social Sciences Research (JBM&SSR)
3) The International Journal of Rural Management (IJRM)
4) International Journal of Management (IJM)
5) Asia Pacific Journal of Marketing & Management
6) South Asian Journal of Marketing & Management Research
Web Resources
1) www.ruralmarketingsolutions.com
2) www.rmai.in
3) www.ruralyellow.in
4) www.ruralmarketingnews.com
5) www.researchandmarkets.com
6) ruralbazar.nic.in
****
iii

SECOND YEAR
RURAL MARKETING
CONTENTS
LESSON PAGE
LESSON NAME
NO. NO.
Nature, Scope, Importance, Challenge and Opportunities of
1. Rural Marketing 1
2. Factors influencing rural marketing 12

3. Factor affecting Rural Marketing – Credit availability 24
4. Rural Markets: Size and Structure 35
5. Market Segmentation 51
6 Rural and Urban Market : A Comparative analysis 66
7 Understanding Rural Environment 73
Differential aspects of buying behaviour and major influences
8 87
on rural buying behavior
9 Dynamics of distribution process participation 97
10 Physical infrastructure and dynamics of distribution 107
11 Distribution Channels – Product Design & Regulated Markets 115
12 Cooperative Societies – Contract Farming 123
13 Agri Export Zones: Concept and Benefits 134
14 Agricultural Credit in India 143
15 Marketing of Rural and Cottage Industry Products 149
The role of Nabard, Commercial Banks and Regional Rural
16 164
Banks in the provision of Rural Credit
17 Kisan Credit Card Scheme 174
18 The Future Of Rural Marketing 180
Rural Vertical Retails & Public Private Partnership in Rural
19 189
Marketing
20 Developing a Rural Market e-hub 197
21 Market Research 207
Government Initiatives and the role of NGOs for proper
22 216
Agricultural Marketing
23 Introduction of Agricultural Marketing 223
24 Importance of Agricultural Marketing 232
1
UNIT I
LESSON 1
NATURE, SCOPE, IMPORTANCE, CHALLENGE AND OPPORTUNITIES
OF RURAL MARKETING
1.1 INTRODUCTION
According to National Commission on which Agriculture starts with a decision
to produce a saleable farm commodity and it involves all the aspects of market
structure or system, both functional and institutional, based on technical and
economic considerations and includes pre and post harvest operations, assembling,
grading, storage, transportation, and distribution.
Concepts
Rural Marketing is defined as any marketing activity in which the one
dominant participant is from a rural area. This implies that rural marketing
consists of marketing of inputs (products or services) to the rural as well as
marketing of outputs from the rural markets to other geographical areas.
Marketing is the process used to determine what products or services may be of
interest to customers, and the strategy to use in sales, communications and
business development. It generates the strategy that underlies sales techniques,
business communication, and business developments. It is an integrated process
through which companies build strong customer relationships and create value for
their customers and for themselves. It is a function which manages all the activities
involved in assessing, stimulating and converting the purchasing power to effective
demand for a specific product and service. This moves them to the rural areas to
create satisfaction and uplift the standard of living.
Rural areas of the country or countryside are areas that are not urbanized,
though when large areas are described country towns and smaller cities will be
included. They have a low population density, and typically much of the land is
devoted to agriculture. Defra have a working definition, The Rural/Urban
Definition, that was introduced in 2004 as a joint project between a number of
Government Departments and was delivered by the Rural Evidence Research
Centre at Birkbeck College (RERC).
1.2 OBJECTIVES
 To study the importance and challenges of rural marketing
 To analyse the factors influencing the rural marketing
 To know about the rural market
 To compare the rural and urban market
1.3 CONTENTS
1.3.1 Scope of rural marketing
1.3.2 Components of rural markets
1.3.3 Classification of rural markets
1.3.4 Importance of Rural Markets
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1.3.5 Growing importance of Rural Market

1.3.6 Challenges of Rural Market
1.3.7 Opportunities in Rural Market of India
1.3.1 Scope of rural marketing
1. Large Population: According to 2011 census rural population is 72% of
total population and it is scattered over a wide range of geographical area
2. Rising Rural Prosperity: Average income level has improved due to
modern farming practices, contract farming, industrialization, migration
to urban areas and remittance of money by family members settled
abroad.
3. Growth in Consumption: There is a growth in purchasing power of rural
consumers. The average per capita household expenditure is Rs. 382.
4. Changing Lifestyle: Lifestyle of rural consumer changed considerably.
5. Life Cycle Advantage: The products, which have attained the maturity
stage in urban market, is still in growth stage in rural market. E.g.
popular soaps, skin cream, talcum powder, etc.
6. Market Growth Rate Higher than Urban: As per the survey made by
NCAER the growth rate of FMCG market and durables market is higher in
rural areas. The rural market share is more than 50% for products like
body talcum powder, toilet soaps cooking oil, hair oil etc.
7. Rural Marketing is not Expensive: To promote consumer durables
inside a state costs Rs one crore while in urban areas it will costs in
millions.
1.3.2 Components of rural markets
For the market to exist, certain conditions must be satisfied. These conditions
should be both necessary and sufficient. They may also be termed as the
components of a market.
1. Existence of a good commodity for transactions (physical existence is,
however, not necessary)
2. Existence of buyers and sellers
3. Business relationship or intercourse between buyers and sellers; and
4. Demarcation of area such as place, region, country or the whole world.
The existence of perfect completion or a uniform price is not necessary.
1.3.3 Classification of rural markets
This can be classified as follows:
a) CONSUMER MARKET:
Constituents: Individuals and Households.
Products : Consumables, Food- Products, Toiletries, Cosmetics, Textiles and
Garments, Footwear etc.
3
Durables : Watches, Bicycles, Radio, T.V, Kitchen Appliances Furniture,

Sewing Machines, Two Wheeler etc.
b) INDUSTRIAL MARKET:
Constituents : Agricultural and allied activities, poultry farming, fishing,
Animal husbandry, Cottage Industries, Health center, School, Co-operatives,
Panchayat office etc.
Products : Consumables, seeds, Fertilizers, Pesticides, Animal feed, Fishnets,
VMedicines, Petroll diesel etc.
Durables : Tillers, Tractors, Pump sets, Generators, Harvesters, Boat etc.
c) SERVICES MARKET
Constituents : Individuals, Households, offices and Production firms.
Services : Repairs, Transport, Banking credit, Insurance, Healthcare,
Education, communications, Power etc.
1.3.4 Importance of Rural Marketing
Rural marketing implies applying marketing theory and directing marketing
efforts to create and satisfy needs and wants of rural market (customers).
Importance of marketing indicates the contribution of rural as well urban
marketing.
Rural market is growing faster than urban, rural marketing results into overall
balanced economical and social development. Rural marketing turns beneficial to
business units, people residing in rural areas, people residing in urban areas, and
to the entire nation. Let’s see how growth and development of rural marketing
contribute to overall prosperity and welfare.
1. Reduced Burden on Urban Population:
Rural marketing can contribute to rural infrastructure and prosperity. People
can also live comfortably in villages due to availability of all goods and services in
villages, even comparatively at low price. People, due to growth of marketing
activities, can earn their livelihood in rural places. Population pressure on urban
can be reduced.
2. Rapid Economic Growth:
Naturally, marketing acts as catalyst agent for economic growth. There exists
more attractive business opportunities in rural than urban. Rural market is more
potential for consumer durables and services. Rural population largely depends on
agriculture and it can contribute nearly 50% to total national income. Agriculture
enjoys significant portion in export business, too. Rural marketing improves
agricultural sector and improved agricultural sector can boost whole economy of
the country.
3. Employment Generation:
At present, nearly 70% of total Indian population feeds on agricultural activities
in rural areas. Rural marketing can generate more attractive employment
opportunities to rural and urban people. Growth of rural marketing leads to
4
increased business operations, professional activities, and services that can

generate a lot of employment opportunities.
4. Improved Living Standard:
Due to rural marketing system, rural buyers can easily access needed standard
goods and services at fair prices. In the same way, rural marketing improves rural
infrastructure. Additionally, rural marketing can also improve their income. These
all aspects can directly improve living standard.
5. Development of Agro-based Industries:
Rural marketing leads to set up agro-based processing industries. Fruits,
vegetables, cereals, pulses, etc., are used as raw-materials. Such industries can
improve farmers’ profit margin and employment opportunities.
6. Optimum Utilization of Rural Untapped Resources:
There are unlimited businesses opportunities exist in rural areas. Untapped
and underutilized resources can be utilized at optimum level and that can further
accelerate overall economic growth.
7. Easy Marketability of Agricultural Produces:
Growth of rural marketing improves whole marketing system. Multiple options
are available to farmers and local producers to market their products. Big domestic
corporate houses and multinational companies prefer to buy agricultural products
directly from villages by their own or through agents and small firms. Rural
producers can sell their produces easily at satisfactory prices. Their improved
income level can improve their purchasing power that can further fuel to industrial
demand.
8. Improved Rural Infrastructures:
Rural marketing and basic infrastructures go hand to hand. Growth of rural
marketing leads to improved transportation, insurance, banking, communication,
entertainment, and other facilities. Due to availability of basic infrastructural
facilities, business units can easily reach the target rural buyers.
9. Price Stability:
Marketing results into better transportation, warehouses, and communication
facilities. Agricultural products can be systematically marketed throughout the
year. Huge gap between demand and supply can be avoided and, as a result, prices
of most of commodities remain more or less stable.
10. Quality of Life and Reduced Crime:
Marketing can refine entire living style and system. Better quality products at
reasonable price, improved income level, availability of facilities, etc., have direct
positive impacts on quality of life. Quality of life improves and level crime reduces.
11. Balanced Industrial Growth:
The gap between rural and urban development can be reduced gradually. Rural
development improves rural life and reduces pressure on urban life.
5
12. Others:
Apart from these points, there are a number of ways that rural marketing can
significantly contribute to economic and social development.
Some points have been listed below:
i. Creating self-reliant villages
ii. Increased literacy rate and overall development
iii. Attracting giant business groups in rural places
iv. Rigorous research and development in agricultural sector
v. Growth of academic and training institutes in rural areas
vi. Increased representation of rural population, and increased political
influence, etc.
1.3.5 Growing Importance of Rural Markets
In India, there is a huge gap between the urban and rural markets. This gap
consists of differences in terms of education, standard of living, disposable incomes,
culture, faith and beliefs, occupation, infrastructure facilities and many other
factors.
Despite of all these differences, Marketers are taking key interest in marketing
their products in rural markets and the reasons are:
 Urban markets are matured and competition level is very high.
 Urban population has clear knowledge about products and rarely any
product is new for them.
 Presence of advertisement clutter in different advertising media.
 Product life cycle is short.
 Urban population consist of great variety of people with different views,
beliefs, culture, social classes, preferences ,personalities etc, which
makes it difficult for marketers to market their product
The Urban markets are maturing and high level of competition ruining the
profit margin, customer base. The urban consumers being too much advanced
expect new products in small intervals thereby reducing life span of the products .
Therefore It becomes difficult for the marketers to survive in such markets and
hence they seek for alternative markets
Rural markets therefore carry a great potential for expansion available to these
companies because of the following factors:
• In India, more than 60% of the total population resides in Rural sectors.
• High agricultural incomes.
• Rising awareness due to exposure to Urban markets as children studying in
urban areas, relatives in urban areas and other such factors.
• Rising educational and literacy levels due to government and private
educational initiatives.
• High disposable incomes as daily life expenses are low.
6
• Similar choices and less variety seeking.

Hence, it is clear that Rural markets have a great potential for marketing
products and thereby increasing the overall market share.
Rural markets do have a great potential but new entrants of rural markets have
to face many challenges in capturing these markets.
These challenges are:
• Seasonal incomes because of agricultural occupation.
• Rural markets are huge and scattered hence distribution is a great challenge.
• Lack of Infrastructure facilities such as communication, electricity ,banking
etc.
• Traditional way of life with low acceptability of new products
• Lack of media for promotion
Though challenges exist in rural markets but the presence of high potential
makes these markets attractive and development of an effective marketing strategy
considering all the elements of marketing mix and designing them according to the
requirements of the market will surely lead to the success in rural market. The
product needs to be tailored according to the needs of the market at the affordable
price and should be easily available to the consumer and should be accessible by
consumers and with effective communication will lead to great success in these
markets.
Some of the noted examples of companies enjoying great success due to
effective marketing in rural markets are Coca Cola, Colgate, Eveready batteries,
Parle, micromax, etc
1.3.6 Challenges of Rural Marketing
The development of the nation largely depends upon the development of the
rural population. Mahatma Gandhi had once said: “India’s way is not Europe’s.
India is not Calcutta and Bombay. India lives in her several hundreds of villages”.
The problems of rural marketing are continuing in spite of efforts to improve in
the five year plans. The position is improving but slowly. So, the rural marketer has
many challenges. But the vast & expanding markets call for good marketing
strangers to create win situations to all parties in the chain of rural marketing.
Where the rural market does offer a vast untapped potential, it should also be
recognized that it is not that easy to operate in rural market because of several
attendant problems. Rural marketing is thus a time consuming affair and requires
considerable investments in terms of evolving appropriate strategies with a view to
tackle the problems.
The challenges of rural marketing are as follows:-
1. Under developed people
2. Under developed market
3. Improper communication facilities
4. Many languages
7
5. Vastness & uneven spread

6. Low per capita income
7. Poor infrastructure facilities
8. Seasonal demand
9. Ineffective distribution channel
10. Spurious brands
11. Low Literacy Levels
12. Transportation
13. Warehousing
1. Underdeveloped people
Rural society is found by tradition, old customs, practices etc. The impact of
modern science & technology has made very less impact of the old beliefs are still
continuing.
2. Underdeveloped market
Rural markets are not developing because of inadequate banking & credit
facilities. Rural market needs banks to enable remittance, to transact on credit
basis and to obtained credit support from the bank.
3. Poor or improper communication facilities
Most villages even today largely depends on telegrams and phones for their
communication needs print media and visual media[Television cinema] etc reaches
only a small percentage of rural Indians.
4. Many languages
India is a country of many languages. Language becomes a barrier in effective
communication in the marketing efforts. The languages vary from state to state,
place to place, district to district. There are now 18 schedule national languages.
5. Vastness & unevenly spread
India is a vast time & major approximately 3214km from North to South
&2933km from East to West. Rural market consists of approximately 75 cores rural
consumers spread across approximately 6,38,365 villages. Despite the urban
migration, the rural areas continue to be the place of living for a vast majority
Indians.
6. Low per capital income
Most farmers have small lands and many villages are brought prone, this result
in low per capita income. Low per capita income results in low consumption pattern
as compared to the urban population. The marketers faces challenges in rural
marketing to decide about quantities, frequency of distributions, package size etc…
due to the low per capita income of the rural people.
7. Poor infrastructure facilities
Infrastructural facilities like roads, ware houses, powers etc… are inadequate
in rural areas. Infrastructural cost are very high and impact adversely in the rural
market activities.
8
8. Seasonal demand
Rural economic is seasonal, rural people have two seasonal namely khariff &
rabi. Villages have money mostly in these seasons. As village income are seasonal,
demands are also.
9. Ineffective distribution channels
The distribution chain is not very well organized and requires a large number of
intermediaries, which in turn increases the cost and creates administrative
problems. Due to lack of proper infrastructure, manufacturers are reluctant to open
outlets in these areas. They are mainly dependent on dealers, who are not easily
available for rural areas. This is a challenge to the marketers.
10. Spurious brands
Cost is an important factor that determines purchasing decision in rural areas.
A lot of spurious brands or look-alikes are available, providing a low cost option to
the rural customer. Many a time the rural customer may not be aware of the
difference due to illiteracy.
11. Low Literacy Levels
The low literacy levels in rural areas leads to a problem of communication.
Print media has less utility compared to the other media of communication.
12. Transportation
Transportation is one of the biggest challenges in rural markets. As far as road
transportation is concerned, about 50% of Indian villages are connected by roads.
However, the rest of the rural markets do not even have a proper road linkage
which makes physical distribution a tough task. Many villages are located in hilly
terrains that make it difficult to connect them through roads. Most marketers use
tractors or bullock carts in rural areas to distribute their products.
13. Warehousing
Warehousing is another major problem in rural areas, as there is hardly any
organized agency to look after the storage issue. The services rendered by central
warehousing corporation and state warehousing corporations are limited only to
urban and suburban areas.
1.3.7 Opportunities in Rural Market of India
It is not only the size of the population that makes rural markets in South Asia
very important for marketers. Rural markets offer immense potential for market
expansion and growth. For example, in India, the consumption in rural markets
was growing at an annual compounded growth rate of around 4% for the last 20
years; but this is estimated to grow by over 5% in the next two decades and this is
expected to treble by 2025. As per the Mckinsey Global Institute forecasts,
spending per household in rural India would reach the 2008 levels prevailing in
Urban India by the year 2017.
Latest data from the NSSO's 66th round of survey on household consumption
expenditure has also revealed that the difference between the spending patterns of
the urban and rural poor have narrowed down over the last two years with average
spending by a rural household in 2009-10 at Rs 1,053.64 and urban households at
9
Rs 1,984.46. Crisil, in its report, has pointed to a marked shift in spending on

discretionary goods by rural households as against only necessities. The report
states that more than half of India's stock of consumer durables and two-wheelers
are now in rural India. "Rural consumption has outstripped urban consumption as
a result of the government's strategy of inclusive growth, through programmes like
MGNREGA ... The rise in prices of agricultural commodities as well as loan waiver
scheme and stimulus packages benefited rural households," said NR
Bhanumurthy, professor at National Institute of Public Finance and Policy, adding
that the economic slowdown impacted urban incomes more than rural incomes.
In addition to the consumption trends, the market potential of the rural market
is considered to be the driver of the future growth by a number of companies.
* The market size for the fast-moving consumer goods (FMCG) in the rural
markets in India is estimated to be Rs. 6,500 billion; consumer durables at Rs. 500
billion, agricultural inputs (including tractors) at Rs. 4500 billion, and automobiles
(two-wheelers and four-wheelers) at Rs. 800 billion, totalling to Rs 12,300 billion.
* The rural market for FMCG products expanded by about 30% between 1992-
1993 and 1998-1999, and accounted for about 53% of this product category's total
consumption in India. The rural market accounted for a similar proportion for
consumer durable products too.
* Market indicators such as size and growth rate for many products and
product categories are too attractive for any company to ignore. Another indicator of
the future potential can be gauged from the fact that 48% of the rural population is
below 20 years of age.
* The price-sensitivity of a consumer in a village is something the marketers
should be aware of. Rural income levels are largely determined by the vagaries of
monsoon and, hence, the demand there is not an easy horse to ride on. Britannia
Industries launched Tiger Biscuits especially for the rural market. It clearly paid
dividend. Its share of the glucose biscuit market has increased from 7 per cent to
15 per cent within a very short period.
* One very fine example can be quoted of escorts where they focused on deeper
penetration. They did not rely on TV or press advertisements, but rather
concentrated on focused approach depending on geographical and market
parameters like fares, melas, etc. Looking at the 'kuchha' roads of village, they
positioned their bike as tough vehicle. Their advertisements showed Dharmendra
riding Escort with the punch line 'Jandar Sawari, Shandar Sawari'. Thus, they
achieved whopping sales of 95000 vehicles annually.
* ITC is setting up e-Choupals, which offers the farmers all the information,
products and services they need to enhance farm productivity, improve farm-gate
price realization and cut transaction costs. Farmers can access latest local and
global information on weather, scientific farming practices as well as market prices
at the village itself through this web portal - all in Hindi. It also facilitates supply of
high quality farm inputs as well as purchase of commodities at their doorstep.
* The heat of competition in the urban market actually serves as the strong
driver behind the growing interest of Corporates in the rural market. The fact that
10
the rural market is still largely an untapped and virgin market and the fact that the
early entrants can tap it without having to face intense competition as in the case
of urban market, makes the rural market all the more attractive to them. For
example, penetration level for toothpaste in the urban market has now reached
close to 80 per cent. In contrast, it is below 30 percent in the rural market.
Obviously, any substantial further growth in the product can come only from the
rural market.
* In the FMCG category, half of the revenue of Hindustan Lever and Colgate
comes from the rural market. It can also be seen that about one-fifth of Pharma
sales occur in rural India. In respect of high-priced durables, about one fourth of
the television sales happen in rural India; Kinetic sells about 30 per cent of its
scooters, Toyota nearly half of its vehicles and Hero Honda 40 per cent of its bikes.
* Shakti is HLL's rural initiative. It seeks to empower underprivileged women of
villages with populations of 2000 or less by providing income-generating
opportunities, health and hygiene education through the Shakti-Vani program, and
creating access to relevant information through the i-Shakti community portal.
Shakti is a pioneering effort from the private sector in creating livelihoods for rural
women. Started in 2001, Shakti has already been extended to about 50,000 villages
in 12 states – Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Tamil Nadu,
Chhattisgarh, Uttar Pradesh, Orissa, Punjab, Rajasthan, Maharashtra and West
Bengal (respective state governments and several NGOs are also actively involved in
the initiative). For HLL, it is "enlightened self-interest"—creating opportunities to
increase the rural family income; putting more money in their (rural people) hands
to purchase the range of daily consumption products-from soaps to toothpastes-
that HLL makes. It also enables HLL to access hitherto unexplored rural
hinterlands.
* Contrary to the popular belief, the R-panel found that the rural demand is not
overwhelmingly unbranded. In categories such as shaving products, toothpastes,
toilet soaps, biscuits, the share of branded products is higher than the unbranded
local products.
* According to ORG-MARG data 90 per cent of all shampoo and about 65 per
cent packaged tea sales in rural areas comes sachets/small packs.
* There has been a phenomenal improvement in rural incomes and rural
spending power. Successive good monsoon has led to dramatic boost in crop yields.
Tax exemption on rural income too has been responsible for this enhanced rural
purchasing power.
* Rural consumers normally do not make brand discrimination but once
induced to buy and use a product, he becomes loyal to the brand provided he is
satisfied about its functional utility, such a loyal user may even make efforts to get
the whole village use it.
* Few business houses like Hindustan Lever, Lipton, ITC, Tatas, Coca-cola, LG
etc are capitalizing the marketing opportunities in rural sector.
* A survey by NCAER shows that the rural market is growing faster than the
urban market in several products. These include packaged tea, detergent powder,
11
washing soap and detergent cake. Growth in motor cycles too has been more in
rural market than the urban market
1.4 REVISION POINTS
Nature of rural marketing – scope – importance – challenges and opportunities
of rural marketing
1.5 INTEXT QUESTIONS
1. Explain the nature of rural marketing.
2. What is the scope of rural marketing? Brief
3. What are the challenges of rural marketing?
4. List out the opportunities of rural marketing.
1.6 SUMMARY
When we study about the rural marketing, it is necessary to analyse the nature
and scope of rural marketing. Rural marketing has its own challenges and at the
same time it has some opportunities also. Apart from this the markets have to be
classified.
1.7 TERMINAL EXERCISES
1. What are the classifications of markets? Discuss
1.8 SUPPLEMENTARY MATERIALS
1. Kashyap,Pradeep and Raut, Siddhartha. The Rural Marketing Book-
Text & Practice,New Delhi: Biztantra,2005-06,381p
2. http://www.itcportal.com/sets/echoupal_frameset.htm
3. http://www.itcportal.com/sets/agriexp_frameset.htm
4. http://www.echoupal.com/
1.9 ASSIGNMENTS
1. Visit a rural market and analyse the challenges faced by them.
1.10 SUGGESTED READINGS
1. Badi, R. V., & Badi, N. V. (2004). Rural Marketing 1st Edition. Himalaya
Publishing House .
2. Batra, R., Myers, J. G., & Aaker, D. A. (1997). Advertising Management
5th Edition . Prantice Hall of India Private Limited.
3. Batra, R., Myers, J. G., & Aaker, D. A. (2008). Advertising Management.
PHI Learning Private Limited.
4. Belch, G. E., & Belch, M. A. (1998). Advertising and Promotion An
Integrated Marketing Communications Perspective 4th Edition. Irwin
McGraw-Hill Publications.
5. Belch, G. E., & Belch, M. A. (2001). Advertising and Promotion 5th
Edition. Tata McGraw-Hill Publishing Company Limited .
1.11 LEARNING ACTIVITIES
1. Find out the nature of the rural market
2. Analyse the importance of rural market
1.12 KEYWORDS
Rural Markets - Rural marketing – Urban market
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LESSON 2
FACTORS INFLUENCING RURAL MARKETING
2.1 INTRODUCTION
The term "socio-cultural environment" is typically used in business or
marketing to describe an environment composed of values and behaviours. It
includes Culture, traditions beliefs, values, caste system and lifestyle of the people
in a given society constitute the socio cultural environment. These elements decide,
to a large extent, “what the people will consume and how they will buy”.
2.2 OBJECTIVES
 To study the factors influencing the rural marketing
A socio-cultural environment is a population, and it is described with special
attention paid to social and cultural factors. It includes cultural norms,
demographic information and religious information.
2.3 CONTENTS
2.3.1 Culture
2.3.2 Factors of Socio-cultural Environment
2.3.3 Income generation
2.3.4 Literacy level and Rural demand
2.3.5 Communication Strategy
2.3.6 Creating advertisements for Rural Audiences
2.3.1 Culture
It include form of behaviour ,norms, beliefs, values and customs that are
shared by a society and are transmitted from one generation to another. Culture
is the combined result of factors like religion, language, education and upbringing.
Meaningful information on the consumption habits, lifestyle and buying behaviour
of the people .
Types of Culture
Physical Non Physical, Clothing, Tools, Decorative Art, Religion, Attitudes,
Beliefs, Values, Language, Information
Rural Consumer Culture: Rural consumer wants to mark-able commodities,
that commodities available at all shop. Ex:- HUL Products, IFFCO Products (Urea)
etc.
Religion: Religion is also effects the business socially. Religion means the
system in which group of persons trust in God . Different religions have different
principles , rules and regulations in which they sacrifice to use some products and
to eat some food , In Hindu religion, they never use leather products . They affects
the sale of leather industries . So, businessman must analyse the targeted audience
and after listening their religious thoughts , he should produce the goods . Almost
all religions have separate colours.
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2.3.2 Factors of Socio-cultural Environment

Social class: Rural consumers are heterogeneous based on their income.
Member of the low income group mainly buy essential commodities such as food,
clothing's and shelter. The middle income group buy sewing machine. two wheeler,
TV , mixer- grinder and refrigerators. the rural consumer are more interested in
purchasing income yielding assets like a sewing machine for starting a business , a
two wheeler that is a work companion or a piece of land that can be tilled. Upper
middle income group are the seekers of a wide spectrums of goods .They look for
close substitute of premium product.
Groups: The formation of group is a natural phenomenon. Every individual will
have membership of more than one group. Interest in education, friendship, sports
and games, cultural activities stimulate individual to form and join groups . Types
of Groups 1. Associated group Associated group is the group to which consumer
belong as a member. Associated group is mainly two types: a) Primary group: with
whom the person interacts fairly ,continuously and informally such as friend,
family , neighbour and co-workers. b) Secondary group: they are formal group such
as office, political, and religious group which is formal and require less interaction.
Reference Groups: An individual’s reference group consists of all the groups
of persons that have a direct (face-to-face) or indirect influence on the person’s
attitudes or behaviour. Reference group influence can take three forms given below:
a. Informational influence: When fellow member use a product the consumer may
simply decide to try the product. Ex: A farmer may decide to buy fertilizer brand
because other farmers are buying it. Normative influence :It occurs when an
individual buys in accordance with norms of social group with which the consumer
has strong ties a rural youth wear jean to fit with the youth group. Identification
influence : It is observed when a consumer buys in accordance with value of the
group to which he belongs. Ex: Farmers buy seeds ,fertilizer and pesticide to meet
occupational requirements in accordance with the farming standards.
Opinion Leader: Opinion leader is the person who offer informal advice or
information about a specific product or a product category such as which of several
brand is best and how a particular product may be used. Ex: Marketer target the
opinion leader for encourage word of mouth advertising for their product or
services.
Family: Family is important organization of consumer in rural market.
purchase decision are significantly influenced by family orientation, size and role
played by member. Many occasion of family like marriage and of any family member
, can increase the demand of goods .
• Family orientation: Consist of parents and siblings. from parents a person
acquire an orientation toward religion. Politics and economic and a sense of
personal ambition self worth and love.
• Family size: It is a known fact that the quantity of consumable varies with
family size .industry observers are increasingly realizing that at time ,purchase of
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durables has nothing to do with income , but more to do with the size of the family
.this is where rural India with its joint family structures becomes an attractive
proposition.
Family as a buying unit: Family members play different role in purchase
decision. The structure of Indian families has been previously characterized as joint
families with traditional sex- role orientation, i.e. the husband is predominated in
all family affairs. The power sharing system in different purchase situation is as
given under.
o Husband: Dominant in choosing life insurance ,automobile .television
o Wife : Dominant in choosing washing machines, room furniture,
kitchenware.
o Equal: Housing, outside entertainment. Ex: Company determine the
person who take decision in purchasing of product and want to target
promotional communication to the right member.
Sociability: In rural areas individual are known and identified by their first
name. Rural folk like interacting with as many people as possible. the following
observation can be made in social interaction.
• There are more frequent interaction between the same people.
• The richness of interaction is limited The reason is that their exposure to
people and information is less. Today we fine politicians, NGO’s social workers
,student of rural development programme, National social service(NSS) volunteer,
and other interested person making a beeline for villages. New access to
information provide by television, internet and newspaper have impact on the
sociability of villagers.
It is ironic that the census of India define considering that there were only
villages before the development of cities and towns.
Population
India is the largest democracy in the world occupying 2.4 percent of the
world’s geographical area and supports 16 percent of whole world population.
Around 72 percent of the total population of our country lives in rural areas. This
provides the marketers a larger market as compared to the urban market. So,
growth in population is the main contributing factor that leads the marketers to
have an eye on this particular segment.
In terms of the number of the people, the Indian rural market is almost twice of
the entire market of the USA and the USSR. But we have to consider other factors
while studying rural marketing environment like occupation pattern, spending
pattern, economic reforms, source of income generation and infrastructure facilities
etc.
Though the proportion of rural population to total population of country is
showing a slight decrease over the years, but in absolute numbers rural population
is increasing at a higher rate than the urban population. The increasing rate of
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population in rural areas provides scope for marketing of consumer durables goods
and services.
There are currently more than 20,000 villages in the 5,000-10,000 population
strata as per the Census of 2001, so any population cut-off criteria should
definitely include these villages as rural areas.
Occupation pattern
The occupational pattern of people in a segment naturally affects their buying
behavior.
Occupational pattern of rural people also has an impact on the nature of
income generation, which will in turn affect the expenditure pattern. Purchase
behavior of the rural consumers depends upon the nature of occupation and the
consistency in the generation of income.
Occupation Proportion of Rural Population
Agriculture 50
Agriculture Labour 27
Business 10
Non-Agricultural Labour 9
Salary Earners 2
Not gainfully employed 2
Total 100
A major section of the rural population relies on agriculture and allied activities
for occupation. So, the income in the hands of rural people is very much
conditioned by the status of agriculture and other allied activities.
A daily wage earner has to account for variations in income, whereas a salary
earner brings home an assured fixed amount and therefore can plan expenses in a
better way.
Three-fourths of rural household heads are either cultivators or wage earners,
whereas three-fourths of urban household heads are salary earners, petty
shopkeepers and wage earners.
The cultivator‘s disposable income is highly seasonal, with more disposable
income available immediately after the harvesting season. This is therefore the time
when he is more inclined to make purchases, especially of durables and high-
involvement products. Basic occupations that exist and help directly agro-related
works are:
Farm Labourer –The farm labourer helps a village through his agricultural
activity directly. The labourer works by tilling, weeding out, sowing, reaping,
cleaning the Produce, guarding the field at harvest time and many other odd jobs
related to agriculture.
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Priest –He reads horoscopes, arranges poojas, tells villagers regarding

auspicious dates for marriages, house warming, sowing in addition to his duties in
the temple.
Blacksmith – The agricultural implements are made and repaired by the
village blacksmith, Carpenter
Demographic profile of people in a segment naturally affect their buying
behavior. The wage earner and salary earner cannot be expected to behave in the
same way. A daily wage earner has to account for variations in income, whereas a
salary earner brings home an assured fixed amount and therefore can plan
expenses in a better way.
Three-fourth of rural household heads for either cultivators or wage earners,
whereas three-fourth of urban household heads are salary earners, petty
shopkeepers and wage earners.
The cultivator‘s disposable income is high available immediately after the
harvesting season. This is therefore the time when he is more inclined to make
purchases, especially of durables, and high-involvement products. The purchases
at such times are quite significant, as 40% of the rural population, i.e. 50 million
families, are farmers.
2.3.3 Income generation
The pattern of income generation in rural areas based on agriculture is
seasonal and highly unreliable unlike the fixed monthly income in the urban areas.
This created a consumption pattern that is quite different from the urban one.
By sale of agricultural produce
By sale of animal produce
By service –Rendered by teacher, doctor or nurse. By interest on investment
Government subsidies and grants By mortgage of properties and gold By
charities and donations
By labour and wages –Labourers do jobs in construction of roads, bridges and
buildings.
Income of Rural Sector is rising at a considerable rate. Percentage of Very
Rich, Consuming Class, and Climbers are rising whereas Aspirants and Destitutes
are declining.
The structure of Rural Income depicts the following trends:
1. On the income ladder, the top two slots are occupied by the non-farm
sector, whereas the farmer is at the third place and wage earner is at the bottom.
2. The highest per capita income in rural comes from the formal segment of
the non-farm sector at Rs. 19514 which is higher than the urban per capita income
at Rs. 19407.
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Location of rural population

It has been observed that the majority of rural institutions, agri markets and
rural banks are located in larger villages and towns, upto 10,000 populations.
Moreover, the characteristics in terms of occupation, consumption, and buying
behavior change from rural to urban in locations of more than 10,000 population.
Expenditure pattern
Per capita consumption expenditure in rural has increased four times over last
20 years.
Rural spending in non-food items is increasing; out of a total per capita
spending of Rs.486, approximately 40% is spent on non-food items. This shows an
encouraging trend for consumer durables and non-durables (non food item)
Analysing the consumption patterns of non-food items of rural consumers, we
find that the major share of spending goes to clothing, medical services and fuel
needs, whereas urban consumers spend much more on rentals, education and
conveyance.
2.3.4 Literacy level and Rural demand
Lower level of education in rural sector (approximately 60% of the population
lies below the middle education bracket) lead to little or low demand for a range of
products such as literacy books, magazines, notebooks, pen/pencils, drawing
instruments, calculators, digital diaries, computers, etc.
But change is taking place because the literacy retain the rural sector has risen
23% over the last 20 year. This has contributed significally to an improvement in
the socio-economic status of the people. With this growth, the demand for
educational products has increased. Overall, products and brand awareness have
increased and rural consumers have become more mature in purchase decision.
Land use pattern
One of the main obstacles for marketers to exploit the rural market potential
has been the largeness of rural markets in terms of the areas it covered. It is much
easier to divide it according to the needs of the urban population because of
concentration, but it is very difficult in the case of rural market because of their
widespread nature.
This clearly shows that rural population is distributed in almost about 638365
villages. It is also noted that villages are not uniform in size. About 42 percent of
the villages in India has population of less than 500 people in it.
Businesses in India are optimistic about growth of the country's rural
consumer markets, which is expected to be growing faster than urban consumer
markets. These days, there is better networking among rural consumers and their
tendency to proactively seek information via multiple sources to be better informed
while making purchase decisions.
Mainly, the wider reach of media and telecommunication services provides
information to India’s rural consumers and influencing their purchase decisions.
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According to general trend, rural consumers are evolving towards a broader notion
of value provided by products and services. This involves aspects of price combined
with utility, aesthetics and features, and not just low prices.
Companies face many challenges in tackling the rural markets, some of the
more critical being: understanding rural consumers, reaching products and
services to remote rural locations and communicating with vastly heterogeneous
rural audiences. Sadly, not many companies have invested sufficient effort and
money in research and nor have they spent enough time in the field to understand
rural consumers, their values, aspirations, needs and usages habits. Marketing is
all about 'getting to know your customer', but having largely ignored this cardinal
principle, most corporate in rural markets find that success has eluded them.
Land Management is gaining importance because of increasing demands on
land and growth of the population.
Forest area and cultivable land percentages have increased. Forest has
increased from a level of 14% to 22%. Area sown has increased from 20% to 43%.
Area not available for cultivation has reduced.
Change of mindset of common man towards ecology, increasing greenery and
that every square meter of land be used gainfully. Multi-storeyed buildings form
part of the city‘s landscape.
Irrigation
In last four decades, the irrigated area has doubled.
For centuries, Indian agriculture has depended on rains. The special
programmes launched by Government of India to increase the irrigation facilities
along length and breadth of India have yielded results and reduced dependence on
rain.
There is considerable difference in irrigation patterns from state to state in
India. States like Punjab and Haryana, where there are enough natural water
resources have a good percentage of gross irrigated area to total crop area.
If a farmer owns many patches scattered at distances, it makes the entire
efforts in agriculture less remunerative.
Mechanical farming or agricultural methods cannot be adopted for small land
holdings.
2.3.5 COMMUNICATION STRATEGY
Advertising goes hand in hand with economic growth. With economic
liberalization and increasing rural prosperity, marketers are keen to inform villagers
about the benefits of buying and consuming their products and services. Prior to
the introduction of economic liberalization in 1990s, there was little incentive for
marketers to advertise their products and services, as rural markets were
predominantly a seller's market.
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The influence of the electronic media, in particular television, video and the
Hindi film industry, is contributing to the growth of rural aspirations, which are
being manifested in rural India in the form of increasing consumerism.
The rural environment is different from the urban and therefore
communication to potential customers in a proper and effective manner is a major
challenge for corporate marketers. The majority of advertisements designed by
corporate marketers, are largely urban oriented and extend themselves to rural
areas without any consideration to the values and sensitivities of the rural
audience, which are often in striking contrast to those of their urban counterparts.
This has led to a negative perception in the minds of villagers, about urban media
planners and advertisers.
Rural communication is not a 'peripheral activity'. It does not, for instance,
involve taking an audio-visual van to a village and assuming that this step is
enough to reach out to customers. It requires an entirely different mindset, which
demands getting rid of many mental barriers. Companies have to realize that rural
is a long-haul market, as gains in the short term are neither immediate nor large.
Challenges in rural communication
There are many challenges to communication in rural. Low literacy level; poor
media reach and exposure and vast, heterogeneous and diversely spread rural
audiences characterized by variations in language, culture and lifestyle-all these
factors pose multiple challenges to marketers looking to take their messages to the
largely media-dark or media-grey areas, of rural markets.
Heterogeneity and spread
The communication pattern in any society is a part of its culture. No
communication medium can exist in a cultural vacuum. Communicating the
message to rural consumers ha posed enormous challenges to the rural marketer,
because of the large numbers of consumers scatters across the country. The
problem is further compounded by the heterogeneous nature of consumers there
are 16 scheduled languages and 114 local vernaculars. For example, the dialect
used in the Vidharbha region, in konkan region, in costal Maharastra.
Limited Media Reach
The limited reach of the mass media imposes limitations on universal
communication to rural consumers. These factors lead to poor message
comprehension and negligible impact, which fail to translate into consumer
awareness and hence fail in generating consumer pull.
Understanding the Rural Audience
It is not sufficient to understand rural communication challenges as stated
above: rather, what is equally crucial is the need to understand the behavioral and
psychographic characteristics of the rural audience, in order to develop an effective
rural communication strategy.
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2.3.6 CREATING ADVERTISEMENTS FOR RURAL AUDIENCES

Communication experts need to keep the following factors in mind when
creating advertisements for rural audiences.
* Understanding the mindset of potential customers, including their hopes,
fears, aspirations and apprehension conducting a qualitative study among the
target audience would help in better understanding of the consumer mindset.
* Pick up 'gems' in the form of idioms, expressions, words, etc. in relation to the
product category for later use in the creative.
* Tricky, clever, gimmicky, or even suggestive advertising does not work with
rural audiences. 'Flicks' using very expensive computer graphics without any
human presence go over the heads of rural audiences.
* Combining education with 'entertainment is a good route to take when
targeting rural audiences. Using locally popular film stars or even featuring
religious events (melas) popular in the region, helps strike a chord with rural
audiences. According to a study, it is Govinda and Sharukh Khan who is most
popular among rural folk in north India.
* 'Quickies' (short television commercials) do not register well with rural
audiences. Advertising agencies need to provide for ample time and space to
communicate a message properly and effectively to the intended audience. This is
seen for instance, in the popularity of the two-minute theatre commercials screened
in rural cinemas.
Rural media
* Rural media can be classified broadly into conventional mass, non-
conventional media and personalized media. The various media vehicles are as
follows:
CONVENTIONAL MASS MEDIA
NON-CONVENTIONAL MEDIA
PERSONALIZED MEDIA
Television, Haat and mela, Direct mailer, Radio, Folk media (puppet show,
magic show), Point of sale (demonstration, leaflet), Press, Video van. Word of
mouth, Cinema, Mandi. Interpersonal communication. Outdoor: wall painting,
hoarding, Animator
INNOVATIVE MEDIA
OUTDOOR MEDIA: WALL PAINTING
* This medium is the most widespread form of advertising and is the favorite of
the Indian rural masses, as they can view it at their leisure. Wall paintings are
important because they constantly remind rural people about name and logos in
addition to highlighting the key brand promise. They also reflect the vibrant
economic and social life of the area.
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Characteristics of wall paintings

• They are economical as compared to other traditional media forms, as the
manpower and infrastructure requirements are low.
• They can easily be customized in accordance with regional language
variations without this impacting their artistic content.
• Audience recall rates are high.
Limitations
• The lack of availability of wall space at prominent locations is an issue.
• The quality of the wall space available is not always satisfactory. The base of
rural wall structures is generally not smooth and this impacts the final output.
• No exclusive wall rights are given to the company. It may happen that a
company gets a wall painted and after sometimes when the company executive
passes through, he finds that the painting has been replaced by the advertisement
of some other company.
• The quality of the painters available is also low. Companies prefer hiring
painters locally as they are familiar with the area and the cost of hiring them is
lower when compared to the cost of hiring painters from outside.
FOLK MEDIA
• Folk media consist of folk songs, folk dances and other theatrical forms,
including puppetry, street theatre and magic shows, which are an intrinsic part of
the culture and heritage of the land.
• They are capable of communicating message about contemporary issues,
topics and concerns as per the needs and demands of a changing society.
• They are a face-to-face and personal form of communication.
• The essential characteristics of folk media are that are interactive, repetitive
and narrative
Kinds of Folk Media
* Folk theatre, * Magic show, * Puppet shows, * Interactive games
Folk Theatre
Folk theatre, interspersed with folk song and dance, is a simple and
entertaining form of communication. It can also be informative and educational. In
the past, folk theatre has been used to arose public opinion against the British Raj,
to draw attention to atrocities against the girl child and raise public consciousness
about other socially relevant issues.
Folk songs
Folk songs are basically simple and direct compositions that are usually
transmitted orally from one generation to the next and not through the written
word. The structure of the folk song is characterized by simplicity and uniformity in
rhythm. The songs consist of many stanzas sung in more or less the same tune.
Each region and state has its own particular traditions of folk songs and ballads.
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Folk Dances
Folk dances are basically simple and rhythmic and mostly religious in nature.
Communication takes place through dramatic gestures and the accompanying
music. Folk dances are visually very arresting, attracting audiences with their
elaborate costumes and stage settings.
Magic shows
Magic shows are another very entertaining form of folk entertainment and draw
large crowds, particularly because of the curiosity factor and the use of hypnotic
effects.
Puppet Shows
The kathputli puppet performance is the most common form of this folk
tradition. The origin of puppet theatre is closely linked to the performance of
religious ceremonies. The connection between rituals and the use of puppets is
found in almost all the states in India.
Traditional puppeteers were mostly itinerant performers who depended on royal
patronage for their survival. Even today tales of chivalrous kings like Prithiviraj C
hauhan and Amar Singh Rathor are narrated through puppet performances in the
villages and towns of Rajasthan.
The different forms of traditional puppetry are glove, rod, string-rod and
shadow puppets. The differences exist not only in name but also in form, structure,
manipulation techniques and geographical origin spread.
2.4 REVISION POINTS
Cultural factors – population factors – Occupation level – Literary – land
distribution – implemented development programmes and how they affect rural
marketing.
1. How socio cultural factors affect rural marketing?
2. How population and occupation make an impact on rural marketing?
3. How the development programmes affect the rural marketing?
2.6 SUMMARY
The rural marketing is affected by number of factors. Normally socio
cultural factors that is population, literacy, level of occupation, process of land
distribution, different media such a communication, advertising, rural
communication they all joined together and affect the process of rural marketing.
Hence, the above have been discussed.
1. How communication affects the rural marketing?
2. Explain the role of rural media in rural marketing.
1. Belch, G. E., & Belch, M. E. (2004). Advertising and Promotion an
Integrated Marketing Communication Perspective sixth Edition . New
Delhi: Tata McGraw-Hill Publication company Limited .
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2. Best, J. W., & Kahn, J. V. (1986). Research in Education 5th Edition.

New Delhi: Prentice Hall of India Private Limited.
3. Bhatia, T. K. (2000). Advertising Rural India Language Marketing
Communication and Consumermarism. Tokio Press.
4. Bogart, L. (1996). Strategy in Advertising 3rd Edition. NTC Business
Books.
5. Broadbent, S. (1989). The Advertising Budget. Tata McGraw-Hill
Company.
2.9 ASSIGNMENTS
Write an essay on rural advertising process to promote rural marketing.
Communication and Consumermarism. Tokio Press.
Books.
3. Broadbent, S. (1989). The Advertising Budget. Tata McGraw-Hill
Company.
Visit the rural area. Conduct the folk lore, puppet show regarding the
marketing of rural products
2.12 KEYWORDS
Factors of rural marketing – population – occupation – distribution of lands -
media
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LESSON 3
FACTOR AFFECTING RURAL MARKETING – CREDIT AVAILABILITY
3.1 INTRODUCTION
India is a country of villages, about 50% of the villages have very poor socio-
economic conditions. Need for proper basic infrastructure. Financial assistance to
the poor by providing productive resources through credit and subsidy. Livelihoods
rely on businesses this called for Rural Marketing.
Most of the population of rural areas is poor and needs financial assistance in
the form of credit. Borrow money to buy fertilizers ,seeds ,other implements.
Family expenses of marriage, death, religious ceremonies.
traders expl
maintain proper accounts and Harass the poor farmers. Borrowers find themselves
in a Debt Trap.
3.2 OBJECTIVES
 To analyse how the credit availability affects Rural Marketing
 To understand the role of credit availability and the related institution
3.3 CONTENTS
3.3.1 Co-Operative Credit Societies
3.3.2 Land Development Banks
3.3.3 Commercial Banks
3.3.4 Regional Rural Banks
3.3.5 The Government
3.3.6 Development programs
3.3.7 The NGO Movement
3.3.8 Infrastructure facilities
3.3.9 Problems in Rural Marketing
3.3.10 Rural Demand
3.3.1. Co-Operative Credit Societies
The co-operative societies are supposed to be the cheap-est and most important
source of rural credit. When co-operatives were first set up it was thought that they
would be able to meet almost the entire credit needs of numerous small and
me-dium farmers.
As a result, the moneylenders would recede to the background. But this has
not really happened. Till 1950-51 they played a passive role in the area of rural
credit.
However, during the plan period the co-operative societies have made steady
progress and have succeeded to some ex-tent in promoting thriftiness and self-help
among farmers. They have started helping the farmers in a big way. Short-term
loans issued by Primary Agri-cultural Credit Societies (PACs) increased from Rs.
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305 crores in 1965-66 to Rs. 5,200 crores in 1999-00. During the same period term
loans is-sued increased from Rs. 37 crores to Rs. 2,100 crores.
Increasing reliance has also been placed by the Government on co-operatives
as the most im-portant set of institutions for meeting the credit needs of the
farmers. Due to the encouragement and assistance provided by the Government as
also by the NABARD, notable progress has been made by co-operatives in some
States such as Tamil Nadu, Andhra Pradesh, Karnataka, Punjab and Himachal
Pradesh. Whereas the co-operatives man-aged to meet hardly 3% of the credit
needs of the farmers in 1950-51, they succeeded in meeting about 39% of the total
credit needs of the farmers in 1999-00.
However, since co-operatives have not been able to meet, the entire credit
needs of the farmers the moneylenders continue to dominate the rural financial
markets. Moreover, the large farmers have derived the maximum benefits from the
co-opera-tive societies. The small farmers, for whom the co-operative movement
was originally initiated, found it increasingly difficult to meet all their credit needs
through these institutions.
Moreover, the movement is yet to take deep roots in most eastern States like
Bihar, Orissa and West Bengal, as also in Rajasthan. In most areas the
unscrupu-lous moneylenders, rich farmers and land-owners have worked against
the movement. Consequently, the really needy and deserving farmers have been
deprived of the benefits of co-operatives.
3.3.2. Land Development Banks
Land devel-opment bank (formerly known as land mortgage banks) mainly
provide long-term loans to farmers against the mortgage of their lands at low rates
of interest over a period of 15 to 20 years. Farmers find borrowing from such banks
attractive if costly land improvement programmes (such as digging or deepening of
wells) are to be undertaken, or if additional land is to be acquired through outright
purchase, or if previous debts have to be repaid.
Some progress has, of course, been made by land development banks in recent
years, but their contribution is still insignificant. Hence they have not been able to
touch the root of the rural credit problem. In fact, most farmers are not even aware
of the existence or the usefulness of such banks. But the total number of such
banks set up by the State Governments and primary banks increased steadily over
the entire plan period.
The amount of term credit distributed by LDBs was much higher, compared to
the credit disbursed by commercial banks in the initial years, but in the later years
the picture became mixed. The total amount of loan sanctioned by such banks was
only Rs. 3 crores in 1950-51. The figure crossed Rs. 1,500 crores in 1999-00.
Moreover, rich farm-ers were able to obtain the maximum amount of loan from
such banks because of large land hold-ings. Thus, small and marginal farmers
have not derived much benefit from such banks.
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3.3.3. Commercial Banks

Before nationalization of top 14 commercial banks in June 1969, they had an
urban bias. They were mainly accept-ing deposits from the urban people and
making loans to trade and industry. Agriculture and rural industries were neglected
by them. Since agricul-ture by its very nature was a risky venture, private
commercial banks turned away from rural areas.
Other factors obstructing flow of bank credit to agriculture were :
i. Inability of farmers to pro-vide security,
ii. Difficulties in recovering loans,
iii. Lack of clear-cut and up-to-date accounting of agricul-tural transactions,
iv. The small amount of loan and.
v. The consequent high transaction cost.
However, one of the objectives of nationalisation of com-mercial banks was to
ensure a smooth flow of credit to agriculture and small-scale industries—the two
top priority sectors of Indian economy.
Since the nationalisation of commercial banks in 1969 the stress has been on
expanding and strengthening the institutional structure of rural credit. However,
even today the rural areas in India are yet not properly served by banking
insti-tutions. Most commercial banks feel shy to block their funds in risky
agricultural operations.
There is very little chance of loan recovery in most cases due to high risks
associated with natural calami-ties. Of course, commercial banks finance the
marketing of crops by advancing funds to traders. But sometimes loan is made
directly to rural borrow-ers. However, the quantum of such loans is very small. Of
course, there has been a distinct change in the attitudes and lending policies of
commer-cial banks after nationalisation.
Commercial banks now provide both direct and indirect finance to agriculture.
Direct finance is provided for short and medium terms to enable farmers carry out
agricultural operations smoothly. Indirect finance is provided in the form of
advances for the purchase of inputs like seeds and fertilizers. Such loan is also
provided through PACs.
Commercial banks not only provide assistance for agricultural operations but
also for extending credit to service units which provide infrastructural facilities
such as storing and warehousing of agri-cultural produce, marketing, transporting
and re-pairing of agricultural implements.
Since the nationalisation of commercial banks, there has occurred a rapid
expansion of their rural branches. The number of rural branches has increased
from 1,832 in June 1969 to 37,500 in March 1999, constituting 56.8% of the total
branches of commercial banks. During this period the amount of outstanding
advances to agricul-ture increased from Rs. 162 crores to Rs. 31,167 crores.
27
However, despite the vast increase in short- term loans by commercial banks, the
PACs con-tinued to dominate the scene.
Commercial banks also provide finance to the FCI, and the State Government
agencies for food procurement operations. Banks also provide credit for storing and
distribution of agricultural inputs. They are implementing the ‘village adoption
scheme’, originally initiated by the SBI, to look into credit and other needs of the
farmers.
Farmers also get commercial bank assistance un-der various schemes as Small
Farmers Develop-ment Agencies (SFDAs) and Marginal Farmers and Agricultural
Labourers (MFAL). Commercial banks have also sponsored regional rural banks as
per the 20-point Programme with a view to ex-tending credit to small and marginal
farmers and protect them from the exploitation of moneylenders.
3.3.4. Regional Rural Banks
In 1975, the Gov-ernment set up a network of regional rural banks to look into
the special needs of small and mar-ginal farmers, landless workers, rural artisans
and the rural poor in general. The unique feature of the 196 RRBs operating since
September 1990 is that they cater exclusively to the weaker sections of the rural
community through nearly 14,800 branches spread over India.
Almost all the tribal districts are covered. The RRBs have been lend-ing around
Rs. 400 per annum on an average. As much as 90% of the branches of RRBs have
been opened in hitherto unbanked areas and most of the advances (about 92%) are
granted to weaker sections, the average size of the advance per ac-count being just
Rs. 2,000. However, the amount of credit disbursed by RRBs was very small
com-pared to the loans issued by other institutional agencies.
3.3.5. The Government
The Government has also provided short-term and long-term loans to farmers
in times of emergency such as floods or famine. Such loans are known as Taccavi
loans. Such loans are offered at a concessional rate of interest (6%) and the mode of
repayment is also very convenient. It can be repaid in several installments at the
time of payment of land tax. How-ever, such loans have not assumed significance
over the years.
In fact, the contribution of the Gov-ernment in total agricultural loan had fallen
from 3.3% in 1951-52 to 2.6% in 1961-62. The total amount of short-term loans to
agriculture by State Governments exceeded Rs. 1,000 crores in March 1999.
Various factors have accounted for this un-satisfactory state of such loans, viz.,
delays in-volved in getting loans sanctioned and disbursed, time wasted in making
frequent trips to govern-ment offices, itching palms of the officials who sanction the
loans and so on. These and other rea-sons explain why such loans have not become
much popular over the years.
Due to extension of institutional credit facilities since 1950-51 the monopoly
posi-tion of the village moneylender has been chal-lenged. Due to progressive
institutionalisation of credit, private sources now meet barely 20% of the short and
28
medium-term credit needs of the farm-ers. In other words, institutional sources

meet about 80% of the rural credit needs.
The four major sources of institutional credit are co-operatives, commercial
banks, regional rural banks and gov-ernment departments. It is felt that there will
be more and more reliance on co-operative credit in future as the commercial
banks, instead of directly financing the agricultural operations, are likely to utilise
the co-operative system for extending short-term credit facilities, mainly for
production purposes.
3.3.6 Development programs
Green Revolution in the Agricultural Sector
Period from 1967 to 1978 heralded a technological thrust into rural areas
aimed at improving food grain production in the country and hence achieving food
self-sufficiency.
Green Revolution generated some notable economic results:
1. Crop areas under high-yield varieties required fertilizers, pesticides,
fungicides and other inputs. Farm equipments like tractors with farm implements,
diesel pump sets etc. introduced mechanization into the farm sector for the first
time.
2. The increase in farm production also introduced mechanized processing,
spurring growth of the local manufacturing sector.
The modernization and mechanization of the farm sector boosted farm
productivity, triggered industrial growth, created jobs and initiated a change in the
quality of life in villages.
White Revolution
 Initiated by the government with the aim of achieving self-sufficiency in
the area of milk production.
 Cornerstone of the government dairy development policy was producing
milk in rural areas through producer cooperatives and moving
processed milk to urban-demand centres.
 Gave a boost to dairy development and initiated the process of
establishing the much-needed linkages between rural producers and
urban consumers.
 Formation of producer‘s cooperatives ha institutionalizing milk
production and processing.
 Socio-economic and demographic factors such as urbanization and
changing food habits and lifestyles have also reinforced the growth in
demand for dairy products (ice creams, chocolate, yoghurt, butter,
flavoured milk etc.).
 Milk production has increased from 17 million tonnes in 1950-51 to
84.6 million tonnes in 2001-02.
29
 Most successful story in dairy development has been in Gujarat, Punjab,

Haryana, Uttar Pradesh and Andhra Pradesh.
3.3.7 The NGO Movement
 Important in providing assistance at the grassroots level assimilation of
technological extensions in rural areas.
 Stepped in to create awareness, build skills, introduce technology and
develop capacities for maintenance and sustainability.
 Government programmes implemented through NABARD, CAPART,
KVIC and others are given shape by these organizations.
 Introduction of low-cost spindles, weaving machinery, technology for
leather processing, food processing, natural resources management etc
have been some contributions in bringing about change at the
grassroots.
 NGO‘s have been also active in providing basic health and child care
services, running homes for destitute and the distressed and providing
education and training opportunities.
3.3.8 Infrastructure facilities
Road Connectivity
Good road connectivity, particularly in rural areas, between sub-divisional
towns and district headquarters is often the primary means of supplementing
public efforts directed at providing basic health and educational services, as well as
infrastructural support for production and trade and commerce at the local village
level.
It is particularly relevant in the Indian context where over 70% of the
population continues to live in rural areas and where over 50% of villages with
population of less than 1000 have yet to be connected by roads.
Among the major states, Kerala has the highest road length per hundred
square kilometers (375 km in 1997). Road connectivity at the village level
Post Offices
India with its 1,55,279 post offices as on 31 March 2002 (138756 post offices
are in rural areas) has a postal network that is the largest in the world. On an
average, a post office serves an area of 21.17 km and a population of 6614 persons.
For providing postal services, the whole country has been divided into 22 postal
circles. Each circle is further divided into regions. A postmaster general who is the
postal manager of the area heads each region.
Post offices in the country are categorized as head, sub and branch post offices.
Rural Health Services
Sub-centers: The health Sub-Centre is the contact point between the primary
health care system and the community. The Staff at health Sub-Centres are
assigned tasks related to
30
Ø Interpersonal communication in order to bring about behavioral change in

relation to maternal and child health, family welfare, nutrition, immunization,
control of diarrhoea and control of communicable diseases.
Ø Primary health Centres : First contact point between the village community
and a medical officer. These are established and maintained by the State
Government under the Minimum Needs / Basic Minimum Services Programme.
Ø Manned by a medical officer and is supported by 14 paramedical and other
staff.
Ø Activities include curative, preventive and promotive health care as well as
family welfare services.
Ø Community Health Centres : Established and maintained by the State
Governments under the MNP/BMS programme. Four medical specialists, i.e.
surgeon, physician, gynaecologist and paediatrician supported by 21 paramediacal
and other staff.30 Indoor beds, with X-ray, labour room, operation theatre and
laboratory facilities.
Radio
From six radio stations at the time of Independence, All India Radio today has
208 radio stations. All Stations of All India Radio broadcast farm programmes and
home programmes directed at rural audience. The thrust of the broadcast is on
increasing production of agri-products and various programmes adopted by the
Government of India.
Television
DD-1 operates through a network of 1042 terrestrial transmitters of varying
powers reaching over 87% of the population. Over the years, the viewership of
Doordarshan as increased enormously, reaching 7.5 crore homes. Community
television sets have been introduced under various schemes operated by Central
and State Government.
Telecom Services
By 2004, over 80% of all villages had been connected through 5.4 lakh Village
Public Telephones. Similarly, 1.42 crore telephone connections had been given in
rural areas.
People who are unable to afford a telephone facility of their own can now have
access to VPTs in rural areas in addition to Public Call Offices.
Rural credit institution
§ Asmitha –Provides rural poor women access to financial resources in the
form of collateral free small loans for income generation and livelihood promotion.
This enables them to set-off small start up business, which soon translates into
adequate nutrition, medical aid and education. With increased businesses, these
low-income women become economic agents intrinsic to development rather than
simply homemakers
§ Bandhan MF- Bandhan was set up to address the dual objective of poverty
alleviation and women empowerment. The microfinance activities are carried on by
31
Bandhan Financial Services Pvt. Ltd. (BFSPL), incorporated under the Companies
Act, 1956 and also registered as a Non Banking Financial Company (NBFC) with
the Reserve Bank of India (RBI).
§ That apart, Bandhan is also engaged in de entity.
§ Cashpor India –Our mission is to identify and motivate poor women in the
rural areas and to deliver financial services to them in an honest, timely and
efficient manner so that our Vision is realized and CASHPOR itself becomes a
financially sustainable micro finance institution for the poor.
§ Grameen Foundation –Works in 6 key areas : Connecting microfinance
institutions with capital markets, Strengthening organizations by building people
practices, Harnessing the power of technology, Helping track people knowledge
widely for broader impact and Social Business
§ Grameen Koota –Grameen Koota recognises the future competition and
challenge of retaining exclusivity of clients. Instead of targeting a high market share
in high competition areas we will focus on incre becoming a preferred microfinance
provider. We will leverage our existing goodwill with the community and have a
strong focus on orienting our field staff towards this objective.
§ Hand in Hand –is a development organisation whose objective is to eliminate
poverty by creating enterprises and jobs?
§ Focusing on help to self-help, we take a holistic approach that combines
microfinance and support for women to start enterprises with work in four other
areas that matter most too poor communities: education and child labour
elimination, health and sanitation, a sustainable local environment and information
technology access. With currently more than 450,000 members in Tamil Nadu,
Karnataka and Madhya Pradesh, who have collectively started more than 250,000
micro-enterprises, our goal is to create 1.3 million jobs by 2013. Supported by
international offices in the UK and Sweden, we are now taking our model to South
Africa, Afghanistan and Latin America.
Micro Credit India –Microcredit Foundation of India (MFI) is a not-for-profit
Section 25 Company in Tamil Nadu dedicated to promoting entrepreneurship and
community level action in rural areas as a means to sustainable economic
prosperity. Today MFI works primarily with women. Through its field staff, MFI
helps them form Self Help Groups (SHGs), trains them in good financial practice,
facilitates access to microcredit loans, equips them with business skills and
facilitates access to new markets for their products.
MYRADA – MYRADA is a Non Governmental Organisation managing rural
development programmes in 3 States of South India and providing on-going
support including deputations of staff to programmes in 6 other States. It also
promotes the Self Help Affinity strategy in Cambodia, Myanmar and Bangladesh
New Life –New Life designs projects based on survey of the socio, economic
problems of the project area and support the poor, abused and abandoned children
32
and women by executing the projects with a defined goals/objectives. The current
projects of New Life includes orphanages for children of incarcerated parents, Save
children from Child Labour, Ensuring primary education for the rural children in
India, Early learning centres for children of vulnerable community groups, Read to
Lead Project, Taking care of the medical needs of Physically handicapped and
Mentally retarded children.
Rang De –Rang De‘s mission is to make microcr household by lowering loan
interest rates through innovative means. Rang De is committed to enabling
individuals to become social investors through a transparent platform. While
strive to improve Rangde.org as an interface, we work extensively with our field
partners to ensure that we do not compromise on our vision –making credit
available at affordable rates.
Rural areas requirement
Considering the importance of agriculture and rural majority the nine five
year plans have made considerable progress in improving the agriculture sector and
the rural farmer. The rural requirements vary from state to state and the priorities
also change. Rural requirements are listed under:
Improved seeds and fertilizers
Increased means and methods of irrigation Multipurpose farming
Use of modern farming equipments and methods Warehousing and
preservation of agri-produce.
Marketing development and remunerative prices for the produce Improvements
in pest control and preservation of crops.
R & D work and benchmarking with the best agricultural practices, yields in
the world
Training of Farmers
Increased investments and credit facilities
Small land holdings to be consolidated and improvements in tenancy.
Animal heath and veterinary facilities.
Literacy of farmers and families.
Develop village agro-based industries/cottage and village industries Population
control
Crop insurance Health of farmers
Environment friendly agriculture methods Water availability management
Remunerative price for milk and milk products and Provision for subsidiary
occupations and incomes
3.3.9 Problems in Rural Marketing
Unevenly Scattered Population –The spread of population in about 4000
cities and towns is to the extent of 25% and the balance is in six lakh villages. Only
6300 villages have a population of more than 500. This makes the marketers go
through a lot of difficulty to reach out to the rural masses effectively.
33
Underdeveloped People and Underdeveloped Market – Since 1947 a number

of initiatives have been taken to improve the quality of life in rural areas. In 1947
the rank of India in terms of poverty, unemployment and level of development was
86 in the world but in 1991 it reached the level of 123. The situation has further
worsened and the 1996 report on Human Development Index shows that India rank
136th in 156 countries of the world.
Lack of proper Physical Communication Facilities –In India only 50% of the
road length is provided with a proper surface. About 36% of the villages in the
country do not have road connection and over 65% of our villages are without all-
weather road. Thus the road grid makes distribution cost higher, as the road grid
as a whole suffers from serious capacity constraints, delays, congestions, fuel
wastage and higher vehicle operating costs, marketers face a lot of problems in
distribution of products. Low per capita incomes – Share of rural income accounted
for 55.6 percent with 74.6 percent of country‘s population, thus reducing the
demand of expensive products.
Many Languages and Dialects –In India, the number of languages and dialects
vary widely from state to state, region to region. The number of languages spoken is
only 16, the total number of dialects is estimated to be around 850. The messages
to be delivered in the local languages and dialects are a big problem to the
marketers.
Low level of literacy –This leads to the problem of communication for
promotion purposes. In this case, print medium becomes less effective and the
dependence on audio visual messages is more relevant in rural areas.
Logistics Problems –The rural markets have few selling points like retailers, co-
operatives, hats and meals. Lack of infrastructure for storage and handling and
limited transport facilities act as a constraint for marketing action.
Low Exposure to Market Stimuli –In rural areas, the rural people have low
exposure to branded products, low product exposure, limited sources of
information and learning which creates big challenge to the marketers to stimulate
the rural consumers.
Less Retail Outlets –Due to less capital, the shops in the villages have limited
availability of stock and limited or a few range of branded products to sell to rural
people and these shops keep only fast moving items with a number of fake brands.
Seasonal Demand –As 70% of rural population depends on agriculture and
most of them with small land holdings highly dependent of natural environment
that is rain, if the rains and weather conditions are good and on time the farmers
will get good harvest whichleads to good income, otherwise, if there is shortage of
water the demand may be minimal.
Traditional Life –Life in rural areas is still governed by customs and traditions
and people do not easily adopt new practices. For eg. Even rich and educated class
of farmers do not wear jeans or branded shoes in most of the rural areas.
3.3.10 Rural Demand
Some well Established products
Pressure cooker Cooking utensils Batteries
34
Cycle, bikes, scooters Radio/tapes

Pesticides, fertilizers Tea
Toothpowder/paste Sewing Machine Artificial Jewelry Medicines
Tobacco & Products
Bathing Soaps, washing cakes, washing powder Cell phones
Fans
TV
Wristwatches
3.4 REVISION POINTS
Credit availability for rural marketing – local requirement for rural
marketing – process of rural marketing.
1. How the availability of credit promotes rural marketing? Discuss
2. What are the products required at local level for rural marketing? Explain.
3.6 SUMMARY
To sustain the rural marketing credit availability is the mandatory. Only on
the basis of the credit one can produce and market their rural products. Further,
local requirements have to be met. Once the requirement is met at the local level,
the rural market will flourish. This is discussed in this lesson.
Credit is an essential tool for rural marketing? Elucidate
1. Burman, B., & Evans, J. R. (2006). Retail Management A Strategies
Approach 9th Edition. Delhi: Pearson Education Inc.
2. Burton, P. W. (1999). Advertising Copy writing . NTC Business Books.
3. Cuuild, C. (2003). English Dictionary for Advanced Learners 4th Edition.
Harper Collins Press.
3.9 ASSIGNMENTS
Find out the credit institutions that help the rural marketing
1. Czinkota, M. P., & Kotabe, M. (2002). Marketing Management 2nd Edition.
Vikas Publication House.
2. Davis, J. J. (1997). Advertising Research Theory and Practice . Prentice
Hall Publication.
3. Dogra, B., & Ghuman, K. (2008). Rural Marketing Concept and Practices.
New Delhi: Tata McGraw-Hill Education Private Limited.
4. Etzel, M. J., Walter, B. J., Stanton, W. J., & Pandit, A. (2006). Marketing
13 edition. New Delhi: Tata McGraw Hill Publishing Company Limited
Take a stock of local requirements to be marketed at the rural area.
3.12 KEYWORDS
Credit – short term credit – long term credit – local requirements
35
LESSON 4
RURAL MARKETS: SIZE AND STRUCTURE
4.1 INTRODUCTION
According to the third annual edition of Accenture Research, “Masters of Rural
Markets: From Touch points to Trust points - Winning over India's Aspiring Rural
Consumers,” rural consumers are particularly aspiring or striving to purchase
branded, high quality products. Consequently, businesses in India are optimistic
about growth of the country's rural consumer markets, which is expected to be
faster than urban consumer markets. The report highlights the better networking
among rural consumers and their tendency to proactively seek information via
multitude sources to be better informed while making purchase decisions.
Importantly, the wider reach of media and telecommunication services has provided
information to India’s rural consumers and is influencing their purchase decisions.
In line with general trend, rural consumers are evolving towards a broader notion of
value provided by products and services which involves aspects of price combined
with utility, aesthetics and features, and not just low prices.
4.2 OBJECTIVES
 To analyse the size and structure of the rural markets
The hinterlands in India consist of about 650,000 villages. These villages are
inhabited by about 850 million consumers making up for about 70 per cent of
population and contributing around half of the country's Gross Domestic Product
(GDP). Consumption patterns in these rural areas are gradually changing to
increasingly resemble the consumption patterns of urban areas. Some of India's
largest consumer companies serve one-third of their consumers from rural India.
Owing to a favourable changing consumption trend as well as the potential size of
the market, rural India provides a large and attractive investment opportunity for
private companies.
4.3 CONTENTS
4.3.1 Market size
4.3.2 Recent Developments
4.3.3 Government Initiatives
4.3.4 Road Ahead
4.3.5 Meaning of Market
4.3.6 Market Structure
4.3.1 Market size
India’s per capita GDP in rural regions has grown at a Compound Annual
Growth Rate (CAGR) of 6.2 per cent since 2000. The Fast Moving Consumer Goods
(FMCG) sector in rural and semi-urban India is expected to cross US$ 20 billion
mark by 2018 and reach US$ 100 billion by 2025@.
36
4.3.2 Recent Developments

Following are some of the major investments and developments in the Indian
rural sector.
• India's unemployment rate has declined to 4.8 per cent in February 2017
compared to 9.5 per cent in August 2016, as a result of the Government's increased
focus towards rural jobs and the Mahatma Gandhi National Rural Employment
Guarantee Act (MGNREGA) scheme.
• The Ministry of Rural Development is expecting to achieve its annual
targeted length of 48,812 kilometers of rural roads by March 31, 2017 under the
Pradhan Mantri Gram Sadak Yojana (PMGSY), which has reached a completion
stage of 67.53 per cent (32,963 kms) as on January 27, 2017.
• The National Bank for Agriculture and Rural Development (NABARD) plans
to provide around 200,000 point-of-sale (PoS) machines in 100,000 villages and
distribute RuPay cards to over 34 million farmers across India, to enable farmers to
undertake cashless transactions.
• Magma Fincorp, a Kolkata-based non-banking finance company (NBFC)
plans to expand its operations in South India, with specific focus on rural and
semi-urban markets to help the company grow rapidly.
• Bharti Airtel is applying for a payments bank licence and has involved Kotak
Mahindra Bank as a potential investor in the venture, in a bid to tap significant
revenue opportunities from the Reserve Bank of India's financial inclusion
initiative. Payments banks are meant to fan out into the rural, remote areas of the
country, offering limited but critical services such as money transfers, loans and
deposit collection. While banks have the knowhow, telecom companies have the
network, making it an ideal match.
4.3.3 Government Initiatives
The Government of India has planned various initiatives to provide and improve
the infrastructure in rural areas which can have a multiplier effect in increasing
movements of goods, services and thereby improve earnings potential of rural areas
subsequently improving consumption.
• The Government of India has approved the proposal to construct 10 million
houses for the rural population, which will require an investment outlay of Rs
81,975 crore (US$ 12.7 billion) for the period from 2016-17 to 2018-19.
• The Government of India aims to provide tap water regularly to every
household by 2030 in line with United Nations Sustainable Development Goals,
requiring a funding of Rs 23,000 crore (US$ 3.57 billion) each year until the target
is met.
• The Government has introduced various reforms in the Union Budget 2017-
18 to uplift the rural markets. Some of the key highlights of the Budget are:
• Rs 187,223 crore (US$ 28.08 billion) has been allocated towards rural,
agriculture and allied sectors.
37
• The Allocation for Pradhan Mantri Aawas Yojana-Gramin has been increased
from Rs 15,000 crore (US$ 2.25 billion) to Rs 23,000 crore (US$ 3.45 billion) in the
year 2017-18 with a target to complete 10 million houses for the houseless by the
year 2019.
• The pace of roads construction under Pradhan Mantri Gram Sadak Yojana
(PMGSY) has been accelerated to 133 kms per day as against an average of 73 kms
per day during the years 2011-14.
• The allocation to the Mahatma Gandhi National Rural Employment
Guarantee Act (MGNREGA) has been Rs 48,000 crore (US$ 7.2 billion) in the year
2017-18, which is the highest ever allocated amount.
• The Government of India is looking to install Wi-Fi hotspots at more than
1,000 gram panchayats across India, under its ambitious project called Digital
Village, in order to provide internet connectivity for mass use, as well as to enable
delivery of services like health and education in far-flung areas.
• In the Union Budget 2017-18, the Government of India mentioned that it is
on course to achieve 100 per cent village electrification by May 1, 2018.
• The Government of India has sought Parliament’s approval for an additional
expenditure of Rs 59,978.29 crore (US$ 8.9 billion), which will be used to support
the government’s rural jobs scheme, building rural infrastructure, urban
development and farm insurance.
4.3.4 Road Ahead
As is the trend with urban India, consumers in the rural regions are also
expected to embrace online purchases over time and drive consumption digitally.
The rural regions are already well covered by basic telecommunication services and
are now witnessing increasing penetration of computers and smartphones. Taking
advantage of these developments, online portals are being viewed as key channels
for companies trying to enter and establish themselves in the rural market. The
Internet has become a cost-effective means for a company looking to overcome
geographical barriers and broaden its reach.
Market research firm Nielsen expects India’s rural FMCG market to reach a size
of US$ 100 billion by 2025. Another report by McKinsey Global Institute forecasts
the annual real income per household in rural India to rise to 3.6 per cent 2025,
from 2.8 per cent in the last 20 years.
Market structure refers to the nature and degree of competition in the market
for goods and services. The structures of market both for goods market and service
(factor) market are determined by the nature of competition prevailing in a
particular market.
4.3.5 Meaning of Market:
Ordinarily, the term “market” refers to a particular place where goods are
purchased and sold. But, in economics, market is used in a wide perspective. In
38
economics, the term “market” does not mean a particular place but the whole area
where the buyers and sellers of a product are spread.
This is because in the present age the sale and purchase of goods are with the
help of agents and samples. Hence, the sellers and buyers of a particular
commodity are spread over a large area. The transactions for com-modities may be
also through letters, telegrams, telephones, internet, etc. Thus, market in
economics does not refer to a particular market place but the entire region in which
goods are bought and sold. In these transactions, the price of a commodity is the
same in the whole market.
According to Prof. R. Chapman, “The term market refers not necessarily to a
place but always to a commodity and the buyers and sellers who are in direct
competition with one another.” In the words of A.A. Cournot, “Economists
understand by the term ‘market’, not any particular place in which things are
bought and sold but the whole of any region in which buyers and sellers are in
such free intercourse with one another that the price of the same goods tends to
equality, easily and quickly.” Prof. Cournot’s definition is wider and appropriate in
which all the features of a market are found.
The essential features of a market are:
(1) An Area:
In economics, a market does not mean a particular place but the whole region
where sellers and buyers of a product ate spread. Modem modes of communication
and transport have made the market area for a product very wide.
(2) One Commodity:
In economics, a market is not related to a place but to a particular product.
Hence, there are separate markets for various commodities. For example, there
are separate markets for clothes, grains, jewellery, etc.
(3) Buyers and Sellers:
The presence of buyers and sellers is necessary for the sale and purchase of a
product in the market. In the modem age, the presence of buyers and sellers is not
necessary in the market because they can do transactions of goods through letters,
telephones, business representatives, internet, etc.
(4) Free Competition:
There should be free competition among buyers and sellers in the market. This
competition is in relation to the price determination of a product among buyers and
sellers.
(5) One Price:
The price of a product is the same in the market because of free competition
among buyers and sellers.
On the basis of above elements of a market, its general definition may be as
follows:
39
The market for a product refers to the whole region where buyers and sellers of
that product are spread and there is such free competition that one price for the
product prevails in the entire region.
4.3.6 Market Structure
Meaning:
Market structure refers to the nature and degree of competition in the market
for goods and services. The structures of market both for goods market and service
(factor) market are determined by the nature of competition prevailing in a
particular market.
Determinants:
There are a number of determinants of market structure for a particular good.
They are:
(1) The number and nature of sellers.
(2) The number and nature of buyers.
(3) The nature of the product.
(4) The conditions of entry into and exit from the market.
(5) Economies of scale.
They are discussed as under:
1. Number and Nature of Sellers:
The market structures are influenced by the number and nature of sellers in
the market. They range from large number of sellers in perfect competition to a
single seller in pure monopoly, to two sellers in duopoly, to a few sellers in
oligopoly, and to many sellers of differentiated products.
2. Number and Nature of Buyers:
The market structures are also influenced by the number and nature of buyers
in the market. If there is a single buyer in the market, this is buyer’s monopoly and
is called monopsony market. Such markets exist for local labour employed by one
large employer. There may be two buyers who act jointly in the market. This is
called duopsony market. They may also be a few organised buyers of a product.
This is known as oligopsony. Duopsony and oligopsony markets are usually
found for cash crops such as rice, sugarcane, etc. when local factories purchase the
entire crops for processing.
3. Nature of Product:
It is the nature of product that determines the market structure. If there is
product differentiation, products are close substitutes and the market is
characterised by monopolistic competition. On the other hand, in case of no
product differentiation, the market is characterised by perfect competition. And if a
product is completely different from other products, it has no close substitutes and
there is pure monopoly in the market.
40
4. Entry and Exit Conditions:

The conditions for entry and exit of firms in a market depend upon profitability
or loss in a particular market. Profits in a market will attract the entry of new firms
and losses lead to the exit of weak firms from the market. In a perfect competition
market, there is freedom of entry or exit of firms.
But in monopoly and oligopoly markets, there are barriers to entry of new
firms. Usually, governments have a monopoly in public utility services like postal,
air and road transport, water and power supply services, etc. By granting exclusive
franchises, entries of new supplies are barred. In oligopoly markets, there are
barriers to entry of firms because of collusion, tacit agreements, cartels, etc. On the
other hand, there are no restrictions in entry and exit of firms in monopolistic
competition due to product differentiation.
5. Economies of Scale:
Firms that achieve large economies of scale in production grow large in
comparison to others in an industry. They tend to weed out the other firms with the
result that a few firms are left to compete with each other. This leads to the
emergency of oligopoly. If only one firm attains economies of scale to such a large
extent that it is able to meet the entire market demand, there is monopoly.
Forms of Market Structure:
On the basis of competition, a market can be classified in the following ways:
1. Perfect Competition
2. Monopoly
3. Duopoly
4. Oligopoly
5. Monopolistic Competition
1. Perfect Competition Market:
A perfectly competitive market is one in which the number of buyers and sellers
is very large, all engaged in buying and selling a homogeneous product without any
artificial restrictions and possessing perfect knowledge of market at a time. In the
words of A. Koutsoyiannis, “Perfect competition is a market structure characterised
by a complete absence of rivalry among the individual firms.” According to R.G.
Lipsey, “Perfect competition is a market structure in which all firms in an industry
are price- takers and in which there is freedom of entry into, and exit from,
industry.”
Characteristics of Perfect Competition:
The following are the conditions for the existence of perfect competition:
(1) Large Number of Buyers and Sellers:
The first condition is that the number of buyers and sellers must be so large
that none of them individually is in a position to influence the price and output of
41
the industry as a whole. The demand of individual buyer relative to the total
demand is so small that he cannot influence the price of the product by his
individual action.
Similarly, the supply of an individual seller is so small a fraction of the total
output that he cannot influence the price of the product by his action alone. In
other words, the individual seller is unable to influence the price of the product by
increasing or decreasing its supply.
Rather, he adjusts his supply to the price of the product. He is “output
adjuster”. Thus no buyer or seller can alter the price by his individual action. He
has to accept the price for the product as fixed for the whole industry. He is a “price
taker”.
(2) Freedom of Entry or Exit of Firms:
The next condition is that the firms should be free to enter or leave the
industry. It implies that whenever the industry is earning excess profits, attracted
by these profits some new firms enter the industry. In case of loss being sustained
by the industry, some firms leave it.
(3) Homogeneous Product:
Each firm produces and sells a homogeneous product so that no buyer has any
preference for the product of any individual seller over others. This is only possible
if units of the same product produced by different sellers are perfect substitutes. In
other words, the cross elasticity of the products of sellers is infinite.
No seller has an independent price policy. Commodi-ties like salt, wheat, cotton
and coal are homogeneous in nature. He cannot raise the price of his product. If he
does so, his customers would leave him and buy the product from other sellers at
the ruling lower price.
The above two conditions between themselves make the average revenue curve
of the individual seller or firm perfectly elastic, horizontal to the X-axis. It means
that a firm can sell more or less at the ruling market price but cannot influence the
price as the product is homogeneous and the number of sellers very large.
(4) Absence of Artificial Restrictions:
The next condition is that there is complete openness in buying and selling of
goods. Sellers are free to sell their goods to any buyers and the buyers are free to
buy from any sellers. In other words, there is no discrimination on the part of
buyers or sellers.
Moreo-ver, prices are liable to change freely in response to demand-supply
conditions. There are no efforts on the part of the producers, the government and
other agencies to control the supply, demand or price of the products. The
movement of prices is unfettered.
(5) Profit Maximisation Goal:
Every firm has only one goal of maximising its profits.
42
(6) Perfect Mobility of Goods and Factors:

Another requirement of perfect competition is the perfect mobility of goods and
factors between industries. Goods are free to move to those places where they can
fetch the highest price. Factors can also move from a low-paid to a high-paid
industry.
(7) Perfect Knowledge of Market Conditions:
This condition implies a close contact between buyers and sellers. Buyers and
sellers possess complete knowledge about the prices at which goods are being
bought and sold, and of the prices at which others are prepared to buy and sell.
They have also perfect knowledge of the place where the transactions are being
carried on. Such perfect knowledge of market conditions forces the sellers to sell
their product at the prevailing market price and the buyers to buy at that price.
(8) Absence of Transport Costs:
Another condition is that there are no transport costs in carry-ing of product
from one place to another. This condition is essential for the existence of perfect
compe-tition which requires that a commodity must have the same price
everywhere at any time. If transport costs are added to the price of the product,
even a homogeneous commodity will have different prices depending upon
transport costs from the place of supply.
(9) Absence of Selling Costs:
Under perfect competition, the costs of advertising, sales-promotion, etc. do not
arise because all firms produce a homogeneous product.
Perfect Competition vs Pure Competition:
Perfect competition is often distinguished from pure competition, but they differ
only in degree. The first five conditions relate to pure competition while the
remaining four conditions are also required for the existence of perfect competition.
According to Chamberlin, pure competition means, competi-tion unalloyed with
monopoly elements,” whereas perfect competition involves perfection in many other
respects than in the absence of monopoly.” The practical importance of perfect
competition is not much in the present times for few markets are perfectly
competitive except those for staple food products and raw materials. That is why,
Chamberlin says that perfect competition is a rare phenomenon.”
Though the real world does not fulfil the conditions of perfect competition, yet
perfect competi-tion is studied for the simple reason that it helps us in
understanding the working of an economy, where competitive behaviour leads to
the best allocation of resources and the most efficient organisation of production. A
hypothetical model of a perfectly competitive industry provides the basis for
appraising the actual working of economic institutions and organisations in any
economy.
43
2. Monopoly Market:
Monopoly is a market situation in which there is only one seller of a product
with barriers to entry of others. The product has no close substitutes. The cross
elasticity of demand with every other product is very low. This means that no other
firms produce a similar product. According to D. Salvatore, “Monopoly is the form of
market organisation in which there is a single firm selling a commodity for which
there are no close substitutes.” Thus the monopoly firm is itself an industry and the
monopolist faces the industry demand curve.
The demand curve for his product is, therefore, relatively stable and slopes
downward to the right, given the tastes, and incomes of his customers. It means
that more of the product can be sold at a lower price than at a higher price. He is a
price-maker who can set the price to his maximum advantage.
However, it does not mean that he can set both price and output. He can do
either of the two things. His price is determined by his demand curve, once he
selects his output level. Or, once he sets the price for his product, his output is
determined by what consumers will take at that price. In any situation, the
ultimate aim of the monopolist is to have maximum profits.
Characteristics of Monopoly:
The main features of monopoly are as follows:
1. Under monopoly, there is one producer or seller of a particular product and
there is no differ-ence between a firm and an industry. Under monopoly a firm itself
is an industry.
2. A monopoly may be individual proprietorship or partnership or joint stock
company or a co-operative society or a government company.
3. A monopolist has full control on the supply of a product. Hence, the
elasticity of demand for a monopolist’s product is zero.
4. There is no close substitute of a monopolist’s product in the market. Hence,
under monopoly, the cross elasticity of demand for a monopoly product with some
other good is very low.
5. There are restrictions on the entry of other firms in the area of monopoly
product.
6. A monopolist can influence the price of a product. He is a price-maker, not a
price-taker.
7. Pure monopoly is not found in the real world.
8. Monopolist cannot determine both the price and quantity of a product
simultaneously.
9. Monopolist’s demand curve slopes downwards to the right. That is why, a
monopolist can increase his sales only by decreasing the price of his product and
thereby maximise his profit. The marginal revenue curve of a monopolist is below
the average revenue curve and it falls faster than the average revenue curve. This is
44
because a monopolist has to cut down the price of his product to sell an additional
unit.
3. Duopoly:
Duopoly is a special case of the theory of oligopoly in which there are only two
sellers. Both the sellers are completely independent and no agreement exists
between them. Even though they are inde-pendent, a change in the price and
output of one will affect the other, and may set a chain of reactions. A seller may,
however, assume that his rival is unaffected by what he does, in that case he takes
only his own direct influence on the price.
If, on the other hand, each seller takes into account the effect of his policy on
that of his rival and the reaction of the rival on himself again, then he considers
both the direct and the indirect influences upon the price. Moreover, a rival seller’s
policy may remain unaltered either to the amount offered for sale or to the price at
which he offers his product. Thus the duopoly problem can be considered as either
ignoring mutual dependence or recognising it.
4. Oligopoly:
Oligopoly is a market situation in which there are a few firms selling
homogeneous or differenti-ated products. It is difficult to pinpoint the number of
firms in ‘competition among the few.’ With only a few firms in the market, the
action of one firm is likely to affect the others. An oligopoly industry produces either
a homogeneous product or heterogeneous products.
The former is called pure or per-fect oligopoly and the latter is called imperfect
or differentiated oligopoly. Pure oligopoly is found primarily among producers of
such industrial products as aluminium, cement, copper, steel, zinc, etc. Imperfect
oligopoly is found among producers of such consumer goods as automobiles,
cigarettes, soaps and detergents, TVs, rubber tyres, refrigerators, typewriters, etc.
Characteristics of Oligopoly:
In addition to fewness of sellers, most oligopolistic industries have several
common characteris-tics which are explained below:
(1) Interdependence:
There is recognised interdependence among the sellers in the oligopolistic
market. Each oligopolist firm knows that changes in its price, advertising, product
characteristics, etc. may lead to counter-moves by rivals. When the sellers are a
few, each produces a considerable fraction of the total output of the industry and
can have a noticeable effect on market conditions.
He can reduce or increase the price for the whole oligopolist market by selling
more quantity or less and affect the profits of the other sellers. It implies that each
seller is aware of the price-moves of the other sellers and their impact on his profit
and of the influence of his price-move on the actions of rivals.
Thus there is complete interdependence among the sellers with regard to their
price-output policies. Each seller has direct and ascertainable influences upon
45
every other seller in the industry. Thus, every move by one seller leads to counter-
moves by the others.
(2) Advertisement:
The main reason for this mutual interdependence in decision making is that
one producer’s fortunes are dependent on the policies and fortunes of the other
producers in the indus-try. It is for this reason that oligopolist firms spend much
on advertisement and customer services.
As pointed out by Prof. Baumol, “Under oligopoly advertising can become a life-
and-death matter.” For example, if all oligopolists continue to spend a lot on
advertising their products and one seller does not match up with them he will find
his customers gradually going in for his rival’s product. If, on the other hand, one
oligopolist advertises his product, others have to follow him to keep up their sales.
(3) Competition:
This leads to another feature of the oligopolistic market, the presence of
com-petition. Since under oligopoly, there are a few sellers, a move by one seller
immediately affects the rivals. So each seller is always on the alert and keeps a
close watch over the moves of its rivals in order to have a counter-move. This is
true competition.
(4) Barriers to Entry of Firms:
As there is keen competition in an oligopolistic industry, there are no barriers
to entry into or exit from it. However, in the long run, there are some types of
barriers to entry which tend to restraint new firms from entering the industry.
They may be:
(a) Economies of scale enjoyed by a few large firms; (b) control over essential
and specialised inputs; (c) high capital requirements due to plant costs, advertising
costs, etc. (d) exclusive patents and licenses; and (e) the existence of unused
capacity which makes the industry unattractive. When entry is restricted or
blocked by such natural and artificial barriers, the oligopolistic industry can earn
long-run super normal profits.
(5) Lack of Uniformity:
Another feature of oligopoly market is the lack of uniformity in the size of firms.
Finns differ considerably in size. Some may be small, others very large. Such a
situation is asymmetrical. This is very common in the American economy. A
symmetrical situation with firms of a uniform size is rare.
(6) Demand Curve:
It is not easy to trace the demand curve for the product of an oligopolist. Since
under oligopoly the exact behaviour pattern of a producer cannot be ascertained
with certainty, his demand curve cannot be drawn accurately, and with
definiteness. How does an individual seller s de-mand curve look like in oligopoly is
most uncertain because a seller’s price or output moves lead to unpredictable
reactions on price-output policies of his rivals, which may have further
repercussions on his price and output.
46
The chain of action reaction as a result of an initial change in price or output,

is all a guess-work. Thus a complex system of crossed conjectures emerges as a
result of the interdependence- among the rival oligopolists which is the main cause
of the indeterminateness of the demand curve.
If the oligopolist seller does not have a definite demand curve for his product,
then how does he affect his sales. Presumably, his sales depend upon his current
price and those of his rivals. However, a number of conjectural demand curves can
be imagined.
For example, in differentiated oligopoly where each seller fixes a separate price
for his product, a reduction in price by one seller may lead to an equivalent, more,
less or no price reduction by rival sellers. In each case, a demand curve can be
drawn by the seller within the range of competitive and monopoly demand curves.
Leaving aside retaliatory price movements, the individual seller’s demand curve
under oligopoly for both price cuts and increases is neither more elastic than under
perfect or monopolistic competition nor less elastic than under mo-nopoly. It may
still be indefinite and indeterminate.
This situation is shown in Figure 1 where KD1 is the elastic demand curve and
MD is the less elastic demand curve. The oligopolies’ demand curve is the dotted
kinked KPD. The reason is quite simple. If a seller reduces the price of his product,
his rivals also lower the prices of their products so that he is not able to increase
his sales.
The oligopolies' demand curve

So the demand curve for the individual seller’s product will be less elastic just
below the present price P (where KD1and MD curves are shown to intersect). On
the other hand, when he raises the price of his product, the other sellers will not
follow him in order to earn larger profits at the old price. So this individual seller
will experience a sharp fall in the demand for his product.
Thus his demand curve above the price P in the segment KP will be highly
elastic. Thus the imagined demand curve of an oligopolist has a comer or kink at
47
the current price P. Such a demand curve is much more elastic for price increases
than for price decreases.
(7) No Unique Pattern of Pricing Behaviour:
The rivalry arising from interdependence among the oligopolists leads to two
conflicting motives. Each wants to remain independent and to get the maximum
possible profit. Towards this end, they act and react on the price-output
movements of one another in a continuous element of uncertainty.
On the other hand, again motivated by profit maximisation each seller wishes
to cooperate with his rivals to reduce or eliminate the element of uncertainty. All
rivals enter into a tacit or formal agreement with regard to price-output changes. It
leads to a sort of monopoly within oligopoly.
They may even recognise one seller as a leader at whose initiative all the other
sellers raise or lower the price. In this case, the individual seller’s demand curve is
a part of the industry demand curve, having the elasticity of the latter. Given these
conflicting attitudes, it is not possible to predict any unique pattern of pricing
behaviour in oligopoly markets.
5. Monopolistic Competition:
Monopolistic competition refers to a market situation where there are many
firms selling a differentiated product. “There is competition which is keen, though
not perfect, among many firms making very similar products.” No firm can have any
perceptible influence on the price-output policies of the other sellers nor can it be
influenced much by their actions. Thus monopolistic competition refers to
competition among a large number of sellers producing close but not perfect
substitutes for each other.
It’s Features:
The following are the main features of monopolistic competition:
(1) Large Number of Sellers:
In monopolistic competition the number of sellers is large. They are “many and
small enough” but none controls a major portion of the total output. No seller by
chang-ing its price-output policy can have any perceptible effect on the sales of
others and in turn be influenced by them. Thus there is no recognised
interdependence of the price-output policies of the sellers and each seller pursues
an independent course of action.
(2) Product Differentiation:
One of the most important features of the monopolistic competi-tion is
differentiation. Product differentiation implies that products are different in some
ways from each other. They are heterogeneous rather than homogeneous so that
each firm has an absolute monopoly in the production and sale of a differentiated
product. There is, however, slight difference between one product and other in the
same category.
Products are close substitutes with a high cross-elasticity and not perfect
substitutes. Product “differentiation may be based upon certain characteristics of
48
the prod-ucts itself, such as exclusive patented features; trade-marks; trade names;
peculiarities of package or container, if any; or singularity in quality, design, colour,
or style. It may also exist with respect to the conditions surrounding its sales.”
(3) Freedom of Entry and Exit of Firms:
Another feature of monopolistic competition is the freedom of entry and exit of
firms. As firms are of small size and are capable of producing close substitutes,
they can leave or enter the industry or group in the long run.
(4) Nature of Demand Curve:
Under monopolistic competition no single firm controls more than a small
portion of the total output of a product. No doubt there is an element of
differentiation neverthe-less the products are close substitutes. As a result, a
reduction in its price will increase the sales of the firm but it will have little effect
on the price-output conditions of other firms, each will lose only a few of its
customers.
Likewise, an increase in its price will reduce its demand substantially but each
of its rivals will attract only a few of its customers. Therefore, the demand curve
(average revenue curve) of a firm under monopolistic competition slopes downward
to the right. It is elastic but not perfectly elastic within a relevant range of prices of
which he can sell any amount.
(5) Independent Behaviour:
In monopolistic competition, every firm has independent policy. Since the
number of sellers is large, none controls a major portion of the total output. No
seller by changing its price-output policy can have any perceptible effect on the
sales of others and in turn be influenced by them.
(6) Product Groups:
There is no any ‘industry’ under monopolistic competition but a ‘group’ of firms
producing similar products. Each firm produces a distinct product and is itself an
industry. Chamberlin lumps together firms producing very closely related products
and calls them product groups, such as cars, cigarettes, etc.
(7) Selling Costs:
Under monopolistic competition where the product is differentiated, selling
costs are essential to push up the sales. Besides, advertisement, it includes
expenses on salesman, allowances to sellers for window displays, free service, free
sampling, premium coupons and gifts, etc.
(8) Non-price Competition:
Under monopolistic competition, a firm increases sales and profits of his
product without a cut in the price. The monopolistic competitor can change his
product either by varying its quality, packing, etc. or by changing promotional
programmes.
49
The features of market structures are shown in Table 1.
4.4 REVISION POINTS

Size of a market – structure of a rural market – different structure fr
different product
1. How the size of the market make an impact on rural environment?
2. Explain the characteristics of the monopolistic competition.
3. Discuss about the imperfect competition.
4.6 SUMMARY
When we talk about the size of a market, it is necessary to analyse the
structure of a market. In this context monopoly, duopoly and oligopoly are to be
discussed. Here, perfect competition, imperfect competition and monopolistic
competition are discussed elaborately.
Whether perfect competition exists in reality? Explain
50
51

1. Felton, G. (1994). Advertising Concept and Copy . New Jersy: Prantice
Hall Englewood Cliffs .
2. Gopalaswamy, T. P. (2005). Rural Marketing Environment, Problem
Strategies 2nd Edition . Vikas Publishing House.
3. Guinn, T. C., Allen, C. T., & Semenik, R. J. (2000). Advertising 2nd
Edition. South Western Publishing.
4. Guinn, T. C., Allen, C. T., & Semenik, R. J. (n.d.). Advertising and
Integrated Brand Promotions . Vikas Publishing House & Tomal South
Western.
5. Gupta, S. L. (2004). Rural marketing Test & Cases. Wisdom Publications
Pvt Ltd.
4.9 ASSIGNMENTS
1. Discuss about the duopoly
2. Explain the monopolistic competition in a rural market.
1. Jefkins, F., & Yadin, D. (2000). Advertising 4th Edition. Pearson
Education Limited.
2. Jethwaney, J., & Jain, S. (2007). Advertising Management 3rd
Impresion. Oxford University Press.
3. Jha, M. (2003). Understanding Rural Buying Behaviour. Op. Ct.
4. John, P. J. (1999). The Advertising Business Operations Creativity
Media Planning Integrated Communications . Sage Publications.
5. John, P. J. (2000). International Advertising Royalties and Myths. Sage
Publications Inc.
Analyse the monopolistic competition in a rural market near by you.
4.12 KEYWORDS
Monopoly – duopoly- Oligopoly – perfect competition- imperfect competition –
monopolistic competition
52
LESSON 5
MARKET SEGMENTATION
5.1 INTRODUCTION
Companies are today developing different brands in different pack sizes and
formulations to win over the consumers. Different people want different quantities
and different mixes of benefits from the product they buy. Take detergents for
example, HUL has Surf, Rin, Shakti and Wheel powder to meet the needs of
different income groups.
Palmolive has three varieties of toilet soaps offering skin care benefits to three
different types of skins of consumers. In reality they are dividing the markets into
attractive segments to reach them efficiently, serve them effectively and achieve
results economically.
5.2 OBJECTIVES
 To understand the concept of market segmentation
 To analyse the effective guide to segmentation
5.3 CONTENTS
5.3.1 Concept and Process
5.3.2 Guides to Effective Segmentation
5.3.3 Bases of Segmentation
5.3.4 Multi-Variable Segmentation
5.3.1 Concept and Process
Selecting and attracting markets involves three key decisions, viz.,
segmenting, targeting and positioning. Segmenting is the process of dividing or
categorizing market into different groups based on one or more variables. Targeting
is selecting the market segments, which can be served efficiently and profitability. It
is deciding on market coverage strategies. Positioning is a market attraction
strategy, which involves placing the brand in the minds of the customers in the
target market.
5.3.2 Guides to Effective Segmentation
Any process can be effective, if it has a sound philosophy and practical
validity. Segmentation can be effective only if it satisfies the following requirements:
(i) Measurable
Segments are formed with the help of certain variables. These variables should
be distinct, clear and measurable. Only then segments can be described in exact
terms and differences understood. Companies, so far, are not able to reach rural
markets due to lack of proper data. In the absence of information related to size,
purchasing power and profiles of rural consumers, they considered them similar to
urbanites.
ii) Accessible
Reach is important to serve the segments. Till recently, marketers preferred
urban markets to rural ones because of the inaccessibility of the latter. They were
53
dependent on the mobile vans and nearby town distributors and retail outlets to
reach rural consumers. Now, research has established that effective means of
reaching rural folk is possible by participation in hats or mandis organized weekly.
Also, there is considerable improvement in the infrastructure that makes several
villages accessible.
(iii) Differentiable
Rural markets are identified as a different segment, for their responses are
different from the urban in case of some products and programmes. For instance,
in case of buying wrist watches, rural consumers differ with urban consumers.
(iv) Substantial
A segment is attractive only when it is profitable. A segment should as such
possess the following characteristics:
(a) Homogeneous
It should consist of people, who are similar in perceptions, learning,
preferences, attitudes and action. As such, covering them will be easy.
(b) Large
It should comprise of either large number of light users or small number of
heavy users so that marketing becomes beneficial to the companies.
It is observed that rural areas are not homogeneous. Region-wise differences
are found in language, thinking and behaviour. However, it is difficult to design
separate promotional programmes as the size of consumers is not large enough to
make the effort viable.
5.3.3 Bases of Segmentation
There is no one way of segmenting the market. A marketer may look for one or
more variables viz., geographic, demographic, psychographic and behavioral, to
distinguish and describe their market segments.
(1) Geographic Segmentation
Geographic segmentation is made based on variables like zones/regions,
states, districts, cities/town/ villages by size, density, climate and culture.
54
(a) Zones: The country is divided into four zones.

East: West Bengal, Assam
West: Maharastra, Gujarat, Rajasthan
North: Delhi, UP, Bihar. Himachal Pradesh
South: Tamil Nadu, Andhra Pradesh, Kerala, Karnataka.
The number of villages with a population of less than 5000 people is:
East: 1,61,982,West: 1,35,936,North: 2,00,106,South: 73,585
(b) States, Districts and Villages: The country is divided into states on the
basis of nguage. For the convenience of administration each state is divided into
districts.
(c) Density: The density of population per square kilometer in the rural areas is
very low
(d) Climate: The country is divided by climatic conditions as follows: Tropical –
Rainy - Cold
(e) Culture: Media will be effective when its messages are fine-tuned to the
culture of the people. As such, the political division is immaterial for the various
media. Ogilvy-Rural has divided the country into 56 Socio-Cultural Regions (SCR).
(ii) Demographic Segmentation
Markets are divided into segments based on variables such as age, life-cycle,
gender, family size, income, occupation, education, religion and nationality.
Age : Under 6, 6—12, 13—19, 20—40, 41—60, 60+.
Life—cycle : Infants, children, teens, young adults, elders, seniors.
Gender : Male—Female.
Marital status : Married—Unmarried.
Family size : 1—2, 3—4, 5+
Income : ` 25, 000 and below, ` 25, 001-50,000,
` 50,001-75,000, ` 75,001, ` 1 lakh, above ` 1 lakh.
Occupation : Farmer, agricultural labourer, artisan, non- agricultural
Labourer
Business, professionals, employees, retired, student,
unemployed.
Education : Illiterate, literate, elementary school, high School, college,
and university.
Religion : Hindu, Muslim, Christian and Others.
(a) Age and Life-Cycle
The age and life—cycle classification applicable to urban is valid to rural as
well. The specific products for the age segments are:
55
Age
Products Typical Brands
Segment
Infants Milk, Powder, cereals, soaps, Glaxo, Nestle, Johnson and

diapers Johnson, Wipro, HLL
Pepsodent, NUTRINE
Children Toothpaste, confectionery, Britannia, Parle, BSA, Atlas,
sports cycles, story books, magazines Hero, Amar Chitra Katha
series, Chand Mama, Balamitra
Close-up, Fair & Lovely,
Toothpaste, Face creams, North Star, Nike, TVS, Luna,
Teens
shoes, mopeds, soft drinks Coke, Pepsi, Thums Up
Magazines, shoes, TV, music Sport star, Computer

Young
systems, computers, scooters Digest, Reebok, Philips, Sony,
Adults Samsung, HCL, Compaq, Bajaj,
LML
Elders Briefcases, spectacles, suitings, VIP, Samsonite, Ray ban,

cell phones Bosche and Lamb, Raymond,
Park Avenue, Tata Cellular,
Magic
Seniors Rocking chairs, knee pads, Modfurn, Conybio, Cipla,

self diagnostic kits, medicines Glaxo, Reddy labs
(b) Gender
Gender differences are observed in terms of dress, footwear, cosmetics and
other products. The peculiarities of women like gynecological problems and beauty
consciousness offer marketers an opportunity to supply unique products like
sanitary napkins, estrogen medicines, bust creams, and face packs.
(c) Marital Status
The influence of marital status is obvious. Some companies can benefit on this
ground.
Unmarried
Residence - Small size houses/flats, working women’s hostels
Eat out - Fast food centres
Occasions - Valentine’s Day
Married
Tourism and Hotels - Honeymoon packages
Events - “Best Couple” competitions.
56
(d) Family Size

As family size increases, consumption of consumables will increase. In rural
areas, it is found that large families with low incomes are buying consumer
durables like TV. The promotion of consumables as ‘family product’ particularly in
economy refill packs works well with large families. Large families may buy more
than one brand of a product to meet specific individual preferences and tastes. As
such, multi-brand consumption of a product may be there. While, Colgate is family
toothpaste, Close-up is more personalized with its focus on the youth. Naturally, it
makes inroads into families with young members and adequate buying power and
co-exists with Colgate.
(e) Income
Rural households fall under different income categories as shown below.
Income Range % of Rural
Above ` 1,00,000 Household

3.8
` 75,001 – 1,00,000 s 4.7
` 50,000 – 75,000 13.0
` 25,001 – 50,000 41.1
` 25,000 & below 37.4

The importance of income in influencing the purchase decisions relating to
quantity and quality need not be over emphasized. The sale of the premium brands
to low income groups is made possible through sachet revolution.
Products offered in sachets like Velvettee shampoo, Dairy top and Colgate are
highly successful in rural markets. The high-income group provides market
potential to durables like refrigerators, CTVs and washing machines.
(f) Occupation
Occupational needs vary.
Farmer : Seeds, fertilizers, pesticides, tractors, harvesters, Pump sets, etc.
Employee : Pens, stationery items, etc.
Doctor Stethoscope, BP kit, medicines, syringes,
Animal husbandry : Feed, medicines, consultancy.
The identification of specific products provides an opportunity to marketers to
develop, design and distribute products to cater to the particular markets.
(g) Education
Education provides knowledge and skill. It improves the thinking process and
facilitates understanding of issues on a higher and wider plane.
57
(h) Religion
The influence of religion on the consumer purchase behaviour is an important
consideration for marketers. Religion provides a ‘code of life’ and links the visible
real world, with invisible world after death. It furnishes the do’s and don’ts to be
followed.
Religion Product / Items Occasions / Events
Christians Church, Holy bible, cross, candles, Good Friday, Easter, Christmas
rose, water, Christmas trees, bells,
stars
Hindus Temples, rivers, icons of God, cotton Deepavali,Vinayaka, Chaturthi,
thread for lamps, lamps, license sticks, Krishna Jayanthi Sravan
camphor, coconuts, fruits, betel Fridays, Kartika month
leaves, nut powder sandal paste, Margasira month
Kumkum
Muslims Mosque, perfumes, white caps. Id-ul-Fitr, Bakrid, Miladun-

License sticks, Holy Quran, Agar nabi, Muharram
(II) Psychographic Segmentation

While geographic and demographic segmentations provide a physical view of
the markets, the true dynamics of purchase can be assessed and marketing offer
can be designed only on the basis of psychographics of the people. An example, to
prove this point:
Market is divided into different segments based on three variables viz., (i) Social
class,
(ii) Life style, and
(iii) Personality.
(a) Social Class
Society consists of a structure, which represents a hierarchy of classes or
grades of people. Caste was one of the divisions of class system in India along with
wealth. However, in recent times, social class is determined by a combination of
factors like education, occupation, income, wealth and others.
Media Research Users Council (MRUC) and Indian Readership Survey (IRS)—
95 have come out with a new rural Socio-Economic Class (SEC), which maps the
rural market on three variables.
(i) Education of the chief wage earner
(ii) Ownership of durables
(iii) Type of the house (Pucca, Semi-pucca or Kuchha)
58
The social classes may be categorized into six groups as shown in Table
S.No. Class Characteristics Preference

1 Upper. Upper Social elite, wealth Jewellers antique farm
inherited, well known houses vacations luxury
family background, products at high prices
ascribed status,
aristocrats, small in
number reference group for
others.
2 Lower Upper Social elite, wealth earned, Status symbols – cars,
educated and professional homes, refrigerators,
active in social and civic expensive schools, exhibition
affairs, aspire, and products, art pieces,
associate with upper, upper sculptures, etc.
stratum.
3 Upper- middle Career oriented dependent Quality of life, products

on education and hard and entertainment, good
work, dual career families interior decoration,
seek comfort, ambitious vacations, travel and tour
regular but economics
entertainment
4 Lower-Middle Average paid employees, Better life products, nice,
small businessmen, college homes, nice furniture,
background, fashion, decent school, occasional
oriented but traditional vacations, travel and tour
dual career families. regular but economical
entertainment
5 Upper-Lower Above poverty line – Economy, products,

Depend on loans and installment and credit
advances, hand to mouth, buying, low priced popular
dual career families, brands and local unbranded
traditional, strong family products.
ties, school education
6 Lower-Lower Below poverty line, daily Local unbranded products,

incomes, low per capital daily purchases, cheap
income poor health and varieties, buy seconds or
hygiene, dependence on collect thrown out clothes,
petty loans and charity food etc.
59
(b) Life Style

With the rural populace has the advent of satellite television and cable
networks all across the country, been exposed to the rich life style of the urban
households. The rural consumer’s brand choices are not that different from his
urban counterparts. But while the brand choices tend to converge, packing
preferences don’t. By and large, the rural preference is for smaller packs. Wherever
an option exists in case of durables, premium models are preferred by the rural
rich.
One way of life style classification is: Trend setters, Traditionalists or
Chameleons
A separate classification for woman may be helpful. One such classification
is: a capable home maker, career women, and a free spirit.
(C) Personality
Personality refers to the set of psychological and physical characteristics of a
in- dividua1 that determine individual behaviour. These characteristics are unique
making individuals different from one another. Personality can be defined with the
help of characteristics like self-confidence, sociability, adaptability, assertiveness,
autonomy, creativity, sensitivity, and so on.
(iv) Segmentation
Behaviour of consumers is a better guide to segment the markets. To
understand the behaviours the following questions may be raised.
When do people buy? Occasions
Why do people buy? Benefits sought
Do they buy once? Or more? User status
How much do they buy? Usage rate
Do they repeat the buy? Loyalty status
Where do they buy? Place-retail outlet.
What do they buy? Products possessed.
(a) Occasions
Most of the durables are purchased during the month of January when farmers
incur agricultural income. Other occasions are festivals like Diwali and Dussehra.
Also, rural people prefer buying required goods when melas and haats are
organised. As a routine, weekends are the times of purchase by rurals at mandies
and haats.
(b) Benefits Sought
The benefits sought from a product vary from consumer to consumer. A rural
consumer may buy a motor bike seeking one or more of the following benefits.
➢ Status symbol
➢ Sense of fulfillment
➢ Convenience of transport
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➢ Economy in commuting
Based on the benefits sought, consumers are grouped and positioning is
effectively done to pull them to buy.
(c) User status
Consumers may be categorized as follows based on their user status.
The corresponding marketing actions can be given as under.
User Status User’s Action Marketers action
Ex-user Stopped using Convince then about benefit

Using other brand
First time user Trial Assure benefits
Regular users Repeat buy Appreciate them and advice

them on usage. Assure service
Evidently, each category of users is to be treated as a separate segment and

marketing offer should be designed to suit each one of them.
(d) Usage Rate
Based upon the size of their consumption, consumers may be categorised as:
➢ Light users
➢ Medium users
➢ Heavy users
(e) Loyalty Status
A market can also be segmented on the basis of consumer loyalty to brands,
stores and companies. In rural areas, brand loyalty is higher, as decisions are
collectively made. Strong loyalty is reported only in the case of Lifebuoy Company
may design marketing actions based on loyalty status.
Loyalty Status Goal Marketing Action
Strong To retain Improve the features and promotions
Weak To attract Support with good promotion
Non-loyal To convert Heavy Sales promotion campaign
Rural people may buy at the following places:
➢ Weekly haats or mandies
➢ Occasional Melas and Jaataras
➢ Nearest town, the feeding centre for villages
➢ Mobile vans
61
Products may be promoted by developing an understanding of the place where

the potential buyers congregate mostly and prefer to buy the products. Marketers
are today considering the traditional retail spaces viz., haats or mandies as they
realise their potential in promoting sales of several products.
(g) Product Possession Categories
Targeting the buyer on the basis of products he already possesses is
appropriate. NCAER has categorized products to help marketers of durables target
the next customer.
Category I products are of immediate use to the family or things which tend to
be instrumental in supplementing the income in these households.
Category II products consist of a combination of the products that ease the
household works and act as a source of entertainment.
Category III products show a combination of classy products that fulfill all the
above needs.
Category Product price Products
I Below ` 1000 Wrist watches, Transistor, Fan, Bicycle, Electric

irons, Mono cassette recorder, Pressure cooker / Pan
Between ` Two-in-one, TV (B&W), sewing machine, Mixer-

II
1000 and ` 6000 grinder, Geyser, Vacuum cleaner
III
Above ` 6000 Two-wheeler, Refrigerator, TV (Colour) VCR /
VCP Washing machine
This categorization can be used as a guideline to target the next customer.

Purchases in Category II are made after purchase of 3 or 4 items in category I.
Purchases in category III are made after purchasing 5 to 6 products in category I
and II. Sometimes it can be a straight jump from category I to category III.
5.3.4 Multi-Variable Segmentation
Very rarely, marketers depend on a single variable for segmentation. Target
market to be meaningful requires the use of several variables. One of the recent
developments in multi-variable segmentation is geo-demographic segmentation.
(a) Thompson Rural Market Index (TRMI)
Hindustan Thompson Associates Ltd. developed TRMI as a guide to segment
markets in the rural areas in 1972 and improved it in 1986. They compiled a data
out of 335 districts, based on 26 variables. Further, they collected the value of
agricultural output data for each district. It is considered to be the overall indicator
of rural market potential as it has strong correlation with 10 selected agriculture-
related variables viz.,
➢ Agricultural labourers
62
➢ Gross cropped area

➢ Gross irrigated area
➢ Area under non-food crops
➢ Pump sets
➢ Fertilizer consumptions
➢ Tractors
➢ Rural credit,
➢ Rural deposits and
➢ Villages electrified
Based on the index number, the districts have been classified as A, B, C, D and
E class of markets as shown in table below.
Classification of Markets
Class of Markets Index Range No. of Districts Percentage of Market

A 60.00 to 100.00 22 17.8
B 40.00 to 59.99 39 20.5
C 30.00 to 39.99 54 20.4
D 20.00 to 29.99 86 23.0
E Below 20.00 154 18.3
Total 355 100.00
(b) Lin
Quest: Initiative Media developed Lin: Quest, a software package that provides
marketers with data on rural India. The data can be sorted on five parameters:
➢ Demographic
➢ Agricultural
➢ Income
➢ Literacy
➢ Civic amenities
Depending on the product being launched, marketers will be interested in
certain parameters such as literacy levels, male-female ratios, bank deposits,
income levels, accessibility (via road, rail and water), dispensaries, schools, and
distance from the nearest town. The software allows marketers to assign a weighted
average on each of these.
The package then lists all the places that satisfy the marketer’s criteria. For the
rural launch of a regional daily newspaper the parameters could be villages
(population over 10,000), income (over ` 2000) distance from the nearest town (not
more than 45 km) and literacy levels.
Lin: Quest provides a list of districts and villages within the district.
63
(c) MICA rating

MICA has developed “MICA Rural Market Rating”. It is available in a CD-ROM
with digital maps and provides the relative market potential of a particular district.
The ratings have been arrived at by using six parameters.
➢ Total value of agricultural output
➢ Bank advances
➢ Cropped area
➢ Irrigated area
➢ Number of cultivators, and
➢ Fertilizer consumption
It also highlights the village haats- when and where they are held and the
proximity to the centre by road and rail.
Targeting
Segmentation is the process of identifying and establishing alternative market
segments. As a next step, targeting involves evaluating the various segments and
selecting how many and which ones to target. The three aspects in targeting are
evaluation, selection and coverage.
(i) Evaluation of Segments
In evaluating market segments a company has to first identify the criteria
for evaluation. The following criteria may be applied to determine the
attractiveness of segments.
(a) Profitability: The Company has to collect information on aspects required
to conduct cost benefit analysis and ascertain profitability of the segment. Relevant
information includes:
➢ Sales volumes
➢ Distribution costs
➢ Promotion costs
➢ Sales revenues
➢ Profit margins
(b) Attractiveness: Marketers should know whether they should design
effective programmes to attract and serve the market skills. Smaller companies or
new companies may lack the skills, experience and resources needed to serve
the larger segments. Some segments may be less attractive when there is already
more competition.
(c) Growth rate: A segment’s attractiveness depends not only on its current
profitability but also future prospects. The growth rate of the segment in terms of
growth in population, rise in purchasing power, and increase in preferences for the
use of the products is to be considered.
(d) Company objectives: Company should evaluate the segment opportunity
with reference to their short term and long term objectives. If a company’s objective
64
is to expand the sales, it has to go rural instead of pulling rural consumers to the
nearby town.
(e) Limitations: Finally, a company should examine whether the entry into the
segment is acceptable to the society and government. If its entry provokes
unnecessary criticisms, the company may have to struggle hard to explain its stand
and safeguard its image.
(ii) Selection of Segments
Segments may be ranked based on the scores obtained and be considered for
selection. Those with high scores will be accepted and others will be kept aside for
future consideration.
(iii) Coverage of Segments
Organization has three alternative coverage strategies to suit their
segmentation approaches.
Segmentation Type of marketing Coverage strategy
Zero Mass Undifferentiated
Substantial Segment Differential
Selective Niche Concentrated
(a) Undifferentiated strategy: Undifferentiated marketing strategy focuses on
“What is common” among the consumers and tries to employ it in the design of its
marketing offer. For instance, many toilet soap users prefer medicinal value,
cosmetic strength, economy and freshness feeling in toilet soap. Medimix offers all
these and claims that, it is a beauty care Ayurvedic family soap. This soap
appeals to all types of consumers.
Undifferentiated marketing strategy is adopted by some firms to promote their
products in urban and rural markets. Despite certain differences between rural life
styles and urban life style, they find some convergence. “Fair & Lovely” proves this
point. In the skin cream market, Fair & Lovely fairness cream, which has spread its
tentacles in the urban market has a high penetration of 75 percent in the rural
market. Other such products are Lifebuoy, Ponds talcum powder, and many others.
(b) Differentiated strategy: Differentiated marketing strategy
investigatesand identifies differences between segments and tries to match the
market offer to the desires and expectations of each segment.
The results of such exercise would be-Strong identification of the company in
the product category. More costs but higher sales hence more profits and more
loyal consumers.
Are companies using differentiated strategy within rural areas? Obviously,
there are products, which are exclusive to rural areas like fertilizers, tractors,
seeds, etc. Following examples explain the use of this strategy.
65
Sl.No. Product Type Segmentation

1 Tractor 25 - 30 HP Marginal or small farmer
50 HP Large farmer
2. Pepsodent 50 g Middle and high income
15 g Low income
(c) Concentrated Strategy: Concentrated strategy directs all marketing efforts
towards one selected segment. It facilitates specialization in serving the
segment and achieving higher level of consumer satisfaction, delight and loyalty.
However, it is not without risks. In course of time, Preferences of consumers may
change, and Large companies may become competitors seeing the success of
this company.
Generally, large companies may prefer to offer specialized services as a part of
their diversification move. O& M has set up “O& M Rural Communication New
Work” to implement rural communication packages and devise distribution
strategies.
(iv) Choosing a Coverage Strategy
The following check list guides companies in making their coverage strategy
choices, with reference to the state of the four variables for example, company
resources, product variability, product life-cycle stage and market variability. For
instance, undifferentiated strategy is to be chosen, when company resources are
moderate, product variability is less, and product is in the introduction stage in a
market that has less variability.
Positioning is the act of finding a place in the minds of consumers and locating
the brand therein. Companies have to plan positions that give their products the
necessary advantage in the target markets.
Positioning involves three tasks. They are:
(i) Identifying the differences of the offer vis-a-vis competitors’ offers. (ii)
Selecting the differences that have greater competitive advantage. (iii)
Communicating such advantages effectively to the target audience.
Identify Differences
The marketing offer may be differentiated along the following lines:
➢ Product
➢ Services
➢ People, or image
5.4 REVISION POINTS
Market segmentation – bases for market segmentation – effective segmentation
1. Discuss about the market segmentation.
2. What the bases for market segmentation?
66
5.6 SUMMARY
Market segmentation is an important process for rural marketing. In this
lesson importance of market segmentation, bases for segmentation and how
effective segmentation has to be done are discussed. Further the different strategy
of market segmentation is also studied.
Discuss the different strategies to be adopted during market segmentation.
1. Felton, G. (1994). Advertising Concept and Copy . New Jersy: Prantice Hall
Englewood Cliffs .
2. Gopalaswamy, T. P. (2005). Rural Marketing Environment, Problem
Strategies 2nd Edition. Vikas Publishing House.
3. Guinn, T. C., Allen, C. T., & Semenik, R. J. (2000). Advertising 2nd
Edition. South Western Publishing.
4. Guinn, T. C., Allen, C. T., & Semenik, R. J. (n.d.). Advertising and
Integrated Brand Promotions . Vikas Publishing House & Tomal South
Western.
5. Gupta, S. L. (2004). Rural marketing Test & Cases. Wisdom Publications
Pvt. Ltd.
5.9 ASSIGNMENTS
Evaluate the market segmentation in a particular rural area.
1. Jefkins, F., & Yadin, D. (2000). Advertising 4th Edition. Pearson
Education Limited.
2. Jethwaney, J., & Jain, S. (2007). Advertising Management 3rd
Impresion. Oxford University Press.
3. Jha, M. (2003). Understanding Rural Buying Behaviour. Op. Ct.
4. John, P. J. (1999). The Advertising Business Operations Creativity
Media Planning Integrated Communications . Sage Publications.
5. John, P. J. (2000). International Advertising Royalties and Myths. Sage
Publications Inc.
Go to a rural market and identify how it is segmented?
5.12 KEYWORDS
Market segmentation – rural market segmentation- marketing strategy –
evaluation strategy.
67
LESSON 6
RURAL AND URBAN MARKET : A COMPARATIVE ANALYSIS
6.1 INTRODUCTION
70% of India’s population lives in 627000 villages in rural areas. As per the
National Council for Applied Economic Research (NCAER) study, there area as
many ‘middle income and above’ households in the rural areas as there are 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 NCAER projections, the
number of middle & high income households in rural India is expected to grow 80
million to 111 million by 2007.However, myths abound. India’s rural markets are
often misunderstood. A clear distinction needs to be made with regard to the reality
versus the image of rural India. If such a distinction is not made, we will be unable
to distinguish between the serpent and the rope.
6.2 OBJECTIVE
 To compare the rural and urban market
6.3 CONTENTS
6.3.1 Needs of Rural Market
6.3.2 Difference between Rural and Urban Markets
6.3.1 Needs of rural market
Formal markets in rural areas play an important role in improving agricultural
marketing. They can:
 Provide a location at which farmers can meet with traders;
 Increase retail competition by providing a convenient place where farmers
can meet with consumers;
 Improve hygiene, if existing marketing activities are carried out in an
insanitary manner;
 Reduce post-harvest losses by providing protection for produce from direct
sunlight, rain, etc.;
 Make marketing a more pleasurable activity; and Provide a focal point for
rural activities.
Retail facilities
In some countries farmers travel from door to door to sell their produce. This
can be time consuming and exhausting and may require investment in transport,
such as a bicycle. Door-to- door selling also makes price setting difficult because
farmers have little information regarding prices being charged by other sellers.
Markets, on the other hand, provide a location where all buyers and sellers can
meet. Consumers can see the range and prices of produce on offer and make
choices based on their preferences and income. Sellers can take their produce to
one location rather than having to go from door to door. They can see how much of
68
a particular product is on offer, compare the quality of their produce with that of
other sellers, and set their prices accordingly.
In order to achieve such benefits, however, markets must be situated in
locations acceptable to both sellers and buyers. This is emphasized strongly in this
guide. There have been many examples of new markets being constructed in
unsuitable locations and never being used! Existing market sites, or places where
buyers and sellers meet informally (e.g. a plot of land at the side of the road), is
usually the best places to construct new markets because they are clearly at
locations favored by the users.
Improve hygiene
Existing “markets” are often just areas of available land that buyers and sellers
find convenient to use. They may be well established in the sense that they have
existed at the site for a long time, or they may be temporary, for example, a vacant
plot of land used until it is reclaimed by the owner for some other purpose. Either
way, hygienic conditions are usually very poor. In most cases there are no toilet
facilities or running water and probably no arrangements for waste disposal. In the
rainy or monsoon season the market area may be extremely muddy, but sellers
may display their produce on the ground, with a risk of contamination from the soil
or mud. Many municipal markets are like this, even though users are often charged
a fee. Improved markets should minimize all of these problems. Apart from
providing a healthier overall market environment, such improvements can reduce
the danger of food contamination.
Reduce post-harvest losses
Unimproved markets usually lack any form of shelter. Produce is displayed and
stored in the sun. Apart from conditions being very difficult for those using the
markets, the lack of protection from the sun can have a major impact on the life of
fresh produce and on its nutritional value. Leafy produce, for example, can be kept
fresh by protecting it from the sun and by keeping it moist. This is not possible in
markets that do not have either shelter or fresh water supplies.
Provide a rural focal point
Retail markets frequently play an important social function. Farmers in many
countries prefer to take their own produce to market rather than sell it to traders.
The visit to the rural centre provides them with the opportunity to buy items
unavailable in their villages and to catch up with local news. In many countries
markets function as more than just trading places. They are the focal point of a
rural centre and provide an important place where people can meet. Markets that
are attractive places to do business draw buyers and sellers alike. Competition is
promoted amongst sellers and at the same time the sellers have a large number of
potential customers.
Needs of urban market
Population growth is not solely in larger metropolitan centres - the mega cities.
The number of small and intermediate sized urban centres is also increasing and
69
also has an important role as links in the marketing system. The International
Institute for environment and development (IIED) estimated that by 2000, more
than 60 percent of the urban population of Africa, the Caribbean and Southeast
Asia (as well as Europe) were in urban centre’s of less than half a million
inhabitants. These market towns and administrative centres are of critical
importance in facilitating exchanges between rural and urban areas. Rural
populations depend on these urban services, including access to traders and
markets to dispose of their agricultural produce and to access the retail stores and
other facilities located in local urban centres. The intermediate centres also provide
employment opportunities for rural populations and may, in some cases, help to
decrease migration pressure on the larger urban centres.
Impact of urbanization on food security
Increased competition between urban land uses and agriculture land on the
urban perimeter; Increased food supplies required, leading to greater traffic
congestion and pollution, and to stress being placed on overloaded food distribution
systems; Changing food consumption habits, with increased demand for
convenience and processed foods, increasing food quality and public health
concerns; and Distance of low-income families from markets increasing, meaning
additional costs in time and transport to access food supplies.
Impact of polarization on small and intermediate urban centers
As long as issues of social and spatial polarization (so often linked to economic
reform, restructuring and the internationalization of trade and production) are not
addressed, it is unlikely that regional economic growth policies can contribute to a
more equitable development and more successful poverty reduction. This is one of
the main reasons behind the failure of so many past regional development policies
focusing on the role of small and intermediate urban centres in local economic
development.
Marketing facilities and other post-harvest infrastructure are usually limited in
expanding urban areas. Urbanization is largely unplanned and local authorities
generally do not have clear policies on developing facilities to meet their future
needs.
The objective of marketing interventions is to bring an improvement in the
marketing of horticultural and other agricultural produce, promoting strategies for
increasing food security. An efficient and functioning marketing system is a
precondition for agricultural diversification and improved nutrition. This enables
better prices to be obtained by producers (leading to higher incomes) and improves
the availability of competitively priced produce to consumers
Limitation of urban market
 Access to urban markets, by rural livestock producers, depends upon
the existence of an infrastructure including communications and
transport, intermediaries, market places and processing facilities.
70
 The links between producers and consumers, often direct in rural

markets, are more likely to be extended through a chain of intermediary
traders to reach urban markets. Within the market chain, products are
transported from one location to another, and processed from one form
into another. All these operations must be financed as well as the
transaction costs of negotiating and enforcing contracts.
 Access, and hence tradability, also differs between types of livestock and
their products.
For e.g: Large animals may be moved large distances, on the hoof, but may lose
condition as a result. Where motorized transport is available, it may well prove a
cheaper alternative. Small animals, and poultry require transport but are bulky and
therefore costly to move over large distances. None the less, for remote rural
producers live animals are more readily tradable than most other livestock
products.
Products such as meat, milk and eggs are all perishable, while meat and milk
require chilled transport if moved over large distances. Transport costs are
considerably higher, per ton, than they are for live animals. Since transport costs
also vary with distance to the market, the producer prices net of transport costs are
much lower in remote production areas, than in locations close to the main
markets. For similar reasons the costs of new inputs, supplied from urban areas
are more costly for livestock producers in remote areas. Small-scale producers are
at a particular disadvantage, due to the high unit costs of moving small
consignments.
Limitations of Rural Market
As an entrepreneur, the individual or group of rural poor engaged in
manufacturing activities of the micro-enterprise faces a number of challenges.
Some of these are given below
 Most of the products are still sold at the local rural haats. This means that
the products may not fetch a good price as there is limited demand for the
products in the limited local market. Limited demand also implies a low
turnover, resulting in turn in, and low income for the producer. Also, as
these consumers are not overly conscious of the quality, the chances for
product improvement remain bleak.
 There is limited awareness in the global market either about the availability
of these products or about the existence of these micro-enterprises and
their activities. With limited publicity, the products can hardly hope to build
a market for themselves.
 The exhibitions and melas are not frequent phenomena. Also, their venues
keep changing and are limited to a few towns/cities. Thus, the products are
not available all the time in most of the places.
71
 There is no denying the fact that an intelligent market analysis goes a long
way in sustaining the market for any product. Though a formidable task in
itself, it assumes gigantic proportions in the present context as the rural
poor, with his limited knowledge and finances can hardly be expected to
carry out this exercise. Not only this, the existing marketing infrastructure
is equally ill equipped to undertake the task. Nevertheless, such an exercise
will help in analyzing the market for customer preferences and accordingly
sensitizing the rural poor producers to the demand patterns of the market.
6.3.2 Difference between Rural and Urban Markets
1. Rural Vs. Urban consumers (Foreign products):
Consumer Behaviour:
Last but not least, the consumer behavior is the task for the task for the
companies. The mindset of the rural consumer is completely different from Urban
Consumer. The Mindset of the consumer is different. For Ex: In urban market, to
buy Electronic Item the customer thinks of Brand and Its updated feature. Where
as in rural market he thinks of in so many ways, such as money, Durability,
Buying Capacity and so on. So this mindset makes a difference in both markets.
For Example:
The biggest mistake a FMCG company can make while entering the rural India
is to treat it as extension to the existing urban market. But there is a vast
difference in the lifestyles of the rural and urban consumers. The rural Indian
consumer is economically, socially, and psycho graphically different from his urban
counterpart. The kind of choices that and urban customer takes for granted is
different from the choices available to the rural counter parts. The difference in
consumer behavior in essence stems from the way of thinking with the fairly simple
thought process of the rural consumer in contrast to a much more complex urban
counterpart. On top of this there has hardly been any research into the consumer
behavior of the rural areas, whereas there is considerable amount of data on the
urban consumers regarding things like - who is the influencer, who is the buyer,
how do they go and buy, how much money do they spend on their purchases, etc.
On the rural front the efforts have started only recently and will take time to come
out with substantial results. So the primary challenge is to understand the buyer
and his behavior.
One more gray area that needs to be probed into is the importance of retailer in
rural trade. Rural consumer’s brand choices are greatly restricted and this is where
the retailer comes into the picture. The rural customer generally goes to the same
retailer to buy goods. Naturally there’s a very strong bonding in terms of trust
between the two. Also with the low education levels of rural sector the rural buying
behavior is such that the consumer doesn't ask for the things explicitly by brand
but like "laal wala sabun dena" or "paanch rupey waali chai dena". Now in such a
scenario the brand becomes subservient to the retailer and he pushes whatever
brand fetches him the greatest returns. Thus, as there is a need to understand the
72
rural consumer, similarly need is there to study the retailer as he is a chief

influencer in the buying decision.
2. Rural Vs. Urban Markets
The market is a place where buyers and Sellers Exchange Things. In lay man
terms "It is a place where buyers and sellers exchange goods/Service for some value
in return such as Money" . So the Market is same everywhere. But, The difference is
in the consumer behavior. There will be different buyers in each market. This is
because of different factors which Influence them. So the same way there is a
difference between Rural and Urban Market. The factors are so many to define.
There is a difference in all the marketing Variables. That is where most of the
companies approach with different Marketing Mix and Strategies to Rural Market.
The strategies differ from the urban to rural market. The companies which have
understood the phenomena of rural market have succeeded in the market, For Ex:
HUL, ITC, Colgate, Rajdoot Motorcycle. These companies have done a perfect home
work and Implemented in terms of effort and Operations. These companies
approach shows that there is a difference between Rural and Urban Market.
The Differences can be Infrastructure, Economy, Lifestyle, Socio- Cultural
Background, Availability or reach, Habits, Competition, and Consumer Behavior.
Infrastructure: The facilities like Electricity, Internet, Roads and Buildings,
Educational Institutions, Financial Institutions, Communication and Organized
Market, Other Facilities differs in Urban and Rural market. In urban everything
gets implemented soon and Availability is also there. Where as in rural market
everything takes a good amount of time.
Economy: Here the Economy means, the earning Capacity in a rural Market.
The cost of Living always depends upon their way of earning. So, the Income levels
are unreliable, as Most of them are depended upon the seasons and Agriculture. So
the Income levels cannot be a fixed one.
Lifestyle: The Lifestyle, that is living pattern of both the markets differ a lot.
This can be important factor which influences the companies to think of when they
approach rural market.
Socio- Cultural Background: Due to the illiteracy level, and Culture
adaptability from long time the rural market always gets differ than the urban
market. The superstition and other belief as well as the way of thinking towards
products and goods differ in these two markets.
Availability or Reach: Due to the areas which are diverted Geographically and
Heterogeneous market the reach is very difficult. The logistics for rural market is a
tough task than to reach the Urban Market.
Habits: The daily routine of the people makes them to cultivate different habits.
Apart from due to the awareness is low in Media terms there will be a difference in
the habits.
73
Competition: The competition in the market for brands and Companies always
differ As in rural markets it is always the channel Partner and Retailer plays a vital
role. But where as in Urban Market Brand plays a great role.
6.4 REVISION POINTS
Rural market – Urban market – difference between rural and urban market –
advantages and disadvantages of rural market
1. What are the needs of a rural market?
2. List out the needs of urban market
3. What are the advantages of rural market?
4. What are all the disadvantages of urban market?
6.6 SUMMARY
Rural market is an essential one as that of urban market, because rural
market provides maximum opportunity to the rural people. In this context, rural
retailers, focul points of rural markets, advantages and disadvantages of rural and
urban markets are discussed here. Moreover, the difference between rural and
urban market is also discussed.
Compare the rural and urban market.
1. Macklim, M. C., & Carlson, L. (1999). Advertising to Children Concept
and Controversies . Sage Publications.
2. Mohan, M. (1997). Advertising Management concepts & Cases. Tata
McGraw-Hill Publishing Company Limited.
3. Panda, T. K. (2007). Marketing Management Text and Cases. Excle
Books Publication.
4. Ponete, D. (2000). Advertising Comapign Strategy A Guide to Marketing
Communication Plans 2nd Edition. The Dryden Press.
6.9 ASSIGNMENTS
Write an essay on the disadvantages to the rural retailers.
1. Taflinger, R. F. (1996). Definition of Advertising
2. Velayadhan, S. K. (2007). Rural Marketing Targeting the Non Urban
Consumer3rd Edition. Response Books Publication & Sage Publication.
3. Wells, W., Moriarity, S., & Burnett, J. (1998). Advertising Principle &
Practice 5th Edition. Prantice Hall Inc.
Visit Rural market and Urban market and differentiate them
6.12 KEYWORDS
Rural market – Urban Market – Rural retailers
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LESSON.7
UNDERSTANDING RURAL ENVIRONMENT
7.1 INTRODUCTION
While referring to the Rural India of today, in marketing potential terms, the
context of India's over 70% population living here is not the only prime issue. This
population is beginning to get dynamic in its tastes, lifestyles, thinking and
attitude, independent of developments in the urban market. The market is finding
its own reason and rationale to switch from one product to another or from
unbranded goods to branded goods. As you go into the other units, there are in-
depth discussions on the rural consumer, the type of product he buys, the ways of
distributing and promoting in the rural markets. Before we get into those details, it
is important to understand the environment of the rural India and possibly find
reasons for some radical changes occurring in rural India.
7.2 OBJECTIVES
After going through this unit you should be able to:
 discuss the rural environment in the context of the rural economy
 describe the infrastructure governing rural economy
 explain the key institutions in rural India, especially banking and
agriculture related institutions
 understand the framework of rural politics
 analyse the structure of the rural society
 appreciate the impact of policy framework
 assess the impact of technology
 use the understanding of rural marketing environment to develop your
marketing plans.
7.3 CONTENTS
7.3.1 E-Chaupal
7.3.2 Rural Society
7.3.3 Impact of Policy Decision on Rural Market
7.3.4 The rural environment and economy: An overview
7.3.5 The rural infrastructure and institutions
7.3.6 Impact of rural politics
7.3.7 The structure of the rural society
7.3.8 The impact of policy framework
7.3.9 Impact of Technology
7.3.10 Rural Initiatives in Information Technology
7.3.1 E-Chaupal
From Chaupals to E-Chaupals is definitely an augmentation for the society and
the fact that the members of this society are willing to innovate and experiment is
encouraging. Data of the last few years reveal distinct preferences for products like
Tube Lights versus Bulbs or Iodex versus Amrutanjan, Both are cases of brand and
75
category switch. Ultimately, the core issue is of value being sought from the
product. Hence, it will be unfair to misjudge the rural consumer to be a poor clone
of the urban consumer. His needs, wants and demands are very different and
largely based on the environment within which he operates rather being purely
imitative. Electricity is one of the key deterrents in the rural market, which affects
certain purchases directly. Unlike urban markets, Ice Creams or Pet Bottles of
carbonated drinks will have domestic storage problems in rural markets. It does not
mean that the rural customer will not savour an ice cream or a bottle of chilled soft
drink. His mode and quantity of consumption might be very different, as his
stocking options are low.
The above instance also reflects heavily on the rural settings and the
environment within which consumers exist. This unit on rural environment first
covers the economy and its description. To describe the rural economy, income,
occupation and the ownership patterns are a few parameters that have been
discussed to explain the progressiveness in the economy. The second section
discusses about the rural infrastructure and the institutions. The rural
infrastructure in terms of the basic aspects like the road, rail, electricity, banking
and financial institutions which are the lifeline for any economy, has been covered.
The institutions discussed are the formal and informal organisations that exist in
the rural economy. The formal organisations are the banks, agricultural
institutions and other related financial institutions. The informal organisation refer
to the Chaupals, Aangan Badi programs and other social organisations/institutions
set up locally for a given region or zone. The third aspect of the unit is a discussion
of the rural institutions and the political framework of the rural region. The
Panchayats and their role especially in the local politics and how over the years the
Panchayati Raj organisational structure has become the building block to the more
broader and significant district and state level politics have been discussed. Also,
with agriculture being critical revenue earners for certain states, the state politics
there is rural driven, case in point, being Punjab, Maharashtra or Andhra Pradesh.
The political environment of villages in such states is therefore a significant
variable.
7.3.2 Rural Society
The rural society, which has its very own distinct structure both at the formal
and informal level. Though population migration to urban or semi urban locations
76
may seem as an integral failure of the society here, but certain values and traits are
never given the go by in the process. Collective decisions, mutual respect especially
for the elders, transfer of learnings attained in an urban context or from prior
experience are all very unique to the rural society.
7.3.3 Impact of Policy Decision on Rural Market
There are certain critical policy decisions taken up by the government for
development of the rural India and every year the basket of offer keeps on changing.
The unit analyses some of the important policy decisions that might have been
taken and how have the same impacted the rural markets. A case in point is that of
agriculture incomes: the agricultural income being tax-free, has an impact on the
collective buying decisions and the disposable income for any household. The last
part of the discussion is on the impact of technology in rural markets. Talking of
technology, compared to urban markets the rural markets are still evolving in terms
of basic technology per se. Concepts like ATM or Credit Cards or Cellular Phones
have a high penetration in the urban markets, The availability of infrastructure is
critical to understand the cause and effect relationship between technology
penetration and amount of technology used. This is one aspect where the rural
markets still rely on the nearest feeder towns and cities for assistance. Issues like
electricity or a well-established banking network are some basic problems, with
which the rural markets are still grappling and it has become impossible to look
beyond delivering the basics. By the end of this unit you will appreciate that it is
important for you as students of marketing to analyse the implications. of
environmental considerations for marketing in rural India. As you move from Unit
2, into more specific and specialised units on marketing in Rural India, the
environmental considerations will be critical to correlate. Take for example, the
lesson on the rural market buyer behaviour, wherein the first aspect to be covered
will be the rural buying behaviour and differences between their urban counterpart.
Without knowledge of the rural society it will not be possible for you to analyse
rural buying behaviour. It is therefore of significant importance that you use your
understanding of Unit 2 for understanding the remaining units on Rural Marketing.
7.3.4 The rural environment and economy: An overview
It will be unfair merely to say the rural economy is on the growth path in the
last few years. In fact, the growth this time is more than succinct and consistent in
nature. A few changes among these are even radical in nature, which is critical from
the view of marketing imperatives. The figures are an indication of the urban versus
rural divide and how the rural infrastructure and amenities fare as against the
urban markets. On the population statistics, the larger share still resides in the
rural Indic which makes the potential of the market all the more critical to future
growth. Technically speaking with 70% of the population in the rural heartland
with lower literacy rates, higher working population and absence or reduced
presence of basic amenities is a paradox, which is difficult to describe and points to
of the complexities of the rural economy. A larger working population should make
the economy more productive and open to a larger base of resources. The low
77
productivity in the key sector of agriculture however keeps the household incomes
and consequently the disposable incomes at low level, compared to other agrarian
economies. A few other critical components to be noted in context of rural India are
with respect to:
Hospitals, which are substantially less than what the urban area has;
Electricity, a critical aspect which acts as deterrent to many factors of growth
and;
Media exposure where is comparatively less as compared to the urban areas,
and this is directly correlational to the literacy rates. The above data is indicative of
some general aspects of the overall economies indicators. If you looked at a detailed
picture with factors like sector wise growth indices of agriculture production and
consumer price index, these macro economic indicators show a more clear picture
of the way the rural economy is shaping up. The sectoral growth in 2001-02 shows
agricultural growth estimation to be higher than industrial growth. The employee
base in agricultural labour is showing a downward trend.
It is important to mention here that agriculture has not shown positive growth
as compared to the Industrial and the services sector in the last few years. On the
consumer price index between the industrial and the agricultural labourers, the
former seems to have fared better than the latter from the data provided for the last
4 – 5 years.
An occupation wise comparison of urban and rural markets by the occupation
of the household head, expectedly shows a very high concentration on cultivation
(41%) and y' wage earning (35.22) in the rural India while the urban India shows
high percentage of salary earners (40.64) and wage earners (20.87)
While cultivator and wage earner form sizeable portion of the rural household
and occupation as shown in Table 2.6; Table 2.7 reflects that most of the cultivator
and wage earner segment falls in the lower and lower middle income groups. Also,
while segments like Businessmen and Professionals have shown the propensity to
bulge more towards upper middle and higher income segment, the petty
shopkeepers and the artisans are also seen as forming a sizeable chunk of the
population especially in the lower middle and middle segment.
In terms of education as you have seen from Unit 1 the literacy levels are far
lower in the rural areas as compared to the urban markets. The "no education" &
"Elementary" category differences between the urban and the rural markets are
fairly high but the disparity reduces as one moves to higher secondary level
education.
In unit one we saw that large percentages of rural income drawn from
agriculture, the incomes are uncertain and seasonable. Let us look at the incidence
and distribution of salaried income classes in the rural areas, to get an idea of the
relatively 'stable' demand potential of the market. The following figures are fairly
78
self explanatory and give the picture of rural salaried income distribution as against
urban picture.
The classification in terms of economic well being has also been used to
show the relative status of consuming classes in India. NCAER data shows
interesting variations in the four regions of the country. The consumer
classification as given in the NCAER Indian Market Demographics Report 2002 are:
1. The Affluent/Very Rich: Households owning personal Car/Jeep along with
other products.
2. The well Off : Household owning any/all of these – air conditioners ,
motorcycle , scooter , washing machine , refrigerator , colour television
with other durable products but no car/jeep.
3. The Climbers: Households owning any/all of these: moped, VCR, VCP,
mixer grinder, sewing machine, audio equipment black and white TVs,
geyser with other durable products but not these mentioned under the
first two categories.
4. The Aspirants: Households owning any/all of these: bicycle, electric fans,
electric iron with other durables but not those mentioned under the first
three categories.
5. The Destitute: Households other than those classified under categories 1
to 4 above (owning any/all/none of these -wrist watches, pressure cooker,
monocasette recorder, transistor/radio.
The same also reflects on the wide disparity especially in the affluent and the
well off as against the aspirants and destitute in the lower strata. However, in
summation of the economic conditions it can be said that in the rural market still
continues to depend heavily on a good harvest. Disparities are large and the
prosperous few continue to dominate. But on the other hand, the large section of
the Lower Middle is beginning to swell and there are distinct shifts occurring
towards the Middle segment. The upper middle and higher segment is limited only
to a few prosperous agricultural belts.
You will study about the durable ownership in the later units (Unit 7). Here it is
important to note that while there is still a disparity between durable ownership
between rural and urban households, the former is showing encouraging growth.
Encouraging shifts are also observed in the ownership of more expensive
ownership. Electricity has emerged as a key inhibitor of electrical durables among
rural segments,
7.3.5 The rural infrastructure and institutions
At the start of this unit we had discussed, briefly, some of the issues in rural
infrastructure and through comparative evaluation between urban and rural data
we had found that the rural markets still fall short of the urban markets on a large
number of consumption parameters. Hospitals, electricity, banking, post offices,
road and rail coverage, communication facilities are 'some of the issues on which
79
the rural markets lack heavily. The following figures given an idea of the
infrastructural situation in rural India.
While the rural India is characterised by lack of adequate infrastructure the
issue is not merely that of inadequacy. If one were to go back and evaluate the
geographic patterns of our country, the diverse and expansive nature of the
topography makes it extremely difficult for the infrastructure growth to be complete
and all round. For instance, some of the north east regions, the interiors of Orissa,
Madhya Pradesh or Maharashtra suffer from lack of approachable roads. Owing to
the low density of population in these regions, political attention to development
has not been very even. With some of the remotest parts of the country suffering
from complete absence of infrastructure or surviving with minimal infrastructure, it
becomes difficult for the marketers to approach such markets. In one of the annual
floods in Assam, which is usually devastating in nature, road and rail connectivity
with the interiors of Assam virtually seized. HLL had to airlift consignments to the
regions affected and this methodology was well accepted in their logistics support
for distribution of goods. However, the issue still remains of how many companies
can afford to incur such costs on distribution?
Perhaps the most critical issue for rural marketers currently is the lack of
infrastructure in quite a few villages and the rising cost of distribution that affects
the final pricing of th e product. Very often goods available in a certain region are
from two distinct sources. The first being through the company sources and the
second through local retailers organising to get the stocks on his own, where
company distributors cannot reach. Picture 1 a profile of a typical grocery shop
illustrates the absence of basic infrastructure to approach the shop and the shop
ambience is also very unlike a grocery shop we see everyday. Picture 2 & 3 on the,
other hand are a depiction of the general conditions of approachable roads in
typical village. This is one aspect of correlation to the buying patterns. Some of the
other aspects of infrastructure like banking, media coverage and
telecommunication facility have a long way to go in, some of the remote regions. In
the case of banking, barring State Bank of India (SBI) there are few other instances
where banks have well established and well-connected branches. It has, however,
taken SBI a substantial number of years to set up such a huge infrastructure base.
The learning clearly is that evident in most cases, is that it is consistent effort over
time, which is an investment all discerning marketers will have to make. All
success stories of organisations making it good in the rural areas clearly point to
factors of time spent and patience that the companies have displayed and how
these have borne fruit over a period of time.
Rural institutions for long have existed at an informal and formal level and they
have played a critical role in the development of the rural sector. One of the biggest
rural institutional successes is the Panchayati Raj. The Panchayati Raj structure
operates at the grass root level for any village or block or Zila and has often been
responsible for infrastructural development of a given village area. For instance
West Bengal has successfully been able to implement the Panchayati Raj structure
80
in its rural set up. Whereas in the northern part of the country, politicising of the
system has meant struggle for power and money, in the long term Panchayati Raj
will be a well accepted norm for most rural areas and it will have to be the
individual's or the village's responsibility to make the institution a success.
Banks like SBI and agricultural financial institutions like NABARD have been
making attempts in the past to help in rural credit for agricultural produce, but
biggest problems have been with the widespread disparity in land holdings in the
rural markets. Approximately 12% of the rural farmer population own 65% of the
land. This leaves wide disparity in the markets and makes it difficult for rural
institutions to help in all round development. With over 600,000 villages in India,
79% having a population less than 1000 makes the markets unproductive in
nature for financial institutions'.
Owing to the predominantly agricultural occupation in rural India, most of
banking institutions are involved in disbursal of loans and agricultural credit for
purchases of tractors or pump sets or for seeds, pesticides, insecticides etc. The key
concern of both the policy makers and the rural community is that a large number
of farmers are not able to take the benefits of these institutions. The unpredictable
nature of the agriculture harvests, also makes the banks at times wary of granting
credits to the farmers.In all, it is a vicious circle where rural financial institutions
have been making attempts for the upliftment of the farmers, but unfortunately,
ending up giving majority of the benefits for a select few. The government has been
making attempts too and a large number of policies have been developed. The
annual budget also declares several policies and grants (to be discussed in the later
part of the unit), but the entire effort still seems to be centred on to a limited few
and does not reach the real needy.
Another form of rural institution that exist are the cooperatives or association
of farmers trying to fight a common cause on the basis of a collective strength. The
farmer cooperatives are immensely successful in certain states and they form a
huge lobby. The cotton as well as sugarcane farmers in Maharashtra are an
example of the same, which influences state level politics too. However, such
instances are too few and in most states the power rests with the prosperous few
only. Local artisans and craftsmen also form associations for promoting tribal and
rural art and craft, mostly through district or state level initiatives. One thing which
is eminently clear is that, individual states have to take up the initiative in helping
set up local institutions especially directed to helping the needy segment of people.
States have to ensure that the institutions are set up and managed at the district,
zonal or block level.
7.3.6 Impact of rural politics
Political environment has a definite bearing on development and therefore
effects the economic well being of people. Rural politics in India, under the shift
towards local self government is dominated directly by the institution of the
Panchayati Raj.
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While discussing about the aspects of Panchayati Raj in the earlier section, we
had talked politicisation of the concept and hence making it a power centre, the
benefits of which are unfortunately not provided to the rightful. The structure of the
Panchayati Raj system through targeted at created local self government, today
creates within the village a hierarchy resulting in a typical power centre being
created. Cooperatives and social organisations have unfortunately been fighting for
vested interest leading to lack of success. Rural politics is known to impact
extensively where agriculture produce is abundant and is able to influence state
level revenues. Prosperous farmers often make attempts to enter state level politics
with their strong lobby and backed by the village vote banks. As mentioned earlier,
the Maharashtra Cotton farmers lobby is very strong and has a definite influence at
the state level politics. The following example illustrates the transforming effect -
Panchayats and related developments have brought to some parts of rural India.
Nothing short of a small revolution seemed to unfold before the astonished eyes
of the world during President Bill Clinton's visit to India last in Marcb,20002. In the
rural heartland of Rajasthan, a dozen village women introduced themselves: all are
elected representatives of their village councils (panchayats). Together they run a
women's dairy cooperative and. have initiated several small credit and loan
schemes for poor, landless women in their communities. They had discarded the
age-old custom of hiding their veiled faces behind home walls. Now, they explained,
they had to go to the bank to draw and deposit money, and to their district
headquarters to attend monthly meetings.
However, it will be long before the rest of India benefits truly from such an
approach from the womenfolk. Rural politics is also known to influence sufficient
number of decisions and political favours for their respective villages. The local
MP/MLA, to appease the rural vote bank will gladly accept to favour the tide where
his vote bank is. Indian cinema, particularly, movies like Manthan, Damul, Ankur
have reflected the face of the politics especially in suburban and rural areas from
an assessment of the prevailing realities clearly. It comes out very clearly that,
influences of politics affects all, even though participation is by a limited few. Caste
and religion form basis of the rural political agenda and parties in most rural areas
have very distinct political set ups based on castes or religious groups. Minorities
are also another critical component of the rural politics and government makes
special attempts to ensure the upliftment of the minority segment, in most cases
backed by a political agenda and social compulsions.
Rural politics can be summarised from an article by Ralph Buultjens titled
"Understanding India", wherein he points out to five critical issues to help
understand a vast nation like India:
Environment
• its diversity
• the depth of culture • a land of minorities
• its future depends on the interaction between two worlds:
82
• the cities of India ... and rural India

• poverty, spirituality and modernity mix and coexist
In the fourth point he points to some extremely critical points, which are
relevant, for people involved in rural politics and at apex policy decision stage at the
State level too as well as for our understanding of this important segment. He says:
“Broadly speaking, its (India's) future depends on the interaction between two
worlds: the cities of India, where 20 percent of the population live, and rural India,
where about 600, 000 villages contain the rest of the population. Urban India is the
India of modern industry, national politics and foreign policy, government planning,
the national media, the major universities, business, the armed forces, science and
technology. Its best products are frequently as good as the best in the world, its
orientation is cosmopolitan.. Rural India is the India of age-old patterns where
tradition is the principal dynamic of society, where outsiders come and go but life
continues, often without much change. When the two India's mesh effectively, India
is a success, as in the expansion of education, the reduction of illiteracy, the
extension of the average lifespan, the introduction of some basic health care, the
sustenance of a democratic political system. When they do not connect effectively,
India is in trouble, as with population control and unemployment. For the nation to
realize its considerable potential, the linkage between those two India's has to be
expanded and strengthened.”
In terms of creating business environment, rural politics has an indirect role of
being an agent of development of essential infrastructure. It also creates “village
influentratials” who may or may not command social following. As a marketer,
assessment of political environment would be a consideration in trying to
understand the directions of development, the village opinion leadership process,
and the levels of general awareness in the village scenario.
7.3.7 The structure of the rural society
The structure of the rural society differs from the urban societies of today,
which is gradually disintegrating into nuclear families. Though there has been high
population migration from the rural belts, but the village as the root, continues to
be critical to the rural people. In most cases, the migrant population has been
found to return to their roots or have maintained strong connections with their
origins. Most rural families are closely knit, staying as joint families and the elders
in the family are supposed to be the authority figures. Their decisions in most cases
are taken as the final word. The values of hierarchical authority and respect for
tradition are deeply embedded in the society and are usually difficult to change.
Beyond the family, the community is the next most important thing. Most rural
societies are tightly knit communities and usually the neighbours are considered
almost like family members. Decisions at times are influenced by neighbours too,
specially when purchases of high investment products are being considered or the
related products is already owned by the neighbours. Beyond the neighbours, most
rural societies have well laid social structures. Caste and religious considerations
usually from the basis of such structures.
83
The rural society differs significantly from the urban social structures and
hence the marketing implications of the same are very different too. TV, for instance
in most rural households is viewed jointly, and is often a community affair where
the gathering is usually large and most audiences have a point of view, usually
discussed while viewing. This is unlike urban India, where most households have
individual viewing patterns and very often each family member prefers to view at a
slotted time. If it is Cartoon Network for the kid, his timings are different, for the
soaps the prime time slot of 8-1Opm is again fixed and overlaps between family
members are avoided. Hence, urban TV viewing patterns are largely heterogeneous
unlike the rural, which is homogenous. This different phenomenon is a fallout of
the very different value systems as well as time allocation patterns being followed in
the two different social set ups.
The above instance shows only the media usage pattern. Similarly, social
factors seem to influence product consumption as well single. In rural households
brand usage of soap in the family is the prevalent norm, unlike urban markets,
where multiple soap brands in a family might be more acceptable. Decisions in
rural set ups are hierarchical which may not necessarily be the case in urban
markets. Figure 2.4 in the adjoining page explains a typical structure of any village
where the Gram Pradhan plays a critical role. The Panchayat members are referred
to as Sabhasads and usually jurisdiction locally rests with them, followed by the
regional group heads and the family clusters. The regional groups are usually caste
or religion driven whatever be the basis in that particular village which affect the
community decisions and finally the individual in a family, who is integral to the
family.
"The rural society" as a component will be discussed extensively again in Unit 3
as a part of the buyer behaviour process where families and reference groups in the
context of Consumer Behaviour have been extensively covered. The decisions to
purchase follow such structures very closely and therefore it is significant to cover
the issue.
Figure – 7.1
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Over all these institution exert a far greater degree of influence over individual
and social life in villages, as compared to the impact of similar institutions on social
life of urban individuals
7.3.8 The impact of policy framework
Rural India has been always been critical to the government's political and
economic policy agenda on account of its sheer size and relevance for the
developmental objectives. In every plan period there have been sustained efforts at
focussing attention on development of rural sector. The allocation for rural
development have steadily grown in successive plan periods as you saw in the first
unit. Some of the critical policy reforms and schemes for the rural area are:
1. Pradhan Mantri Gramodaya Yojana (Prime Minister Village Development
Programme): A Rs, 5000 crore rural infrastructure development programme the
programme works on the principal of Centre's assistance to the States for
development and is based on their active participation in the implementation.
2. Self -Employment schemes: PMRY (Prime Minister Rozgar Yojana), TRYSEP,
IRDP, NRY and the Panchayati Raj Yojana were developed to impart employment to
the rural youth.
3. Janashree Bima Yojana insurance policis directed at the rural requirements.
4. Rural Infrastructure Development Fund (RIDF)
5. Micro Finance Development Fund
6. National Commission on land use policy
7. NABARD's project on National movement of Watershed Development
8. Rural Housing Schemes
9. Farm Credit by Regional Rural Banks (RRB's) and Cooperative Banks, SIDBI
10. Rural Industrial Scheme for KVIC (Khadi and Village Industry) Some of the
other schemes of the Department of Rural Development are:
a) Jawahar Grain Samridhi Yojana
b) Employment Assurance Scheme
c) Swarnajayanti Gram Swarozgar Yojana
d) Indira Awaas Yojana
e) Credit cum subsidy scheme for Rural Housing
f) innovative Scheme for Rural Housing and Habitat Development
Overview
g) Rural Building Scheme
h) Samagra Building Scheme
i) National Social Assistance Programme
j) Training Programmes
k) CAPART
Most policies are directed towards reduction in the gaps of the rural and urban
India. The disparities that have occurred over the years are largely due to the
following reasons.
85
Low priority to agriculture Subsistence orientation of agriculture Failure of land

reforms, Inadequate food supplies, Slow growth of infrastructure
Inadequate inputs from the specialists directly to the field. Slow down of rural
industrialisation
You can have a more comprehensive view of impact of policy reform by looking
at the income distribution in the pre and post reform period. Parts of this data has
been shared earlier, here it is shown as pre and post reform picture, to enable you
to appreciate the discernible shifts on account of the policy reforms. how policy
reforms in the rural markets have been able to affect income patterns too. The great
reform of 1991 has had significant impact on the Indian economy and the rural
markets have definitely been a part of it too. However, a few more important policy
measures are required in the rural markets, prime among them being4:
Special thrust on land reforms and adequate provisions created for farming
operations by tenants and sharecroppers to help them avail institutional credit.
The strengthening of the Panchayati Raj system
Innovative credit delivery systems
Development of farm credit dispensing institutions like RRB's State
government's initiatives through NABARD and SIDBI Kisan Credit Cards to help
farmers liaison with banks easily
Rural insurance must be looked at from a complete different perspective rather
than the present system which is too myopic Environment
viii) Communication facilities and other related infrastructural development.
7.3.9 Impact of Technology
Technology in rural markets is still at a nascent stage and is yet to find inroads
in large section of rural India. A few regional initiatives like the concept of E-
Choupals by ITC are becoming popular, but the urban rural divide in terms of
technology is still very wide. Internet, Email or Cellular Telephony has penetrated
only to a limited extent and only in the prosperous belts of the country. The larger
part of the rural India is yet to witness a technology revolution.
Many state governments have undertaken E-governance initiatives that, inter
alia, focus on services to rural populace like maintenance and access to the land
records in the rural sector; landowners are the targeted beneficiaries. The pervasive
use of IT in the cooperatives in the dairy development organisations has also
exposed the rural milk producers to the computerised services in their payment
systems. Initiatives like e-chaupal have gained wide acceptance and usage will
benefit all concerned. Information Technology is not unfamiliar for people who are
well connected to the urban system but a large proportion of the people are still not
familiar and conversant with technology. It will in rural areas take some time to
permeate. The gaps within the economic segments in the rural markets also create
discernible problems.
7.3.10 Rural Initiatives in Information Technology
The e-choupal concept was conceived by ITC's International Business Division,
one of India's largest exporters of agriculture commodities. The e-choupal model is
86
specifically designed to tackle the challenges posed by the Indian Agriculture and
its numerous components. The choupal was initially conceptualised as an IT
enabled network for farmers to buy in and effectively trade their produce as well as
for them to get efficient assess to farm inputs. The initiative is now being
successfully used for reverse traffic as well by companies to access farming
communities for marketing their goods and services including financial services like
insurance.
The model has been fairly successful and there are already discussions with
some of the African nations to implement the same.'
The R&D division of CMC now under TCS is working on three different projects
related to Information technology for the rural markets. The India. Health Care
Project, the Integrated Tribal Management Project and an education project that
seek to empower people at grassroots using handheld devices. The grassroot level
health program is touching almost 5000 people in particular village and the
number keeps growing.
In another instance, Norti Bai, a 55 year old women has come to symbolise the
potential of computers for changing lives in the rural areas of Rajasthan10. With
the help of Information Technology, she maintains a database of wells, rube wells
and ponds in 1 I villages. HP Labs India, which was set up in Bangalore earlier this
year by Palo Alto, California, HP & Co. is developing some IT products appropriate
for India's rural markets. 10As a part of its three year deal with Andhra Pradesh
Government, HP is bringing state of the art computers to the rural heartland.
11 Drishtee is another rural initiative involved in providing IT enabled services to
rural and semi-urban populations through the usage of state-of-the-art software.
Services include access to government programs and benefits, market related
information, and private information exchanges and transactions. In less than two
years, Drishtee has successfully demonstrated its concept in over 90 kiosks across
five Indian states.
Some other areas where the computer can really be significantly helpful are the
information database and network for farmers who could use the connected
computers to get commodity prices faster or information on new agricultural
techniques. The locals, mainly youth could get information on job vacancies across
the state. The district administration could get access to the problems through a
system of feedback and analysis of complaints lodged much faster. The voters could
share their concerns with the elected representatives electronically. The village
officials could share governance best practices among his peer group and other
counterparts in nearby villages. With such enormous potential, information
technology will be critical to development of rural India. There are numerous
initiatives, which one can observe where individual states are collaborating with the
corporate sectors or foreign collaborations, through individual company or country
collaboration for establishing IT infrastructure in the rural markets.
7.4 REVISION POINTS
Understanding rural environment – System of E-Chaupal –Structure of rural
society – availability of rural infrastructure
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1. From your understanding of the unit, comment upon how the rural
economic environment affects the marketing decisions for the rural market.
2. Visit the site indiastat.com and identify the key infrastructure
developments of the rural markets in the last five years.
7.6 SUMMARY
The Social, political, infrastructural and economic environment of a given
market strongly determines the type of marketing initiatives that should be taken
for that market. At the very outset of the course, therefore, it is important to you to
have a clear idea of the ways in which, on these environmental variables, rural
India presents a distinct and different picture in contrast to urban India. This unit
presents a profile of the rural markets in terms of its economic environment, along
with regional variations, the social and political environment, the infrastructure
situation and the impact of technology. It is against thus backdrop of
understanding of the rural market environment that you will be studying the design
and strategies related to the marketing mix variables in the following units of the
course.
1. Identify the key differences in the environmental factors affecting buyer
behaviour for rural and urban markets
2. What are the marketing implications of the political environment in the
villages?
1. Emerging Trends in Indian Marketing in the 90's, Edited by S.C. Sahoo
and P.K. Sinha, Excel Publishing, 1991 Ed.
2. Rural Marketing by C.S.G. Krishnamacharyulu and Lalitha
Ramakrishnan, Pearson Education, 2002
7.9 ASSIGNMENTS
Write an essay on rural environment
1. Rural Marketing: Targeting the Non-Urban Consumer by Sanal Kumar
Velayudhan, Response Books, 2002
2. Indian Market Demographics Report 2002
3. R.K. Swamy/BBDG guide to market planning, 1991
4. www.indiastat.com
In what ways are the social factors and institutions likely to impact the design
of the marketing mix of a company? Critically analyse and comment.
7.12 KEYWORDS
Rural Environment – rural economy – rural infrastructure
88
LESSON 8
DIFFERENTIAL ASPECTS OF BUYING BEHAVIOUR AND MAJOR
INFLUENCES ON RURAL BUYING BEHAVIOR
8.1 INTRODUCTION
Rural Markets for long in our country have been considered an enigma and a
land of untapped opportunities, where the customer is considered more of a
stripped down version of his urban counterpart purely from the context of buying
capacity and price conscious psyche. The initial roadblocks to enter rural markets
were largely logistical issues of which, chiefly the diverse geographical patterns,
made it difficult for the discerning marketer to reach most markets. However, as
you will observe throughout this course, some marketers have made inroads in
these markets. The marketer's understanding of the rural seems to be gradually
getting. evolved but more importantly they are unlearning the past; for newer
!earnings of the future, unfolding realities of rural India.
According to 1998 estimates' of the United Nations Population Division, the
rural (world) population is 982,223,000, then rural India, taken as 73.3% of India
i.e. 719,969,459 accounts for 12.2% of the world population. It just goes on to
reflect the largeness of the market. It is interesting to note how, for long marketers
have been talking of it, but a only few have really been able to make inroads into it.
Two thirds' of the country's population lives here and almost half the national
income of the country is generated from here. It is therefore natural that rural
markets form an important part of the total market scenario in India. You have
already from your exposure to Unit 1 have seen that today there are several product
categories where the rural market share exceeds the urban market shares. You may
refer back to the unit 1 for a recapitulation.
While rural market appears, in demographic terms, to be huge, only a few
marketers have succeeded here and one of the few success stories that stand out
are like that of Hindustan Lever Limited (HLL) who spent decades understanding
the dynamics of the market. Project Streamline' and Operation Bharat are a few
programmes run by HLL with the sole objective of penetrating rural markets.
Project Streamline focused on extending distribution, and Project Bharat's influence
was restricted to raising penetration and awareness levels.
Most marketers have highlighted three major problems in context of venturing
into the rural market namely
(i) Physical Distribution
(ii) Channel Management
(iii)Promotion and Marketing Communication
However, one issue, which seems to have been overshadowed in the process
and which may be a critical success factor is our understanding of the rural
consumer and differences from. his urban counterparts. Unlike the urban markets
where we seem to have identified segments and sub-segments, rural markets have
89
been considered fairly homogeneous. A brand like Sunlight or Al Tea is largely

regional in nature and companies have consciously made attempts to push such
brands locally. In the rural markets however, a farmer from Punjab might have
tastes and preferences very different from his counterparts in Maharashtra or
Kerela. Rural consumers in India exhibit a great diversity in their tastes and
preferences. The economic background, cultural upbringing, regional growth in
infrastructure and amenities will be imperative in helping develop and decide
buying preferences.
Through this unit you will be able to understand the buyer behaviour process
and how the rural consumer's buyer behaviour process functions in a given
environment, besides the significant differences in buyer behaviour process with
respect to his urban counterpart. The later part of the unit will also explore the
major influences in buyer behaviour and role of reference group in the context of
the rural markets.
8.2 OBJECTIVE
 To study the differential aspects of buying behavior
 To analyse the major influences on rural buying behviour
8.3 CONTENTS
8.3.1 The buyer behaviour process in the context of rural markets
8.3.2 Problem Recognition
8.3.3 Information Search
8.3.4 Evaluation of Alternatives
8.3.5 Purchase Decision
8.3.6 Post Purchase Behaviour
8.3.7 Reference groups and families
8.3.8 Family life cycle and lifestyle
8.3.9 Psychological factors
8.3.10 Attitudes and Beliefs
8.3.1 The buyer behaviour process in the context of rural markets
Understanding the Buyer behaviour process is a systematic effort to evaluate
the consumer's attempts to fulfill his needs, grants or demands. The figure above
will help you to recapitulate the learning in the block of Consumer Behaviour in
your compulsory course and further relate it to the consumer in the rural markets.
The sections below are built up on what you have already studied on buying
behaviour in MS-6 and attempt to bring out the specific differences that rural
buyers exhibit, while selecting, consuming and disposing of goods and services.
8.3.2 Problem Recognition
Problem recognition is the first step in initiating the buying process. In terms of
individual drivers of buying processes, the rural consumer is no different from his
urban counterpart. He also has his aspirations and desires to achieve in life. The
means and goals to be achieved might be different, yet at any point in time do not
90
seem to be too diverse. An urban consumer -night seek the same value from his
soft drink consumed after a hard day's shopping as compared to his rural
counterpart, who too will savour his soft drink after a hard day's shopping at the
weekly haat or bazaar. How different are the consumers really? It is a few
differences in environmental context that compel us to realise the difference
between the two. A few critical factors which affect the process of need recognition
in the rural markets are:
(i) The infrastructure in the village/town/ kasha which is beyond the effective
road and rail connectivity. It may or may not include a well-laid banking system,
telecommunication facility, electrification reach and regularity.
(ii) The penetration of the television and more specifically the Cable and
Satellite (C&.S) in the vicinity.
(iii) The population shifts in the locality, which occur both village to village and
village to town.
(iv) The occupation and the economic profile of the village and the residents.
(v) On account of (i) the 'available' set in different product categories have been
very small in most rural markets.
While point (i) and (ii) have long been discussed as major issues, a critical
factor is the population shifts across the villages. Like in urban towns, where
population has a tendency to shift towards the metros in search of greener
pastures, it is a discernible trend in the villages too, wherein the population shows
shifts towards the sub-urban areas and semi-rural towns. However, unlike their
urban counterparts, who in the process of migration eventually lose the link with
their roots, this is not so for large segments of population in the villages. The rural
counterpart has the tendency to transfer his learnings to his roots and that
eventually affects the buying patterns, starting from the need set. This is illustrated
in the example below:
Rambeer is the fourth son in a family of six, who aspires to enroll himself in all
apprentice course for repairing automobiles, mainly tractors, motorbikes and jeeps,
the principal means of' transportation in his small village Goapatti, ISO kms off
Hardoi district in U.P. This need was felt by Rambeer for two reasons, one he
himself liked machines and second there was no mechanic within the radius of 100
km. Unfortunately, neither his village nor his district had the training institute like
ITI, to impart skills. He approached the Gram Pradhan (Mukhiya) for help and to
request if he could use his resources to get necessary information with regard to
any institute or college that imparted such skill-sets. The Mukhiya, Zile Ram spoke
to his Zila Parishad office and found that the nearest college was in Lucknow, 250
kms from Goapatti, that offered a course on the lines of which Rambeer sought.
Rambeer, after initial hesitation and reluctance on account of the distance to be
covered took up the course and fortunately got a scholarship with the help of the
village Mukhiya and went onto complete his 18 months programme. Rambeer
eventually returned to his village to fulfill his dreams, visualised as a 12 year old
91
when he saw his father sitting helplessly for 7 days as the mechanic would not turn
up for that many days, and all this during peak harvest season.
The example will help to understand that Rambeer's stay in a state capital like
Lucknow will help him become a more aware and knowledgeable person. His 18
months tenure will not only mean completion of his course but also result in a
more experienced and aware consumer exposed to several consumption and
communication inputs because of the environment in which he was living to finish
his course. Eventually, this will have a. "trickle down" effect when he goes back. to
Goapatti.
8.3.3 Information Search
You already know, through your exposure to Consumer Behaviour through
your basic course on Marketing Management (MS-6) that sources of Information
Search for consumers are:
(i) Personal sources: Family, Friends, neighbours, acquaintances
(ii) Commercial sources: Advertising, salespersons, dealers, packaging, displays
(iii) Public sources: Mass media, consumer-rating organisations
(iv) Experiential sources: Mass media, consumer
Let us evaluate how these sources are utilised in the context of the rural
markets:
Mass Media combined together reaches only 57%4 of the rural population and
vernacular press barely covers 16%5 of the rural population. In such a situation,
the unconventional media like the weekly, haats, annual fairs, festivals, wall
paintings, cinema vans are the means of publicity in the rural markets. But
perhaps the biggest source of information is "word of mouth" which is considered
credible. Data on rural consumer buying behaviour indicates that the retailer
influences almost 3501o of the buying decisions in the rural markets'. On the other
hand, the other key influencers and important sources of pre purchase information
in the rural markets are:
(i) the Gram Pradhan (Mukhiya)
(ii) the owner of the durable/non-durable products
(iii)the prospective consumer's friends/relatives/family members living in
urban location, who are frequent visitors to their villages.
Rural markets as compared to the urban markets require more intensive
personal selling effort. Hence, a brand needs to ' associate itself with the day to day
activities and the psyche of the rural consumers and then act accordingly.'
8.3.4 Evaluation of Alternatives
Unlike the urban markets where consumers have the opportunity to consider
and evaluate a large number of brands, this is not the case with rural markets.
This is primarily because the product ranges available are not wide and secondly, -
because the .consumers have largely been found to be brand loyal-', compared to
the urban markets. The loyalty behaviour has resulted partly on account of the fact
92
that their evoked sets have been smaller, sometimes limited to one or two brands.
The history of use and long familiarity with these limited number of brands have
resulted in a "perceived loyalty". 'However, as mentioned earlier in the information
search section, word of mouth playing a crucial role, a sizeable time in evaluation of
alternative is reduced. Coming back to the issue of alternative evaluation, rural
consumers, due to absence of proper and varied assortment in their own village,
have to visit the nearest city/district/town to evaluate options. This is more so in
the case of durables where local retailers are wary of investing on inventory, due to
cost implications. If a certain farmer is looking for a tractor, two common sources of
information for aiding" alternative evaluation are the existing owners in the village
or a visit to the nearest town, where the company has an established showroom. Of
late, companies have begun to use the local weekly fairs/haats or the other festivals
as an opportunity to showcase. The annual cattle festival at Sonepur, Bihar, is an
extravaganza worth visiting, where FMCG, electronics and automobile majors rub
shoulders with the prime commodity of exchange, cattle. Similarly, other regional
festivals like Bihu, a Baisakhi, Pongal, Onam, Kumbh Mela etc. are opportunities
for companies to help customers make choices
8.3.5 Purchase Decision
The final purchase is a deliberation, which usually, in the rural context, takes
longer time as compared to the time spent in information search or evaluation of
alternatives. Due to resource constraint of lack of exposure or personal orientation,
rural customers spend considerably lesser time on the IInd and IIIrd stage of the
buyer behaviour process. On the contrary, his urban counterpart spends lesser
time on the final purchase and more in the earlier stages, the reasons for which are
higher exposure levels, and availability of alternatives as well as large amounts of
information The factors, which influence the final choice, are:
• Attitude of others
• Unanticipated situational factors
• Perceived Risk
The issue of attitude of others in addition to that of friends and relatively who
may be existing owners of the product in question, refers in this case also to the
retailer or the dealer.. In some cases the final choice is made on the advice given at
the channel level. Alternatively, in some eases it is the complementarily in the
product that makes final purchase decision far easier. A person in the village
buying the Eveready Jeevan Saathi brass torch, will rely on the batteries of the
same company
8.3.6 Post Purchase Behaviour
Within the framework of the buyer behaviour process, the post purchase
behaviour forms a critical part, as it lays the foundation for the repeat purchases
and development of loyalties. In the context of the rural markets loyalties have been
found to be higher and extended.' Penetrative pricing on a homogenous product,
quality similar to that available in the urban markets and making the product
available will be the key to service the rural markets. Just like the urban middle
93
class, villagers demand value for money. Says V. C. Burman, Chairman of Dabur
India. "The winning combination will be a good product with consistent quality.
Once you earn the villager's loyalty (and they are known for their brand loyalty), it
will be difficult for competitors to take away your customers".
Companies are also beginning to realise the importance of changing patterns of
the demand and the fact- that customers are moving up the value chain. You have
heard of washing machines being used on the Delhi-Chandigarh highway for
making lassis. Another phenomenal success is the Videocon's 'washer', a washing
machine without a drier."' Launched specifically for the rural areas at Rs.3000/- a
piece, it has registered 100% growth in the last three years. “The success of this
model points to the willingness of villagers to switch to branded products from
locally made washers”. Says Navin Gupta of Videocon. Added to this is also the fact
that the purchase patterns are changing and more consumers are willing to
experiment and explore better and more convenient options.
In conclusion the critical factors for the rural customer in the buying decision
process would be:"
a. The need for the product
b. The purchasing capacity
c. The attitude towards the product
d. The cost benefit analysis done by the consumer before buying the
product
e. The social values governing the society Activity
Talk to sonic rural consunners with respect to any one consumer non durable
and any one consumer durable product bought by their€ recently. Try to get
information on their prepurchase information search behaviour on the following
aspects.
1 How did they get to know about the product in question?
2 who/what at were there sources of information/advice.
3 What were the other alternatives known to them.
8.3.7 Reference groups and families
The impact of families and groups is perhaps the strongest in the rural context.
As discussed in the earlier sections too, the role of the seniors in the family, the
Gram Panchayat and the village Mukhiya are some of the key influencers in the
rural consumers. The eldest male members largely take up the buying decisions in
the rural family, whereas even children influence buying decisions in urban
areas.'5 Buying decisions are also influenced by social customs, traditions and
beliefs in the rural markets and require collective social sanction unheard of in
urban areas. The hierarchy of influence has an inversely proportional relationship
with educational background, occupation and SEC classification of the consumer.
Besides, if the population in the village has the tendency to migrate, this will
further mean that the number of people in the "Purchase influence Hierarchy" will
increase.
94
The concept of joint families is still the pattern of living in most households and
therefore the roles and status of each individual in the family are well defined.
Interestingly, with the joint family structure, the earnings of the family are
cumulative in nature and do not have direct correlation with the social class. In an
example quoted of the eighty member joint Sarangi family in Dubra, West Bengal,
the ownership of durables exceeded the limits identify by NCAER as per income
classification, purely for reasons of income being pooled.
Reference groups, partly on account of closer social bonds and lower access to
mass media generated information, are very strong in the rural markets. Sources of
reference group influence and profile of reference group are very different from
urban markets. A reference group typically consists of the opinion leaders, celebrity
endorsee, product users and trade spokespersons. In the context of rural markets,
the opinion leaders perhaps exert the strongest of appeals, as mass media has
typically had a lower reach and impact.
8.3.8 Family life cycle and lifestyle
In a nuclear family the differences in the purchase patterns are more distinct
and symmetrical. However, age in the rural markets in recent times has become a
critical factor to be considered. In the past most rural youth as a segment was were
considered homogenous. This is not so in today's context. Punjab has always been
regarded as more progressive of the lot. An average rural household will have one of
the sons in the defense sector, one an immigrant to the West, but roots firmly in
place and the remaining continue to be involved in assisting the parents in the
primary occupation of farming. This has meant that rural Punjab has displayed
economic indicators superior to those compared to other rural rejoins. With the
spread of education among the younger generation, the lifestyle patterns of the
rural households in undergoing a shift. The typical FLC studied by you for urban
markets may not suffice. There are significant variations in life cycle related
consumption and ownership pattern in rural and urban lifestyles. An indicative
table comparing the consumption by age and lifecycle in both urban and rural
market.
8.3.9 Psychological factors
The questions of motivation levels for the urban and rural consumers being
different or same depends on the motives. The felt or innate needs in both the cases
will largely remain the same. It is the acquired needs where the differences may
happen.
The acquired needs are shaped through exposure, experiences and the process
of socialization in a given environment. With the visible differences in the urban
and rural settings, the aspiration levels related to acquired need do differ.
Evaluation of Table 3.9 depicts how the differences in the lifestyles of the rural and
urban are so apparent and they have direct correlation to the need set. A youth in
the age group of 18-25 in the rural area is married and with significantly higher
levels of responsibility in comparison to his urban counterpart who might still be a
bachelor and dependent on his patents. In the Maslow's Need Hierarchy model,
95
while there might be relative homogeneity on basic need levels but as the need set
moves to safety or social or esteem, there are visible differences between the
aspirations of urban and rural sets.
In the urban markets, aspiration in respect of the safety needs will largely
comprise of savings in the bank, insurance policies and long-term investments.
Alternatively, for the rural counterpart it is the size of liquid and bullion reserve
with the local bank or stored away privately that may be solution for his security
needs. Similarly, aspirations for esteem needs may vary between the two segments.
The key influences affecting aspiration levels in respect of various levels of need
hierarchy are chiefly:
8.3.10 Attitudes and Beliefs
You are aware of the significance of attitudes for buying behaviour. As learned
predispositions, to behave consistently favourably or unfavourably with respect to
any give object, attitudes direct buying decision. You have also studied that
attitudes are comprised of the three components, the cognitive (knowledge), the
affective (emotions, feelings) and the conative (leading to action) components.
Attitudes of rural consumers are strongly governed by their levels of awareness,
belief systems affecting their evaluation and resultant feeling they may develop
towards a given object, a product or a brand.
Overcoming basic attitudes and habits in the rural markets are some of the
difficult tasks for rural marketers. In its quest of the rural market share HLL has
not only been concentrating on penetrative pricing and well-established retail
presence, but also trying to overcome certain attitudinal problems especially
relating to hygiene and healthcare. 2°Three out 10 people in rural areas use
toothpastes or talcum powders or shampoo and skin care products and only six use
washing powders. In soaps, consumption is once per five bathing occasions, largely
on account/of perceptions of soaps being chemical, therefore harsh, and sufficient
for cleaning once in a while. Economy in usage is also an issue. Quantities
consumed are also thus far less which makes it even more difficult to place the
standard sizes and weights on the shelf. Smaller packs, pouches or sachets are the
more popular versions here and companies are re-engineering their manufacturing
line for the rural markets. Marketers have also realised the importance of educating
the consumers to overcome the basic attitudinal barriers. Operation Bharat is one
such initiative of HLL, to not only offer a low cost basket of products to the rural
masses, but also simultaneously educate them about the benefits of such products.
Participation in the local festivals, melas, haats, fairs and using these forums to
introduce the benefits of the product helps consumers fundamentally understand
the problem of hygiene, its relationship with general well being and the possible
solutions to the problem.
A simple issue like cleaning hands after every chore conducted, is a mental
block. Especially after feeding the cattle or after washing clothes at the riverside,
washing of hands should be imperative. Rural consumers, however, believe clean
96
looking hands to be germ free hands so usually presume that a mere wash with
water is hygienic enough.. HLL through its various rural awareness programmes is
trying to change the-basic attitudes regarding the desirability of germ free hands at
two levels:
(i) On one end, to get people to switch to soap
(ii) On the other end, switch to a Levers brand.
The process of overcoming the mindsets will be a fairly long and arduous task ,
but already there are enough evidences showing some sporadic success, especially
in the southern region where the drive has been more successful. Population
migration and rise in literacy levels has a direct relationship to the overcoming of
basic attitudes and habits too, as visiting youth who have either been studying or
working in the city, bring with them awareness of different concepts and
consumption and are able to influence attitude change.
8.4 REVISION POINTS
Buying behavior – influences on buying behaviour– attitude of the consumer
1. Write a note on buying behavior.
2. Give an example for influences on buying.
8.6 SUMMARY
No marketing effort can be envisaged without an understanding of the
dynamics of the behaviour of consumers in a given market. This is as true of rural
market as any other market. This unit makes an attempt to bring to you the buying
behaviour processes as observed in the rural markets in India. The various factors
that influence buying decision, for example ,attitudes, motivation, lifestyle and life
cycle stages have been discussed to clearly bring out the differences between urban
and rural consumers so as to help you to plan differential marketing effort. In view
of their specific significance, reference groups and their influence in buying decision
has also been discussed.
1. What do you mean by buying behavior
2. How attitude and beliefs affect buying behaviour
1. Emerging Trends in Indian Marketing in the 90's, Edited by S.C. Sahoo
and P.K. Sinha, Excel Publishing, 1991 Ed.
2. Rural Marketing by C.S.G. Krishnamacharyulu and Lalitha
Ramakrishnan, Pearson Education, 2002.
3. Cases in Rural Marketing by C.S.G. Krishnamacharyulu and Lalitha
8.9 ASSIGNMENTS
Identify the key differences in the environmental factors affecting buyer
behaviour for rural and urban markets.
97

1. Source:
http://www.businessworldindia.cam/archive/990407/mktg2.htm
Source: http://www.indianfoline.comlbisc/mmru.html.
2. Source: http://www.hll.com/hll/known/bs_ruralmarket/htrnl
Source: http://www.hll.corn/HLL/knowus/bs_ruralmark.html
3. Source:http://www.agriculture.c.../
agNotebook.class?FNC=ArticleList_Aarticle_html_5658_50
4. Source: http://www.hll.com/HLL/knowus/bs_rurahnark.html
Source: http://www.indiainfoline.com/bisc/mmru.html
1. In the age group of 18-25 years are there any differences in the value
systems endorsed by the rural and urban youth, if so, what are they?
2. Visit any nearby village in the vicinity of your town and spend half a day
at any retail outlet. Identify the approaches of customer in buying and list
them down based on the steps in the buyer behaviour process.
8.12 KEYWORDS
Buying behavior – consumers’ attitude – belief – environmental factors affecting
buying behavior.
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LESSON 9
DYNAMICS OF DISTRIBUTION PROCESS PARTICIPATION
9.1 INTRODUCTION
“The enormity of the rural market, which constitutes over six lakh villages
spread over 3,28,7263 sq km calls for substantial allocation for distribution,” said
Nirma's executive director Kalpesh Patel, Companies would also do well to have a
proper distribution network and make sure that the prices of products are not
pushed up because of a channel of middlemen who are neither required nor add
any value to the product. You would find that companies intending to develop
market shares in the rural market are increasingly getting preoccupied by the
concern that widely location and inaccessibility of their rural consumers should not
translate into higher prices and become detrimental to the growth of markets;
specially in view of the paying capacities of the rural customers. In this unit, you
will go through the different types of intermediaries that characterise the rural
market, their roles and spheres of influence. We would also look at emerging trends
and the recent corporate efforts to create access and delivery, in an exercise of
improving their market share through better reach.
9.2 OBJECTIVE
 To understand the participation in distribution process
9.3 CONTENTS
9.3.1 Hierarchy of markets for rural consumers
9.3.2 Retailers
9.3.3 Utilisation of cooperative societies
9.3.4 Utilisation of public distribution system
9.3.5 Fairs or Melas
9.3.6 Haats
9.3.7 Self Help Groups
9.3.8 One-stop shops
9.3.9 Mahindra Shublabh Services
9.3.10 Behavioural aspects in rural distribution
9.3.1 Hierarchy of markets for rural consumers
The rural marketing structure is not uniform in all parts of the country. The
type of structure prevalent in a particular state or region depends on various
factors like the state of development of agriculture, condition of transport and
communication facilities, as well as purchasing power of the population. In the
northeastern states and far-flung areas of the country where agricultural
production and levels of income are low and communications and transport
facilities are not available, the marketing structure comprises predominantly of
haats which are weekly, transient markets. On the other hand, the areas in
Northwest like Punjab and Haryana where agriculture and other facilities are
99
developed, the market comprises of permanent rural retailers. The hierarchy that
may exist in rural markets may be understood by looking at the following figure.
A large number of companies have direct representation in the form authorised
redistribution stockist at level B and C, Generally, Level C in a district comprising
of several towns represents sufficient consumer population to justify market
development efforts, resulting in economies of scale through regular use of sales
vans. Level D is approached by preselecting village clusters and haats or retailers in
these locations contacting level C for stocking.
The intermediaries catering to the rural consumers in general, are discussed
below.
9.3.2 Retailers
Retail-network enjoys a significant position in the entire rural marketing
system. It serves as last link in distribution system. Wide range of activities are
performed by the retailer such as determining consumer need, finding suppliers,
buying, transporting, pricing and promotion. The company either services the retail
outlets or the retailer himself purchases his requirements from the feeder markets.
Today an increasing number of companies are trying to directly service village
markets connected by roads, the modus operandi being delivery cum promotion
vans covering 8 to 10 villages a day with fortnightly or monthly repeats.
A majority of rural retailers have grown without any plan or programme. Most
of them entered the business not for marketing reasons but were started for
reasons such as absence of employment opportunities, compulsions to continue
family business and willingness to lead an independent life. These were started with
little capital, training and experience.
The rural retailer is able to exercise significance power over his customers on
account of
 proximity and continuity of relationship
 credibility on account of perceived knowledge of products and brands
 frequent credit needing to be advanced to buyers
 being a source of information about various alternatives that he stocks
To the producer, his value emanates front the influence that he possess as well
as the access that he provides to the rural markets. He functions as an opinion
leader and brand promoter, sometimes enabling spurious brands to gain a market
as the latter provide him with better margins and better returns.
In the rural outlets the percentage number of branded products stocked to the
total product range stocked is inversely proportional to its proximity to the urban
area.
Interior retail outlets are found to stock fewer branded products as compared to
their counterparts in the villages closer to the towns. This is because of the degree
of urban orientation the villagers possess. The average value of the stocks of the
packaged goods in the interior villages was found to be a third of that in the villages
close to the urban centers.
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9.3.3 Utilisation of cooperative societies

Over three lakh Cooperative Societies operate in rural areas for different
purposes like, marketing cooperatives, dairy cooperatives, credit cooperatives,
farmers service cooperative societies, consumer cooperatives and other
multipurpose cooperatives. Given the number of such societies, there is at least one
cooperative society of one form or the other for every two to three villages. These
societies are linked with higher level societies at taluk, district or state level. Thus,
these cooperatives have an arrangement for centralized procurement and
distribution through their respective state level federations. Such state level
federations can be motivated to procure and distribute consumable items and low
value durable items to the member societies for selling to the rural consumers.
Many of the societies extend credit to their members for purchases. This not only
strengthens the societies in terms of sales and turnover but also in earning profits
for viability. For example, the Farmers Service Cooperative Societies (FSCS), supply
their members a passbook indicating their credit limits depending upon the land
holding. The members are allowed to purchase their requirements from the society
on the strength of the pre-fixed credit limits which are adjusted at the time of sales
of crops harvested. The products stocked and sold by FSCS are wide ranging e.g.
controlled cloth, soaps, detergents, fertilizers, pesticides, seeds and other items.
Where organized well, these FSCS function like a mini super market for rural
consumers since they sell a variety of goods at reasonable prices. It is an option
worth considering for marketers in their bid to access rural markets. This
suggestion of involving the cooperatives is made, since they have the necessary
infrastructure for bulk purchases and distribution to their member societies in even
remote rural areas.
9.3.4 Utilisation of public distribution system
The Public Distribution System (PDS) in the country is fairly well organized.
The revamped PDS places more emphasis on reaching remote rural areas like hills
and tribals.
The purpose of the PDS is to make available essential commodities like food
grains, sugar, edible oils, kerosene, and others to the consumers at a reasonable
price. The shops which distribute these commodities are called Fair Price Shops.
These Fair Price Shops are run by State Civil Supplies Corporations, Cooperatives
as well as private entrepreneurs. Here again there is an arrangement for centralized
procurement and distribution. Since the PDS outlets cover the entire country, both
urban and rural areas, these can be utilized for marketing consumable items and
low value durable items in rural areas. Effective utilization of the PDS system
should be explored by the manufacturing and marketing men, since they already
have a distribution set-up.
Cooperative societies have played a key role in rural life, and have been more
active in some states than the others. Comment upon how they help in creating
place and time utility both for rural producer and the rural consumer.
Periodic markets are an important characteristic feature of rural marketing in
India (refer table 12.2). Two institutions viz., fairs or Melas and shandies or Haats
perform the periodic marketing function, and are of major significance for
distribution.
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9.3.5 Fairs or Melas

Several fairs (Melas) owe their origin to religious background, while there are
some fairs organised primarily for economic reasons (Sonepur cattle fair). Fairs/
melas draw people from distant places also. Melas are generally organized after
harvest season, so the villager has enough money which he will be ready to spend.
Annual sales at melas amount to Rs.3,500 crore. Nearly half the outlets at melas
are for manufactured goods.
Melas represent a vital institution catering to the rural markets. To enable you
to appreciate the extent of the population served by these melas, which incidentally
cater to both rural and urban populations, the statistics of top 100 fairs in India
are given in the Appendix 1 of this unit.
9.3.6 Haats
Haats provide a very useful mechanism of reaching the interior rural markets.
The importance of haats is greater in the interior, less prosperous villages. In the
more fertile tracts, permanently located shops are more important as outlet of
goods.
Haats, Shandies are different names used to designate periodical markets held
once a week. A periodic market is a public gathering of buyers and sellers meeting
at a customary location at regular intervals. Most of the haats serve an area within
a radius of 12-15 kms. Haats can eater to about 4000 people spread over 10-15
villages. The importance of the haat is based on the number of stalls selling urban"
products. They may vary in their intensity of transactions depending upon the
season. Higher transactions take place after the harvest season. Nearly 47,000
haats and 25,000 melas are held annually: 45% of the villages with haats are in the
east, 27% in north, 20% in west and 8% in south. At the national level, Uttar
Pradesh and Bihar have the maximum number of haats, i.e., 25% and 18%
respectively. In Uttar Pradesh, Bihar, West Bengal and Maharashtra, 10% of total
villages hold haats. The data indicates that with establishment of (permanent)
shops, haats are moving out. The average daily sale at a Haat is about Rs.2.25
Lacs. Figure 12.2 below gives a representation of the various participants at a
typical ‘haat.
The significance of these haats and melas can be understood by the fact that
they are a part of the regular purchase behaviour of the rural customers. You
would also appreciate the extent of these markets by looking at the following table
showing the number the various haats in India.
Let us now take a look at the various elemets of these important distribution
institution.
Traders and their products: The two major types of traders that have been
observed in the periodic markets are the part time and full time traders (figure
12.2). The part time traders can be further sub divided into two classes: the
producer-sellers and the collector-sellers. The full time traders can be categorized
further into three classes; the selling-traders, the buying traders and those engaged
in services.
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 The producer-sellers deal in the following products: earthenware,

bamboo ware, brooms, vegetables, fruits, puffed rice, paddy, rice,
pulses, chicken, eggs, dry fish, meat etc.
 The collector-sellers deals in leaves, firewood, grass for fodder, berries,
tamarind etc.
 The selling-traders deal in aluminum ware, brassware, cloth, ready-
made garments, footwear, cosmetics, toiletries, stationery, plastic and
rubber goods, biscuits, chocolates, provisions, etc.
 The buying-traders deal in fruits, vegetables, chicken ,lac, etc.
 There are others who provide services.
b) Trading locations: The location of the stalls in the periodic market (haats)
follows a pattern which is functionally organised. The various traders are allotted
space in a manner such that traders trading in a particular type of goods are placed
at one place. The location of the trader is based on the following factors:
 Specialization by goods
 Perishability of goods
 Goods those are likely to break
The buying-traders dealing in fruits and vegetables are found in the periphery
of the market. Vendors selling earthenware are away from the main market center
in order to avoid the breakage of their goods.
c) Trading system: Almost all the selling-traders obtain their goods from
wholesalers in large markets in towns. They obtain the goods on “kalam system,
which involves the selling-traders obtaining goods of a given value for a given period
of time. At the end of the period, which is usually a week or a fortnight, the selling-
traders are expected to return the total value of the goods obtained initially to the
merchants. The additional margin that the selling-traders are able to charge in the
haat becomes their profit.
Selling-traders dealing in soaps, general provisions and fancy goods travel up
to six markets a week. Those selling goods, which are used less frequently such as
aluminum utensils, footwear, clothes and readymade garments, visit haats away
from feeder towns.
The selling-traders also take advantage of the space-time sequence of haats to
facilitate movement from one market to another without any economic or spatial
conflict. The smaller selling-traders were found to prefer haats in interior places to
avoid competition from large players.
d) Measures used and trade margins: Local measures made of wood of the
karanj tree, and leaf containers of various types act as standard measures for
commodities. Barter, as a form of exchange is also prevalent in some markets. It is
not uncommon to exchange a leaf full of salt with a leaf full of tobacco, the leaf
sizes in question being different to accommodate the differences in the intrinsic
values of the two commodities.
d) Mark-up: The selling-traders have a mark up on the wholesale price. The
mark up could vary from product to product. It could be about 20-25% for
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aluminum utensils, cloth and ready made garments, 15-20% for footwear and
general provisions.
Hawkers: Hawkers play an important role in satisfying the needs of several
rural consumers who do not have access to the retail outlets. Hawkers trade in
goods like vegetables, fruits, clothes, utensils, cosmetics, etc. and move from door
to door at a defined periodicity from village to village.
9.3.7 Self Help Groups
Over time, self help groups, which have typically been running micro credit
operations in rural locations have started being utilised by companies as important
direct selling institution, providing direct access and feedback vis a vis rural
consumers. One successful example of using the SHG is the Hindustan Lever
model.
SHG: Hindustan Lever, the direct-sales model was a huge departure from
stratified distribution channels and highly trained sales representatives.
HLL initiated Shakti which aims at involving the self-help groups (SHG that ran
micro credit operations) to sell FMCG products. Objectives of the SHGs are to
encourage members to save from the daily wages or crop sales of the members and
to find ways to make their collective savings grow. Adopting the direct marketing
model of Amway and Avon, HLL's Shakti aims at involving SHGs to buy the
company's products at cost, which they can sell to their friends and to other
community groups and earn a profit.
“It's not enough to give people access to money,” says Pratik Pota, a marketing
manager on the new-ventures team at FILL. "We have to give them opportunities
and train them in what to do with their savings. Our growth prospects arc
inextricably linked to these women's income generation."
Shakti represents a huge cultural challenge in India. And in many places, the
model faces tough going. For example, in the village of Pochampally, Anjamma, is
blunt. "It is hard to sell products to local villagers", she says, pointing to the boxes
of soap bars and shampoo sachets stacked in the corner of her living room. Though
accustomed to charging interest on her group's loans, she's struggling with how to
sell the products at a margin.
But in the next village, Ravenpalli, in their spare time, a group of women
weavers have taken to selling soaps and detergents to their neighbours. "I thought
that we could sell the products for less than at the store and still make a profit,"
says Maheshwari, a SHG member. Though she's never sold before and has just a
second- grade education, her billing book is perfectly organized. You will get to
know more about the Operation Shakti through a case study. on
9.3.8 One-stop shops
The concept of the one-stop shops, which seemed unlikely to take off in a major
way, has now been accepted as an area of major growth for the future. Indeed,
retail chains are on the rise regionally, and a major influx is expected to take place
in the future. A clear trend, therefore, is the shift from intermediation to
disintermediation. As organised retail chains come into vogue, traditional
intermediaries would start to dwindle. The value will begin to shift and retail chains
will demand higher margins and their share of profits. This would, in turn, make it
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imperative for companies to evolve a new set of retail policies that would be
radically different from traditional retail policies of companies. Some interesting
trends that have recently emerged are shown by way of the following illustrations.
9.3.9 Mahindra Shublabh Services
MSSL is a virtual marketplace where farmers and traders of agricultural
commodities can sell their produce, obtain finance, buy seeds and fertilisers, rent
farm equipment, and check the latest weather information. The company functions
with agri-service centres (ASCs) - in the form of subsidiaries or franchisees - as the
basic service module. Under each ASC are three types of operations - retailing of
agricultural inputs with guidance on application; renting out farm machinery
(essentially such machines which the farmer uses only sparingly and thereby the
individual ownership of which is unviable) and commercial agricultural extension
services. The site provides constantly updated market information to enable
procurement of quality inputs at competitive prices.
Currently, MSSL has operations in 26 districts (M&M's 2001-2002 annual
report credits the company with having 12 ASCs) in Tamil Nadu, Andhra Pradesh,
Karnataka, Maharashtra, Madhya Pradesh, Chhattisgarh, Gujarat, Uttar Pradesh
and Uttaranchal
The unique web based initiative of ITC's International Business Division, offers
the Farmers of India all the information, products and services they need to
enhance farm productivity, improve farm-gate price realisation and cut transaction
costs (refer figure 12.3 for the traditional model for marketing agricultural output).
Farmers can access latest local and global information on weather, scientific
farming practices as well as market prices at the village itself through this web
portal - all in Hindi. Choupal also facilitates supply of high quality farm inputs as
well as purchase of commodities at their doorstep.
Given the literacy and infrastructure constraints at village level, this model is
designed to provide physical service support through a Choupal Sanchalak -
himself a lead farmer - who acts as the interface between computer terminal and
the farmers
ITC's e-choupal project currently covers over 6,000 villages in Uttar Pradesh,
Madhya Pradesh, Karnataka and Andhra Pradesh.
The company also has plans to market wheat flour and sugar through the
choupal network. It has begun distribution of life insurance products of ICICI
Prudential through its rural network in 100 villages of Madhya Pradesh on a pilot
basis.
The company was also set to launch branded and packaged salt through rural
marketing platform in December, 2002. It has already launched its first product - a
branded vegetable oil called 'choupal' - in late September for the rural market.
9.3.10 Behavioural aspects in rural distribution
It is important to understand the behavioural aspects and the type of
relationships that a rural intermediary is likely to have with his customers in order
105
for you to have fuller appreciation of the rural distribution scene. The dimensions
include:
 Credit facilities to customers
 Pricing of-the channel
 Reason for stocking Product/brand
 Information source and influencer on the retailer
 Channel conflict
 Channel promotion
 Frequency of purchasing
 Stocking
 Promotion by the retailer
Credit Facilities: The extension of credit facilities to the customers varies by B
location and by product. In a study by ICICI it was observed that the extension of
credit to consumers is practically non-existent in towns but in the interior villages
it is common. In another study, variations were also observed according to the
product. Credit facilities were given on essential commodities like rice, oil, etc., but
not for packaged goods.
c) Pricing: Some retailers in interior villages charge more than the maximum
retail price. They justify overcharging by pointing out that they spend time and
money to fetch the products from wholesalers. This in turn suggests that channel
members in the rural areas seek higher margins.
d) Reason for Stocking a Product or Brand: Rural retailers stock a particular
item usually because consumers request it or the margins are attractive and to a
lesser extent because of the wholesalers' push or because the competitors stock
them, primarily because competition is thin
e) Information Source and Influence: A study covering 25 retailers in seven
villages in Deoria district of Uttar Pradesh brought out the importance of the
wholesaler. According to the study, the wholesaler is the most important source of
information for the retailer. The wholesaler is also the most important influence on
the retailer on account to trade credit policies that may be followed. The retailer in
turn is an opinion builder and strong influence of brand patronage to the rural
customer
f) Frequency of Purchase: In order to maintain regular stocks, 30% retailers
visit market (feeder center) daily, 40% visits market weekly for replenishing the
stock, 20% visit biweekly and rest as per need.
It's not compulsory that retailer himself will go for purchases, he may ask favor
of fellow retailer, relatives or even neighbors. This not only saves his time but also
turns up to be economical.
g) Stocking: The ICICI study indicates the average value of stocks per product
category in the interior villages is about a third of that in the feeder village. The
average value of stocks of all packaged goods in interior villages was about a fourth
106
of that in the feeder village. The monthly off-take for packaged products was only
slightly more in feeder villages as compared to interior villages. The variation is in
the composition with a lager off-take of packaged foodstuffs and tobacco compared
to other products in the interior villages; while the feeder villages toiletries had a
higher off-take as compared to other product categories. The stock turnover ratio
(stock level to monthly off-take) for toiletries in interior villages was much less than
that in feeder villages, less again than that observed for shops in town.
The low off-take, low stocks and lower stock turnover ratio reinforces the earlier
observation that the number of products and items stocked is low in the interior
villages. This effectively locks up the retail shelf space by the existing products and
brands leaving no room for new products and brands. This added to the attitudinal
barrier of the retailer for anything unknown, makes it imperative for special efforts
to back up the launch of new product/brand offerings to rural markets. Mere mass
media directed push simply does not help.
h) Channel promotion: Retailers in interior villages do not avail of discount
schemes as they prefer not to stock more, while this may not be so for retailers in
the feeder markets. They are thus unable to take the advantages of bulk buying
and pass the same to their consumers.
i) Purchase Source: Retailers in the interior areas are not visited by agents of
distributors; they go to towns or feeder villages once or twice a month to buy the
stock. Retailers in feeder villages purchase items like cosmetics, toiletries,
detergents, and packaged foodstuffs from agents of distributors who visit their shop
at regular intervals and deliver these items. Retailers prefer big retailers in trade
centers (feeder market). Reasonable price is preferred by 60% of retailers; followed
by variety of products offered, credit facility etc.
It's strange to find that credit facility is desired only by few retailers, as others
believe they end up paying more when they purchase on credit.
(j) Retailer-Consumer Reinforcing Behaviour: Store patronage is high in the
rural areas. While over 60% of the consumers have been found to be patronizing
the same shop, about 15% of the consumers have been patronizing the same shop
for over 10 years. This is in situations where the consumer has several shops to
choose from.
9.4 REVISION POINTS
Dynamics of distribution- participation process – rural distribution
1. Define dynamics of distribution.
2. How participation process affects distribution?
9.6 SUMMARY
In this lesson, you have been familiarised with the type of and functions of
various intermediaries that characterise the rural market today. The rural markets
in today scenario, present a very interesting montage where, in response to the
conditions operating these markets, several structure have got created, to cater to
107
the consumption needs of rural consumers. Jaxtraposed with the traditional

stockiest or the Lala as he is colloquially called, you would find newer, bolder
initiates by companies to establish direct linkages using existing and innovative
agencies so as to gain access to these markets. Examples like e-chaupal and the
SHG experience are changing the face of rural distribution, perhaps irreversibly,
while the retailer still wields enormous influence, alternatives are beginning to
increase for the rural consumer. The unit also provides you detailed information of
existing scope and status of regulated markets, village fairs and haats. You may
also like to go through the appendix with thus unit to get a comprehensive view of
the powerful institution fairs which in terms of the sheer volume of trade they
transact are an important consideration in any rural marketer's distribution
strategy.
What are the different place utility preferences that rural consumers display?
Do these preferences vary across product classes? Discuss the implications for
their preferences for marketers.
"
1. Rajshekhar M, Quest for the rural rest, Advertising and Marketing, March
31, 1999
2. Vijayraghavan Kala and Rath, Anmika, “FMCGs find rural treasures trove
tough, 'The Economic times December 15,2000.
9.9 ASSIGNMENTS
Explain operation harvest and operation streamline, the physical distribution
processes followed by Hindustan Lever Limited. What are the lessons that you
would derive from these illustrations
1. Vijayraghavan Kala and Rath, Anmika, “FMCGs find rural treasures
trove tough, 'The Economic times December 15,2000.
2. Jha, M. (1999), "Rural marketing: Some Conceptual Issues, Rural Scan
vol 1, no. 2 April, 1999.
Go to a rural marketing and watch in distribution system
8.12 KEY WORDS
Dynamics – distribution process, participation process
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LESSON 10
PHYSICAL INFRASTRUCTURE AND DYNAMICS OF DISTRIBUTION
10.1 INTRODUCTION
Rural markets in India have presented a typical challenge of access, both in
physical and communication terms to the marketers of goods and services.
Although nearly three quarters of the country's population resides in the local
areas, their dispersion is so wide and vast that is presents a unique challenge of
access. Added to that is the poor infrastructure in terms of road connectivity and
transport linkages which make the reach to these markets even more arduous.
However the recognition that these markets represent untapped potential and that
the first brands to capture the interiors would have a natural advantage has
focussed corporate attention to solve the distribution rubric. This unit familiarises
you with the challenges involve in the physical movement of goods in the rural
context. Issues of warehousing, inventory control and transportation take unique
dimensions in view of the physical infrastructure available and in terms of their
implication for customer service. An attempt has been made to expose you to the
road network available as well as the measures of market potential in a village
cluster, to enable you to identify your physical distribution decision alternatives.
10.2 OBJECTIVES
 To understand the physical infrastructure of rural markets
 To know about the dynamics of distribution in rural markets
10.3 CONTENT
10.3.1 Dynamics of physical distribution
10.3.1 Dynamics of physical distribution
The physical distribution job involves a large number of independent variables.
Stock and Lambert (1987) have identified the following:
 Customer Service: The customer service here relates to the effectiveness
in creating time and place utility. The level of customer service provided
by the supplier has direct impact on the cost, market share and
profitability.
 Order Processing: Order processing triggers the logistics process and
directs activities necessary to deliver products to the customer. Speed
and accuracy of order processing affect costs and customer service
levels.
 Logistics Communication: Information is exchanged in the distribution
process in order to guide the activities of the system. It is a vital link
between the firm s logistics system and its customers.
 Transportation: The physical movement of products from the source of
supply and production to customers is the most significant cost area in
logistics and it involves selecting modes and specific carriers as well as
routing.
109
 Warehousing: Providing storage space serves as a buffer between

production and use. Warehousing may be used to enhance service and
to lower transportation costs.
 Inventory Control: Inventory is used to make products available to
customers and to ensure the correct mix of products at the proper
location at the right time.
 Packaging: The role of packaging is to provide protection to the
products, to maintain product identity throughout logistics process and
to create effective product density.
 Material Handling: Efficient materials handling increases the speed of,
and reduces the cost of, picking orders in the warehouse and of moving
products between storage and transportation carriers. It is a cost
generating activity and that must be controlled.
 Production Planning: Utilised in conjunction with logistics planning,
production planning ensures that products are available for inventory in
the correct assortment and quantity.
 Warehouse Locations: Strategic placement of warehouses increases
customer service and reduces cost of transportation.
The efficiency of an individual function, examined in isolation, may be quite
different from the effectiveness of the same function considered as part of the total
physical distribution process. Therefore, in order to achieve a better cost-efficiency
balance of the system as a whole, it is imperative that compromises are made
among the functions.
Cutting cost, while at the same time improving efficiency, is the primary aim in
organising a physical distribution system. Costs have to be cut, but within the
constraints of uncontrollable variables (rural environment). By cutting costs, the
speed of delivery may be affected; the reliability and service may be affected. Costs
will have to be reduced, but the process should not result in these undesirable
consequences. It is necessary to evolve and implement a physical distribution
system that is best suited to the rural environment, the object being minimization
of distribution cost, as well as, guaranteeing at a minimum desired level of service.
Extent of customer service
While it would be ideal for a company (manufacturer) to provide the most
speedy delivery to the customers, it may not be cost effective for the company.
There is therefore a need to decide-on the extent of service to be provided to the
customers.
The extent of service to be provided would depend on three entities. They are
the customers, the competitors and the company. While the customer would
demand a certain level of utility, the company would wish to provide the least
possible service as it would entail costs. However, the competitors would determine
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the minimum level of service that should be provided to the customers. The
interaction between the three entities would therefore be as under
The physical distribution system is thus measured by:
 The speed with which an item can be made available to a consumer
 The reliability of service.
 The extent of availability of the item.
The physical distribution system is, however, a function of many uncontrollable
variables. For example, the poorly developed physical infrastructure is the major
constraint at present. Many parts of rural India are still inaccessible through
roadways. The problem gets aggravated during the monsoons. All these result in:
 Extension of lead time between production and consumption resulting
in substantially higher level of stocks in the pipeline.
 Increase in inventory and inventory carrying costs.
 Increase in transportation and storage costs
 Risk of deterioration, damage, theft, pilferage.
 Increase in the number of middlemen, resulting in increased cost of
distribution and selling.
The prime objective, therefore, will be to design and implement a system that is
most suited to the patterns of the marketing activity as well as the physical
distribution system of the rural markets. Developing an effective distribution
system in the rural areas poses further problems and challenges on the side of the
dealer organizations as well, since the right type of dealers and stockists are not
readily available in the rural areas.
All these problems get further aggravated on account of the large size and the
scattered nature of the market.
Seasonal demand and distribution - implications
The distribution of any product in the rural areas, agricultural inputs,
consumables or durables should necessarily follow a seasonal pattern. Since 75
per-cent of the rural income is generated through agricultural operation, which is
seasonal, the demand pattern is also seasonal. A typical example is that of
fertilizers. The demand for fertilizer is B always high during the start of Kharif and
Rabi seasons. The fertilizer manufacturers have evolved a distribution pattern, so
that the seasonal demand can be met. Likewise, the demand for consumables and
durables will be high during the peak crop harvesting and marketing seasons. This
is the time at which the rural people have substantial cash inflows. Hence, the
distribution should be fairly intensive during peak crop harvesting and marketing
seasons. This arrangement would result in adequate sales realizations.
During summer months, in places that lack irrigation facilities, the demand
will be very minimal. Thus the distribution system has to gear itself to the seasonal
pattern of demand.
In addition, festival seasons like Sankaranthi or Pongal in Southern regions as
opposed to Baisaki or Deepavali in North are also demand seasons. The festivals
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also coincide with the harvest seasons like Sankarnathi during Kharif harvest and
Baisaki during Rabi harvest. So the distribution for rural areas should be more and
frequent during harvest and festival seasons, as opposed to a fairly uniform
demand pattern in urban areas.
You would appreciate that such seasonality would have important implication
of or the inventory and transportation decisions. As the seasonality causes demand
to fluctuate around predictable time lines, transient market structure like haats
and melas, have typically been found to characterise the rural market situation.
Melas or fairs often coincide with important harvest or festival seasons and enable
the marketer to time his distribution patterns with surge in purchase behaviour of
the rural customer.
The physical distribution function, is one of the most complex marketing
functions as it involves a lot of variables, quite a few of which are the result of extra
corporate arrangements. Variables like physical infrastructure of roads,
warehouses and transportation modes are important variable which affect the rural
distribution decision. In this unit, an effort has been made to acquaint you with the
variables that affect the rural distribution function, several measures developed to
measure market potential and their utility to distribution decisions has been
discussed. The road network as exits today has been outlined to enable you to get
an idea of the constraints which the distribution function has to operate.
While the retail channel is most familiar to students, wholesalers play an
important role as intermediaries. Intermediaries act as a link in the distribution
process, but the roles they fill are broader than simply connecting the different
channel partners. Wholesalers, often called “merchant wholesalers,” help move
goods between producers and retailers.
Purchasing
Wholesalers purchase very large quantities of goods directly from producers or
from other wholesalers. By purchasing large quantities or volumes, wholesalers are
able to secure significantly lower prices.
Imagine a situation in which a farmer grows a very large crop of potatoes. If he
sells all of the potatoes to a single wholesaler, he will negotiate one price and make
one sale. Because this is an efficient process that allows him to focus on farming
(rather than searching for additional buyers), he will likely be willing to negotiate a
lower price. Even more important, because the wholesaler has such strong buying
power, the wholesaler is able to force a lower price on every farmer who is selling
potatoes.
The same is true for almost all mass-produced goods. When a producer creates
a large quantity of goods, it is most efficient to sell all of them to one wholesaler,
rather than negotiating prices and making sales with many retailers or an even
larger number of consumers. Also, the bigger the wholesaler is, the more likely it
will have significant power to set attractive prices.
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Warehousing and Transportation

Once the wholesaler has purchased a mass quantity of goods, it needs to get
them to a place where they can be purchased by consumers. This is a complex and
expensive process. McLane Company operates eighty distribution centers around
the country. Its distribution center in Northfield, Missouri, is 560,000 square feet
big and is outfitted with a state-of-the art inventory tracking system that allows it
to manage the diverse products that move through the center. It relies on its own
vast trucking fleet to handle the transportation.
Grading and Packaging
Wholesalers buy a very large quantity of goods and then break that quantity
down into smaller lots. The process of breaking large quantities into smaller lots
that will be resold is called bulk breaking. Often this includes physically sorting,
grading, and assembling the goods. Returning to our potato example, the
wholesaler would determine which potatoes are of a size and quality to sell
individually and which are to be packaged for sale in five-pound bags.
Risk Bearing
Wholesalers either take title to the goods they purchase, or they own the goods
they purchase. There are two primary consequences of this, both of which are both
very important to the distribution channel. First, it means that the wholesaler
finances the purchase of the goods and carries the cost of the goods in inventory
until they are sold. Because this is a tremendous expense, it drives wholesalers to
be accurate and efficient in their purchasing, warehousing, and transportation
processes.
Second, wholesalers also bear the risk for the products until they are delivered.
If goods are damaged in transport and cannot be sold, then the wholesaler is left
with the goods and the cost. If there is a significant change in the value of the
products between the time of the purchase from the producer and the sale to the
retailer, the wholesaler will absorb that profit or loss.
Marketing
Often, the wholesaler will fill a role in the promotion of the products that it
distributes. This might include creating displays for the wholesaler’s products and
providing the display to retailers to increase sales. The wholesaler may advertise its
products that are carried by many retailers.
Wholesalers also influence which products the retailer offers. For example,
McLane Company was a winner of the 2016 Convenience Store News Category
Captains, in recognition for its innovations in providing the right products to its
customers. McLane created unique packaging and products featuring movie
themes, college football themes, and other special occasion branding that were
designed to appeal to impulse buyers. They also shifted the transportation and
delivery strategy to get the right products in front of consumers at the time they
were most likely to buy. Its convenience store customers are seeing sales growth, as
is the wholesaler.
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Distribution
As distribution channels have evolved, some retailers, such as Walmart and
Target, have grown so large that they have taken over aspects of the wholesale
function. Still, it is unlikely that wholesalers will ever go away. Most retailers rely
on wholesalers to fulfill the functions that we have discussed, and they simply do
not have the capability or expertise to manage the full distribution process. Plus,
many of the functions that wholesalers fill are performed most efficiently at scale.
Wholesalers are able to focus on creating efficiencies for their retail channel
partners that are very difficult to replicate on a small scale.
Intermediaries in a distribution channel provide services that enable
manufacturers to reach different types of customers. A channel might include a
number of intermediaries, such as agents, wholesalers, distributors and retailers.
Intermediaries act as middlemen between different members of the distribution
chain, buying from one party and selling to another. They also may hold stock and
carry out logistical and marketing functions on behalf of manufacturers.
Direct and Indirect Channels
Manufacturers sell products and services to their customers through direct and
indirect channels. Where manufacturers sell direct to customers through their own
salesforce or website, they do not require intermediaries. If they wish to sell to
customers and prospects their sales teams cannot reach, they appoint
intermediaries to act on their behalf. Intermediaries may have additional resources
and relationships to supplement to a manufacturer’s own sales and marketing
resources, enabling it to reach a wider customer base.
Selling through Agents
Agents act as independent representatives for manufacturers, selling to other
intermediaries such as wholesalers or retailers. These agents can be individuals or
companies. Agents earn commission or fees for the sales they make or the services
they provide. They form a valuable extension to a manufacturer’s internal sales
resources.
Reaching more Customers through Retailers
Independent stores and retail chains sell products to consumers and business
customers. By appointing retailers, manufacturers can reach different areas of the
country and target smaller customers they could not afford to serve directly.
Retailers buy products for resale direct from manufacturers or from wholesalers.
They generally stock goods from many different suppliers, including competitive
offerings in the same product category, so manufacturers must use incentives and
discounts to encourage retailers to push their products in order to achieve strong
sales.
Simplifying Logistics through Wholesalers
Wholesalers buy products in bulk from a number of different manufacturers,
stocking them in warehouses and selling them to retailers. By holding stock,
wholesalers enable manufacturers to supply customers in different regions without
investing in their own warehousing facilities. Wholesalers also help manufacturers
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reduce their logistics costs by delivering stock to retailers or offering stores a

collection service.
Cooperative Marketing Through Distributors
Distributors carry out similar functions to wholesalers, but generally have
closer working relationships with manufacturers. Distributors may have exclusive
arrangements with manufacturers and do not carry competing products. They may
be part of a franchise, only offering the products of one manufacturer. Like
wholesalers, they provide valuable warehousing and logistical functions for
manufacturers. They may also participate in cooperative marketing programs with
suppliers, improving sales for manufacturers.
10.4 REVISION POINTS
Physical infrastructure – dynamic of distribution – retail sales
1. How does physical infrastructure affect the distribution choices available
to marketer?
2. It has been said that 3Ds impede the marketing function in rural India,
these are distance dispersion and diversity. What are the ways in which
some of these constraints can be overcome? Suggest solution for
a) marketers of consumer goods
b) marketers of life insurance
10.6 SUMMARY
The physical distribution function, is one of the most complex marketing
functions as it involves a lot of variables, quite a few of which the are result of extra
corporate arrangements. Variables like physical infrastructure of roads,
warehouses and transportation modes are important variable which affect the rural
distribution decision. In this unit, an effort has been made to acquaint you with the
variables that affect the rural distribution function, several measures developed to
measure market potential and their utility to distribution decisions has been
discussed. The road network as exits today has been outlined to enable you to get
an idea of the constraints which the distribution function has to operate.
1. How would the Thomson Market Index enable a marketer to take
appropriate marketing decisions? Critically comment upon the utility of the
tool.
2. The MRMR combines a wealth of data and seeks to create an "almost alive"
representation of a village cluster, do you agree? How would it be useful to
marketers?
1. Dr. Y.R. S. Moorthy, "We're like this only, "April 10, 2002
www.indiatimes.com
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2. Venkatesh Parthasarathy, "Does the rural market like it hot or cold "April
25,2002 www.blonnet.com
10.9 ASSIGNMENTS
Are rural markets simply extensions of the urban market in more difficult
terrain with consumers a little more spread out and transportation a little more
'dicey'? From a distribution perspective, clearly outline the key differences between
urban and rural market scenario.
1. Lahari Chakravarthy Sanat, "A peek into the rural market,
www.estralegicniarketing.com July,8,2002
2. Pradeep K, "Rural People look to Urbanities, Advertising and Marketing,
January 15, 2000.
Based on your understanding of the rural market index, and the classification,
assess the market potential for any one consumer product of your choice for your
own district. How do you think this index can be applied by marketers to predict
their inventory and warehousing positions you’re your district.
10.12 KEY WORDS
Physical infrastructure – need analysis
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UNIT III
LESSON 11
DISTRIBUTION CHANNELS – PRODUCT DESIGN & REGULATED
MARKETS
11.1 INTRODUCTION
Various marketing intermediaries are used in transferring the products from
the hands of producers to the final consumers or industrial users. These marketing
intermediaries carry alternate names such as wholesalers, distributors, retailers,
franchised dealers, jobbers, authorised dealers and agents. Such marketing
intermediaries compromise the distribution channel. These distribution channels
minimize the gap between point of production and point of consumption, and
thereby create place, time and possession utilities.
11.2 OBJECTIVES
 To under stand price, distribution strategy
11.3 CONTENT
11.3.1 Role and Significance/Importance of Distribution Channels
11.3.1 Role and Significance/Importance of Distribution Channels
Distribution Channels perform a crucial role in the successful distribution and
marketing of all products. They have various contacts, expertise and wider
knowledge of the products. The rapidly growing markets and increasing
complexities of distribution have increased the demand and requirement of the
distribution channels.
The role of distribution channels can be summarised as follows:
Distribution channels offer salesmanship: The distribution channels offer
pivotal role of a sales agent. They help in creating new products in market. They
specialize in word of mouth selling and promotion of products. They assure pre-sale
and post-sale service to the consumers. Since these channels are in direct and
regular contact with the consumers, they do salesmanship very well and at the
same time provide true and valuable feedback to the producers.
Distribution channels increase distributional efficiency: The intermediary
channels ease the sales process as they are in direct contact with the customers.
They narrow down the gap between producers and consumers both economically
and efficiently. These intermediaries reduce the number of transactions involved in
making products available from producers to consumers. For instance, there are
four producers who are targeting to sell their products to four customers . If there
is no distribution channel involved, then there will be sixteen transactions involved.
But if the producers use distribution channels, then the number of transactions
involved will be reduced to eight( four from producer to intermediary and four from
intermediary to customer), and thereby the transportation costs and efforts will also
be reduced.
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The channels offer products in required assortments: Just like the producers
have expertise in manufacturing products, similarly the intermediaries have their
own expertise. The wholesalers specialize in moving and transferring products from
various producers to greater number of retailers. Similarly, the retailers have
expertise in selling a wide assortment of goods in less quantity to a greater number
of final customers. Due to the presence of distribution channels(wholesalers and
retailers), it is possible for a consumer to buy the required products at right time
from a store conveniently located(geographically closer) rather than ordering from a
far located factory. Thus, these intermediaries break the bulk and meet the less
quantity demand of the customers.
They assist in product merchandising: It is actually the merchandising by
intermediaries which fastens the product movement from the retail shop desk to
the customer’s basket. When a customer goes to a retail shop, he may be fascinated
by the attractive display of some new product, may get curious about that new
product, and he may switch over to that new product leaving his regular product.
Thus merchandising activities of the intermediaries serve as a quiet seller at a retail
store.
The channels assist in executing the price mechanism between the firm and
the final customers: The intermediaries help in reaching a price level which is
acceptable both to the producers as well to the consumers.
Distribution channels assist in stock holding: The intermediaries perform
various other functions like financing the products, storing the products, bearing of
risks and providing required warehouse space.
Thus, the distribution channels are a vital constituent of a firm’s
comprehensive marketing strategy. They assist in expanding product reach and
availability, as well in increasing revenue.
Effective Product Design
Organization success is dependent on customer satisfaction and delight.
Customer satisfaction is achieved through development of product and service,
which have all attributes required by the customer. A success product or services
do not only have attractive package design but should be also able to provide
robust performance.
Thus, product design must be practical enough for production and powerful
enough to provide a competitive advantage.
Product Design
A good product design has following common features:
Utility: The product design should make product utility as per expectation of
customers and provide steady performance through the product life.
Aesthetics: Product aesthetics is important in success of the product. The
product aesthetics is dependent on market and end customer.
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Producible: Product design should enable effective production of product

through available production methods.
Profitability: Product design should make economic sense as to deliver value
to customer and sustainability to the organization.
Differentiable: A good product design should enable product to be differentiate
among its competition. This can be achieved by attractive packaging and also by
providing additional service on the product.
Objectives of Product Design
The essence of product design is to satisfy customer and maximizes the value
for the customer at minimum cost. The product or service should also be able to
meet primary needs and desire of the customer. This may not require development
of new product, but enhancement to existing product or service.
Stages of Product Design
Product design is a creative process which looks at all the available options and
beyond. The process is can be divided into three stages:
First stage: His stage involves brainstorming, bringing ideas and analysis of
customer and market feedback.
Second Stage: Idea is converted into a feasible solution to satisfy the customer
expectation, using available resource and technology.
Third Stage: This is the last stage in which the product is introduced in the
market.
Factors Affecting Product Design
A successful product design is combination factors as follows:
Correct Team Selection: This is very essential to get the correct team in place
which has expert designers who are not only aware and comfortable with
technology but also understanding of customer expectation.
Customer Involvement: Involvement of customer in product design and testing
can provide insight into the direction of the project
Prototyping and testing: Product design is high risk concept as it involves
commitment of capital and man-power; therefore, it is imperative that extensive
prototyping and testing are done with customer and market.
Raw Material: It is essential that raw material to be used in the production
meets the quality standards of the end product. Furthermore, procurement system
needs to be in place to ensure continuous, cost effective supply.
Production method and process layout: Feasibility of production method and
process layout determines future success of the product.
External Factors: Environmental and government regulations plays an
important part in product design. And these norms are updated from time to time,
so product design should have the flexibility to adapt.
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Product Selection
Production selection process is done through a combination of financial
analysis, risk analysis, existing product portfolio, raw material supply and pre-
determined product criteria.
Process Design and Analysis
The objective of organization is to provide service and product, which satisfy
customer and create value for them. A product and service designed is based on the
customer feedback and requirement of the market. Process design is where the
product is broken down into parts, which further can be helpful in the actual
manufacturing process.
A product, for example, has attractive packaging to provide the right aesthetics
plus has function and features, which provide value to customers. Process design
ensures that there is smooth and continuous relationship between required output
and all the intermediate process.
For example, manufacturing of Air-Conditioners, process design has to be such
that maximum supply is achieved during the hot months of summer when demand
of the product is at the highest. So people, process and machines need to align to
give continuous production throughout the year as to satisfy seasonal demand.
Process Planning
Process development for process design can be summarized through following
steps:
Process Requirement: The very 1st step is to collect and gather information to
give structure with the end objective. That is to make process requirement
document highlighting various stages, risk and stakeholders for production. This
will include assessment of available technology, raw material requirement,
factory/plant layout and demand forecast.
Team Building: Once the process requirements are finalized, for each objective,
a team is finalized based on skill level and experience. Function of the team is to get
familiarize with the whole process.
Planning and Implementation: Process planning team will develop module;
policies and procedure require for production, which are after required approval
internal as well as external is implemented.
Audit: A regular audit is carried out to ensure that process thus implemented
is in line and delivering value to customers.
End of Life: Over a course of time there may be enhancement of the product or
product may get discontinued in these circumstances, process thus develop is
discontinued.
Production Process
Based on the nature of product and service production or conversion process
can be divided into two broad categories, continuous production (assembly line, oil
refinery) and intermittent production (job work, service).
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Production process for both manufacturing industry and service industry can
be classified into broad categories based on standardization of product or service. It
can range from single project assignment like a building or bridge (manufacturing)
to interior design (service) and mass production project like a car (manufacturing)
to a fast-food joint (Services).
Process Design
A successful process design has to take into account the appropriateness of the
process to overall organization objective. Process design requires a broad view of the
whole organization and should not have a myopic outlook. And the process should
deliver customer value with constant involvement of the management at various
stages.
In order to achieve a good process design, effective process strategy is required,
which deals with a singular line items required to manufacture the end product.
Effective process strategy deals with raw material procurement, customer
participation, technology investment, etc.
Regulated Markets
Definition of regulated market:
Regulated market is wholesale market where buying and selling is regulated
and controlled by the state government through the market committee.
It aims at the elimination of unhealthy and unscrupulous practices reducing
marketing charges and providing facilities to producers and sellers in the market.
The poor standards of primary and secondary markets where producer convert
their produce into cash. The prevalence of various malpractice's such as short-
weights, excessive market charges, unauthorized deduction, adulteration of
produce and the absence of machinery to settle disputes between sellers and
buyers were recognized as the main hindrances in agricultural marketing. These
defects and malpratices can be recover by the establishment of regulated marketing
there country may be regulated either by local bodies or under state legislation was
suggested first in 1928 by the Royal commission on Agriculture. The movement of
regulation of market gained momentum only after 1930. The Bombay Agricultural
produce market act of 1939 was passed in respect all agriculture produce Viz.,
cereals, fibres and fruits etc. Regulated markets usually handle tobacco, cotton,
groundnut, grains, coconuts, arecanuts, potatoes and turmeric etc.
Main features of regulated markets:
1. MARKET COMMITTEE: Market committee is comprised of representatives
from different sectors of society that is farmers, traders, government local bodies
and co-operative. In general it is observed that market committee consists of 15
members 10 from farmers 3 from traders and 1 each from the government and local
bodies.
2. AREA OF OPERATION: The concerned state government notifies that its
intention to regulate trade practices in specified area such an area of operation is
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laid down either as a municipal limit or district or even it may be a region. In

Maharashtra area of operation of each regulated market restricted to one taluka.
3. METHODS OF SALES: In regulated market the sale of agril. Produce is
undertaken either by open auction or by close tender method these sales method
ensure a fair and competitive price for the produce and prevent the cheating of
farmers by market functionaries. By these methods, the sale is carried out under
the supervision of an official of the market committee.
4. LICENSING OF MARKET FUNCTIONARIES: All the market functionaries
including traders working in the regulated market have to obtain a licence from the
market committee after paying the prescribed fee to carry on their business, the
licensed traders have to keep proper record and maintain accounts in accordance
with the buy-laws of the market committee.
5. MARKET LEVIES OR FEES: Growers and traders have to pay market fees
which are calculated on the basis of value of volume of a commodity bought and
sold in the markets. Sometimes it may be based on cartload or truckload.
To meet its administrative expenditure and in order to create infrastructure
facilities in the market area the market committees gets funds from the following
sources:
1. Market fees on the produce brought for the sales in the market yard.
2. License fee, renewal fee of market middlemen functioning in the area.
1. SETTLEMENTS OF DISPUTES: Disputes arising between producer seller and
traders by reason of the quality of the producer, accounts and deductions of
unauthorized charges are solved by the sub-committee of the market committee
this avoid the legal complications and unnecessary expenditure.
Advantages of regulated markets: -
1. Market charges are clearly defined and specified.
2. Market practices are regulated and undesirable activities are brought under
control.
3. Correct weighment is ensured by periodical inspection and verification of
scales and weights.
4. Suitable arrangements for the settlement of disputes is provided.
5. Reliable and up to date market news are made available to the farmers.
6. Suitable quality standards and standard terms for buying and selling are
conveniently enforced.
7. Reliable statistics of arrivals, stocks, prices are maintained.
8. Other facilities like shades for the sale of produce, space for parking carts,
drinking water facilities and cisterns of cattle, rest houses, grading and
warehousing facilities are provided.
9. Open auction method is strictly followed.
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10.Propaganda for agricultural improvement is more conveniently carried out.

Taking over all picture regulated markets have produced a whole some effect on
marketing structure and have generally raised the efficiency or marketing at the
primary level.
Organization of regulated markets and constitution of market committee
The primary object of regulating the market is to safeguard the interest of the
producer sellers raise the standards of the local Markets where the first exchange of
the goods takes place. With a view to achieve the object in each of the regulated
markets. Market committees are established consisting of the representatives of the
growers, traders, local bodies, sellers, co-operative shops and the state government
nominees. Producers are generally in the majority on these committees. The market
committee should consist of 12 to 18 members depending on the size of the market
and other considerations, which are responsible for utilizing the fund for
a. Maintenance and improvement of the markets and its buildings.
b. Maintenance of standards of weights and measures.
c. Pay and pension of the staff
d. Payment of interests of loans.
e. Collection and dissemination of market information.
f. Propaganda for agricultural improvement.
Product design – regulated market
1. Define product design
2. Write a note on distribution strategy.
11.6 SUMMARY
Designing the product is an important one. Well designed product alone be
marketed well. Further, the market has to be regulated. These two things have
been elaborated in this lesson.
1. What are the advantages of regulated market? Explain
2. List out the main features of regulated market.
1. Belch, G. E., & Belch, M. E. (2004). Advertising and Promotion an
Integrated Marketing Communication Perspective sixth Edition . New
Delhi: Tata McGraw-Hill Publication company Limited .
2. Best, J. W., & Kahn, J. V. (1986). Research in Education 5th Edition. New
Delhi: Prentice Hall of India Private Limited.
Communication and Consumermarism . Tokio Press.
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Books.
5. Broadbent, S. (1989). The Advertising Budget. Tata McGraw-Hill Company.
11.9 ASSIGNMENTS
Write an essay on product selection.
Communication and Consumerism. Tokio Press.
2. Bogart, L. (1996). Strategy in Advertising 3rd Edition. NTC Business Books.
3. Broadbent, S. (1989). The Advertising Budget. Tata McGraw-Hill Company.
Meet the authorities of a regulated market and analyse the merits and
demerits.
11.12 KEYWORDS
Product design – product selection – regulated market
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LESSON 12
COOPERATIVE SOCIETIES – CONTRACT FARMING
12.1 INTRODUCTION
You have learnt about Sole Proprietorship, Partnership and Joint Hindu Family
as different forms of business organisation. You must have noticed that while there
are many differences among them in respect of their formation, operation, capital
contribution and liabilities, there is one similarity that they all are engaged in
business to earn profit. However, there are certain organisations which undertake
business activities with the prime objective of providing service to the members.
Although they also earn some amount of profit, but their main intention is to look
after some common interest of its members. They pool available resources from the
members, utilise the same in the best possible manner and share the benefits.
These organisations are known as Cooperative Societies. Let us learn in detail
about this form of business organisation.
12.2 OBJECTIVES
 To under about the cooperation and the cooperatives
 To understand the concept of cooperative forming
12.3 CONTENTS
12.3.1 Concept of cooperation
12.3.2 Characteristics of Cooperative Society
12.3.3 Types of Cooperative Societies
12.3.4 Merits of Cooperative Society
12.3.5 Limitations of Cooperative Society
12.3.6 Formation of Cooperative Society
12.3.7 Mixed economy
12.3.9 Contract farming
12.3.10 How can small farmers benefit from Contract Farming?
12.3.11 APMC Act and Contract Farming?
12.3.12 Success Stories of Contract farming in India?
12.3.13 Issues with contract farming in India?
12.3.14 How can contract farming be successful?
12.3.15 Can CORPORATE farming be a reality in India ?
12.3.16 Contract farming can help curb inflation: RBI
12.3.1 Concept of cooperation
The term cooperation is derived from the Latin word 'co-operari', where the
word 'Co' means 'with' and 'operari' mean 'to work'. Thus, the term cooperation
means working together. So those who want to work together with some common
economic objectives can form a society, which is termed as cooperative society.
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Based on the above definition we can identify the following characteristics of
cooperative society form of business organisation:
(a) Voluntary Association: Members join the cooperative society voluntarily i.e.,
by their own choice. Persons having common economic objective can join the
society as and when they like, continue as long as they like and leave the society
and when they want.
(b) Open Membership: The membership is open to all those having a common
economic interest. Any person can become a member irrespective of his/her caste,
creed, religion, colour, sex etc.
(c) Number of Members: A minimum of 10 members are required to form a
cooperative society. In case of multi-state cooperative societies the minimum
number of members should be 50 from each state in case the members are
individuals. The Cooperative Society Act does not specify the maximum number of
members for any cooperative society. However, after the formation of the society,
the member may specify the maximum member of members.
(d) Registration of the Society: In India, cooperative societies are registered
under the Cooperative Societies Act 1912 or under the State Cooperative Societies
Act. The Multi-state Cooperative Societies are registered under the Multi-state
Cooperative Societies Act 2002. Once registered, the society becomes a separate
legal entity and attain certain characteristics. These are as follows.
(i) The society enjoys perpetual succession
(ii) It has its own common seal
(iii) It can enter into agreements with others
(iv) It can sue others in a court of law
(v) It can own properties in its name
12.3.3 Types of Cooperative Societies
You know cooperative organisations are set up in different fields to promote the
economic well-being of different sections of the society. So, according to the needs
of the people, we find different types of cooperative societies in India. Some of the
important types are given below.
(a) Consumers' Cooperative Societies: These societies are formed to protect the
interest of consumers by making available consumer goods of high quality at
reasonable price.
(b) Producer's Cooperative Societies: These societies are formed to protect the
interest of small producers and artisans by making available items of their need for
production, like raw materials, tools and equipments etc.
(c) Marketing Cooperative Societies: To solve the problem of marketing the
products, small producers join hand to form marketing cooperative societies.
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(d) Housing Cooperative Societies: To provide residential houses to the

members, housing cooperative societies are formed generally in urban areas.
(e) Farming Cooperative Societies: These societies are formed by the small
farmers to get the benefit of large-scale farming.
(f) Credit Cooperative Societies: These societies are started by persons who are
in need of credit. They accept deposits from the members and grant them loans at
reasonable rate of interest
12.3.4 Merits of Cooperative Society
The cooperative society is the only form of business organisation which gives
utmost importance to its members rather than maximising its own profits. After
studying its characteristics and different types, we may now study the merits of this
form of business organisation
(a) Easy to Form: Any ten adult members can voluntarily form an association
get it registered with the Registrar of Cooperative Societies. The registration is very
simple and it does not require much legal formalities.
(b) Limited Liability: The liability of the members of the cooperative societies is
limited upto their capital contribution. They are not personally liable for the debt of
the society.
(c) Open Membership: Any competent like-minded person can join the
cooperative society any time he likes. There is no restriction on the grounds of
caste, creed, gender, colour etc. The time of entry and exit is also generally kept
open.
(d) Stable Life: The cooperative society enjoys the benefit of perpetual
succession. The death, resignation, insolvency of any member does not affect the
existence of the society because of its separate legal entity.
(e) Tax Concession: To encourage people to form co-operative societies the
government generally provides tax concessions and exemptions, which keep on
changing from time to time.
(f) Democratic Management: The cooperative societies are managed by the
Managing Committee, which is elected by the members. The members decide their
own rules and regulations within the limits set by the law.
12.3.5 Limitations of Cooperative Society
Although the basic aim of forming a cooperative society is to develop a system
of mutual help and cooperation among its members, yet the feeling of cooperation
does not remain for long. Cooperative societies usually suffer from the following
limitations.
(a) Limited Capital: Most of the cooperative societies suffer from lack of capital.
Since the members of the society come from a limited area or class and usually
have limited means, it is not possible to collect huge capital from them. Again,
government's assistance is often inadequate for them.
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(b) Lack of Managerial Expertise: The Managing Committee of a cooperative

society is not always able to manage the society in an effective and efficient way due
to lack of managerial expertise. Again due to lack of funds they are also not able to
derive the benefits of professional management.
(c) Less Motivation: Since the rate of return on capital investment is less, the
members do not always feel involved in the affairs of the society.
(d) Lack of Interest: Once the first wave of enthusiasm to start and run the
business is exhausted, intrigue and factionalism arise among members. This makes
the cooperative lifeless and inactive.
(e) Corruption: Inspite of government's regulation and periodical audit of the
accounts of the cooperative society, the corrupt practices in the management
cannot be completely ignored.
12.3.6 Formation of Cooperative Society
A cooperative society can be formed as per the provisions of the Cooperative
Societies Act, 1912, or under the Cooperative Societies Acts of the respective states.
The various common requirements prescribed for registration of a cooperative
society are as follows:
(a) There must be at least ten persons having common economic interest and
must be capable of entering into contract. For multi-state cooperative societies at
least 50 individual members from each state should be present.
(b) A suitable name should be proposed for the society. (c) The draft bye-laws
of the society should be prepared.
(d) After completing the above formalities, the society should go for its
registration.
(e) For registration, application in prescribed form should be made to the
Registrar of Cooperative Societies of the state in which the society is to be formed.
(f) The application for registration shall be accompanied by four copies of the
proposed bye-laws of the society.
(g) The application must be signed by every member of the society.
(h) After scrutinising of the application and the bye-laws, the registrar issues
the registration certificate.
(i) The society can start its operation after getting the certificate of registration.
12.3.7 Mixed economy
Mixed economy is an economic system in which both the private sector and
state direct the economy, reflecting characteristics of both market economies and
planned economies.
Most mixed economies can be described as market economies with strong
regulatory oversight and governmental provision of public goods. Some mixed
economies also feature a variety of state-run enterprises.
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In general the mixed economy is characterised by the private ownership of the

means of production, the dominance of markets for economic coordination, with
profit-seeking enterprise and the accumulation of capital remaining the
fundamental driving force behind economic activity. But unlike a free-market
economy, the government would wield indirect macroeconomic influence over the
economy through fiscal and monetary policies designed to counteract economic
downturns and capitalism's tendency toward financial crises and unemployment,
along with playing a role in interventions that promote social welfare.
Subsequently, some mixed economies have expanded in scope to include a role
for indicative economic planning and/or large public enterprisesectors.
There is not one single definition for a mixed economy, with it defined variously
as a mixture of free markets with state interventionism, or as a mixture of public
and private enterprise, or as a mixture between markets and economic planning.
The relative strength or weakness of each component in the national economy can
vary greatly between countries. Economies ranging from the United States to Cuba
have been termed mixed economies. The term is also used to describe the
economies of countries which are referred to as welfare states, such as the
Nordic countries. Governments in mixed economies often provide environmental
protection, maintenance of employment standards, a standardized welfare system,
and maintenance of competition.
As an economic ideal, mixed economies are supported by people of various
political persuasions, typically centre-left andcentre-right, such as social democrats
or Christian democrats. Supporters view mixed economies as a compromise
between state socialism and free-market capitalism that is superior in net effect to
either of those.
Based on the above definition we can identify the following characteristics of
cooperative society form of business organisation:
(a) Voluntary Association: Members join the cooperative society voluntarily i.e.,
by their own choice. Persons having common economic objective can join the
society as and when they like, continue as long as they like and leave the society
and when they want.
(b) Open Membership: The membership is open to all those having a common
economic interest. Any person can become a member irrespective of his/her caste,
creed, religion, colour, sex etc.
(c) Number of Members: A minimum of 10 members are required to form a
cooperative society. In case of multi-state cooperative societies the minimum
number of members should be 50 from each state in case the members are
individuals. The Cooperative Society Act does not specify the maximum number of
members for any cooperative society. However, after the formation of the society,
the member may specify the maximum member of members.
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(d) Registration of the Society: In India, cooperative societies are registered

under the Cooperative Societies Act 1912 or under the State Cooperative Societies
Act. The Multi-state Cooperative Societies are registered under the Multi-state
Cooperative Societies Act 2002. Once registered, the society becomes a separate
legal entity and attain certain characteristics. These are as follows.
(i) The society enjoys perpetual succession
(ii) It has its own common seal
(iii)It can enter into agreements with others
(iv)It can sue others in a court of law
(v) It can own properties in its name
12.3.9 Contract farming
Contract farming arrangements of different types have existed in various
parts of the country for centuries for both subsistence and commercial crops.
The commercial crops like sugarcane, cotton, tea, coffee etc.
Have always involved some forms of contract farming. Even in the case of some
fruit crops and fisheries, contract farming arrangements, involving mainly the
forward trading of commodities have been observed.
However, in the wake of economic liberalization, the concept of contract
farming in which national or multinational companies enter into contracts for
marketing of the horticultural produce and also provide technologies and capital to
contract farmers has gained importance.
According to this, bipartie agreements are made between the farmer and the
company and the latter contributes directly to the management of the farm through
input supply as well as technical guidance and also markets the produce.
The main features of this type of contract farming are that selected crops are
grown by farmers under a buy back agreement with an agency engaged in trading
or processing.
In such cases, the centralized processing and marketing agencies supply
technology and resources, including planting materials and occasional crop
supervision.
Under such contracts, the farmer assumes the production related risks, which
the price risk is transferred to the company.
In some cases, the company also bears the production risk, depending on the
stage of crop growth at which the contract is made.
If the contract is made at flowering or fruiting stage, the company bears the
production risks also.
In any case, the company bears the entire costs of transaction and marketing.
It is this variant of contract farming which is said to be one of the ways by
which small farmers can participate in the production of high value crops like
fruits, vegetables, flowers etc. and benefit from market led growth.
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Lack of Interest: Once the first wave of enthusiasm to start and run the
business is exhausted, intrigue and factionalism arise among members. This makes
the cooperative lifeless and inactive.
Corruption: Inspite of government's regulation and periodical audit of the
accounts of the cooperative society, the corrupt practices in the management
cannot be completely ignored.
12.3.10 How can small farmers benefit from Contract Farming?
Small farmers in India are generally capital starved and cannot make major
investment in land improvement and modern inputs.
Contract farming can fill up this gap by providing the farmers with quality
inputs, technical guidance and management skills.
Although the company deals only with the contract crop, the farmers' overall
management skill may improve, thereby helping him to raise the yields of both
contract and non-contract crops.
From the standpoint of corporate bodies, farming reduces the supply risk,
while the farmers enter into contractual arrangements with companies in order to
minimize price risks.
The company and the farmers enter into contracts to supply or purchase a
specified quantum of the commodity at agreed prices.
The agreed contract may be either formal or informal and may cover supply of
inputs and marketing of output.
By entering into contract, the company reduces the risk of non-availability of
raw material and the farmer reduces the risk of market demand and prices of his
produce.
The inputs and services supplied by firms may include seeds, fertilizers,
pesticides, credit, farm machinery, technical advice, extension etc., or may involve
only the supply of hybrid seeds and marketing of produce.
12.3.11 APMC Act and Contract Farming?
The Model Agricultural Produce Marketing (Regulation) Act circulated by the
Central Government to the States in 2003 for implementing marketing reforms has
provisions for the registration of contract farming sponsors and recording of
contract farming agreements with the Agricultural Produce Marketing Committee
(APMC) or a prescribed authority under the Act, protection of title or rights of the
farmers over the land under such contracts, dispute settlement mechanism and a
model draft agreement suggesting various terms and conditions. To help States in
the formulation of Rules in this regard, the Ministry of Agriculture has also
circulated a set of Model APMC Rules to them for adoption.
By now, relevant provisions have been made by several State Governments/
UTs in their respective APMC Acts for providing a legal framework to contract
farming.
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12.3.12 Success Stories of Contract farming in India ?

Contract farming is becoming an increasingly important aspect of agribusiness,
whether products are purchased by multinationals or by smaller companies.
There are few success stories on contract farming such as Pepsico India in
respect of potato, tomato, groundnut and chili in Punjab, Safflower in Madhya
Pradesh, oil palm in Andhra Pradesh, seed production contracts for hybrids seed
companies etc. which helped the growers in realization of better returns for their
produce.
Other success stories of contract farming are Amul and NDDB for milk
procurement, sugarcane cooperative in Maharashtra, and prawn-acqua culture in
Andhra Pradesh.
In our country this approach has considerable potential where small and
marginal farmers can no longer be competitive without access to modern
technologies and support. The contractual agreement with the farmer provides
access to production services and credit as well as knowledge of new technology.
Pricing arrangements can significantly reduce the risk and uncertainty of market
place
12.3.13 Issues with contract farming in India?
Studies have highlighted a significant problem in some cases wherein : both
firms and farmers breached contracts when market conditions provided arbitrage
opportunities. Firms rejected more contracted produce on quality grounds when
market prices dipped below contracted prices and farmers engaged in side-selling in
open markets when market prices rose higher than contract prices.
Companies prefer medium and large farmers because of transaction costs. They
want farmers to dedicate a minimum acreage, say, five acres [one acre is 0.4
hectare] of land, to the contract crop. In India, 85 per cent of the farmers are
marginal or small, operating less than two acres. In fact, 66 per cent operate less
than one acre each. How many will have such land to give for contract crops?
Contract farming can work if there is a collectivisation of small farmers. For
instance, 10 to 15 farmers get together, form a group, and sign a group contract. It
brings down the transaction costs, the farmers are better protected, and it is
essentially a win-win situation for both the farmer and the corporate. It has been
successful in Thailand. In fact, the Thai government planned it out and made it a
part of the country’s national development plans.
12.3.14 How can contract farming be successful?
It will work if the farmers have better bargaining power.
They have to be legally protected.
Furthermore, in contract farming, it is extremely important to understand the
contracting operations.
The terms and conditions of the contract are crucial.
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It has been found that quite often the farmer had not even seen the contract
and did not know what the terms and conditions were.
The contracts need to be more transparent.
When and how did this form of farming evolve in India, where agriculture
practices have largely been traditional?
Contract farming has been there since the 1960s in seed production, in both
private and public sectors.
Also, since the Land Ceiling Act does not permit non-farmers to own land, there
is no other way to get specified produce than through contract farming.
So as market demand changed in the 1980s and 1990s, contract farming
became more common, starting with Pepsi in Punjab in tomatoes and potatoes in
the mid-1990s as a first case of perishable-produce contract farming, other than a
few other cases in some other crops elsewhere in India.
Further, the amendments to the APMC [Agricultural Produce Marketing
Committee] Act at the State levels in the last decade, which made contract farming
legal, led to its widespread adoption across crops and regions and companies.
What are the risks and benefits the farmer faces in contract farming?
There are different types of contract farming, and each type of contract farming
will have its own set of pros and cons.
1. One is simple procurement;
2. In the second, the buyer provides some inputs and takes the crop
according to the terms and conditions of the contract; and
3. In the third, the buyer provides inputs and planting schedules and is
more involved in the agricultural process. The last one carries the most
liability for the company.
The pros are the high yields and fixed prices. The cons, however, are there as
both production risk and market risk. Production costs in contract farming are
higher as the standard expected is higher. No company offers protection for crop
failure. No crop insurance is given and thus production risk is not covered most of
the time. As said earlier, many companies take advantage of the clauses in the
contract in case the harvest does not meet their requirement; they tend to buy it at
a lower price or reject it altogether. Thus, market risk is also not covered fully,
especially when the contract prices are based on market prices, as we know that
the market prices vary substantially during the season or even during the day. If
your contract document is not fair, how can your practice be fair?
12.3.15 Can CORPORATE farming be a reality in India ?
Legally, corporate farming cannot exist in India.
A non-farming entity is not allowed to own land.
The Land Ceiling Act does not permit it.
It has not been viable most of the time.
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There have been some companies that have attempted to lease land and
cultivate crops but have not met with as great a reward as expected.
Some States have leased out so-called wastelands to some companies for
corporate farming but owing to local opposition, this has stopped now.
12.3.16 Contract farming can help curb inflation: RBI
The Reserve Bank of India (RBI) wants the government to facilitate contract
farming in India and to exempt fruits and vegetables from agri procurement laws to
improve food productivity. The central bank has also called for better supply chain
logistics by setting up cold chains and processing facilities to reduce wastage.
Highlighting data that show rising incomes affecting consumption patterns,
Deepak Mohanty, executive director at RBI, said that increased consumption of
proteins and vegetables was one of the factors driving up costs of these items.
"Another factor is the cost of cultivation. The dominant part of the cost of
cultivation is labour. This is particularly so in our set-up with the preponderance of
small holdings, which are less amenable to mechanization. There are several
explanations why rural wages have increased. One explanation is that socially
inclusive public policy such as Mahatma Gandhi National Rural Employment
Guarantee Act (MGNREGA) has set a floor to rural wages and increased the
bargaining power of the work force," said Mohanty, adding that even after factoring
inflation real wages have grown.
Concept of cooperation – cooperative societies and their characteristics –
Contract farming.
1. Define the concept of cooperation.
2. What are the characteristics of cooperative society.
3. What do you mean by contract farming? Brief.
12.6 SUMMARY
Though the concept of cooperation is widespread concept, there are different
types of cooperatives existing in India. There are certain demerits in the case of
cooperative society, however, merits are more in number if it is run properly.
Further to avoid the excess cost and to keep the land idle., that is leave the land
uncultivated due to lack of investment on different aspects, contract arming is
suggested. In this type of farming, common interest and monetary benefit will be
concentrated. These things are discussed in this lesson.
1. What are the basic principles of cooperation?
2. List out the advantages of contract farming.
1. Dogarawa A.B (2005). Role of Co-operative Societies in Economic
Development. Department of Accounting (PhD. Thesis) Ahmadu Bello
University, Zaria 14, Nigeria. ™
134
2. Demeke Tilahun (2007). Performance of Coffee Marketing Co-operatives and

Members’ Satisfaction in Dale District, Southern Ethopia. (MSC Thesis)
Haramaya University. Ethopia. ™
3. Rangi, P S and M S Sindhu (2003): “Contract Farming in Punjab”,
Productivity, 44(3), 484-491.
4. Siddiqui, K: Agricultural Exports, Poverty and Ecological Crisis-Case Study
of Central American Countries”, Economic and Political Weekly, 33(39),
September 26-October 2, 1998.
5. Kumar, D.L. Raghava and Suparna Barua (1998) “Study of Production
Logistics and Marketing System of the Seed Industry in Andhra Pradesh”,
MTS Report No.1239, Anand: Institute of Rural Management (IRMA). ,
March.
12.9 ASSIGNMENTS
Write an essay on Contract farming and Corporated farming.
1. Xiangyu Guo, Brian Henehan (2007). Rural Supply and Marketing Co-
operatives in China: Historical Development, Problems and Reforms. (PhD.
Thesis) China. All China Federation of Supply and Marketing Co-operatives.
www.chinacoop.com ™
2. Hill T.R., Nel E.L., and IIIgner (2007). Partnership for Success- Community
based Economic Development- A case Study of Ngolowindo Co-operatives.
Malawi (online publication). ™
3. Derek Brewin (2008). The evolution of Grain Trading Organizations in
Australia, Applying the Co-operative Life Cycle. Current Agriculture, Food
and Resource issues. A journal of Canadian Agricultural Economics
Society, No.9, pp 9-17. www.CAFRI.org
4. Little PD : “Contract Farming and the Development Question” in Peter D
Little and Michael J Watts (eds): Living Under Contract-Contract Farming
and Agrarian Transformation in Sub-Saharan Africa, the University of
Wisconsin Press, Madison (1994).
5. Prabhu C (2004): Managing Contract Farming in Agro Industry, FPM
Thesis, IIM, Ahmedabad
1. Visit a cooperative society and analyse their functions
2. Visit the place of contract farming and find out the merits and demerits
12.12 KEYWORDS
Cooperatives – different cooperative societies – contract farming – corporate
farming
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LESSON. 13
AGRI EXPORT ZONES: CONCEPT AND BENEFITS
13.1 INTRODUCTION
Under chapter 16 of Exim Policy 2001, a new concept of Agri Export Zone (AEZ)
has been inserted by Govt. of India.
13.2 OBJECTIVE
 To understand the concept of Agricultural Export Zone and their functions
13.3 CONTENTS
13.3.1 The Concept of Agri Export Zone
13.3.2 Measures to promote exports from Agri Export Zone
13.3.3 Benefits
13.3.4 Operation of the Concept
13.3.5 Action Taken by State Governments
13.3.6 Responsibilities of the State Government
13.3.7 Agri Export Zones (AEZs) In India
13.3.8 Aezs in the Country
13.3.1 The Concept of Agri Export Zone
• The concept of agri export zone takes a comprehensive look at a particular
produce/product located in a contiguous area for the purpose of developing and
sourcing the raw materials, their processing/packaging, leading to final exports.
• The entire effort is centred around the cluster approach of identifying the
potential products, the geographical region in which these products are grown and
adopting an end-to-end approach of integrating the entire process right from the
stage of production till it reaches the market.
13.3.2 Measures to promote exports from Agri Export Zone
i. Financial Assistance
 Both Central as well as State Government and their agencies are providing
a variety of financial assistance to various agri export related activities.
 These extend from providing financial assistance for Training and
Extension, R&D, Quality Upgradation, Infrastructure and Marketing etc.
 Central government Agencies like APEDA, NHB, Deptt. of Food Processing
Industries, Ministry of Agriculture provide assistance, a number of State
Governments have also extended similar facilities.
 All these facilities are dovetailed and extended to promote agri exports from
the proposed Zones in a coordinated manner.
 Some additional features like providing grants from Market Access Initiative
fund could also be considered.
ii. Fiscal Incentives
• The benefits under Export Promotion Capital Goods Scheme, which were
hitherto available only to direct exporters, have now been extended to
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• Service exporters in the Agri Export zones.

• Even service provided to ultimate exporters will be eligible for import of
capital goods at a concessional duty for setting up of common facilities.
• They shall fulfil their export obligation through receipt of foreign
exchange from ultimate exporters who shall make the payments from
their EEFC account.
• Exporters of value added agri products will be eligible for sourcing duty
free fuel for generation of power, provided the cost component of power
in the ultimate product is 10% or more and the input-output norms are
fixed by the advance licencing committee of the DGFT.
• In view of the power intensive nature of most of the value addition,
almost all the exporters of value added agriculture produce will become
eligible for such facility.
• Similarly, input-output norms can also be fixed for sourcing other
inputs, like fertilizer, pesticides etc. duty free for cultivation purpose.
13.3.3 Benefits
i. Strengthening of backward linkages with a market oriented approach.
ii. Product acceptability and its competitiveness abroad as well as in the
domestic market.
iii. Value addition to basic agricultural produce.
iv. Bring down cost of production through economy of scale.
v. Better price for agricultural produce.
vi. Improvement in product quality and packaging.
vii. Promote trade related research and development.
viii. Increase employment opportunities.
13.3.4 Operation of the Concept
• The entire approach of promoting the Agri Export Zone has been taken on a
project mode.
• State Governments identify potential export products which could be
selected for development with a cluster approach.
• State Governments evolve Projects which are feasible and are possible to be
implemented immediately. They have also to conform to the indicative
guidelines.
• The States forward such project proposals to APEDA which will conduct the
initial scrutiny of the proposals.
• If found feasible, APEDA may provide necessary guidance in preparing the
detailed project report.
• This report, after preliminary scrutiny, will be placed before the Steering
Committee which has been constituted under the chairmanship of
Commerce Secretary with the following members:
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i) Director General of Foreign Trade, Member

ii) Joint Secretary (EP Agri Division, DOC) Member
iii) Joint Secretary (Deptt. of F.P.I.,MOA) Member
iv) Joint Secretary [Infrastructure Division, DOC] Member
v) Executive Director , NHB Member iv) Representative of DG, ICAR
Member
vi) Director (Finance, Deptt. of Commerce) Member
vii) Chairman, APEDA Convenor
Once the project proposal of a State has been approved by the Committee, an
MOU would be signed between APEDA (on behalf of the Central Government) and
the State Government for providing possible assistance at each stage of the project.
The responsibilities of the State government would also be defined in the MOU,
a draft of which is under preparation.
13.3.5 Action taken by State Governments
The proposal of the State Government for developing an Agri Export Zone would
need to take into account all activities necessary to set up projects in such a Zone.
Some basic guidelines for developing such projects are detailed below:
i) Identification of a agricultural produce (cash crop) which would be developed
for export through a cluster approach. This would, obviously, be based on
concentration of production of a given product or a set of products in a particular
area which could be promoted as an Agri Export Zone.
ii) The Zone could be a block/group of blocks or a district/group of districts.
iii) An Agricultural University would need to be identified which will assist in
the R&D work relating to development of the project. Such University should
preferably be in the vicinity of the Zone.
iv) In case of horticulture based projects, an exporter should be identified who
would source produce from 100-200 orchards in a contiguous area. In case there
are more exporters/ farmers interested in exports, then a single pack house
operator or a processing unit to serve the exporters/farmers may be identified.
v) Efforts should be made to ensure enough production crops to enable the
unit to run round the year.
vi) The proposal should indicate the entire range of activities involved in the
process, list out interventions being provided by the State Governments at different
levels and also suggest the facilitations that can be provided by the Central
Government.
vii) Interventions from the Centre could be, inter-alia in areas of feasibility
studies, setting up backward linkages, training and extension, pre and post harvest
activity, packaging, transportation, market promotion, etc.
13.3.6 Responsibilities of the State Government
i) Identification of a State Government institutions/agency which will be
responsible for implementation and coordination of the entire activity.
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ii) Single window problem solving desks should be created in the offices
promoting zonal approach to agriculture exports.
iii) Adequate availability of infrastructure, inputs, electricity, etc.
iv. Redeployment of extension officers in the Export Zones who would interact
regularly with APEDA and organise training/activity on a regular basis with a
definite action programme.
India ranks as the world’s second largest producer of fruits and vegetables,
next only to Peoples Republic of China. Endowed with various agri-climatic zones,
India enjoys the distinct advantage of providing a variety of fruits and vegetables
round the year.
These factors have enabled export of several agricultural commodities over the
years, such as tea, coffee, cereals, tobacco, spices, cashew, oil meals, meat and
meat preparations, marine products, fruits & vegetables and processed fruits and
vegetables. India’s total exports of agricultural and allied products of $ 10.5 billion
in 2014-15 constitute 10.2% of its export share. But, India’s share in the world’s
agricultural exports was only 1.2%.
Under the present scenario, it is rightly believed that the future of agriculture is
safe in increasing the productivity, diversification and value addition. The value
addition can be done through primary/secondary/tertiary processing through
which the product is transformed into a product which fetches higher prices. Thus,
processing is a major value addition activity to the farm produce. Processing also
adds value to the by-products, co-products and residues that also have
considerable economic importance
Formation of exclusive Agri Export Zones (AEZs) is an important step taken by
the Indian Government to focus on agri diversification, value addition and exports.
Keeping in pace with the fast changing international trade environment and to
improve India’s Balance of Payments, these zones adopt an end-to-end approach in
integrating the complete process in which a hub of all activities right from the stage
of identifying the potential products and geographical regions, sourcing the raw
material, their processing, improving the quality of the product and packaging to
the stage where it reaches the final export of product produced in a contiguous area
take place.
Under the scheme, the State Government would identify products with export
potential, which have comparative advantage in local production. Agricultural and
Processed Food Products Export Development Authority (APEDA) is the nodal
agency of the Central Government to promote and set up Agri Export Zones (AEZs).
An Agri Export Zone or AEZ is a specific geographic region in a country demarcated
for setting up agriculture based processing industries mainly for export.
Setting up of AEZs for specific fruits and vegetables will therefore enable Indian
farmers and entrepreneurs to produce superior quality products for export markets.
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It will also enhance their competitive capabilities through forging backward and
forward linkages, promoting value addition and cost optimization
13.3.7 Agri Export Zones (AEZs) In India
Agri Export Zones (AEZs), a gateway to the world of flourishing opportunities in
international market, is a concept that works with an encyclopedic approach. It is
believed that phasing out agriculture related subsidies for developed countries,
under WTO agreements provide an opportunity to build a position in the
international market for its fresh and processed foods. Till December 2006, 60 Agri
Export Zones (AEZs) of different products had been set up in different parts of the
country with an investment of Rs. 1717.95 crores.
States Focus Geographical area

Andhra products
Mango pulp Chittoor
Pradesh
Mango and
grapes Ranga Reddy, Medak and Mahaboob Nagar
Mango kishna district

Mahaboob Nagar, Ranga Reddy, Medak, Karim Nagar,
Gherkins Warangal
Chilli Guntur
Fresh and kamrup, Nalbari, Barpeta, Darrang, Nagaon, Morifoon
Assam processed Nakrbi
ginger
Mango&
Gujarat vegetables Bharuch and Namada
Dehydrated Bhavnagar, Surendra Nagar, Amreli,Rajkot, Junagadh
onion and garlic and Jamnagar
Jharkand Vegetable Rabchi, Hazaribagh and Lohardaga

Horticulture Thrissur, Ernakulam.Kottaya, Alappuzha.
Kerala products Pathanumthitta, Kollam,
Medicinal Kollam, Pathanamittha and Thiruvanantahpuram
Madhya plants
Potatoes, onion Malwa, Ujjain, Indore, Dewas, Dhar, Shajpur, Ratlam,
Pradesh and garlic Nimach
Guna, Mandsaur, Ujjain, Rajgarh, Ratlam, Sharjapur

Seed spices and Neemuch
Ujjain Neemuch, Ratlam, Mandsaur, Indore, Dhar,
Wheat Shajapur
Orange Chhindwara, Hoshangabad and Betu

Shivpuri, Guna, Vidisha, Raisen, Narasinghpura and
Lentils&Grams
Chhindwara
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States Focus products Geographical area

Maharastra Grapes and
grape wine Naisk, Sangli, Pune, Satara, Ahmednagar and Nasik
Alphonso
Ratnagari, Sindhudurg, Reigarh and Thane
mango
Aurangabad, jalna, Beed,Latur, Ahmednagar and
Keasr mango Nasik
Flowers Pune, Nasik, Kolhapur and Sangli
Onions Nasik, Ahmednagar, Pune, Satara and Solapur

Solapur, Sangli, Ahedabagar, Pune, Nasik,
Pomegranate Osmnahad,Latur
jalgaon, Dhule, Nandurbar, buldhana, Parbhani,
Banana Hindoli
Oranges Nagpur and Amraoti

Orissa Ginger and
Kandhamal
Turmeric
Punjab Fatehgarh Sahid, Patiala, Sangrur, Ropar and
Vegetables Ludhiana
Singhpura, Zirakpur, Rampura phaul, Muktsar,

Potatoes Ludhiana, Jalllandhar
Amritsar, Gurdaspur, Kapurthala, Jalandhra,

Basmati Rice Hoshiarpur and Nawanshahr
Coriander Kota, Bundi, Baran, Jhalawar
Cumin Bagaur, Barmer, Jalore, Pali and Jodhpur

Sikkim Flowers(orchids)
& Cherry East sikkim
Ginger North, East, South & West Sikkim

Tamilnadu
Cashewnuts Cuddalore, Thanjavur, Pudukotti and Sivaganga
Flowers Dharmapuri, Nilgiri

Madhurai, Theni, Dindigul, Virudhunagar and
Mangoes Tirunelveli
Tripura Organic Kumarghat, Manu, Melaghar, Matabari and Kakraban
pineapple Blocks
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Uttar Agra, Hathra, Farrukhabad, Kannor, Merrut, Aligarh

Pradesh Potatoes and Bagpat
mangoes and Luknow, Unnao, Hardoi, Bijnaur, Merrut, Bhagpat and
vegetables Bulandshahar
Bareilly, Shahajahanpur, Pilibhit, Rampur, Badaun,

Basmati Rice Bijnor,
Uttaranchal
Lychee Udhamsingh Nagar, Nainital and Dehradun
Flowers Dehardun and Pantnagar
Basmati rice Udham singh Nagar,Nainital, Dehradun and Haridwar

West
Bengal Murshidabad, Malda, Darjeeling, Uttar Dinajpupr,
Lychee Jalppaiguri
Potatoes Hoogly, Burdwan, Uday Narayanpur and Howrah
Mangoes Malda and Murshidabad

Vegetables Nadia, Murshidaba
Darjeeling tea Darjeeling
ROLE OF GOVERNMENT OF INDIA AND ITS ORGANIZATIONS/AGENCIES

TOWARDS
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13.3.8 Aezs in the Country

Government of India has established a number of organizations/ agencies to
assist and fund the AEZs in the country. Apart from the organizations established
exclusively for export promotion, there are also a number of other institutions
which assist and fund the activities of AEZs in the country. They are-
1. APEDA (Agricultural and Processed Food Products Export Development
Authority).
2. DFPI (Department of Food Processing Industries)
3. MoC&I (Ministry of Commerce & Industries).
4. NHB (National Horticulture Board)
5. MoA (Ministry of Agriculture)
6. IIP (Indian Institute of Packaging)
7. IIHR (Indian Institute of Horticulture Research)
8. CFTRI (Central Food Technology Research Institute)

Agricultural Export Zone – their functions - advantages
1. What is the need of AEZ in India
2. Spell out the functions of AEZ.
13.6 SUMMARY
India is the leading producer of fruits, vegetables, milk, marine products etc.
Due to inadequate facilities for storage, transportation and processing, the post-
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harvest losses amount to 25-30 percent causing a monetary loss to the tune of
several thousand crores. Food preservation and processing help in the proper
utilization of the horticulture produce during glut and make it available during off-
season. It plays an important role in enhancing the shelf life of the predominantly
perishable commodities and in producing a diversified range of value-added
products. With the primary objective of boosting the exports of fresh and processed
agricultural produce from the country, the Government of India (GoI) announced a
policy of setting up of Agri Export Zones (AEZs) across the country in the Export
and Import policy (EXIM Policy) 2001-02. It was declared that, these zones would
be a part of the effort to provide improved access for India’s agricultural and allied
products in the International market with a view to provide remunerative returns to
the farming community in a sustained manner and also for the purpose of
developing and sourcing raw materials and their processing/packaging leading to
final exports
List out the principles of AEZ
1. Raj Kumar S. Adukla (2006), „Manual on SEZ, FT & WZ, IPSC-developers
and entrepreneurs, October, 2006, pp 4-5.
2. Venugopal N. Dhoot (2007), President, ASSOCHAM, The Economic Times,
New Delhi, dated, 04-05-2007.
3. Jaggaiah T, Priyanka M.N.K, Deshmukh S (2014), An article in
International Journal of Sales and Marketing Management Research and
Development (IJSMMRD) Vol. 4, issue no.4, august, 2014, pp 33-40.
4. Rawat D.S (2015), Report on “A study on AEZ,s in India”, National
Secretary General, ASSOCHAM
13.9 ASSIGNMENTS
Collect the information on AEZ of India
1. APITCO (2001), Feasibility Report on Establishment of Agri Export Zone
(AEZ) for mango pulp in Chittoor district, Andhra Pradesh.
2. The Government of India, Ministry of Commerce and Industry (vide public
Notice No.73 (RE-01)/1997-2202, New Delhi, the 8th march, 2002) on AEZ
for mango pulp.
3. APEDA, report on AEZs, 2006, Hyderabad. [18]. DGFT (2001), Report on
AEZs establishment, January, 2001
Visit any one of the AEZ to your nearby area and record the activities.
13.12 KEY WORDS
Agri Export Zone – Export – Import – EXIM Policy
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UNIT IV
LESSON 14
AGRICULTURAL CREDIT IN INDIA
14.1 INTRODUCTION
Development of rural credit systems have always been a complicated affair and
this is clear from India's history. Intermittent failure of monsoons, unscientific
farming practices and rural indebtedness, seasonal need for credit and other risks
has ensured that high interest rates remain a norm rather than an exception with
respect to credit. This problem was also noticed by our colonial masters and to this
date, providing a formal system of credit seems to be a challenge.
1870 - British administration began to notice the problems in Indian
agriculture
1904 - Cooperative Societies Act à Cooperatives seen as premier institutions for
disbursing agri-credit.
1912 - Continuous official attention à provision of rural credit. New Act passed
in 1912 à gave legal recognition to credit societies
1915 - Maclagan Committee - advocated establishment of provincial coop
banks - by 1930 all provinces had them à Rise of 3-tier cooperative credit structure
1926-27 - Royal Commission on Agriculture further examined rural credit
1934 - Reserve Bank of India Act 1934 - specific provision for attention to agri-
credit
1935 - Sir Malcolm Darling submitted a report on cooperative credit to GoI. Sec
54 - RBI to set up an Agricultural Credit Dept - expert staff à advise central and
state govts. state coop banks, co-ordinate RBI functions for agricultural credit
1936-37 - 1st activities - Studies in 1936 and 1937 -> found that entire finance
required by agriculturalists supplied by moneylenders, coop and other agencies
were negligible
1935-1950 à RBI strongly promoted coop cred movement, building a
cooperative cred structure à 2 separate arms, one for short-term and one for long-
term (exists even today)
1945-1950 - over half a dozen committees appointed to study the progress of
provision of rural credit
1951 - Provision of credit via coop only 3.3% of cultivators, via commercial
banks only 0.9%. Moneylenders charged high interest rates. Legislation on
moneylending was advocated to chk malpractices
1954 - Report of All India Rural Credit Survey - foundation laid for building a
broader credit structure. Apart from visualising coop as an exclusive agency for
provision credit to agriculture, recommended setting up of SBI and using it to
extend commercial banking facilities to rural and semi-urban areas
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1963 – Agricultural Refinance Corporation set up to provide funds by means of

refinance, in vain. Inadequacy of rural credit was a concern even in 50s and 60s
1965-67 - Drought brought some attention back to agriculture when country
was focused on industrial growth
1966 - All India Rural Credit Review Committee formed in July to review supply
of rural credit in context of 4th Five-Year plan, asked to make recommendations to
improve flow of agri-credit. Commercial banks advised to play a complementary role
to cooperatives
1969 - Social control and nationalisation of commercial banks (1969 and then
1980) played catalyst role to efforts of leveraging the bank system for extending
agri-credit. Concept of priority sector was introduced to help neglected sectors like
agriculture
1975 - Decent credit planning through Lead Bank Scheme, each district was
placed with a commercial bank to spearhead cred allocation for agri-lending; ARC
was renamed as Agricultural Refinance and Development Corporation (ARDC)
60s and 70s - Green revolution in the late 60s and 70s did necessitate
adequate availability of credit. However, flow of credit still was not improved ->
commercial banks were not tuned to needs and requirements of small and
marginal farmers
1977 - Setting up of a separate structure capable of combining local feel of coop
and large resource base of comm banks. Recommendation from Narasimham
Committee in 1975, Regional Rural Banks or RRBs were set
1982 - Following the recommendations of the “Committee to Review
Arrangements for Institutional Credit for Agriculture and Rural Development”, the
National Bank for Agriculture and Rural Development (NABARD) was set up in
1982
1991 - Report of Committee on Financial System 1991 provided blueprint for
carrying out overall fin sector reforms during 1990s. Weaknesses in performance of
rural fin institutions since 1991resulted in setting up of various committees/task
forces to look into operations
“The High-level Committee on Agricultural Credit through Commercial Banks”
“Task Force to Study the Functions of Cooperative Credit System and to
Suggest Measures for its Strengthening” (Jagdish Capoor, 1999) -> adoption of a
Model Cooperative Act, setting up of a Coop rehab and development fund at
NABARD et Mutual Assistance Fund at State Level
“Expert Committee on Rural Credit” (V.S. Vyas, 2001) -> restoration of health of
Primary Agricultural Credit Societies (PACs) by scrapping the cadre system,
selective delayering of cooperatives credit structure and integration of short and
long-term structures.
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“The Working Group to Suggest Amendments in the Regional Rural Banks Act,
1976” (M.V.S. Chalapathi Rao, 2002) -> suggesting diversification of the business of
RRBs, recommended introduction of capital adequacy norms for RRBs in a phased
manner, along with the RRB-specific amount of equity based on the risk-weighted
assets ratio
1995-96 - RIDF or Rural Infrastructure Development Fund set up in 1995-96.
NABARD has major catalytic role in micro-credit movement through SHGs.
However on the eve of 1991 reforms, rural credit delivery system was in a poor
shape.
POST 1991 SUMMARY
Deregulation of interest rates of co-operatives and RRBs
Deregulation of lending rates of commercial banks for loans above Rs. 2 lakh
Recapitalisation of select RRBs
Introduction of prudential accounting norms and provisioning requirements for
all rural credit agencies
Increased refinance support from RBI and capital contribution to NABARD
Constitution of the Rural Infrastructure Development Fund (RIDF) in NABARD
for infrastructure projects
Introduction of Kissan Credit Card (KCC) and stipulation of interest rate not
exceeding 9 per cent for crop loans up to Rs.50,000 extended by the public sector
banks.
14.2 OBJECTIVES
 To analyse the agricultural credit situation in India
14.3 CONTENTS
14.3.1 Agricultural Credit in India: Status and Problems
14.3.2 Agriculture Credit in India
14.3.3 Problem in Agriculture Credit in India
14.3.1 Agricultural Credit in India: Status and Problems
Indian agriculture plays an important role in the development of the country.
Agriculture is the main source of livelihood of majority of Indian population. About
72 percent population was working in 1950-51 and 52 percent population is
working in agriculture sector at present (Economic survey 2013-14). Agriculture
still remains the backbone of our Indian economy. Agriculture sector accounts 13.9
percent of Indian GDP in the year 2013-14. Share of this sector in the GDP has
falling since independence, in the year 1950-50 agriculture held 56.5 percent of
GDP. In 1970-71 share of this sector was 45.9 percent and in the year 1990-91 it
was 34 percent after continue falling it came up to 14.6 percent in the year 2010-11
and in the year 2013-14 it was 13.9 percent. It means trend of agriculture
production share in GDP is continuing decreasing till present. Indian agriculture
has many crucial problems; Agricultural development in India has been given due
importance right from India's First Five Year Plan (1951-56). The key problem of
agriculture, carried on in rural areas mostly by poor, small and marginal farmers
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and weaker section of the society, is credit. Credit is one of the critical inputs for
agricultural development. It capitalizes farmers to undertake new investments
and/or adopt new technologies, production and marketing activities. Agricultural
credit is an important input for improving agricultural production and productivity
and mitigating farmer distress. Bank credit is available to the farmers in the form of
short-term credit for financing crop production programs and in the form of
medium-term/long-term credit for financing capital investment in agriculture and
allied activities like land development including purchase of land, minor irrigation,
farm mechanization, dairy development, poultry, animal husbandry, fisheries,
plantation, and horticulture. Loans are also available for storage, processing and
marketing of agricultural produce. In this research paper researchers focused on
Indian agricultural credit and credit issues and challenges.
14.3.2 Agriculture Credit in India
The importance of farm credit as a critical input to agriculture is reinforced by
the unique role of Indian agriculture in the macroeconomic framework and its role
in poverty alleviation. Availability and access to adequate, timely and low cost credit
from institutional sources is of great importance especially to small and marginal
farmers. All India Rural Credit Survey Committee (1954) observed that “The credit
fell short of the right quantity, was not of the right type and did not serve the right
people”. The flow of credit to the agriculture sector failed to exhibit any appreciable
improvement due mainly to the fact that commercial banks were not tuned to the
needs and requirements of the small and marginal farmers, while the co-operatives,
on the other hand, lacked resources to meet the expected demand. The finance to
agriculture is broadly in two parts direct and indirect it is later in which more
emphasis has been and thus direct support to agriculture has been minimal. All
India Rural Credit Survey (AIRCS) has confirmed that formal credit institutions
provided less than 9% of rural credit needs in India. Money lenders, traders and
rich landlords accounted for more than 75% of rural credit.
Government has increasingly begun to tap institutional finance from banks and
other term lending institutions for financing various developmental programmes in
the State in view of the need to supplement plan financing. Banks in the State have
also played a pivotal role in this regard. However, credit should be utilized in
prudent manner to maximize returns and spread the benefit over wider sections of
the population. Successful implementation of socioeconomic developmental
programmes calls for effective co-ordination between financial agencies and
government departments. It also helps in improvising efficiency of resource
allocation & identifying infrastructural gaps. The State Level Bankers’ Committee,
constituted by the Reserve Bank of India under the Lead Bank Scheme periodically
takes up the review performance and monitors progress under special schemes. At
the district level the District Consultative Committee with the Chief Executive
Officer of Zilla. Panchayat as chairperson and representatives of financial
institutions and Heads of Government departments at the district level as members
monitors the implementation of government sponsored schemes & Service Area
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Credit Plans. At the block level, Block Level Bankers’ Committee chaired by Lead
District Manager with bank managers and departmental heads of government at
block level as members periodically reviews the implementation of government
sponsored schemes & Service Area Credit Plans and sorts out problems
encountered in the implementation of various programmes. In order to select &
prioritise the works for loan assistance from National Bank for Agriculture and
Rural Development (NABARD) under Rural Infrastructure Development Fund(RIDF)
Scheme, launched in 1995-96, a Cabinet Sub-Committee on RIDF has been
constituted under the chairmanship of the Minister for Public Works. There is also
a High Power Committee chaired by the Additional Chief Secretary and
Development Commissioner for reviewing the implementation of RIDF projects.
These policy measures have resulted in the increase in the share of institutional
credit of the rural households.
14.3.3 Problem In Agriculture Credit In India
Agriculture in India has always been heavily dependent on the monsoons and
has hence been an inherently risky activity. At different times we have also had
onerous rural tax systems under different empires, most recently under the British.
Indigenous systems of credit had to develop as a consequence of seasonal needs
and fluctuations in order to facilitate smoothing of Consumption pattern of farmers
over the year. With the intermittent failure of the monsoons and other customary
vicissitudes of farming, rural indebtedness has been a serious and continuous
characteristic of Indian agriculture. Because of the high risk inherent in traditional
farming activity, the prevalence of high interest rates was the norm rather than an
exception, and the concomitant exploitation and misery that often resulted.
Development of rural credit systems has Therefore, been found to be intrinsically
very difficult and, as we will see, an issue of continuing official concern for over a
century. The large proportion of population in the lower strata, which is having
major share in the land holdings receives much less credit than its requirements.
The growing disparities between marginal, small and large farmers continues to be
a cause for concern. This observed phenomenon may be attributed, inter alia, to
the “risk aversion” tendency of the bankers towards small and marginal farmers as
against the large farmers, who are better placed in offering collaterals. The flow of
investment credit to agriculture is constrained by host of factors such as high
transaction costs, structural deficiencies in the rural credit delivery system, issues
relating to credit worthiness, lack of collaterals in view of low asset base of farmers,
low volume of loans with associated higher risks, high man power requirements.
Credit – agricultural credit in India – status of credit – non repayment
1. Explain the agricultural credit situation India.
2. What is the role of credit in agricultural development? Discuss
14.6 SUMMARY
Agriculture credit situation brings out the fact that the credit delivery to the
agriculture sector continues to be inadequate. It appears that the banking system
is still hesitant on various grounds to purvey credit to small and marginal farmers.
149
The situation calls for concerted efforts to augment the flow of credit to agriculture,
alongside exploring new innovations in product design and methods of delivery,
through better use of technology and related processes.
What are the problems faced by the farmers in the context of getting credit?
Discuss
1. Abbott, J. C., ‘The Development of Marketing Institutions’, in H. South-
worth and B. F. Johnston (eds.), Agricultural Development and Economic
Growth (Ithaca, N.Y.: Cornell Univ. Press, 1967) pp. 364–98.
2. Adams, Dale W., ‘Agricultural Credit in Latin America: External Funding
Policy’, Occasional Paper No. 9 (Ohio State University, Apr 1970) (mimeo).
3. Advisory Committee on Overseas Development, Farmer Co-operatives in
Developing Countries (Washington, D.C., Oct 1971).
4. Alvis, V. Q., and Temu, P. E., ‘Marketing Selected Staple Foodstuffs in
Kenya’, IP-25 (Dept of Agricultural Economics and Offices of International
Programs, West Virginia University, Morgantown, Mar 1968).
14.9 ASSIGNMENTS
Give the history of agriculture credit system in India
1. Apte, S. G., ‘Co-operative Agricultural Credit: Some Disquieting
Trends’, Indian Journal of Agricultural Economics, XXVI, 4 (Oct–Dec 1971)
581–2.
2. Arunachalem, R. M., ‘Credit and Capital Formation in the Agricultural
Development of Four Trichy Villages, Madras State, India, 1962–64’, Ph.D.
dissertation (Purdue University, 1966).
3. Athavale, M. C., Mishra, J. P., and Bhave, S. W., ‘Loans Advanced by Land
Development Banks: Utilisation, Diversion and Measures to Prevent
Diversion’, Indian Journal of Agricultural Economics, XXVI, 4 (Oct–Dec 1971)
575.
1.Visit a farmer and get the information on agricultural credit and problem
of getting the same and repayment
14.12 KEYWORDS
Agricultural Credit - defaulters
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LESSON 15
MARKETING OF RURAL AND COTTAGE INDUSTRY PRODUCTS
15.1 INTRODUCTION
The rural products of India are unique, innovative and attractive. A wide variety
of products such as agriculture and household implements, handicraft items, food
products, embroidery and clothes are manufactured in rural areas and offered for
sale in urban markets. Among the products, the handicraft items that represent the
unique skill and art form of rural artisans have significant attraction not only for
metro buyers but, also for foreign nationals. They are appreciated for their “ethnic
origin” and “indigenous design and appearance.” They attract a premium in the
market for these two features. Developing an appropriate marketing network and
promoting rural products by highlighting their significant features has been a
challenge for the Government, NGOs and rural entrepreneurs. Today, corporations
are joining them to promote products of rural entrepreneurs and artisans.
15.2 OBJECTIVES
 Know the different artisan products and problems faced by artisans in
marketing them
 Identify ways to improve the marketing of rural artisan products
 Understand the steps taken by the Government to promote rural
tourism
15.3 CONTENTS
15.3.1 Artisans and Products
15.3.2 Artisans left behind
15.3.3 Marketing problems of artisans
15.3.4 Development measures
15.3.1 Artisans and products
The village small-industry sector consists broadly of two different segments.
Traditional industries (for example, handlooms, khadi and village industries
and handicrafts, etc.)
Modern small-scale industries (mills, factories, power looms, etc.)
The artisans comprise blacksmiths, carpenters, weavers (carpets, durries,
khesh, sarees, etc.), potters, mudha makers, hand-tool makers, farm implement
makers, metal-ware (silver, brass, copper) makers, sculptors (wood, metal clay,
stone), handicraft makers, etc. The Task Force on Handicrafts for the eighth five-
year plan in 1989 defined the term handicrafts as follows.
“Handicrafts are items made by hand, often with the use of simple tools, and
are generally artistic and/or traditional in nature. They include objects of utility
and objects of decoration.”
The artisans are the heirs to tradition. Most craft people have learned their
skills from their parents and grandparents as a continuity of tradition that is being
151
passed on from one generation to another. They have made their regions proud of
their work. Box 17.1 provides examples of craft category items that are unique to a
specific region. Thus, the artisans, on the one hand, are regarded as custodians of
the heritage of India, and on the other, they play an important role in village life
through their repair and maintenance services.
15.3.2 Artisans left behind
As a socio-economic group, artisans are among the poorest. Research shows
that households headed by artisans, in general, have much lower net wealth and
almost all (90 per cent) are landless. While some of them have migrated to other
occupations or become casual labourers, others are stuck with their traditional
work technique due to the lack of required ability and mindset.
It has been revealed that the main cause behind the fruits of scientific and
technological developments not reaching these artisans is their non-involvement in
the rural development programmes.
Kalamkari paintings: Kalamkari art is distinct in its form and usage of
colours. Kalamkari paintings from Andhra Pradesh illustrate stories from Puranic
legends and the famous epics—Ramayan and Mahabharata. The craft has been in
existence in Kalahasti for several generations. All colours are fast and derived from
plants, barks, flower seeds, leaves and roots of various plants. The Vaghri
community of Gujarat also specializes in Kalamkari paintings. The outline is made
on the cloth by a fine bamboo stick and different colours are filled with a date-palm
stick brush.
Leather carving: The hand-carving tool on leather is popular in Auroville and
Pondicherry. The terracotta leather enables the artist to execute carving and
braiding work by hand. The item is coloured after carving and braiding. Gold
embossed painting on leather has a unique charm of its own. The leather is pasted
on iron and wood, geometrical drawings are made and flowers, leaves, and figures
are drawn with a thin pen brush. A specially prepared paste made from guggal,
sakkar, gum, and fenugreek solution is applied on the drawings. Thin and fine
pieces of gold are pasted on leather with sugar solution and enamel paint.
Metal: Jaipur is the hub for chased, engraved, enamelled, lacquered and
encrusted metalware. A wide range of items, including vases, perforated lamps,
table tops, fruit bowls, planters, jewellery boxes and picture frames can be found.
Ink wells, pen cases, styluses, compasses and holders are the other outstanding
brass, iron or silver items found in Rajasthan.
The scattered and diverse nature of this industry has prevented politicians and
policy makers in India from understanding or formulating effective policies or
strategies by which this segment of the population can be made part of a general
advancement.
Recognizing the significance of the role of rural artisans in shaping the growth
and development of the country, the National Institute of Science, Technology and
Development Studies (NISTADS) undertakes science and technology (S&T) studies
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for the weaker sections with a focus on rural artisans and research and
development (R&D) personnel, on the one hand, and development functionaries on
the other. Several such studies have been carried out. The insights obtained from
rural artisans are listed below.2
Government negligence: Non-coverage under agricultural relief programmes
and non-involvement in rural development programmes.
Lack of opportunities: Lack of skill improvement and technology upgradation
opportunities, lack of specialized markets, non-availability of quality raw materials,
lack of proper infrastructural facilities and lack of linkages with development
institutions and banks.
Individual weaknesses: Weak financial power and poor communication skills.
15.3.3 Marketing problems of artisans
The artisans continuing in their occupations could not market their products
successfully due to various reasons discussed here.
Product-side problems
The products of artisans have becomes less competitive. Skills of rural artisans
continue to be old and the technology used is traditional. Mass-produced factory
goods are preferred because of their standardization, modernity and low prices.
Modern technology has enabled machines to imitate even the most intricate
designs that were once the exclusive domain of the artisans, developed and
perfected over centuries and passed down from generation to generation. Though
artisans are creative, they do not risk innovations. Any form of innovation implies
an element of risk and investment of capital. Given that most Indian artisans live
on the margin of subsistence, they have virtually no reserves to invest in
technological innovations (physical capital). Further, rural artisans lack guidance in
product design and development based on an understanding of the demand of the
market. Due to lack of market research facilities and urban exposure they tend to
be product oriented and not customer oriented.
Price-side problems
Artisans face price disadvantages. For instance, cheap plastic products have
wiped out the market for earthenware. Artisans cannot charge lower prices than
mill-made products because of the following problems.
High raw material costs
The infrastructure with which rural artisans produce their handicrafts is quite
inadequate in comparison to what is required to satisfy consumer demand. For
example, in the carpet industry, small producers who make handmade carpets
compete for the same supplies with large factories. The large-scale economies of
buying put the large producers in an advantageous position.
High interest rate
As more than 90 per cent of rural artisan households are landless, they have
minimal resources to mortgage or use land as collateral for a loan. In such
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situations, informal credit plays a critical role in the production and expansion of
artisan’s enterprise. They are forced to take loans from local middlemen and
moneylenders at exorbitant rates of interest.
Place-side problems
Crafts people who reside in small distant villages find it difficult to access
urban areas and metro cities that are now the main markets for craft products. The
middlemen exploit them as they are only interested in maximizing their margins.
Exhibitions, fairs and handicraft stores are now prevalent in much larger
numbers than they were earlier. Still more needs to be done.
Promotion-side problems
Artisans do not have strong communication and promotion skills. The
economic status of artisans is far from satisfactory and this makes their advertising
power weak. Their education level is low and they lack exposure to information and
communication technology. Their shyness, weak communication skills and
tendency to remain “small” and “satisfied” are major barriers to personal selling.
Heavy competition from modern and large industries (high-tech products with
heavy advertising and pro motion) obviously negate their chances of promotion.
Institutional framework for development
Central and state government entities, voluntary non-government organizations
and co-operatives are working together to help artisans to improve their lives. The
reasons for promoting craft s are:
The crafts sector contributes to foreign exchange earnings through exports.
It provides additional earning opportunities for the rural population, especially
during the weak agricultural seasons. It adds to the overall disposable income of
the rural economy.
It is labour intensive and investment in this sector can provide more
employment than large industries. For every rupee of value added in this sector, the
capital required is roughly one-third of what is needed in larger industries.
Rural art, based on the tradition of centuries is the manifestation of the culture
of a region.
There are widespread institutional networks of different organizations that exist
to support rural artisans. These organizations have been established at all levels
and for almost all product categories. The nature of these organizations varies from
being a commission set up by an act of Parliament, to a board, corporation or a
registered society, etc. The list of the organizations set up with an objective for
promoting the cause of artisans is given below.
R&D institutions
Indian Agricultural Research Institute (IARI)
National Institute of Science, Technology and Development Studies (NISTADS)
Advanced Materials and Process Research Institute (AMPRI)
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Central Institute of Agricultural Engineering (CIAE)

Central Leather Research Institute (CLRI)
Central Food Technological Research Institute (CFTRI)
Central Glass and Ceramic Research Institute (CGCRI)
Financial and marketing institutions
National Bank for Agricultural and Rural Development (NABARD)
Khadi Village and Industries Commission (KVIC)
Central Co-operative Bank (CCB)
District Industries Centre (DIC)
Technical training institutions
Indian Agricultural Research Institute (IARI)
Central Institute of Agricultural Engineering (CIAE)
Central Leather Research Institute (CLRI)
Central Food Technological Research Institute (CFTRI)
National Bank for Agricultural and Rural Development (NABARD)
Haryana Institute of Rural Development (HIRD)
Advisory boards
Different boards have been set up to advice governments in policy making.
The All India Handicraft s Board
All India Handloom Board
Central Silk Board
Jute Advisory Board
Corporations
Various corporations have been established to promote quality production and
to lend marketing support to artisans.
The Handicrafts and Handlooms Export Corporation of India (HHEC)
The North-Eastern Handicrafts and Handloom Development Corporation Ltd
[NEHHDC]
The Central Cottage Industries Corporation Pvt. Ltd (CCIC)
The All India Handloom Fabrics Marketing Co-operative Society Ltd
Government offices
Office of the Development Commissioner for Handlooms
Office of the Development Commissioner for Handicrafts
All India associations
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There are all-India organizations for India’s three most popular handicrafts
items—hand-printed textiles, carpets and zari. These associations serve as
platforms for consultations among manufacturers and exporters on the one hand
and the Handicrafts Board on the other. The board uses the following associations
to disseminate information useful to crafts men:
All India Carpet Manufacturers Association, Varanasi district, UP
All India Federation of Zari Industry, Surat, Gujarat
All India Textile Hand-printing Industries Federation, Mumbai
State and Union Territories corporations/departments
The Central Government provides grants and loans to encourage the states to
boost the production and sale of their handicrafts. The states in turn assist
particular sets of handicraft producers and products depending upon the number
of people engaged in them and the market potential the products have. Each state
and union territory has a department looking after development and promotion of
handicrafts. Many states including Arunachal Pradesh, Daman and Diu, Delhi and
Goa have public-sector corporations for marketing handicraft products. A few state
corporations dealing with small-scale industries and other products have taken up
marketing and export promotion of handicrafts.
Voluntary organizations
Certain voluntary organizations are running regional handicrafts training
institutes for women under the all India handicrafts Board.
Handicrafts Teacher’s Training College (the Arts and Crafts Society), Mumbai
Regional Training Institute of handicrafts (Bharat Sevak Samaj), Dharwar,
Maharashtra
Regional Handicrafts Training Institute for Women (Andhra Mahila Sabha),
Hyderabad
Regional Handicrafts Training Institute for Women (Karma Kutir), Kolkata
15.3.4 Development measures
Development of rural artisans requires a two-pronged approach—(i) improving
the socio-economic conditions of artisans and (ii) strengthening the production and
marketing of their units.
Inclusive development programmes
The government rural development programmes should include rural artisans
for improving their living conditions.
Participatory approach in all rural development programmes
The government policies need to consider livelihood approaches that put the
people at the centre of development projects and take a wider and better informed
view of the opportunities and constraints that characterize the lives of the artisans.
This will increase the effectiveness of the different developmental measures taken
up by the government for the rural artisans.
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Social security support

Just as farmers and other weaker sections are provided relief and support in
the form of subsidies, loan waivers and pension schemes, artisans should also be
considered for such preferential treatment.
Organizing artisan groups
Organized artisans would be in a better position if a good business plan is
evolved to approach financial institutions for obtaining financial support and
marketing agencies to market their goods.
The alternative approaches to organizing are:
Organizing into self-help groups (SHGs)
Village artisans can be organized into self-help groups. The organized effort will
help them to develop better produce and enjoy the benefits of economies of scale.
So far, 1.5 million self-help groups have been formed for 3.7 million artisans.
Formation of co-operative societies of craftsmen
Craftsmen can come together in the form of registered co-operative societies to
protect and promote their interests.
Formation of a trust
A trust can be formed by a local NGO or a corporate enterprise interested in
marketing the products of artisans and improving their living conditions. It can
help artisans in marketing and production for some time. The trust can facilitate
the formation of an organized group with a distinct organizational structure when
the group members become capable and resourceful.
Technical education and training
Training and education aims at enhancing the craft skills as well as the
entrepreneurial skills of rural artisans. Provisions for entrepreneurial training for
rural artisans can help them manage their micro-enterprises in a better manner.
The training programmes can be conducted by different government agencies and
co-operative organizations. Supply of Improved Toolkits to Rural Artisans (SITRA)
was launched in July 1992, as a sub-scheme of Integrated Rural Development
Programme (IRDP) and a number of crafts persons were supplied improved hand
tools within a financial ceiling. The rural artisans are trained under the Training of
Rural Youth for Self-Employment (TRYSEM)
The Khadi and Village Industries Commission (KVIC) took two villages in Orissa
in its fold under the cluster-village programme. Through the programmes, it was
decided to encourage the leather industry in Jayapur and bamboo craft in Erkana
village. The Commission is supporting the artisans of these two villages by
providing training to further sharpen their professional competencies. They are
being trained in the use of new technology. High-end technical support is provided
to these artisans. About 534 rural entrepreneurs have been selected by the
Commission to set up small-scale industries. KVIC has a good track record of
having set up 4,853 small-scale units in Orissa under the National Rural
Employment Generation Programme. In the direction of social welfare, its initiatives
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include insuring rural entrepreneurs. It has insured 1,220 rural entrepreneurs

under the Janashree Bima Yojana.
Credit facilities
A capital fund for purchasing raw material and assisting with wages when
stock is being prepared can be of great help to rural craftsmen. Credit facility can
be of vital help for innovative artisans to overcome technological obsolescence and
undertake quality production. Two types of instruments are to be considered by
commercial banks:
Collateral-free loan facilities based on marketing opportunities and viability of
project.
Artisans’ credit cards—just like the Kisan credit cards, artisans may be
considered for extending credit facility.
Marketing initiatives
Various initiatives are being considered and introduced by the Government and
NGOs. We discuss some of the important ones here.
Awareness meets and market research
Rural artisans need to be aware about consumer lifestyles and the traditional
product fit for manufacturing their product range. At least, informal market
research has to be conducted to understand the changes in the preferences of
customers with respect to colour, shape and design. This can be done by
participating in fairs and exhibitions where artisans can interact with the
customers directly with respect to their needs and preferences. Box 17.3 presents
the initiative taken by the Development Commissioner Handicrafts, Ministry of
Textiles in Kashmir.
Agencies
Entrepreneurs and artisans can market their products on their own or through
co-operatives. The state can do it for them through its procurement agencies.
Today, developmental thinking on market linkages has reached stage three—
linkages through companies or industries.
Co-operatives: While this is conceptually a sound approach, the success
achieved by co-operatives is limited. The institutions slowly got corrupted.
Government agencies: As for the linkages provided by the state, these offer
uncertain sustainability. Bureaucrats are in a hurry to promote the artisans when
the concerned minister or politician is interested. Their interest wanes when
ministers and politicians lose interest. Further, they lack the marketing and
technical skills needed to support the artisans.
Industries: Given this context, one can conclude that profit-oriented industry
linkages are a more sustainable and a more scalable alternative. To make an
effective market linkage, industries can play a significant role. Companies can use
the social infrastructure (self-help groups, etc.) as an alternative procurement and
distribution chain and vice versa. This initiative of industries will also strengthen
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the backward and forward linkages of the rural market, besides accelerating the
innovation of rural products.
Workshop for Creating Awareness
A state-level workshop on handicrafts was organized by the Development
Commissioner Handicrafts, Ministry of Textiles, Kashmir with the aim of creating
awareness about different schemes. Hundreds of artisans, stakeholders including
NGOs and entrepreneurs participated in the workshop. Bindoo Ranjan, design
consultant, National Institute of Design (NID), Ahmedabad, deliberated on the
importance of design development in Handicrafts marketing and diversification in
designing. “There is need to adopt improved technology and brand building in
Handicrafts,” Ranjan said. Afrooza, of ICICI Lombard spoke on various aspects of
the Rajiv Gandhi Shilpi Swasthya Bima Yojana (RGSSBY). ICICI Lombard had also
arranged a health camp on the occasion. The workshop was followed by a
question—answer session. It was resolved that all grievances would be redressed
for effective implementation of the schemes.
Urban Haat
The State-owned Handicrafts Development Corporation (Poompuhar) set up a
one-stop outlet at Mahabalipuram to promote the interests of the state’s artisans
and their Handicrafts. Touted as an “urban haat” (market) along the lines of the
famed “Dilli haat” in New Delhi, the outlet was set up on a four-acre piece of land
owned by the Tourism Department. It will allow the nearly 0.65 million artisans in
Tamil Nadu to display and sell their wares directly to foreign and domestic tourists.
“There will be 140 to 150 stalls. We will keep changing the theme to accommodate
all artisans,” said D. Rajendran, the chairman and managing director of the Tamil
Nadu Handicrafts Development Corporation. It provides space for shelf display,
dormitories for artisans, an exhibition hall, food courts and public convenience
facilities.
Retail centres
The state governments can help organized co-operatives of craftsmen to
establish retail outlets in the cities where there is good demand for rural craft work.
Specific markets for artisans such as Anaaj Mandies may be encouraged.
Exhibitions and fairs
Exhibitions and fairs create a direct interface between customers and
producers. They improve the opportunities for craftsmen to (i) sell their products,
(ii) book orders and (iii) obtain formal and informal feedback from actual and
potential customers.
Exhibitions by government bodies
The Ministry of Rural Development has decided to hold exhibitions of products
made by SHGs at regional and national levels.
Regional craft-based fairs
Since 2003, the Government has been conducting regional fairs that have so
far covered Delhi in the north, Hyderabad in the south, Mumbai in the west and
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Bhubaneshwar and Guwahati in the east. Box 17.5 discusses how fairs are held
and how they have benefited artisans.
International fairs and exhibitions
The Indian diaspora and international citizens can become aware of the rich
cultural heritage and unique crafts of India by visiting international festivals such
as India Day Celebration in Washington, etc. where products by Indian artisans are
put on display. In addition to immediate sales on the site, the other benefit is the
promotion of rural tourism.
Museums
Museums arouse curiosity and the desire to possess products that we like the
most. The National Handlooms and Handicrafts Museum (NHHM) was established
at Pragati Maidan, New Delhi. NHHM is spread over a sprawling area of 5 acres. It
comprises about 20,000 rare and distinctive pieces reflecting the excellence of
Indian craftsmen. It is an important showcase and promotional platform for the
artwork of artisans from across the country.
International Fairs—An Opportunity
Organized jointly by the Ministry of Rural Development and the Council for
Advancement of People’s Action and Rural Technology (CAPART), the annual
SARAS–2007 at India International Trade Fair (IITF) displayed a variety of products
prepared by rural artisans, self-help groups and NGOs. The SARAS movement
began in 2003–2004. So far, 67 fairs have been organized exhibiting a variety of
rural products under one roof, providing an opportunity for sales.
Ram Kishor Raiger, a rural leather artisan, observes, “We were surviving in the
bounded areas of our village through small local sales. The Endogenous Tourism
Project (ETP) has given us the chance to display our art and craft skills across the
country. Due to these opportunities, our art and economic level has improved.”
From 16–27 February 2008, crafts persons from 18 different ETP sites of the
country got the opportunity to sell and demonstrate their arts and crafts at the
Toshali National Crafts Mela organized in Bhubaneswar by Orissa Tourism,
supported by the Ministry of Tourism, the government of India and the United
Nation’s Development Programme (UNDP).
Telemarketing
Different tele-shopping companies operate all over the world offering various
types of gift ware and handicrafts, jewellery, fashion, health and beauty products,
household and consumer goods, collectibles and home accessories.
Web marketing
e-Marketing has caught the imagination of consumers the world over and it is
worth Rs 370 billion annually. It is a very effective tool to establish an organization
without the help of intermediaries. This media can be of great use for obtaining
orders from new customers and repeat orders from regular customers.
Organizations (SHGs, co-operatives) can create their Web sites or Web pages to
display information about their products to the entire world. The development and
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promotion agencies of the government can use this to market the products and
educate artisans.4 Box 17.6 showcases the efforts of development agencies.
Export marketing
Craftsmen can explore the export markets if they organize themselves by
forming SHGs or co-operative societies. The export councils set up by the
government will also assist the artisan groups.5Box 17.7 discusses the initiatives of
the Export Council for Handicrafts (EPCH).
We will now outline the steps involved in organizing the export marketing effort.
Market identification
National level commissions, boards, corporations and export promotion
councils can conduct research with respect to the different markets where
particular handicraft products have potential for exports. They can also enable the
select handicraft organizations or artisans to display their products in the
exhibitions that are organized in different countries from time to time.
Awareness of export regulations
Artisan groups, planning entry into export markets, need to know the export
procedures and agencies that help them.
e-Marketing Portal
The Central Cottage Industries Corporation of India Ltd (CCIC) and the
Handicraft and Handlooms Export Corporation of India Ltd (HHEC) have jointly
developed an e-marketing platform. The portal presents high-quality graphic
displays of a wide variety of handicrafts and handlooms products along with their
description, origin and place of production. Procurement is made easy, with a
single-window gateway, easy navigation in a customized interface, e-payment
facility through major debit/credit cards, online tracking of the shipment and a
transparent redressal mechanism. The Web sites of the Office of the Development
Commissioner (Handlooms) and National Institute of Fashion Technology (NIFT)
with regional language interface facility, display about 1,500 free, downloadable
contemporary designs. They help weavers and artisans in developing latest
products and enable them to capture both domestic and export markets.
Exports of Handicrafts
Inspite of being a low-value portfolio in the country’s exports basket of USD
170 billion, handicrafts exports employ seven million people. Millions of artisans
have been facing tough times due to a demand slump in major international
markets. Exports declined by 48.35 per cent to about USD 1.8 billion in 2008–2009
and have contracted by 24.58 per cent to USD 789.30 million till August 2009.
The Foreign Trade Policy of 2009–2014 has also encouraged handicraft
exporters in the direction of new markets. In the policy, provisions have been made
to allow all handicraft exports to be considered as special focus products that
attract an incentive of 5 per cent duty credit scrip. Additionally, 52 items have been
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added in the special focus products, while the market-linked focus product scheme
has been expanded to incentivize exports to Algeria, Egypt, South Africa and Brazil.
The Export Council for Handicrafts (EPCH) has adopted a three-pronged
strategy, including capacity development, design enhancement and aggressive
marketing to boost exports. It is diversifying its export basket by tapping emerging
markets such as Latin America and Africa, among others. EPCH is organizing a
number of awareness programmes on quality improvement for Handicrafts,
including technology upgrade for workshops, packaging, ISO bar-coding, statutory
compliance and quality control measures. It is also setting up 25 common facility
centres at important handicraft clusters. Besides, several new clusters are being
provided the status of “town of excellence.”
Development product literature
They have to develop brochures displaying and describing the range of
products. The information should be in English as well as in the native language of
the target market.
Choosing the right channel
The alternative channels that can be employed by the handicraft organization
for exports are as follows:
Wholesalers: Tie-up with specialized wholesalers having a narrower but in-
depth range of handicraft products.
Importers/distributors: Most Indian handicrafts companies use
importers/distributors to market and sell their handicrafts lines.
Commission agents: Independent commission agents working on around 15 per
cent commission provide Indian companies with direct access to the market and
direct control.
Department stores: Department stores prefer to deal directly with
manufacturers. Their buyers are very specialized and only handle a limited range of
products. Artisan groups may establish business contacts with the buyers.
Mail order: The mail-order houses in foreign countries may be contacted to
secure orders for the products.
Web marketing: By placing product information on a Web site, artisan groups
can create awareness and promote sales.
Success Story of Lepakshi
Lepakshi is the name of a temple town in Andhra Pradesh that is reputed for
its beautiful sculptures created during the Vizianagaram dynasty. With such a well
known name, Lepakshi retail outlets set up by the Andhra Pradesh Handicrafts
Development Corporation Ltd (APHDCL) for marketing handicrafts gained not only
a brand image but also a high ranking in the hierarchy of other handicraft brands
such as Cauvery or Kairali or PoomPuhar. In the export markets, “Made in India” is
a prestigious label to market handicraft products and the good news is that
Lepakshi of Andhra Pradesh Handicrafts Development Corporation Ltd (APHDCL)
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got a geographical indicator (GI) status. In all, there are nine products with GI
status under Lepakshi’s umbrella and another 10 are in the pipeline.
Enthused by the success, the corporation has evolved plans to open
franchisees in overseas markets. To start with, it has initiated steps to open
franchisees in the US market. Though the markets are dull due to recessionary
trends, surprisingly, there is a lot of demand for items from the Lepakshi brand and
the corporation is making efforts to improve sale s by conducting exhibitions. In
Chile and Hong Kong, there is a huge demand for red sanders products for its
auspiciousness in these countries. In the domestic market, the corporation is
planning to set up stores in the premises of important temples.
The support given by APHDCL to about 0.2 million artisans of the state is
manifold. Lepakshi, with its brand status and favourable markets, is helping to
market the artisans’ products overseas. To ensure quality production and right
supplies, the corporation is providing unique and exquisite designs taking the help
of Indian Institute of Crafts and Designs, Jaipur. Artisans are provided with newer
and more modern designs that would help to revive the rich heritage of the state.
The soaring prices of raw materials is a problem area. To resolve this, the
government of India has allocated about Rs 0.01 billion as a grant for setting up a
“raw material bank” that has the capacity to store about 50 tonnes of teak wood
and red sanders wood. Taking this opportunity, APHDCL has set up a “raw material
bank” and the State Forest Department is making the necessary procurements.
With this arrangement, raw materials are made available to the artisans at
concessional rates. Other measures include training programmes to develop latest
designs and toolkits, cash awards every year to encourage the artisans, insurance
worth Rs 0.2 million and medical reimbursement up to Rs 15,000 a year.
So far, APHDCL has set up 18 Lepakshi showrooms, including two outside the
state in Kolkata and Delhi. Every year, the corporation holds about 100 exhibitions
at different places in the country to promote sales. Established in 1982, the
corporation has made good progress and has set an ambitious target of achieving
business worth Rs 0.65 million in 2009–2010.
Promoting selectively
Different markets will have different preferences. An understanding of “what
sells where” is important to direct marketing efforts. Artisan groups have to adopt
niche marketing approaches based on market research data and feedback from
international exhibitions.
Building a brand name
The importance of building a brand name need not be overemphasized. Brand
building is possible only when a concerted effort is made to promote a group of
products. Box 17.8 presents the successful case of brand building by Lepakshi.
Role of NGOs
The economic reforms and liberalization saw the Government vacating several
areas to let private-sector entrepreneurship flourish and contribute to the growth of
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the economy. A similar paradigm shift is needed to transform NGOs from their
dependence on aid and grants from within and outside for transforming the rural
scenario in the country. This is sought to be achieved by engaging them in micro-
finance and micro-entrepreneurship activities for the overall development of the
rural areas and to promote the welfare of the people of rural India. The role of NGOs
in training and financing rural entrepreneurs and artisans as well as promoting the
sales of the products is significant. Box 17.9 illustrates their contribution.
Retail Outlets Managed by NGOs
Samruddhi is a different kind of shop managed by Rural Innovations Network,
an NGO. Samruddhi means prosperity in Sanskrit. Tamil Nadu has only two
Samruddhis—one in Kasipalayam and another in T.N. Palayam, both near Erode.
Samruddhi showcases 18 products developed by people in rural areas. The
products were innovatively developed by the people to meet their needs and not
with a commercial motive. The products on display include a cost-effective stove
that burns on pellets made from waste, a paddy seeding machine, a battery-
operated power sprayer, a low-cost milking machine, small devices to increase fuel
efficiency in LPG stoves, etc. Both the stores depend on Samruddhi Ammas and
Aiyas for selling their products. The shops have four Aiyas and eight Ammas who
bring them business. There are field-level executives who oversee the operations.
The shops need a monthly sale of Rs 0.15 million each to break even.
Women in Banaskantha have a rich heritage of crafts; the Aahirs are known for
their fine embroidery, the Rabari women for beautiful mirror work, the Mochis
make attractive leather items and the Harijans do patchwork and beadwork. A craft
development centre set up at Radhanpur provides skill training, design
documentation, product development, supply of raw materials and marketing. A
Delhi-based organization, Dastakar, has played a committed role in developing the
Craft Development Centre with support received from the Development
Commissioner (Handicrafts) of the Government of India.
SEWA has set up a direct marketing outlet, Banas Craft, in one of the main
commercial areas of Ahmedabad to build up a good market for their products.
Rural artisan – rural product marketing – product of cottage industry –
problems of cottage industrial product
1. Write a note on rural artisans.
2. Write about the significance of the rural artisans product.
15.6 SUMMARY
Rural products are unique because of their ethnic origin and indigenous
design. Marketing them is a big challenge for the government, NGOs and artisans.
Products crafted by artisans have a wide range and represent a specific region.
Artisans are economically backward and less equipped with marketing skills. Both
the Central and the State Governments have taken initiatives such as setting up of
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institutions, corporations and offices and allocating funds for various development
and marketing schemes. The important marketing initiatives are organizing urban
haats, setting up specialized show-appropriate technological innovations but, also
rooms, holding exhibitions and training of artisans. showcasing them through retail
stores set up by them Export marketing is promoted by setting up export in urban
areas. Another important aspect of rural agencies and encouraging participation of
artisans in promotion is rural tourism. Tourism is promoted by international fairs.
NGOs are not only encouraging eco-tourism projects being operated on a PPP
model.
1. What is the role NGOs in the marketing of rural artisan product.
2. What is role of government in the context of rural artisans marketing?
1. Ramkishen Y. Rural & Agricultural marketing, Jaico Publishing House,
2. Mumbai, 2004.
3. S Neelamegham, Marketing in India, Vikas Public house ltd., Delhi,
2004.
4. Risley, George, Modern Industrial Marketing, McGrew Hill, New York,
5. 1970,
6. James A. Anderson and James A. Narus and (2004), Business Market
7. Management, Pearson Education, Asia Pvt. Ltd, Singapore, 2004.
15.9 ASSIGNMENT
Explain the marketing problems of rural cottage industries and how they could
be solved?
1. Source: The Growth and Challenges of Rural Market by S.K. Patro,
1991.
2. Source: http://www.unesco.org/courier/2000L06/uk/doss24.htm
3. Source: http://www.askasia.org/frclasrm/readingsh000104.htrn
4. Rural Marketing by C.S.G.Krishnamacharyulu and Lalitha
5. Marketing Life Insurance in the Rural Sector- Role of Technology by
M. K. Chathil, Paper circulated at Rural Marketing and Communication
Conference by FICCI, Delhi, April 2003.
1. Visit to rural artisans and analyse their products.
2. Find out the problems of cottage industries
15.12 KEYWORDS
Rural artisans – rural industries – cottage industries -
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LESSON 16
THE ROLE OF NABARD, COMMERCIAL BANKS AND REGIONAL
RURAL BANKS IN THE PROVISION OF RURAL CREDIT
16.1 INTRODUCTION
Agricultural credit is considered as one of the most basic input for conducting
all agricultural development programmes. In India there is an immense need for
proper agricultural credit as the economic condition of Indian farmers are very
poor. From the very beginning the prime source of agricultural credit in India was
money lenders. After independence the Govt. adopted the institutional credit
approach through various agencies like co-operatives, commercial banks, regional
rural banks etc. to provide adequate credit to farmers, at a cheaper rate of interest.
Moreover with growing modernization of agriculture during post-green revolution
period the requirement of agricultural credit has increased further in recent years.
16.2 OBJECTIVES
 To analyse the role of NABARD in rural marketing.
 To understand the role of Commercial Banks in rural development
 To elucidate the role Regional Rural Banks in rural development
16.3 CONTENTS
16.3.1 Nabard : A Brief Profile
16.3.2 Functions of NABARD
16.3.3 Role of NABARD
16.3.4 Credit Facilities Offered by NABARD
16.3.1 NABARD: A Brief Profile
NABARD was established on the recommendations of Shivaraman Committee
(Committee to Review Arrangements for Institutional Credit for Agriculture and
Rural Development) on 12 July 1982 to implement the National Bank for
Agriculture and Rural Development Act 1981. It is set up as an apex
Development Bank with a mandate for facilitating credit flow for promotion and
development of agriculture, small-scale industries, cottage and village industries,
handicrafts and other rural crafts. The headquarter of the Bank is situated in
Mumbai (Maharashtra) and it has branches are all over the country. NABARD
Regional Office [RO] has a Chief General Manager [CGMs] as its head, and the Head
office has several Top executives like the Executive Directors[ED], Managing
Directors [MD], and the Chairperson. It has 336 District Offices across the country,
one special cell at Srinagar. It also has 6 training establishments. The Bank has the
mandate to support all other allied economic activities in rural areas, promote
integrated and sustainable rural development and secure prosperity of rural areas.
NABARD also administers the Rural Infrastructure Development Fund (RIDF),
which was set up in 1995-96. NABARD has also been playing a catalytic role in
micro-credit through the channel of Self-Help Groups (SHGs). The bank provides
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refinance to various banks for their term lending operations for the purposes of
agriculture and rural development.
The initial capital of NABARD was Rs. 100 crore. Consequent to the revision in
the composition of share capital between Government of India and RBI, the paid up
capital as on 31 March 2013, stood at 4000 crore with Government of India holding
3,980 crore (99.50%) and Reserve Bank of India 20.00 crore (0.50%). As on 31
March 2014, paid up capital of NABARD stood at Rs. 4700 crore (Rs. 4680 Crore of
GoI and Rs. 20 Crore of RBI).
16.3.2 Functions of NABARD
NABARD was set up essentially as a development bank for promoting
agriculture and rural development. Its main function is to provide refinance for
rural credit disbursed by the State Cooperative Banks, the Regional Rural Banks
and other financial institutions as may be approved by the RBI.
The important functions of NABARD are as follows:
 Providing finance and also refinance for production and marketing in
the rural areas.
 Coordinating and advising the operations of institutions engaged in
rural credit.
 Promoting research in agriculture and rural development.
Besides this pivotal role, NABARD also:
 Acts as a coordinator in the operations of rural credit institutions
 Extends assistance to the government, the Reserve Bank of India and
other organizations in matters relating to rural development
 Offers training and research facilities for banks, cooperatives and
organizations working in the field of rural development
 Helps the state governments in reaching their targets of providing
assistance to eligible institutions in agriculture and rural development
 Acts as regulator for cooperative banks and RRBs identification of
exploitable potentials under agriculture and other activities available for
development through bank credit.
 Refinancing banks for extending loans for investment and production
purpose in rural areas.
 Providing loans to State Government/Non Government Organizations
(NGOs)/Panchayati Raj Institutions (PRIs) for developing rural infrastructure.
 Supporting credit innovations of Non Government Organizations (NGOs)
and other nonformal agencies.
 Extending formal banking services to the unreached rural poor by
evolving a supplementary credit delivery strategy in a cost effective
manner by promoting Self Help Groups (SHGs)
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 Promoting participatory watershed development for enhancing

productivity and profitability of rain fed agriculture in a sustainable
manner.
 On-site inspection of cooperative banks and Regional Rural Banks
(RRBs) and off-site surveillance over health of cooperatives and RRBs.
16.3.3 Role of NABARD
NABARD is the apex institution in the country which looks after the
development of the cottage industry, small industry and village industry, and other
rural industries. NABARD also reaches out to allied economies and supports and
promotes integrated development. Now days the long term and short term credit
needs of these institutions are also being met by National Bank for Agricultural and
Rural Development (NABARD). The scope of the operations of NABARD is large
indeed. Besides providing finance to credit institutions, it is providing innovations
in regard to formulation of schemes, monitoring of implementation, evaluation of
results and evolution of suitable supporting structures of all kinds of agricultural
activities. It is performing the various functions assumed by it smoothly and
efficiently and to help NABARD discharge its duty, it has been given certain roles as
follows:
1. Serves as an apex financing agency for the institutions providing
investment and production credit for promoting the various developmental
activities in rural areas
2. Takes measures towards institution building for improving absorptive
capacity of the credit delivery system, including monitoring, formulation of
rehabilitation schemes, restructuring of credit institutions, training of
personnel, etc.
3. Co-ordinates the rural financing activities of all institutions engaged in
developmental work at the field level and maintains liaison with
Government of India, State Governments, Reserve Bank of India (RBI) and
other national level institutions concerned with policy formulation
4. Undertakes monitoring and evaluation of projects refinanced by it.
5. The Bank refinances the financial institutions which finances the rural
sector.
6. It also keeps a check on its client institutes.
7. It regulates the institution which provides financial help to the rural
economy.
8. It provides training facilities to the institutions working in the field of rural
upliftment.
NABARD's refinance is available to State Co-operative Agriculture and Rural
Development Banks (SCARDBs), State Co-operative Banks (SCBs), Regional Rural
Banks (RRBs), Commercial Banks (CBs) and other financial institutions approved
by RBI. While the ultimate beneficiaries of investment credit can be individuals,
partnership concerns, companies, State- owned corporations or co-operative
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societies, production credit is generally given to individuals. NABARD is also known

for its 'SHG Bank Linkage Programme which encourages India's banks to lend to
self-help groups (SHGs). Because SHGs are composed mainly of poor women, this
has evolved into an important Indian tool for microfinance. By March 2006, 22 lakh
SHGs representing 3.3 core members had to be linked to credit through this
programme.
16.3.4 Credit Facilities Offered by NABARD
NABARD also offers various credit facilities like:
 Rural Infrastructure Development Fund (RIDF) RIDF is a fund to promote
the investment in infrastructure for agriculture. State Governments as
well as Panchayati Raj Institutions (PRIs), Non- Governmental
Organisations, Self-Help Groups, etc. are eligible to borrow out of RIDF for
their schemes like ongoing Irrigation, Flood Protection, Watershed
Management projects, rural Road & Bridge projects, Primary and
Secondary Schools, Primary Health Centres, Village Haats, Joint Forest
Management, Terminal and Rural Market/Godowns, Rain Water
Harvesting, Watershed development, flood protection, drainage, Cold
Storage, Riverine Fisheries, Fishing Harbour & Jetties, Mini/Small Hydel
Projects in Power Sector, Rural Drinking Water Supply Schemes, Citizen
Information Centres, Modern abottoir, Seed/Agri./Hori. Farms, etc.
 Kisan Credit Cards: NABARD has formulated a Model scheme for issue of
Kisan Credit Cards to farmers, on the basis of their land holdings, for
uniform adoption by banks, so that the farmers may use them to readily
purchase agricultural inputs such as seeds, fertilisers, pesticides, etc.
and also draw cash for their production needs. Farmers have to get in
touch with Researcherised banks to use this facility
 Micro Credit Innovation scheme, Under the MCIS, NABARD facilitates
sustained access to financial services for the unreached poor in rural
areas through various microfinance innovations in a cost effective and
sustainable manner.
 Refinance for Rural Housing Facilities scheme RRHFS provides Credit to
the Individuals, Cooperative Housing Societies, Public Bodies, Housing
Boards/ Improvement, Trusts, Local Bodies, Voluntary agencies and
NGOs, Housing Finance Companies registered, with NHB for finance
extended by them to housing projects in the 'rural' areas only. The finance
is provides for Construction of New Houses as well as
 Repairs/Renovation of existing houses in rural areas/ Rainwater
Harvesting Structures/ Sanitary Latrines, etc.
 A Research and Development Fund has been established by the bank with
the objective of acquiring new insights into the problems of agricultural
and rural development through in-depth studies and applied research
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and trying out innovative approaches backed up by technical and

economic studies. It includes facilities for training, dissemination of
information and promotion of research by undertaking studies techno-
economic and other surveys in the fields of agriculture, rural banking and
rural development. The eligible Institutes for the fund are Approved
research institutions, organisations and other agencies which are engaged
in action-oriented, applied research, Individuals or groups of individuals
would also be extended assistance provided they are sponsored by
suitable organisations which would certify the proper use and accounting
of funds, Private and commercial organisations are not normally eligible
for assistance under the this fund.
 Swarojgar Credit Card Scheme: It aims at providing adequate and timely
credit i.e. Working capital or block capital or both to small artisans,
handloom weavers, service sector, fishermen, self employed persons,
rickshaw owners, other microentrepreneures, SHGs, etc from the banking
system in a flexible, hassle free and cost effective manner. Borrowers in
urban areas can be covered under SCC Scheme. Small business covered
under priority sector is also eligible under SCC Scheme. Any
scheme/project that is income generating/ employment generating may
be covered under the scheme. The facility may also include a reasonable
component for consumption needs. Farm sector activities like fisheries,
dairy, etc. can also be covered under the scheme. Generally such of the
self-employment activities which have regular turn over/income stream
on short- interval basis can be covered under SCC scheme. SCC is a
credit delivery mode and not a purpose. Coverage of SCC will not make a
unit ineligible for subsidy. Banks can issue SCCs to target borrowers of
SCC scheme for disbursing credit under any schemes whether they are
covered under subsidy or not.
 Farmers' Club Programme is a grassroots level informal forum. Such
Clubs are organised by rural branches of banks with the support and
financial assistance of NABARD for the mutual benefit of the banks
concerned and rural people. The broad functions being to coordinate with
banks to ensure credit flow among its members and better bank borrower
relationship interface with subject matter.
(2) Institutional Sources: The general policy on agricultural credit has been one
of progressive institutionalization aimed at providing timely and adequate credit to
farmers for increasing agricultural production and productivity. Providing better
access to institutional credit for the small and marginal farmers and other weaker
sections to enable them to adopt modern technology and improved agricultural
practices has been a major thrust of the policy. National Bank for Agriculture and
Rural Development (NABARD) is an apex institution established in 1982 for rural
credit in India. It doesn’t directly finance farmers and other rural people. It grants
assistance to them through the institutions described as follows:
170
1. Rural Co-Operative Credit Institutions:

Rural Credit cooperatives are the oldest and most extensive form of rural
institutional financing in India. The major thrust of these cooperatives in the area
of agricultural credit is the prevention of exploitation of the peasants by
moneylenders. The rural credit cooperatives may be further divided into short-term
credit cooperatives and long-term credit cooperatives.
The short-term credit cooperatives provide short-term rural credit and are
based on a three-tier structure as follows:
(a) Primary Agricultural Credit Societies (PACs): These are organized at the
village level. These societies generally advance loans only for productive purposes.
The main objective of a PACS is to raise capital for the purpose of giving loans and
supporting the essential activities of the members such as supply of agricultural
inputs at cheap price, improving irrigation on land owned by members, encourage
various income-augmenting activities such as horticulture, animal husbandry,
poultry etc. In India, around 99.5 percent of villages are covered by PACs.
(b) District Central Cooperative Banks: These cooperatives are organized at the
district level. The PACS are affiliated to the District Central Co-operative Banks
(DCCBs). DCCBs coordinate the activities of district central financing agencies,
organize credit for PACs and carry out banking business.
(c) State Co-Operative Banks: The DCCBs are affiliated to State Co-operative
Banks (SCBs), which coordinate the activities of DCCBs, organize provision of
finance for credit worthy farmers, carry out banking business and act as leader of
the Co-operatives in the States.
Long-term credit Cooperatives: These cooperatives meet long-term credit of the
farmers and are organized at two levels:
(i) Primary Co-Operative Agriculture and Rural Development Banks: These
banks operate at the village level as an independent unit.
(ii) State Co-Operative Agriculture and Rural Development Banks: These banks
operate at state level through their branches in different villages.
2. Commercial Banks:
Commercial Banks (CBs) provide rural credit by establishing their branches in
the rural areas. The share of commercial banks in rural credit was very meager till
1969. The All India Rural Credit Review Committee (1969) recommended multi
agency approach to the rural and especially agricultural credit. It suggested the
increasing role of the CBs in providing agricultural credit. Further, under the Social
Control Policy introduced in 1967 and subsequently the nationalization of 14 major
CBs in 1969 (followed by another six banks in 1980), CBs have been given a special
responsibility to set up their advances for agricultural and allied activities in the
country. The major expansion of rural branches took place and CBs introduced
Lead Bank scheme and district credit plans for rural areas. Banks were asked to
lend 18 percent of their total advances to agriculture within the quota of 40 percent
171
of priority sector lending. This expansion of rural credit remained till the late
1980s. However, during late 80’s, CBs suffered huge losses due to waiving of
agricultural loans by the government. The financial liberalization process with the
adoption of Narasimham Committee report in 1993 has necessitated the banks to
focus on profitability and adopt prudential norms. The proportion of bank credit to
rural areas especially small borrowers has come down steadily.
3. Regional Rural Banks (RRBs):
RRBs are the specialised banks established under RRB Act, 1976 to cater to
the needs of the rural poor. RRBs are set-up as rural-oriented commercial banks
with the low cost profile of cooperatives but with the professional discipline and
modern outlook of commercial banks. Between 1975 and 1987, 196 RRBs were
established with over 14,000 branches. As a result of the amalgamation, the
number of RRBs was reduced from 196 to 133 as on 31 March, 2006 and to 96 as
on 30 April 2007. RRBs covered 525 out of 605 districts as on 31 March 2006. After
amalgamation, RRBs have become quite large covering most parts of the State.
Increased coverage of districts by RRBs makes them an important segment of the
Rural Financial Institutions (RFI). The branch network of RRBs in the rural area
form around 43 per cent of the total rural branches of commercial banks. A large
number of branches of RRBs were opened in the un-banked or under-banked areas
providing services to the interior and far-flung areas of the country. RRBs primarily
cover small and marginal farmers, landless laborers, rural artisans, small traders
and other weaker sections of the rural community. However, even after so many
years, the market share of RRBs in rural credit remained low and have suffered
huge losses. In recent years Government has initiated reform process to improve
the functioning of RRBs.
4. Weaknesses in Rural Credit Structure:
1. Overemphasis of Monetary Credit: The rural credit institutions have given
overemphasis on the financial assistance to the cultivators. While the finance is
very important factor but it should be complemented with the extension of services
in form of guidance, expertise and counseling on agricultural issues.
2. Multiplicity of Institutions: The rural credit structure is based on multi
agency credit system whereby there exist numerous organizations providing similar
kind of financial services. There is a lack of coordination in the system and the
commercial viability is adversely affected in this scenario.
3. Lack of Motivation: In order to fill the gap that occurred due to the failure of
rural cooperative societies Government gave increasing role to the commercial
banks. However, commercial banks lack the desired skills and expertise in the
agro-credit. The banks have enough financial resources but the service consultancy
is not available. Thus, there is a failure to provide complete package of assistance
to the farmers. Further, financial sector reforms have put pressure on banks to
improve their financial position and so these banks are now concentrating on
selected clientele of large borrowers
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4. Financial Exclusion: Despite of a large network of the institutional credit

system, it has not been able to adequately penetrate the informal rural financial
markets and the non-institutional sources continue to play a dominant role in
purveying the credit needs of the people residing in rural areas. The results of the
All-India Debt and Investment Survey (AIDIS, 2002) also indicate that the share of
the non-institutional sources, in the total credit of the cultivator households, had
increased from 30.6 percent in 1991 to 38.9 percent in 2002.
5. High Interest Rates: The rate of interest charged by rural financial
institutions (RFIs) from farmers continues to be considerably higher than those
charged by financial institutions from urban consumers. The owners of small or
marginal farms, which are non-viable or viable at the margin, and self-employed in
the informal sector, cannot afford to bear the level of interest charged by RFIs.
6. Procedural Delays: There is a problem of considerable delays in processing of
loan applications and collaterals. Thus farmers shy away from institutional
financing and increase their dependency upon non-institutional sources.
7. Poor Recoveries: Banks are shying away from rural financing mainly because
of poor recoveries which is inflicting the system. It is ironical that the recoveries
position is adverse amongst rich farmers than amongst the small farmers. The
political decisions of waiving off loans are further putting pressures on the financial
system.
5. Suggestions for Improving Institutional Rural Credit System:
1. Financial Discipline to Improve Recovery: A national consensus among
political parties should be evolved for not politicizing the RFIs and resist from
announcement of loan or interest waiver schemes and giving calls for not repaying
the institutional loans. However, given the risk involved in the agriculture credit the
recovery system should be flexible and humane.
2. Revamping the Cooperative Credit Structure: The Cooperative Credit
Structure should be strengthened to make use of its wider reach. These have to be
recapitalised so as to provide funds for improving their financial positions. There is
a need of capacity building, human resource development, institutional
restructuring to ensure democratic functioning, and improving the regulatory
regime to empower the Reserve Bank of India (RBI) to enforce prudent financial
management.
3. Better Physical, Social and Economic Infrastructure: The long term policy
framework needs to be designed to improve infrastructure facilities so as to boost
rural economic growth. This requires increased public expenditure on social
infrastructure (like education, availability of drinking water, health facilities),
physical infrastructure (like roads, power) and economic infrastructure like
(irrigation, modern agricultural techniques). These measures would help to improve
the debt paying capacity of rural poor and provide greater opportunities to RFIs.
4. Financial cum Consultancy Approach: RFIs needs to provide extension
services like consultancy about seeds, availability and use of modern inputs,
173
marketing strategies etc to the cultivators so that a holistic package of assistance

can be provided to them.
5. Group Approach to Lending: The lending to homogenous farmer’s groups
needs to be organized to improve credit delivery. This would help to improve
recovery because of peer pressure. Further, group lending tends to be cost-effective.
Involving NGOs or rural educated youths in organizing farmers or rural families in
groups, scrutinizing applications, disbursement of loan and effecting recoveries
would help RFIs in reducing lending costs.
6. Autonomy to RRBs: RRBs should be given more autonomy and flexibility in
planning and lending policies, so that their comparative advantage in rural lending
is restored.
7. Greater involvement of Micro Finance Organizations: The banks need to
involve micro-finance agencies like SHGs, NGOs etc. and other grass root level
financial intermediaries who have better understanding of the credit needs and
recovery situations.
8. Technological Up Gradation: Technological improvements like
computerization can be critical in building up a reliable credit information system
and database on customers, reducing transaction costs and facilitating better
pricing of risk, improving the efficiency of the financial system, and thereby
increasing the access of un-banked rural people in an efficient manner.
9. Information Dissemination to Rural Poor: Credit counseling, awareness and
financial education regarding the benefits of institutional financing are important
for effective expansion of financial services in rural areas. To do this, banks may
utilize the services of non-governmental organisations, village youth clubs, village
panchayats, farmer clubs and self-help groups into confidence.
Need for NABARD – Functions of NABARD – role of NABARD in Rural credit
system
1. Explain the role of NABARD in rural marketing.
2. Discuss the functions of Commercial Banks in the context of rural
marketing.
16.6 SUMMARY
From the above discussion it shows that NABARD is working for the 360 degree
development of rural India. Every year the financial assistance received by NABARD
and the disbursement made out of it are increasing. In short we can say that
NABARD is providing rural India all round assistance and proved to be an
institution where "Growth with Social Justice" exists. It is, in brief, an institution
for the purpose of refinance; with the complementary work of directing, inspecting
and supervising the credit- flows for agricultural and rural development.
174

1. List out the structure of rural credit
2. Describe the problems of rural credit.
1. Source: Marketing Life Insurance in the Rural Sector- Role of Technology
by M. K. Chathil, Paper circulated at Rural Marketing and Communication
Conference by FICCI, Delhi, April 2003.
2. Source: http://www.itcibd.com/e-choupall.ay
3. Source:http://www.blonnet.com/bline/2002/12/24/stories/2002122401
511700.htm
4. Source:http://newsvote.bbc.co.uk/mpapps/Pagetools/Print/news.bbc.co.
uk/2/hi/technology/2940242.stm
5. Source: http://www.post-gazatte.com/world/20021104wiringindial
104P3.asp
6. Source: http://www.drishtee.com
16.9 ASSIGNMENTS
1. What are the suggestions for improving the rural credit system?
2. Explain the weakness in the rural credit structure.
1. www.rbi.org.in.
2. Financial services.gov in.
3. Nafed official website.
4. Nafcub official website.
5. All India Debt and Investment Survey, NSSO 59th Round
1. Go to NABARD and analyse the credit system there.
2. Visit the village rural market and enumerate the role of Regional Rural
Banks.
16.12 KEYWORDS
NABARD, Commercial Banks, Regional Rural Banks, rural credit, credit
structure.
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LESSON 17
KISAN CREDIT CARD SCHEME
17.1 INTRODUCTION
The Kisan Credit Card (KCC) programme was launched by the NDA government
in 1998. With this scheme, the government aimed to fulfil timely and short-term
credit needs of the farmers of India during the planting and harvesting season. It
was also introduced to reduce the dependence of Indian farmers on the informal
banking sector like moneylenders. It was initially proposed in the budget session in
the year 1998-99 by the then Finance Minister, Yashwant Sinha. As a result,
NABARD (National Bank for Agriculture & Rural Development) had come up with a
Model Kisan Credit Card Scheme after a long discussion with some major banks in
the country.
17.2 OBJECTIVES
 To analyse the importance of Kisan Credit Card.
 To understand the rationale behind the Kisan Credit Card.
17.3 CONTENTS
17.3.1 Sources of Kisan card
17.3.2 Brief History of Kisan Credit Cards in India
17.3.3 Rationale behind the Kisan Credit Card Scheme
17.3.4 How do Kisan Credit Cards work?
17.3.5 Features
17.3.6 Interest and other charges on Kisan Credit Cards
17.3.7 Benefits to Banks
17.3.8 Top Banks Providing Kisan Credit Card in India
17.3.9 Insurance under Kisan Credit Card Scheme
17.3.1 Sources of Kisan card
This card is offered by cooperative banks, public sector banks, and regional
rural banks. Kisan Credit Cards can be availed by any farmer in India. Tenants and
sharecroppers can also use this card. This scheme not only simplifies the credit
delivery and screening process for farmers who may not know about banking
practices and procedures. KCC also provides flexible payment schedule after the
harvest season using which the borrower can push his payments in case they
suffer a bad crop season. KCC also works as a single credit facility that the farmer
can use to fulfil all their agricultural needs.
17.3.2 Brief History of Kisan Credit Cards in India
Kisan Credit Card facility was initially proposed by the Finance Minister
Yashwant Sinha in the financial year 1998-1999 Budget, with the objective of
providing easily accessible short-term credit to farmers to meet their immediate
credit needs during the crop season. Reserve Bank of India (RBI), along with
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National Bank for Agriculture and Rural Development (NABARD) took up the cause
and initiated the introduction of Kisan Credit Cards in India.
17.3.3 Rationale behind the Kisan Credit Card Scheme
There are several hurdles faced by farmers in the process of acquiring adequate
finance from banks, such as: long drawn-out documentation and processing,
complicated practices followed by banks and other financial institutions, delay in
processing and also lack of awareness among farmers regarding banking practices
and benefits. Most farmers depend on non-institutional means of credit for their
immediate needs such as: purchase of seeds, fertilizers, pesticides etc. and this in
turn affects them negatively since non-institutional credit is costly and counter-
productive. The Kisan Credit Card scheme intends to remove such complications by
offering cost effective credit to farmers for agricultural and allied purposes in a
timely manner, from reliable banking systems. Agriculturists can purchase items
related to their farming needs using their Kisan Credit Cards and also withdraw the
required amount for related expenses.
17.3.4 How do Kisan Credit Cards work?
The operation of this facility is simple and straight-forward. Based on the land
holdings and the income earned from it, banks issue farmers Kisan Credit Cards.
The farmers should have a good credit history in order to be eligible for the same.
Those who receive the Kisan Credit Card, get facilities like: passbook with the
name, particulars of land holding, address, validity period, credit limit, etc., which
serves as the customer’s unique identification as well as a system for tracking their
transactions. This credit cards can be used at outlets, as well as to withdraw cash
to make the necessary purchases.
How can farmers use the Kisan Credit Cards?
Under this scheme, farmers can withdraw the loan amount in form of cash
withdrawals using withdrawal slips and the Kisan credit card-cum-passbook. Kisan
Credit Card holders who have a credit limit of Rs. 25,000 can also avail cheque
books.
17.3.5 Features
Regional Rural Banks, Cooperative Banks and Public Sector Commercial Banks
have implemented the Kisan Credit Card scheme. Its primary objective is to provide
easily attainable short term loans to farmers. The scope of this unique facility also
includes term loans for agriculture and other allied activities and is a determining
factor for consumption loan. The scheme currently offers:
Credit to meet the financial requirements of agricultural and other allied
activities.
Ancillary credit for crop production and other contingencies.
Insurance coverage for Kisan Credit Card holders
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National Crop Insurance scheme is offered to the Kisan credit cardholders,

which provides coverage for crop loans given under the KCC scheme for certain
crops.
Protection is provided against loss of crops due to pest attacks, natural
calamities, etc.
In some cases collateral security is to be provided. If the loan amount is above
Rs. 100000/-, then the cardholder has to pledge his land as mortgage and
hypothecate the crops raised on it.
Other features include:
Farmers who are eligible for the Kisan Credit Card, is offered a passbook or a
card-cum-pass book.
If a farmer is eligible for a production credit of Rs. 5000 or more, then he/she is
eligible for a Kisan Credit Card.
As per the concerned bank’s discretion, sub-limits may be fixed.
The facility of revolving credit is available for any amount of withdrawals and
repayment made within the credit limit. The credit limit is fixed based on the
individual’s land holdings, scale of finance, annual production credit needs, etc.
Based on the annual review, the credit card can be valid up to 3 years.
Repayment for the amount borrowed can be made within a period of up to 12
months.
Credit limits will be increased to take care of change in cropping pattern,
increase in costs, etc. as an incentive for good record on credit card usage.
Operations will be either though may be through PACS in the case of
Cooperative Banks or issuing branch in case of other banks, at the sole discretion
of the bank.
Conversion/rescheduling of loans also permissible in case of damage to crops
due to natural calamities.
Security, margin, rate of interest, etc. are set as per RBI norms.
Benefits of Kisan Credit Card:
Flexible repayment options
Hassle-free disbursement procedure
Single credit facility/ term loan for all agricultural requirements
Dependable and easily available credit which enables a decrease in the farmer’s
interest burden.
Assists in the purchase of fertilizers, seeds, etc.
Assists in availing cash discounts from merchants/ dealers
Credit is available for a period of up to 3 years, without any seasonal
appraisals.
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Income from agricultural sources determines the maximum credit limit.

There is no restriction on the cash withdrawals that can be made by the Kisan
Credit Card holder, as long as it is within the credit limit set by the bank.
Repayment can be made once the harvest season in over.
Lower interest rates.
Margin, security and documentation terms and conditions are similar to that
applicable to agricultural advance.
Credit is made available for annual agricultural requirements and expenses.
Minimal documentation and maximum flexibility offered for withdrawal of the
required funds from the Bank.
Funds can be withdrawn from any of the Bank’s branches, as per the sole
discretion of the bank.
17.3.6 Interest and other charges on Kisan Credit Cards
Kisan Credit Card interest rates as well as credit limits varies from bank to
bank. Generally, the applicable interest rate per annum for Kisan Credit Cards is
9%, for a credit limit of maximum Rs. 3 Lakh. Central government allows certain
subsidies on interest rate applicable by the financing institutions, provided that the
cardholder’s credit history is good. The additional interest subsidy provided is 2%
and if the customer has a sound track record for three years, he/she is eligible for
an increase in the credit limit. Other charges and fees involved in taking credit
under this scheme are: insurance premium, processing fees, passport photo
charges, charges on land mortgage deed, etc.
17.3.7 Benefits to Banks
This scheme is beneficial to banks since it is time and cost-efficient. There is no
need for an elaborate documentation process or continuous appraisals under the
Kisan Credit Card Scheme. Withdrawal of cash using the credit card requires very
little paperwork and is simple and hassle-free for not just the card holder but for
the Bank as well. Some other highlights include: no transaction costs, lesser risks
in loan recovery, etc.
17.3.8 Top Banks Providing Kisan Credit Card in India
NABARD - NABARD offers term loans and easily accessible credit to farmers to
meet their basic agricultural expenses.
SBI - Short term credit is offered by SBI to farmers, for the purpose of meeting
the production credit requirements, expenses related to allied activities, as well as
contingency expenses.
Bank of India - provides flexible financial support to farmers in order to help
meet the expenses involved in cultivation and other non-farm activities, at a lower
cost.
IDBI - IDBI offers Kisan Credit Cards to farmers along with additional features
like crop loans, investment credit and working capital for meeting agricultural
179
expenses. Farmers, tenant cultivators, owner cultivators, individual farmers and

sharecroppers are considered eligible for the Kisan credit card.
NPCI - RuPay Kisan credit cards are to be offered in the near future by National
Payments Corporation of India (NPCI), as a part of its domestic card scheme for
multilateral payments - RuPay.
17.3.9 Insurance under Kisan Credit Card Scheme
There is a personal accident insurance cover for farmers who have a Kisan
Credit Card, as soon as the customer avails the scheme. The individual gets a
personal accident cover of Rs. 50,000 in the event of death and Rs. 25,000 in case
of disability. In order to be eligible to avail this insurance cover, the customer
should not be above 70 years of age at the time of obtaining the Kisan Credit Card.
Kisan Credit Card FAQs:
How does a bank determine the credit limit on a Kisan Credit Card?
The credit limit offered on a Kisan Credit Card for the initial year is based on:
The cultivation of crops according to the scale of finance and cropping pattern
that was proposed.
household / post-harvest consumption requirements
Expenses related to the maintenance of crop insurance, farm assets, Asset
insurance and Personal Accident Insurance Scheme (PAIS).
What are some of the waivers offered on Kisan Credit Cards?
Waiver on Processing fees on a Kisan credit card limit of maximum Rs.3 lacs.
Waiver of Collateral security for a limit of maximum Rs.1 lac
Maximum Rs.3 lacs for loans which have a tie-up arrangement for recovery.
Is revolving credit facility available?
Yes, revolving cash credit facility is available on a Kisan Credit Card, with any
number of withdrawals, repayments, etc. made within the limit.
What is the premium payable on the personal accident insurance scheme
offered by KCC?
Generally, the premium payable on personal accident insurance scheme for a
year is Rs.15/-, and for 3 years the premium to be paid is Rs.45/-.
Kisan Credit Card – Features – benefits – farmers’ view
1. What is Kisan Credit Card?
2. What are the features of Kisan Credit Card?
17.6 SUMMARY
Agricultural sector is the backbone of our country which contributes around
13.90% to national GDP. For the sustainable development of the agriculture, credit
is utmost important. Hence, to increase the credit availability to farmers
government has implemented the Kisan Credit Card in the 1998-99 with aimed at
180
providing timely and adequate credit to the farmers in a cost effective and flexible
manner
How Kisan Credit Card works? Explain
1. Anjani Kumar, Chitra, Y., Shiv Jee, Sant K. and Sonia, C. Financial
innovation in Indian agricutural credit market: progress and performance
of Kisan Credit Card. Ind J Agri Econ .2011; 66(3):p419-428.
2. Anonymous, 2010-11, Ministry of Finance, Economic Survey 2010-11,
Government of India. pp. 3-6
3. Sirisha, S. and Malpadri, P. Kisan credit card (KCC): A vehicle for financial
inclusion. Intern J Multidiscip Res Acad .2011; 1(2): p43-53
4. Websites www.indiastat.com
5. www.nabard.com
17.9 ASSIGNMENTS
Write an essay on Kisan Credit Card and its benefits to the farmers.
1. Rao, K.R.P. and Sahu, S., “A Study of the Kisan Credit Card Scheme and it
Initiatives of Orissa State Cooperative Bank”, College of Agricultural
Banking, Reserve Bank of India, Pune, 2005, p.4.
2. Kisan Credit Card – A Study, Occasional Paper No.52. Department of
Economic Analysis and Research, NABARD, Mumbai, 2010.
3. Tripathy K K and S K Jain, “Agriculture in the Post Reform Era-Issues,
Challenges and Policy Options”, Kurkshetra, Vol. 55, No.9, July 2007, p.3.
4. Karmakar K.G, “Trends in Rural Finance”, Indian Journal of Agricultural
Economics, January-March, Vol. 63, No.1. 2008. p.11.
5. Nahatkar, S.B., Mishra, P.K., Raghuwanshi, N.K. and Beohar, B.B. “An
Evaluation of Kisan Credit Card Scheme: A Case Study of Patan Tehsil of
Jabalpur District of Madhya Pradesh”, Indian Journal of Agricultural
Economics, Vol.57, No.3.2002.
6. Sangwan, S.S, “Innovative Loan Products and Agricultural Credit: A Study of
Kisan Credit Card Scheme with Special Reference to Maharashtra”, Indian
Journal of Agricultural Economics, Vol.60, No.3, 2005.
7. Vedini, K.H. and Durga, P.K., “Evaluation of Kisan Credit Card Scheme in
the State of Andhra Pradesh”, Indian Journal of Agricultural Economics, Vol.
61, No.1, 2007.
Approach a farmer having Kisan Credit Card and collect the details from him.
17.12 KEY WORDS
Kisan Credit Card
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UNIT. V
LESSON. 18
THE FUTURE OF RURAL MARKETING
17.1 INTRODUCTION
India is an agro-based economy and the growth of most of the other sectors of
economy is driven by rural demand. Urban market is reaching towards the
saturation point, thus bringing in and urgent need to focus on rural development.
Moreover, more than 70% of India's population lives in villages and constitutions a
big market for industry because of increasing disposal incomes and awareness
level.
In comparison to just 5,161 towns in India there are 6, 38,365 villages in India.
This in itself is an indicator where the real India resides. Companies are realizing
slowly but surely that the key to gain true market leadership lies in tapping the
rural potential. In recent years, rural markets have acquired significance in
countries like China and India, as the overall growth of the economy has resulted
into substantial increase in the purchasing power of the rural communities.
18.2 OBJECTIVES
 To understand the agricultural markets
 To analyse the future of rural marketing
18.3 CONTENTS
18.3.1Market growth
18.3.2 Focus strategy
18.3.3 Consumer Finance
18.3.1 Market growth
 Market is growing at a rate of 3-4% per annum. • In 2001-02, LIC sold
55% of its policies in rural India.
 Of two million BSNL mobile connections, 50% are in small towns /
villages.
 Of the 6.0 lakh villages, 5.22 lakh have a Village Public Telephone (VPT).
 41 million Kisan Credit Cards have been issued (against 22 million credit-
plus-debitc ards in urban), with cumulative credit of Rs. 977 billion
resulting in tremendous Liquidity
 Of the 20 million Rediff mail sign-ups, 60% are from small towns.
 42 million rural households (HHs) are availing banking services in
comparison to 27million urban HHs.
 Investment in formal savings instruments is 6.6 million HHs in rural and
6.7 million HHs in urban.
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“A farmer went to nearby small town to book a rent cab to attend an

auspicious occasion nearby village, finding no cab available for rent he instantly
purchased Brand new Mahindra Bolero”
With 742 million people, rural India is the largest potential market in the world
estimated 1,25,000 crores FMCG – 53% Rs.65,000 crores Agri-inputs Rs.45,000
crores 2/4 wheelers Rs.8,000 crores Consumer Durables Rs.5,000 crores The
increase in procurement (minimum support price) MSP has contributed to a rise in
rural demand. Government schemes like NREGS [National Rural Employment
Guarantee Scheme, which guarantees 100 days of employment to one member of
every rural household] reduced rural underemployment and raised wages. Also,
farmers benefited from loan waivers [introduced in the last Union Budget]. The
increase in rural purchasing power is reflected in rural growth across a number of
categories.
Focused marketing strategies • To succeed in rural market, companies will need
to adapt the 4Ps of marketing and the 4As in their strategy – awareness, access,
availability and affordability.
Focused Marketing Strategies Product – Developing relevant products to meet
the specific needs of rural consumers will exercise the minds of marketers. For eg.
We know that voltage fluctuation is a major problem in our villages, because of
which bulbs last but a few days. Companies will put their R & D teams to develop
filaments that can withstand violent fluctuations, thereby extending the life of the
bulb.
Focused Marketing Strategies • Price As rural incomes continue to rise in the
coming years, we may see the share of low unit packs coming down somewhat and
economy packs gaining share. Also as the reach of media and awareness level
improve, we are likely to see companies shift their focus from trade to consumers.
Focused Marketing Strategies • Distribution / Place Challenge of reach will be
addressed through innovation. Project Shakti of HUL is one such successful
example. Nehru Yuva Kendra ‘volunteers’ model through haats being piloted by
MART for Colgate, is another such new model. Amway is already selling bio-
fertilizers in rural India, through its famous multi-layer distribution model.
Proliferation of large format rural retail stores
Escorts r
Focused Marketing Strategies • Communication Indian advertising industry has

to be firmly grounded in rural perception, values and traditions. It has to drown
itself in local colors, customs and modes of communication, to make itself relevant
to rural society. It has to gain the trust of masses, by undercutting excessive
dependency on western advertising.
BIJLI SAMPOORNA MAHASANGR AM SAPNO KA GHAR Launched New
Refrigrtor for Rural and Semi urban market priced at 10,000 Range of TV’s with
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Devnagri script on display Priced at 12,000 Focusing on rural town with population
less than 5000 with special economy model of color TV priced at 8000 Road Show
in semi urban & Rural with mid priced consumer durables to provide Touch & Feel
experience
SHAKTI Operation JAGRUTI Parachute Rural initiative targeted villages
population less than 2000, providing income generating opportunity through shakti
vani ASHA OPERATION Jagruti, a village consumer contact campaign was
launched with the objective of massive rural penetration targeted at the non-users
and infrequent users of dentifrices. Anti Loose Campaign and Temper proof
Packaging in Smaller Variants Low cost snacks & Beverages . Especially for girls
aged between 12- 16.
E- Choupal Chick Chota Coke Great Value Product A rural shopping mall
where farmers can sell their commodities and everything including cosmetics,
garments, electronics, appliances and even tractors. It serves as an agri-sourcing
centers, shopping centers, and facilitation centersa Launched Coca Cola in Rs 5
with tag line “Thand Matlab Coca Cola” US-based direct seller Amway Corporation,
is looking to reverse its fortune with the launch of a range of low-priced fast moving
consumer goods (FMCG) products aimed at rural tier II & III cities. CavinKare
launched an aggressivecampaign to educate people on how to use shampoo
through live ‘touch and feel’ in Rural Folks
Har Gaon Har angan Panchayat scheme Ghar Ghar ke pehchan Mera sapna
meri maruti After securing its foothold in urban and semi-urban markets, it has
launched a pan-India campaign — Mera Sapna Meri Maruti — to tap the vast
potential of the rural market. The promotional scheme â€˜Ghar Ghar ki
Pehchaanâ€™ is aimed at taking highly accomplished product like Santro into the
depth of rural India. runs a panchayat scheme wherein it gives Rs 2,000 as
incentive on every buy of a Spark Har Gaon Har Angan seeks to build an ongoing
relationship with millions of households in rural India through a network of 500
rural sales executives
Arogya parivar Hume Jitna Hain Elvista initiative to build a sustainable,
profitable business that improves access to healthcare among the underserved
millions in rural India by creating awareness, enhancing local availability, and
designing appealing and affordable health solutions Campaign run rural part of
north india , in which rural masses and key opinion leader are educated and aware
about epilepsy Elder has launched its new division to reach deep pocket of the rural
hinterland with separate team of sales force ASTRA Advance sales training for retail
ascendance in rural areas
Samridhi TATA ACE MAGIC Gold Plus Mahindra Samriddhi, an initiative of
Mahindra Farm Equipment, eyes having 600 Mahindra Samriddhi centres and five
million farmers under its ambit by 2020. Titan Industries’ GoldPlus is designed for
the jewellery preferences of the semi-urban and rural Indian customer. TATA’s
Rural Transport Vehicle for Rural and Semi Urban Landscape
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Utsav Miss Palampur campaign Met Suvidha Kamdhenu campaign A Range of

Colour solution intended for the Rural Mass & Market Cadbury has rolled out
campaign “ Miss Palanpur “ eyeing to captured Rural Mass Market Met Suvidha
(Rural) is a participating flexible Endowment Plan that combines savings and
security to Rural Masses The Kamdhenu campaign, a unique high-impact
marketing and sales campaign through cattle loans to farmers
Market research • As the rural market develops in the next few years, more
qualitative studies will be needed to understand the rural consumer, his lifestyle,
aspirations and motivations. • PRA is one of the tool used in the social sector which
involves rural people in the research process and they enjoy sharing and analyzing
about themselves. • Quantitative studies on demand estimation, market shares,
customer satisfaction will need to be undertaken in the rural market as well, as
demand grows and rural India becomes more attractive for marketers.
Consumer finance • The evolution of urban markets in the 90s was fueled by
the entry of consumer finance products as an outcome of the financial sector
reforms in the Indian economy. • Banks like ICICI and HDFC and others moving
aggressively into the rural markets and durable companies like LG, Philips and
others extending their distribution, it can be expected that the urban boom of 90s
should be repeated in the rural market during the current decade.
Rural vertical • Companies will need to equip themselves, if they want to
succeed in the dynamic rural market . To begin with, top management commitment
would be absolutely essential. • The CEO would need to articulate a strong
commitment to rural marketing, only then will the marketing team give its focused
attention and sustained support to this growing market segment. • HUL has
already created a separate rural vertical with a team of RSMs, ASMs, SOs and RSPs
committed exclusively to servicing the rural market. Rural has been given separate
sales targets and the company is in the process of allocating separate sales
promotion and advertising budgets for this market.
Retail and IT models • India boast of a huge unorganized rural retailing system
through the 4200 haats. However organized rural retailing has not taken deep roots
in rural India . • IT and connectivity impact the way business is done. Today with
STD facility, the retailer can dial the town distributor instantly and fresh stocks
would reach him in just a couple of days, because of better road connectivity.
Benefits of IT Driven business strategy • Ease of access • Up-to-date content •
Layout, design, consistent themes • Easy navigation • Higher interactivity • Access
through multiple media • Higher use of non-textual information • Multiple
languages • Lower transaction cost.
Rural managers • As the rural market is already bigger than its urban
counterpart, there is need to develop a good understanding about it among
corporate managers. For this to happen rural marketing should be taught as a
subject in every business school.
185
Glamorize rural marketing • Rural is considered as unglamorous. Industry

seminars on these subjects also evoke a similar response. This must change as the
rural market in size is bigger than any of the other markets mentioned here. •
Industries associations (CII,FICCI,ASSOCHAM) government agencies and academic
institutions should take upon themselves to give due importance to rural
marketing.
Public private partnership
join hands with the government in self- interest to increase the size of the pie, by
creating economic activity in villages through micro-enterprises and mainstream
these efforts, by linking them with large industry.
In 2009, Karnataka planned to privatize the development of rural roads in the
state. The state has around 1,50,000 km of rural roads that cannot be developed
with only government funds. Hence, the state planned to develop these roads
through public-private partnership. The Secretary, Public Works, Ports & Inland
Water Transport, Government of Karnataka, stated that government is keen
towards designing a new policy for rural roads on the lines of Karnataka Road Fund
Policy, Karnataka Tolling Policy and Karnataka Road Sector Policy 2009.
Conclusion • Last but not the least , with the fast improving rural
infrastructure and higher exposure to city life the sharp divide between urban and
rural will get blurred. But this process has only just began.
A marketing strategy in which a company concentrates its resources on
entering or expanding in a narrow market or industry segment.
A focus strategy is usually employed where the company knows its segment
and has products to competitively satisfy its needs. Focus strategy is one of three
generic marketing strategies. See differentiation strategy and low cost strategy for
the other two.
18.3.2 Focus strategy
e,
complex and diversified conglomerate with several different businesses.
corporate strategy in these cases is about the basic direction of the firm as a whole.
In the case of the small firm, it could mean the adoption of courses of action that
would yield a better profit for the firm.
with a firm’s industry position relativ -level
strategies are about the choice of direction that a firms adopts in order to achieve
its objectives.
Focus Strategy:
advantage has received considerable attention recently in the business policy field.
Competitive Strategy, a modern classic of business thinking, provides a strong
conceptual foundation for developing corporate strategy.
strategies are the marketing strategy any of three strategies for marketing products
186
third focuses on a specific product market segment with the goal of establishing a
monopoly.
Focus Strategies: A focus strategy is an integrated set of actions that is
designed to produce or deliver products or services that serve the need of a
particular competitive segment. Types of Focus Strategies : Types Focused Cost
Leadership Strategy Focused Differentiation Strategy
Types of Focus Strategies: i) Focused Cost Leadership Strategy : Some firms
seek to provide customers with affordable solutions for better living through use of
the focused cost leadership strategy. ii) Focused Differentiation Strategy : Other
firms implement the focused differentiation strategy. There are number of ways to
differentiate products or services to serve the unique needs of particular market
segments.
Achieving Focus : Focus is essentially concerned with identifying a narrow
target in terms of markets and customers. The firm implementing a focus strategy
can adopt the following practices: 1) Identification Gaps : A firm can choose specific
niches by identifying gaps not covered by cost leaders and differentiators. 2)
Superior Skills : A firm can create superior skills for catering to such niche
markets. Superior Efficiency : A firm can create superior efficiency for serving such
niche markets. 4) Achieving Lower Cost : A firm can achieve lower cost or
differentiation as compared to the competitors while serving such niche markets. 5)
Use of Innovative Ways : A firm can develop innovative ways to manage the value
chain which are different from the ways prevailing in an industry.
Benefits of Focus Strategies Protection from Competition Capacity to Absorb
Price Increments Less Possibility of Shifting Loyalty Substitute Barrier Effective
Entry Barrier
Benefits of Focus Strategies 1) Protection from Competition : A focused firm is
protected from competition to the extent that the other firms, which have a broader
target, do not possess the competitive ability to cater to the niche markets. 2)
Capacity to Absorb Price Increments : Focused firms buy in small quantities, so
powerful suppliers may not evince much interest. But price increments upto a
certain limit can be absorbed and passed on to the loyal customers. Less Possibility
of Shifting Loyalty : Powerful buyers are less likely to shift loyalties as they might
not find others willing to cater to the niche markets as the focused firms do. 4)
Substitute Barrier : The specialization that focused firms is able to achieve in
serving a niche market acts as a powerful barrier to substitute products/services
that might be available in the market. 5) Effective Entry Barrier: Due to the focused
specialization, the competence of the focused firms acts as an effective entry barrier
to potential entrants into the niche markets.
Limitations of Focus Strategies Rival’s Move Transient Nature of Niches Cost
Configuration Difficult to Move onto Other Segments Difficulty in Achieving
Competence
187
Limitations of Focus Strategies 1) Difficulty in Achieving Competence : First of

all, serving niche markets requires the development of distinctive competencies to
serve those markets. The development of such distinctive competencies may be a
long-drawn and difficult process. 2) Difficult to Move onto Other Segments : Being
focused means commitment to a narrow market segment. Once committed, it may
be difficult for the focused firm to move onto other segments of the market. 3) Cost
Configuration : A major risk for the focused firm lies in the cost configuration.
Typically, the costs for the focused firm are higher as the markets are limited and
the volume of production and sales small. 4) Transient Nature of Niches : Niches
are often transient. They may disappear owing to technology or market factors. For
instance, a new technology may make the process of making the niche products
easier. In the same way, there might be a shift in the consumer’s needs and
preferences causing them to move to other products. Sometimes the rising costs of
niche products may cause the customers to move to the lower-priced products of
cost leaders. 5) Rival’s Move : Rivals in the market may sometimes out-focus the
focused firms by devising ways to serve the niche markets in a better manner.
18.3.3 Consumer Finance
• The term consumer finance refers to the activities involved in granting credit
to consumers to enable them to possess goods meant for everyday use.
Types of Consumer Credit
Revolving credit: it is an ongoing credit arrangement whereby the financier on a
revolving basis grants credit. The consumer is entitled to avail credit to the extent
sanctioned as credit limit ex: Credit Card
• Fixed credit: it is like a term loan where by the financier provides loans for a
fixed period of time. The credit has to be repaid within a stipulated period
ex: monthly installment loan, hire purchase.
• Cash Loan: Under this type of credit banks and financial institutions provide
money with which the consumers buy goods for personal consumption here
the lender and seller are different and lender does not have the responsibility
of seller.
• Secured Finance: when the credit granted by financial institutions is
secured by collateral it takes the form of secured finance. The collateral is
taken by the creditor in order to satisfy the debt in the event of default by
the borrower. The collateral may be in the form of personal property, real
property or liquid assets.
• Unsecured Finance: When there is no security offered by the consumer
against which money is granted by financial institutions, it is called
unsecured finance.
Sources of Consumer Finance
• Traders: The predominant agencies that are involved in consumer finance
are traders. They include sales finance companies, hire purchase and other
such financial institutions.
188
• Commercial Banks: Commercial Banks provide finance for consumer

durables. Banks lend large sum of money at wholesale rate to commercial
or sales finance companies, hire purchase concerns and other such finance
companies. Banks also provide consumers personal loans meant for
purchasing consumer durable goods.
• Credit Card Institutions: These institutions arrange for credit purchase of
consumer goods through respective banks which issue the credit cards. The
credit card system enables a person to buy credit card services on credit.
On presentation of credit card by the buyer, the seller prepares 3 copies of
the sales voucher, one for seller, bank/credit card company and 3rd for the
buyer. The seller forwards a copy to the bank for collection. The seller‘s
bank forwards company. The bank debits the amount buyer to receives
monthly statement from the card issuing bank or company and the amount
is to be paid within a period of 20 to 45 days without any additional
charges.
(NBFC‘s):Non-banking Financial companies constitute an important source of
consumer finance. Consumer finance companies also known as small loan
companies or personal finance companies are non-saving institutions whose prime
assets constitute sale finance receivables, personal cash loans, short and medium
term receivables. These companies charge substantially higher rate of interest than
the market rates.
• Credit Unions: A credit union is an association of people who agree to save
their money together and in turn provide loans to each other at a relatively lower
rate of interest. These are caller co-operative credit societies. They are nonprofit
deposit taking and low cost credit institutions.
Products covered
• Consumers financing covers a wide range of products such as cars,
Televisions, washing machines, refrigerators, Air conditioners, computers etc. The
products covered possess some distinct feature such as durability, sustainability,
sale ability and serviceability etc.
18.4 SUMMARY
When we talk about the future of rural marketing, it is necessary to analyse the
strategy of the marketing. Here, focused strategy is discussed. Because, focused
strategy is one of the factors for future of rural marketing. It is discussed here.
Enumerate the future of rural marketing.
1. Cohen, William A. The Practice of Marketing Management. New York:
Macmillan, 1991.
2. Cravens, David W., and Charles W. Lamb Jr. Strategic Marketing
Management Cases. Boston: Irwin, 1993.
189
3. Gardner, David, and Howard Thomas. "Strategic Marketing: History,

Issues, and Emergent Themes." In Strategic Marketing and
Management, edited by Howard Thomas and David Gardner. New York:
John Wiley & Sons, Inc., 1985.
4. Gladish, Alan W. "Plan to Market for Long-Term Prosperity." Marketing
News, 7 December 1998, 14.
5. Graham, John R. "Making Marketing Work." Direct Marketing, September
1998, 40.
6. Guiltinan, Joseph P., and Gordon W. Paul, et al. Marketing
Management. 6th ed. New York: McGraw-Hill College Div., 1996.
18.7 ASSIGNMENTS
What is your suggestions to improve the system of rural marketing in future?
Discuss
1. Hiam, Alexander, and Charles D. Schewe. The Portable MBA in
Marketing. 2nd ed. New York: John Wiley & Sons, Inc., 1998.
2. Lynn, Robert A., and John M. Thies. "Marketing Strategy and Execution."
In Dartnell Marketing Manager's Handbook, edited by Stewart Henderson
Britt and Norman F. Guess. Dartnell Corp., 1984.
3. McCarthy, E. Jerome, and William D. Perreault Jr. Basic Marketing. 13th
ed. New York: McGraw-Hill College Div., 1998.
4. Schnaars, Steven P. Marketing Strategy: A Customer-Driven
Approach. Reference ed. New York: Free Press, 1995.
5. Walker, Orville C., Boyd, Jr., Harper W., and Jean-Claude
Larreche. Marketing Strategy: Planning and Implementation. 3rd ed. New
York: McGraw-Hill College Div., 1998.
Apply the model of Public Private Partnership in rural marketing
10.10 KEYWORDS
Focusing strategy – future of marketing - PPP
190
LESSON. 19
RURAL VERTICAL RETAILS & PUBLIC PRIVATE PARTNERSHIP IN
RURAL MARKETING
19.1 INTRODUCTION
The CEO would need to articulate a strong commitment to rural marketing,
only then will the marketing team give its focused attention and sustained support
to this growing market segment.
HUL has already created a separate rural vertical with a team of RSMs, ASMs,
SOs and RSPs committed exclusively to servicing the rural market. Rural has been
given separate sales targets and the company is in the process of allocating
separate sales promotion and advertising budgets for this market.
19.2 OBJECTIVES
 To analyse the rural vertical retails
 To understand the Public Private Partnership in rural marketing
19.3 CONTENTS
19.3.1 Retail and IT models
19.3.2 Benefits of IT Driven business strategy
19.3.3 Rural managers
19.3.4 Public private partnership in agriculture in India
19.3.1 Retail and IT models
IT and connectivity impact the way business is done. Today with STD facility,
the retailer can dial the town distributor instantly and fresh stocks would reach
him in just a couple of days, because of better road connectivity.
19.3.2 Benefits of IT Driven business strategy
Ease of access
Up-to-date content
Layout, design, consistent themes Easy navigation
Higher interactivity
Access through multiple media
Higher use of non-textual information Multiple languages
Lower transaction cost.
19.3.3 Rural managers
• As the rural market is already bigger than its urban counterpart, there is
need to develop a good understanding about it among corporate managers. For this
to happen rural marketing should be taught as a subject in every business school.
19.3.4 Public private partnership in agriculture in India
Meaning
A public-private partnership is a contractual agreement between a public
agency (federal, state or local) and a private sector entity. Through this agreement,
skills and assets of each sector (public and private) are shared in delivering a
191
service or a facility for the use of the general public. Each party shares risks and
rewards potential in the delivery of the service and/or the facility. The public
partners in a PPP are government entities, including Ministries, departments,
municipalities, or state-owned enterprises. The private partners could be local or
international and may include businesses or investors with technical or financial
expertise relevant to the project. PPP broadly refers to long term, contractual
partnerships between public and private sector agencies, specially targeted towards
financing, designing, implementing, and operating infrastructure facilities services
that were traditionally provided by the public sector.
PPPs may also include non-government organizations (NGOs) and/or
community-based organizations (CBOs) who represent stakeholders directly
affected by the project. -the
public and the private sectors have their comparative advantages in performing
specific tasks. The government‘s contribution to a PPP may take the form of capital
for investment (available through tax revenue), a transfer of assets, or other
commitments or in-kind contributions that support the partnership. The
government also provides social responsibility, environmental awareness, local
knowledge, and an ability to mobilize political support. The private sector‘s role in
the partnership is to make use of its expertise in commerce, management,
operations, and innovation to run the business efficiently. The private partner may
also contribute investment capital depending on the form of contract. The structure
of the partnership should be designed to allocate risks amongst the partners based
on their capabilities to manage those risks and thus, minimize costs while
improving performance.
In a PPP, each partner, usually through legally binding contract(s) or some
other mechanism, agrees to share responsibilities related to implementation and/or
operation and management of a project. This collaboration or partnership is built
on the expertise of each partner that meets clearly defined public needs through
appropriate allocation of: Resources, Risks, Rewards, Responsibilities. Common
elements of PPP includes: a contract or an arrangement; the provision of public
infrastructure or services; the transfer of risk from the public sector to the private
sector; a reward system based on performance or output; and a focus on service
delivery.
Definition: According to IMF(International Monitory Fund): “Public-private
partnerships refer to the private sector financing, designing, building, maintaining
and operating infrastructure assets traditionally provided by the public sector.”
According to National PPP Policy, 2011 “Public Private Partnership means an
arrangement between a government or statutory entity or government owned entity
on one side and a private sector entity on the other, for the provision of public
assets and/or public services, through investments being made and/or
management being undertaken by the private sector entity, for a specified period of
time, where there is well defined allocation of risk between the private sector and
the public entity and the private entity receives performance linked payments that
192
conform (or are benchmarked) to specified and pre-determined performance

standards, measurable by the public entity or its representative.”
The Planning Commission of India has defined the PPP in a generic term as
“the PPP is a mode of implementing government programmes/schemes in
partnership with the private sector. It provides an opportunity for private sector
participation in financing, designing, construction, operation and maintenance of
public sector programme and projects”.
PPP Model on the basis of Participation Different Models of PPP Supply and
management contracts Supply or service contract Maintenance management
Turnkey projects Operational management Lease Concessions BOT model and its
variations
Supply and management contracts Supply of equipment, raw materials, energy
and power, and labour are typical examples of supply or service contract.
Government provide license for supply of particular services/inputs. The main
purpose of such licensing is to ensure the supply of the relevant service at the
desired level of quantity and quality. Examples of such an arrangement include,
catering services for passengers on railway systems (the Indian Railways).
Turnkey projects: Turnkey is a traditional public sector procurement model for
infrastructure facilities. A private contractor is selected through a bidding process.
The private contractor designs and builds a facility for a fixed fee, rate or total cost,
which is one of the key criteria in selecting the winning bid. The contractor
assumes risks involved in the design and construction phases. The scale of
investment by the private sector is generally low and for a short-term. In this type
of arrangement there is no strong incentive for early completion of a project. This
type of private sector participation is also known as Design-Build. The primary
benefits of DB contracts include time and cost savings, efficient risk-sharing and
improved quality.
Lease types of arrangements: In this category of arrangement an operator (the
leaseholder) is responsible for operating and maintaining the infrastructure facility
and services, but generally the operator is not required to make any large
investment. In this types of arrangements, the operator takes lease of both
infrastructure and equipment from the government for an agreed period of time.
Generally, the government maintains the responsibility for investment and thus
bears investment risks. The operational risks are transferred to the operator. Under
a lease, the operator retains revenue collected from customers/users of the facility
and makes a specified lease fee payment to the contracting authority.
Concessions type: In this form of PPP, the Government defines and grants
specific rights to an entity (usually a private company) to build and operate a
facility for a fixed period of time. The Government may retain the ultimate
ownership of the facility and/or right to supply the services. In concessions,
payments can take place both ways: concessionaire pays to government for the
concession rights and the government may also pay the concessionaire, which it
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provides under the agreement to meet certain specific conditions. Example of this
type of agreement is BOT (Build-Operate-Transfer) and its variation
BOT (Build-Operate-Transfer): A model that entails a concession company
providing the finance, design construction, operation, and maintenance of a
privatized infrastructure project for a fixed period, at the end of which the project is
transferred free to the host government.
government to a private promoter, known as the concessionaire, who is responsible
for the financing, construction, operation, and maintenance of a facility over the
concession period before finally transferring the fully operational facility to the
government at no cost
Variation of BOT model includes: BOO = Build-Own-Operate, BLT = Build-
Lease-Transfer, BOOM= Build-Own-Operate-Maintain, BOOT = Build-Own-
Operate-Transfer, BOOTT = Build-Own-Operate-Train-Transfer -
Transfer- -Build-Finance- -Build-
gn-Build-Operate-Maintain -Operate-
-Own- ilitate-Operate-
Transfer
Preference of PPP Model in India -liberalisation • Used for two-thirds of the
total PPP projects in India • User-fee based BOT model: Widely used in medium- to
large-scale projects, especially in energy and transport (road, ports and airports) •
Annuity-based BOT model: Commonly used in sectors/projects not meant for cost
recovery by levying a fee on sectors such as health and education BOT (Built-
Operate- Transfer) model • Contracts yield time and cost saving benefits; also
enable efficient risk-sharing and improve quality Modified design-build (turnkey)
contracts • Suitable for sectors (water supply, sanitation, solid waste management
and road maintenance) constrained by the availability of economic resources to
improve efficiency Performance based management/ maintenance contacts
Need of PPP in Agriculture
growth rate of 2.7% per year)
about 58 per cent of India’s population
-most populated country in the
world, has to meet food consumption needs of around 1,210 million people. This is
a key demand driver of agricultural growth in the country.
expenditure is likely to reach USD3.6 trillion by 2020, up from an estimated
elopment of Hybrid and genetically, modified seeds,
mechanisation, irrigational facilities needed which requires more institutional
credits. Source: Census of India 2011, Asian Development Bank
Need of PPP in Agriculture and allied sectors
more profitable, and to ensure that rural population has a larger income to share..
of technology in meeting challenge is critical. So the need for new
technologies with potential to provide holistic solutions, and the issues that relate
to their dissemination and commercialization.
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wledge are critical factors for achieving sustainable

competitiveness. We become involved in partnerships to gain access to knowledge
and technologies and to develop innovations that otherwise would be more costly
for us to obtain or develop. complexity of technologies, the
knowledge necessary to develop chains and segments, and the scarcity of resources
mean research cannot be carried out in isolation, whether by science and
technology organizations or enterprises from the productive sector. amwork
increases the quality and relevance of the results and the synergic effects that
occur when we collaborate with actors who have knowledge and resources that we
do not.
Need of PPP in Agriculture There is a need of PPP in agriculture sector for
following reasons:
or farmers
and use of qual
under irrigation
(Crop protection, Agricultural services, Seeds and fertilizers) “What takes the
government 50 years to achieve can be done by the private sector in a tenth of the
time” - Milton Friedman.
Advantages On‐time delivery Maximizes the use of each sector’s strength Help
in to modernize agriculture and revitalize rural economies benefit to small-scale,
resource-poor and marginalized farmers efficient and cost effective delivery of
projects Increased efficiency
Advantages Creation of added value Leads to innovation Alleviation of capacity
constraints and bottlenecks Competition and greater construction capacity
Increased accountability Helps in providing better public services
Advantages A way of developing local private sector capabilities Creating
diversification in the economy Supplementing limited public sector capacities
Shared risk Shared responsibility so more effectiveness Integration of resources
Challenges of PPP Misperceptions between public and private sectors with
regard to intentions, goals and credibility of achievements. Lack of accurate
mapping of proprietary assets and responsibilities between these sectors for
effective functioning. Lack of appreciation and follow-up of best practices Lack of
political leadership, vision and strategy. Risky investment for private organization.
Challenges of PPP Gap between private sector and government ideology lack of
legal and policy framework. Cost in PPP projects are likely to be greater than for
traditional government procurement processes There is a cost attached to debt
politically or socially challenging projects
Challenges of PPP Private sector will do what it is paid to do and no more than
that , Government responsibility continues After taking expertise private sector may
take advantage in the data relating to project.. it is difficult to identify all possible
contingencies during project development Inappropriate definition of project goals
and scope Inadequate attention to monitoring and evaluation
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Present Status
around 758 PPP projects with a total value of USD71.7 billion were operative in
India by mid-2011 across various sectors.
Limited (a non-banking financial company) was established to provide financial
support for projects with long gestation period.
process, a Public Private Partnership Committee (PPPAC) was formed. Since 2006
till date, PPPAC has granted approval to 204 projects with a total project cost of
USD37.5 billion.
PPP in India : pre-liberalisation to the present time • The Great Indian
Peninsular Railway Company (1853) • The Bombay Tramway Company's tramway
services in Mumbai (1874) • PPP models in power generation and distribution in
Mumbai and Kolkata pre-liberalisation • Just 86 PPP projects worth USD157.1
billion were awarded until 2004 • Large-scale private financing has been limited to
Vishakhapatnam and Tirupur 1991-2006 • Growth in PPP to 758 projects costing
USD70.1 billion by July 2011 from 450 projects costing USD45.7 billion in
November 2009 After 2006 Source: The Department of Economic Affairs (DEA)
Sector wise PPP projects in India Source: 12th Five Year Plan Document, PPP
India database
Some examples of PPP Project
Government of Rajasthan and MIL which aims at improving economic self-
sufficiency of tribal maize farmers by enhancing maize yields and incomes in five
districts; Banswara, Dungarpur, Udaipur, Pratapgarh and Sirohi. -Choupal,
(run by ITC, a private sector entity) shows how mutual cooperation between ITC,
rural entrepreneurs, state agricultural universities and the Indian government's
extension machinery has served to bolster the farmer's expertise and day-to-day
awareness of what needs to be done to cope with myriad agricultural needs.
Project Management Agency (PMA): Small Farmer’s Agri-business Consortium
(SFAC), an organization promoted by Ministry of Agriculture, Govt. of India has
appointed AFC as a Project Management Agency for Publicity and Awareness
Building Plan to support Venture Capital Assistance Scheme (VCAS) during XII Five
Year Plan(2012-2017).
given the opportunity to implement the organic farming project named as “Adoption
and Certification of Organic Management System with online Traceability for
Facilitation Domestic Retail Chains and Export in Gujarat, Chhattisgarh, Orissa
and Haryana”.
Maharashtra government has initiated a Private-Public Partnership (PPP) for
Integrated Agriculture Development (PPP-IAD) project under the World Economic
Forum’s (WEF) “New Agriculture Initiative”. The idea is to create a value-chain in
agriculture by involving cooporates that will work with farmers’ groups or
associations from production to marketing stage. Twenty-two companies, 12 of
them private sugar mills, have been selected and have agreed to partner with such
group in everything — from inputs and processing to marketing. They will be
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working in seven categories of produces — sugar, cotton, oilseed, pulses, fruits,

vegetables and poultry.
PPP in Health -Private Partnership or PPP in the context of the health
sector is an instrument for improving the health of the population.
seen in the context of viewing the whole medical sector as a national asset with
health promotion as goal of all health providers, private or public. Private
and Non-profit sectors are also very much accountable to overall health systems
eholders feel
they are part of the system and do everything possible to strengthen national
policies and programmes needs to be emphasized with a proactive role from the
Government.
Health Project on PPP mode
Arogya Raksha Scheme in Andhra Pradesh g in Sawai Man Singh
Hospital, Jaipur chal Mobile Hospital and Research Center (UMHRC)
iv Gandhi Super-specialty Hospital, Raichur,

Karnataka ka
PPP in Education
Eleventh Plan has proposed the setting up of 6,000 new model schools in secondary
education, affiliated to the Central Board of Secondary Education.
2,500 are to be under the PPP model. The intention is to set up these schools in the
backward regions and remote areas where good schooling facilities do not exist, so
that quality education is accessible in the backward regions as well.
the model finalised by the Planning Commission in consultation with the private
sector, these schools will be set up by 2014 and will have the capacity to educate
65 lakh students, of whom 25 lakh will be from the deprived sections.
school will have about 2,500 students, 1,000 of whom will be from deprived
sections and charged a token fee. Fifty per cent of the 1,000 students will be from
the Scheduled Castes, the Scheduled Tribes and the Other Backward Classes.
They will be required to pay a monthly fee of Rs.25 each. The rest of the children,
who will be from other deprived sections — non-income tax paying families — will
be required to pay a fee of Rs.50 a month . The remaining costs of these students,
estimated to be Rs.1,000 to Rs.1,200 a head per month, will be reimbursed by the
Union government to the schools.
19.4 REVISION POINT
Definition of PPP – PPP in Agriculture – in Health sector – in educational sector
1. Define Rural Retail
2. What is public private partnership?
3. Explain the role of PPP in rural marketing
19.6 SUMMARY
The PPP is the model conducive one in the present day context. Since after the
introduction of liberalization. Priratisation and globalization, the government was
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not able to spend on certain items. To be people friendly and for public benefit, the
concept of PPP has been introduces. Very particularly, this is much useful in rural
Marketing aspects.
Need to introduce a course on agricultural regulations at graduation level so
that student are familiarized with the complexities of managing agricultural
business. -term review and for bilateral
agreement for developing new technologies.
and sabbatical provisions for scientists to work with industry need to be
established. is a need to create awareness among the stakeholders
oreover, to mitigate high risk in the
sector, the investment proposal/schemes should include sufficient incentives to
attract private entrepreneurs. action is needed for fulfill the needs of
resource poor farmers and food‐insecure consumers. In order to increase this
share, policymakers should look at setting up an independent institutional
structure for PPP handling, sector-specific regulatory mechanisms and higher level
of transparency of information for PPP.
Write a note on Rural Retail.
1. Panda, T. K. (2007). Marketing Management Text and Cases. Excel Books
Publication.
2. Ponete, D. (2000). Advertising Campaign Strategy A Guide to Marketing
3. Rickman,H.P.(1961).Meaning in History. London George Allen and Urwin Ltd.
4. Rogers, E. M. (2003). Diffusion of Innovation 5th Edition . New York Free
Press.
19.9 ASSIGNMENTS
Write an essay on Public Private partnership in Rural Marketing?
1. Farahat, A., & Bailey, M. (2012). How Effective is Targeted Advertising?
France: WWW– Session: Advertising on the Web 1 Lyon.
2. Fatima, S., & Akhtar, M. W. (2000). Internet Advertising Effectiveness:
What did We Learn and Where are We Going? Worldwide Advertising
Coference Rio De Janerio, , 1-18.
3. Field, A. (2000). Discovering Statistics using SPSS for Windows. New
Delh: Sage publications.
4. Gaur, M. (2013). Rural Marketing-A Radical Perspective. Global Journal
of Management and Business Studies, 605-940.
Try to analyse the Public Private Partnership in rural marketing.
19.12 KEY WORDS
Rural retail – PPP in marketing
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LESSON 20
DEVELOPING A RURAL MARKET E-HUB
20.1 INTRODUCTION
India is second most populous country in the world. Majority of its population
lives in villages & earns their livelihood through farming. Agriculture is the
backbone of Indian economy. It contributes around 26% of the total GDP. 65% of
Indian population lives mainly in its 600,000 villages. Agriculture is the mainstay of
the majority of the villagers as they are employed in agriculture or agriculture
related services. Presence of diverse agro climate zones and a variety of soil and
agro-climatic conditions have made possible the cultivation of almost every item
from cash crops to food grains. Agriculture provides livelihood to about 65% of the
labor force and accounts for 8.56% of India's exports.
20.2 OBJECTIVE
 To understand the e-rural marketing and its functions
20.3 CONTENTS
20.3.1 India’s Rural E-Marketing
20.3.2 Background
20.3.3 About ITC-Inter Business
20.3.4 E-Choupal concept
20.3.5 Idea Generation
20.3.6 Idea Initiation
20.3.7 Conceptualization of the Project
20.3.8 Identifying the Project Goals
20.3.9 Unique Business Model: e-Choupal
20.3.1 India’s Rural E-Marketing
After USA, India has maximum area of arable land but productivity per hectare
is nowhere near the world best. India is not in the top ten countries in terms of
productivity of rice and wheat. Despite green revolution Indian agriculture sector
has not been able to achieve the world level productivity. Cardinal reasons behind
this are highly fragmented nature of Indian farming with close to 33% of arable
land held in units of less than 2 hectares per owner. It doesn't let farmers enjoy the
economies of scale in operations and modern farming equipment proves very
expensive for them. Because of it quality is also a problem. The fragmented farms
are constraining the risk taking ability of Indian farmer locking him up into a
vicious cycle of low risk taking ability > low investment > low productivity > weak
market orientation > low value addition > low margin > low risk taking ability. So
there is a need to look for interventions that can help the farmers realize higher
level of income. This is a case study of the development of a rural market hub using
a set of information communication technologies. This is the largest e-market
initiative undertaken by any corporation in India and also it has been a successful
experience. Many others are trying to replicate this.
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20.3.2 Background
Indian farmers rely on Department of Agriculture for various inputs such as
weather, modern and scientific farming practices and insurance cover. All these are
accumulated by the VLW of Department of Agriculture from various sources like
Government Universities, Meteorological department, insurance companies' etc. For
seeds, fertilizers etc. farmers approach input retailer who source them from
wholesalers who are in direct contact with the manufacturers. After harvest,
farmers bring their produce to Mandis (regional market yards) in small multiple lots
throughout the year, where the beans are auctioned to the traders and agents of
the processing companies in an open outcry method. The Government, to facilitate
fair price discovery and enable aggregation of goods, regulates these market yards.
Successful bidders then bag the beans, weigh them, pay cash to the farmers, and
transport the cargo to the processing units (to whom it would have been sold
through a broker). Many intermediaries carry out this whole activity, each one
acting as a principal with the next leg in the transaction chain as shown in Fig 1.
But with every intermediary the cost of produce increases to the processor as
intermediary adds his profit margin to the cost although the farmers get the lowest
price and margin in the whole value chain. Apart from this, intermediaries also
block the flow of market information to the farmers and use that information for
their own good. Here poor farmers are squeezed to the maximum without the
benefits of their labor accruing to them but to the intermediaries. International
Business Division of ITC started the new initiative namely e-choupal (village
meeting place on an electronic platform).
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20.3.3 About ITC-Inter Business

ITC Limited with an annual sale of US$ 2 billion from its diversified businesses
is one of India's largest corporations with its presence in tobacco, hotels, paper
boards, foods fashion retailing and commodity export. International Business
Division (IBD) started in 1990, a division of ITC is engaged in exports of a range of
agricultural commodities. It contributes over 60% of ITC Group's total foreign
exchange earnings. ITC-IBD has a focused approach on strengthening its core
competencies in select commodities. Today, IBD continues to deliver agri-
commodities like Feed Ingredients - Soya meal, Rapeseed Meal; Food grains - Rice
(Basmati & Non Basmati), Wheat & Wheat Products, Pulses; Coffee, Black Pepper;
Edible Nuts - Sesame Seeds, HPS Groundnuts, & Marine products like Shrimps
and Prawns. ITC IBD's largest item for exports is soybean meal (a rich source of
protein) which are exported to the animal feed mills around the world, competing
with several transnational trading companies, mainly from the USA, Brazil, and
Argentina.
20.3.4 e-choupal concept
e-choupal is a Hindi word which means "village meeting place". Market is a
meeting place where vendors and customers come together to do transactions. e-
choupal is a virtual market place where farmers can transact directly with a
processor and can realize better price for their produce. e-choupal has the
advantages of the market but spans very large varieties of vendors and customers.
Geographical distances do not restrict participation in the e-choupal. The main
disadvantage of conventional market is that information asymmetry is inherent in
the market where as e-choupal provides for transparent transactions. This enables
the participation of smaller as well as larger players. Elimination of some layers of
intermediaries allows for larger share of profits to reach the lower end of value
chain. The main attractiveness of e-choupal is that it can be used for connecting
large producers/small producers and small users/large users, thereby eliminating
the need for hierarchy of brokers. Internet is used as a low transaction cost
backbone for communication. Physical delivery of produce to the processor is still
done through the existing intermediaries. e-choupal does not attempt total
elimination of intermediaries, as intermediaries are indispensable in economy like
India where intermediaries are adding value to the every step of value chain at a
low cost. Intermediaries have the expertise in storage, transportation, quality
assessment and counter party risk reduction, which are difficult to replicate. e-
Choupal provides farmers with all the market information and this helps them to
become market oriented. In e-choupal intermediaries are leveraged but they are
disinter mediated from the market information flowing to the farmers.
20.3.5 Idea Generation
The idea of creating and leveraging an electronic market place came from the
brainstorming session done by senior executives of ITC-IBD. ITC believes in using a
business model that does good to society and helps in improving the standard of
living of stakeholders as well as add value to the shareholder wealth. He also
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believed that to tap the Indian rural market opportunity, and to reach across a wide
range in rural India, the leaders have to understand and unleash the power of the
small-scale entrepreneur in village communities.
20.3.6 Idea Initiation
The challenge of servicing the changing needs of global customers, competing
with the aggressive transnational trading behemoths in a low margin agri-
commodity business, operating from a high cost economy like India and looking for
alternative markets in the period of recession were the basic business driver behind
the new business model. Apart from this ITC was increasingly looking to introduce
service element in its activities and improve the customer centricity. Service
element was never tried in commodity business in India before. ITC was aiming to
introduce new lots, new varieties, new packaging and non-standardized orders
though the new model.
ITC is the major exporter of soya bean. It used to buy soya bean mainly from
the local markets. This created the problem of poor quality produce; need to handle
a large variety and high cost of intermediation. Indian market has inadequate
physical, social and institutional infrastructure that is substituted by
intermediaries and they also add value to the chain on every step. ITC was looking
for a solution that doesn't eliminate the intermediaries entirely but at the same
time leverage their strengths. Apart from this
20.3.7 Conceptualization of the Project
ITC-IBD's top executives had a major brainstorming session. ITC was looking
for a business model that is customer centric but uses existing infrastructure.
Questions like the following were pondered upon:
• What's the best corporate business model for rural India?
• Does it require a new breed of leaders?
• What are the challenges that these leaders are facing?
• Will they have to work within new organizational structures?
The answers pointed towards an electronic market with low transaction cost.
There are numerous intermediaries' in the value chain of the commodity business.
But their total elimination from the value chain would not be prudent for any
business model as they make up for weak infrastructure, and deliver critical value
in each leg at very low cost. But their aggregate cost makes the chain
uncompetitive. And many times, by blocking information flow and market signals,
they are able to extract abnormal profits for themselves than the value they are
adding. A more effective business model must be able to leverage the physical
transmission capabilities of these intermediaries, yet must disinter mediate them
from the flow of information and market signals. Answer to this question was found
in virtual vertical integration in the value chain.
Creative use of information technology through e-Choupal have strengthened
the basic business by enabling reduction of costs in the supply chain and deliver
superior products /services to the customers like real time information on
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monsoon, prices, better farming practices while it has facilitated the interaction
between company and village community. Apart from this, IT also gave the
opportunity to build a unique model of 'rural distribution' on the same platform.
20.3.8 Identifying the Project Goals
The project was initiated with the objective of achieving a win-win situation for
both farmers and the company. So on the one hand more profits and larger share of
commodity exports were ensured for the company and on the other hand farmers
realized better prices for their produce and improved the productivity of their farms.
Initial goals were following:
Helps enhance farm productivity by
• Disseminating latest information on district level weather forecasts for
short & medium terms
• Best practices in farming (generic as well as specific)
• Supply of quality inputs (seed, herbicide, fertilizer, pesticides etc) in the
village itself
Helps improve price realization for farm produce by
• Making available live data on markets viz. Location / Buyer wise prices
offered
• International market prices of relevant agri-commodities
• Historical & Up-to-date information on supply & demand
• Expert opinion on expected future price movements
• Helps minimize transaction costs in marketing farm produce by
• Buying output at the farmers' doorstep
• Through transparent pricing & weight management practices
20.3.9 Unique Business Model: e-Choupal
The e-Choupal model has been specifically designed to tackle the challenges
posed by the unique features of Indian agriculture, characterized by fragmented
farms, weak infrastructure and the involvement of numerous intermediaries, who
block critical market information from passing to the farmers and use that
information for getting a big margin for themselves. The intermediaries capitalized
on the economies of information and economies of physical things, which are tied
together in a bundle. Due to this, the farmers does not get the proper price of its
product & they continue to live below the poverty line. But e-Choupal sets things in
order as it smoothens the flow of information to the farmers by disinter mediating
intermediaries from the chain of information flow and at the same time leverages
the physical transmission capabilities of the them as they deliver critical value at
every link for a very low cost in a weak infrastructure environment. The structure of
e-choupal is shown in Fig 2.
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The project e-Choupal is ITC's unique click & mortar initiative e-Choupal is an
ICT platform for carrying out trade at a number of locations. In this, ITC sets up a
back-up physical service support at the village level, called Choupal, through
Sanchalak: a lead farmer, who acts as the interface between computer and the
farmer. ITC accumulates information regarding weather, modern farming practices,
and market prices from sources like Meteorological Department, Agri-universities,
mandis (regional market) etc., and uploads all information on to e-Choupal web
site. All information is customized according to local farmers requirements and
provided into the local language through computer set up by ITC in Sanchalak's
house. Sanchalak access this information and facilitates its dissemination to
farmers. Information regarding weather and scientific farming helps farmers to
select the right crop and improve the productivity of their farms. Availability of
market information helps farmers to become market oriented. They know what
price ITC is quoting and the price prevalent in the local market, thereby helping
better price realization for farmers. If farmer decides to sell to ITC, Sanchalak works
as the aggregator of small farmers produce to sell them to ITC. Sanchalak also
aggregates farmers input purchase orders for various items like seeds, pesticides
and places them directly with the suppliers through internet and facilitate supply of
high quality farm inputs as well as purchase of farm produce at farmers doorstep
with the help of intermediaries as shown in Fig 2.
e-Choupal is an ICT platform that facilitates flow of information and knowledge,
and supports market transactions on line.
• It transmits Information (weather, prices, news),
• It transfers Knowledge (farm management, risk management)
• It facilitates sales of Farm Inputs (screened for quality) and
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• It offers the choice of an alternative Output-marketing channel (convenience,

lower transaction costs) to the farmer right at his doorstep
• It is an interlocking network of partnerships (ITC + Met Dept + Universities +
Input COs + Sanyojaks, the erstwhile Commission Agents) bringing the "best-
in¬class" in information, knowledge and inputs.
e-choupal is, thus, distributed transaction platform that brings together sellers,
buyers along with information and service providers. e-choupal is a model with a
number of non-conventional characteristics namely:
• customer centric
• capable of being used for many commodities and multiple transactions
• easily scalable once it is verified
• uses local talent and local people and develops local leaders
• can be extended to local as well as global procurers
• stimulates local entrepreneurs to extend their innovativeness
The e-Choupal experience highlights that ICT platforms can provide rural
connectivity and e-commerce support. These platforms have enormous potential
provided they are conceptualized for the specific needs of the community and
business. Some of the elements that helped the e-choupal to work successfully are
discussed below:
• Comprehensive knowledge of rural markets: Rural markets are both
economic and social networks and there is a strong connection between the
operation of social and economic transactions. Understanding the operations is
vital before the systems are conceptualized. Use of local population, as much as
possible helped the network to get the acceptance closely.
• Designing a Win-Win transaction model: The success of e-choupal comes
from the condition in which both the farmer and the processor share the benefits
coming out of the elimination of middle men and due to timely information
availability.
• Leveraging the logistics channels: The existing logistics of the rural markets
are leveraged but they are not able to exploit the information asymmetry (unlike
that in a conventional market). In that sense e-choupal uses the local institutions
but eliminates the information asymmetry that they used previously.
• Selection of Sanchalak: Both the selection of Sanchalak and the acceptance
of Sanchalak by the community are very critical for the success of e-choupal. ITC
used a trial and error method for developing the procedure for selecting
Sanchalaks. In the platform terminology Sanchalak is the interface for maintaining
the platform. For the farmer the Sanchalak is the e-choupal. Training and
sensitizing him for the crucial role has been the main reason for the acceptance of
the Sanchalak by the farmers. Sanchalak, thus, acts as the coordinator of the
knowledge community, and a representative of farming community.
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Evolving an appropriate user interface: Technology interface used in rural areas

have to be very simple. Interface has to be tried for rural settings and only after its
validation it has to be used. Firstly, one has to understand the user pattern and
secondly, it has to be tried, tested and validated. For example, farmers do not
understand the concept of insurance. e-Choupal evolved a simple interfacing
arrangement that a farmer can understand.
Bottom-up model for entrepreneurship: e-Choupal encourages enormous amount
of creativity at the local level along with local entrepreneurship stimulation. The
farmer and Sanchalak are free to use the e-choupal and develop new uses. e-
choupal unleashes the creative spirit in the rural India.
e-choupal concept helped in the creation of skilled personnel in rural
communities. This has a positive spillover effect.
e-choupal – e-choupal business model – advantages of e-choupal
1. What is e-rural marketing? Describe
2. What are advantages of e-choupal? Explain
3. Give the structure of a e-rural marketing.
20.6 SUMMARY
e-Choupal has been most successful initiative to wire rural India and to involve
the farmers in learning. ITC has envisaged on various plans to replicate the success
achieved to other states and expand the services offered to other commodities like
spices. ITC has also identified e-Choupal as an important driver for exports, which
are targeted at $ 400 million by 2005. e-Choupal has also attracted attention from
the renowned academicians, since e-Choupal has managed to innovate the supply-
chain, and model applied by ITC has enough potential to be replicated in the under-
developed and developing countries.
ITC has been successful in making the farmer feel the sense of ownership and
enthuse him to generate additional revenue by eliminating middleman. ITC through
e-Choupal has bought various accolades such as "Golden Star Trading House" for
showing impressive track record in exports of agricultural commodities.
Participating farmers have been able to enhance their income and eliminate the
delay in getting the payment once the product is sold. It has helped in reducing
debt burden of the farmers.
The success of e-Choupal has given new lessons to the corporates in the India
and abroad. The gains from the novel initiative are manifold to ITC, the farmers and
other companies. e-Choupal has helped the farmers to improve their productivity
and get better prices, whereas ITC has benefited by better sourcing of raw materials
and building a backbone to market the end products which is vital for the FMCG
companies like ITC.
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The case study of e-choupal helps in identifying the factors that contributed to
the success of the ICT platform in many states:
• E-choupal has been one of the best ICT application platforms that has
been scaled replicated and sustained. This is due to the fact that it was
specifically designed for that specific business.
• The Sanchalaks are selected carefully and they have been able to work
as non¬partisan coordinators. Sanchalaks have been able to induce the
feeling of involvement. This participative style helped ICT to build trust
at the local level. Trust is essential in sustaining relationships at the
community level.
• E-choupal was customized and then validated and then expanded to the
operational phase. E-choupal has found acceptance in all three
businesses they have ventured into. The model of validating and then
rolling it out has been an effective way of implementing a new business
model.
• E-choupal has provided economic benefits even for the small farmers.
Every beneficiary gets benefit and the equitable benefits makes the
adoption very rapid.
• Intensive training and distributed leadership concept facilitated the
acceptance of the platform concept. The empowerment of people through
local action and training reduces the disparities. The ability of the
choupals to deal with many inputs provides for economies of scope.
e-choupal has been heralded as the attempt at making ICT platforms enhance
the market access, by eliminating the use of middlemen. ITC had the vision to
conceptualize and implement this procurement cum marketing platform. It is a low
cost/multi business model operated by the farmer representative. It has been
validated, scaled and sustained for many businesses by ITC. By embarking on this
initiative, ITC has shown that ICT platforms can benefit even if the marginal
farmers.
1. ICT and rural marketing – write an essay.
2. Write a business model of e-rural marketing.
1. Panda, T. K. (2007). Marketing Management Text and Cases. Excel
Books Publication.
3. Rickman, H. P. (1961). Meaning in History. London George Allen and
Urwin Ltd.
207
4. Rogers, E. M. (2003). Diffusion of Innovation 5th Edition . New York Free

Press.
20.9 ASSIGNMENTS
Arrive at a business model of e-choupal.
4. Gaur, M. (2013). Rural Marketing-A Radical Perspective. Global Journal
of Management and Business Studies, 605-940.
Visit a e-choupal and record the transaction and process there
20.12 KEY WORDS
e-choupal e-rural hub
208
LESSON 21
MARKET RESEARCH
21.1 INTRODUCTION
Marketing Research has two words, viz., marketing and research.
1. Marketing means buying and selling activities.
2. Research means a systematic and complete study of a problem. It is done
by experts. It uses scientific methods.
Thus, we can say, “Marketing Research is a systematic method of collecting,
recording and analyzing of data, which is used to solve marketing problems.”
A company faces many marketing problems. It faces problems about
consumers, product, market competition, sales promotion, etc. Marketing
research helps to solve these problems.
21.2 OBJECTIVES
 To understand the concept of market research
 To analyse the term marketing research
 To differentiate the terms market research and marketing research
21.3 CONTENTS
21.3.1 Definition of Market Research
21.3.2 Features of Market Research: Systematic process
21.3.3 Objectives of Marketing Research
21.3.4 Functions of Marketing Research
21.3.5 Scope of Market Research
21.3.6 Market Research Process
21.3.1 DEFINITION OF MARKET RESEARCH
There are many definitions of marketing research. Some important ones are:
1. According to American Marketing Association (AMA), “Marketing Research
is the systematic gathering, recording and analysing of data about problems
relating to the marketing of goods and services.”
2. According to Philip Kotler, “Marketing research is a systematic problem
analysis, model building and fact finding for the purpose of improved decision-
making and control in the marketing of goods and services.”
3. According to David Luck, Donald Taylor and Hugh Wales, “Marketing
Research is the application of scientific methods in the solution of marketing
problems.”
21.3.2 Features of Market Research: Systematic process:
Marketing research is a systematic process. It first collects data
(information) about the marketing problem. Secondly, it records this data. Then
it analysis (studies) this data and draws conclusions about it. After that, it gives
suggestions (advice) for solving the marketing-problem. So, marketing
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research helps to solve the marketing problems quickly, correctly and

systematically.
Connected with MIS - Marketing research is a component of Marketing
Information System (MIS). Marketing research and MIS are interrelated. Both are
used to solve marketing problems and to take marketing decisions.
Collection of Information:
Marketing research collects full information about consumers. It finds
out the needs and expectations of the consumers. So the company produces the
goods according to the needs and expectations of the consumers.
Tool for decision-making –
The marketing manager has to take many decisions. For this, he
requires a lot of data. Marketing research provides correct and up-to-date
data to the marketing manager. This helps him to take quick and correct
decisions. Therefore, marketing research is an important tool for decision-making.
Marketing research helps the company to make its production and marketing
policies. It helps the company to introduce new products in the market. It helps to
identify new-markets.
Competitive analysis:
Marketing research also collects full information about the competitors.
The company uses this information to fight competition. It also helps the
marketing manager to take decisions.
Continuous Process:
Marketing research is a continuous process. It has a few limitations.
However, a company cannot survive and succeed without it. Marketing research
is a special branch and soul of 'Marketing Management'. It is of recent origin and
widely used by manufacturers, exporters, distributors and service
organisations. Marketing research is very systematic, scientific, objective and
organised. It has a wide scope. It includes product research, consumer
research, packaging research, pricing research, etc.
Uses different methods –
Marketing research uses three methods for collecting data, viz., Survey
Method, Experiment Method and Observation Method. All three methods are
scientific. The researcher has to use a suitable method for collecting a reliable
data.
21.3.3 Objectives of Marketing Research
The main objective of Marketing Research (MR) is to provide information
to the marketing manager. The marketing manager uses this information to
make marketing decision and to solve marketing problems.
The purposes or objectives of marketing research are listed below.
1. Identify the consumer response to the company’s product.
2. Know the consumers’ needs and expectations.
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3. Seek maximum information about the consumer, i.e. the know

consumers’ income range, their location, buying behavior, etc.
4. Know the nature and extent of competition and also the strength and
weaknesses of the competitors.
5. Check the reaction of the dealers to the company policies.
6. Evaluate the reputation of the company in the market.
7. Identify and solve the marketing problems of the company.
8. Search for new marketing opportunities.
9. Find out alternative uses of the existing products.
10. Estimate the cost of marketing of goods and service.
21.3.4 Functions of Marketing Research
The five main functions of marketing research (MR) are:
1. Description
2. Evaluation
3. Explanation
4. Prediction and
5. Aid in decision making
Now let's discuss these prominent functions of marketing research.
1. Description: Marketing research gives full description about the
consumers. It describes their age, sex, education, income, etc. It also gives a
description about the competitors and the market situation. This description
is used to take marketing decisions and solve marketing problems.
2. Evaluation: Marketing research helps to evaluate the company's
performance. It helps to evaluate the company's production and marketing
policies. It finds out the customer reaction to the quality of the product,
price, packaging, advertising, sales, promotions' techniques, etc. If the
consumer reactions are bad, then the company must change its policies. It
also compares the company's policies with the competitors' policies.
3. Explanation: Marketing research gives explanations (answers) for
all the marketing problems. For example, it answers in detail, why are the
sales falling, why are the retailers giving negative reaction, etc. It gives all the
causes or reasons for the problem. It also tells how to solve the problem.
4. Prediction: Marketing research also gives predictions. Predictions mean
to forecast or guess about the future. It gives a prediction about the future
sales, future market opportunities, future risks, future marketing environment,
future consumer behavior, etc. All the prediction may not be correct.
However, these predictions help the company to make future plans and
policies. It helps to take advantage of future opportunities. It also helps to
avoid future risks.
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5. Aid in decision making: Marketing research helps the marketing manager

to take decisions. It provides all the concerned data, which is necessary to take
decisions. Decision making means to select a course of action from two or more
alternatives. Decision making requires up-to-date and correct data. MR helps
the marketing manager to take decisions. It provides all the data, which is
necessary to take decisions. It also provides alternative course of action. It gives
the merits and demerits of each course of action. It also helps the marketing
manager to choose the best course of action.
21.3.5 Scope of Market Research
1. Product Research:
Product means the goods and services which are sold to the consumers.
It includes consumer products and industrial products. Product research studies
the individual product. It studies the making and marketing of the product. It
studies the colour, size, shape, quality, packaging, brand name and price of the
product. It also deals with product modification, product innovation, product life
cycle, etc. The product is modified (changed) as per the needs and wants of the
consumers. Therefore, the product will not fail in the market.
2. Consumer Research:
Consumer is the person who purchases the goods and services. The
consumer is the king in the market. Consumer research studies consumer
behaviour. It studies the consumers needs, wants, likes, dislikes, attitude, age,
sex, income, location; buying motives, etc. This data is used to take decisions
about the product, its price, place and promotion.
3. Packaging Research:
Packaging research is a part of product research. It studies the package of the
product. It improves the quality of the package. It makes the package more
212
attractive. It makes the package more convenient for the consumers. It reduces the
cost of packaging. It selects a suitable method for packaging. It also selects
suitable packaging material.
4. Pricing Research
Pricing Research studies the pricing of the product. It selects a suitable method
of pricing. It fixes the price for the product. It compares the companies price
with the competitor's price. It also fixes the discount and commission which
are given to middlemen. It studies the market price trends. It also studies
the future price trends.
5. Advertising Research
Advertising research studies the advertising of the product. It fixes the
advertising objectives. It also fixes the advertising budget. It decides about the
advertising message, layout, copy, slogan, headline, etc. It selects a suitable
media for advertising. It also evaluates the effectiveness of advertising and
other sales promotion techniques.
6. Sales Research
Sales research studies the selling activities of the company. It studies the
sales outlets, sales territories, sales forecasting, sales trends, sales methods,
effectiveness of the sales force, etc.
7. Distribution Research
Distribution research studies the channels of distribution. It selects a
suitable channel for the product. It fixes the channel objectives. It identifies the
channel functions like storage, grading, etc. It evaluates the competitor's channel.
8. Policy Research:
Policy research studies the company's policies. It evaluates the
effectiveness of the marketing policies, sales policies, distribution policies,
pricing policies, inventory policies, etc. Necessary changes, if any, are made
in these policies.
9. International Marketing Research
International marketing research studies the foreign market. It collects
data about consumers from foreign countries. It collects data about the
economic and political situation of different countries. It also collects data about
the foreign competitors. This data is very useful for the exporters.
10. Motivation Research:
Motivation research studies consumers' buying motives. It studies those
factors that motivate consumers to buy a product. It mainly finds out, why the
consumers buy the product? It also finds out the causes of consumer behaviour
in the market.
11. Market Research:
Market research studies the markets, market competition, market trends,
etc. It also does sales forecasting. It estimates the demand for new products. It
fixes the sales territories and sales quotas.
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12. Media Research:

Media research studies various advertising media. The different advertising
media are television (TV), radio, newspapers, magazines, the internet, etc. Media
research studies the merits and demerits of each media. It selects a suitable
media for advertising. It does media planning. It also studies media cost. It
helps in sales promotion and to avoid wastage in advertising.
21.3.6 Market Research Process
The market research process is a systematic methodology for informing
business decisions. The figure below breaks the process down into six steps:
Step 1. Define the Objective & Your “Problem”
Perhaps the most important step in the market research process is defining the
goals of the project. At the core of this understands the root question that needs
to be informed by market research. There is typically a key business problem (or
opportunity) that needs to be acted upon, but there is a lack of information to
make that decision comfortably; the job of a market researcher is to inform
that decision with solid data. Examples of “business problems” might be
“How should we price this new widget?” or “Which features should we
prioritize?”
By understanding the business problem clearly, you’ll be able to keep your
research focused and effective. At this point in the process, well before any
research has been conducted, I like to imagine what a “perfect” final research report
would look like to help answer the business question(s). You might even go as far
as to mock up a fake report, with hypothetical data, and ask your audience: “If I
produce a report that looks something like this, will you have the information you
need to make an informed choice?” If the answer is yes, now you just need to get
the real data. If the answer is no, keep working with your client/audience until the
objective is clear, and be happy about the disappointment you’ve prevented and
the time you’ve saved.
Step 2. Determine Your “Research Design”
Now that you know your research objects, it is time to plan out the type of
research that will best obtain the necessary data. Think of the “research
design” as your detailed plan of attack. In this step you will first determine
your market research method (will it be a survey, focus group, etc.?). You will
also think through specifics about how you will identify and choose your
sample (who are we going after? where will we find them? how will we
incentivize them?, etc.). This is also the time to plan where you will conduct your
research (telephone, in-person, mail, internet, etc.). Once again, remember to
keep the end goal in mind–what will your final report look like? Based on that,
you’ll be able to identify the types of data analysis you’ll be conducting (simple
summaries, advanced regression analysis, etc.), which dictates the structure
of questions you’ll be asking. Your choice of research instrument will be based
on the nature of the data you are trying to collect. There are three classifications
to consider:
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Exploratory Research – This form of research is used when the topic is not
well defined or understood, your hypothesis is not well defined, and your knowledge
of a topic is vague. Exploratory research will help you gain broad insights,
narrow your focus, and learn the basics necessary to go deeper. Common
exploratory market research techniques include secondary research, focus
groups and interviews. Exploratory research is a qualitative form of research.
Descriptive Research – If your research objective calls for more detailed data
on a specific topic, you’ll be conducting quantitative descriptive research. The
goal of this form of market research is to measure specific topics of interest,
usually in a quantitative way. Surveys are the most common research
instrument for descriptive research.
Causal Research – The most specific type of research is causal research, which
usually comes in the form of a field test or experiment. In this case, you are
trying to determine a causal relationship between variables. For example, does
the music I play in my restaurant increase dessert sales (i.e. is there a causal
relationship between music and sales?).
Step 3. Design & Prepare your “Research Instrument”
In this step of the market research process, it’s time to design your
research tool. If a survey is the most appropriate tool (as determined in step
2), you’ll begin by writing your questions and designing your questionnaire.
If a focus group is your instrument of choice, you’ll start preparing questions
and materials for the moderator. You get the idea. This is the part of the process
where you start executing your plan.
By the way, step 3.5 should be to test your survey instrument with a small
group prior to broad deployment. Take your sample data and get it into a
spreadsheet; are there any issues with the data structure? This will allow you to
catch potential problems early, and there are always problems.
Step 4. Collect your Data
This is the meat and potatoes of your project; the time when you are
administering your survey, running your focus groups, conducting your
interviews, implementing your field test, etc. The answers, choices, and
observations are all being collected and recorded, usually in spreadsheet
form. Each nugget of information is precious and will be part of the masterful
conclusions you will soon draw.
Step 5. Analyze your Data
Step 4 (data collection) has drawn to a close and you have heaps of raw data
sitting in your lap. If it’s on scraps of paper, you’ll probably need to get it in
spreadsheet form for further analysis. If it’s already in spreadsheet form, it’s time
to make sure you’ve got it structured properly. Once that’s all done, the fun
begins. Run summaries with the tools provided in your software package
(typically Excel, SPSS, Minitab, etc.), build tables and graphs, segment your
215
results by groups that make sense (i.e. age, gender, etc.), and look for the major
trends in your data. Start to formulate the story you will tell.
Step 6. Visualize your Data and Communicate Results

You’ve spent hours pouring through your raw data, building useful summary
tables, charts and graphs. Now is the time to compile the most meaningful
take-away into a digestible report or presentation. A great way to present the
data is to start with the research objectives and business problem that were
identified in step 1. Restate those business questions, and then present your
recommendations based on the data, to address those issues.
Market research – marketing research – process of market research
1. How do you conduct the market research?
2. Differentiate market research with marketing research.
21.6 SUMMARY
Market research is entirely different with marketing research. There are
different ways to conduct both of them. During the first step, the market has to be
researched following by marketing research. This is discussed here.
What are the process of market research? Discuss
1. Panda, T. K. (2007). Marketing Management Text and Cases. Excel
Books Publication.
3. Rickman, H. P. (1961). Meaning in History. London George Allen and
Urwin Ltd.
216
4. Rogers, E. M. (2003). Diffusion of Innovation 5th Edition . New York

Free Press.
21.9 ASSIGNMENTS
Visit a rural market and conduct a market and marketing research.
4. Gaur, M. (2013). Rural Marketing-A Radical Perspective. Global
Journal of Management and Business Studies, 605-940.
Visit the rural market and launch interview schedule
21.12 KEY WORDS
Market research – marketing research – process of market research
217
LESSON 22
GOVERNMENT INITIATIVES AND THE ROLE OF NGOs FOR PROPER
AGRICULTURAL MARKETING
22.1 INTRODUCTION
Agriculture sector needs structured and functional markets, preferably in
vicinity of farmers, to drive growth, employment, remunerative price and economic
prosperity in rural areas of the country. Enabling mechanism were also required to
be put in place for procurement of agricultural commodities directly from farmers’
field and to establish effective linkage between the farm production, the retail chain
and food processing industries.
With a view to persuade the various State Governments/UTs to implement the
reforms in agricultural marketing through adoption various provisions of Model
APMC Act and to suggest further reforms, the Ministry of Agriculture constituted a
Committee of ten State Ministers, in-charge of Agriculture Marketing, in 2010.
21.2 OBJECTIVES
 To understand the initiation taken by the government
 To analyse the role of NGOs in rural marketing.
21.3 CONTENTS
21.3.1 Implementation of central plan schemes
22.3.2 Alternative System of Marketing
22.3.3 The Role of NGOs in Rural Marketing
22.3.4 Role of NGOs in Rural Market
21.3.1 Implementation of central plan schemes
1. ‘Grameen Bhandaran Yojana’( Rural Godown Scheme)
This scheme was launched 01.04.2001with the main objectives of being
creation of scientific storage capacity with allied facilities in rural areas to meet
various requirements of farmers for storing farm produce, processed farm produce,
agricultural inputs, etc., so as also to prevent distress sale. Under the scheme
subsidy @ 25% is being given to all categories of farmers, Agriculture Graduates,
Co-operatives & CWC/ SWCs. All other categories of individuals, companies and
corporations are eligible for subsidy @ 15% of the project cost. Enhanced subsidy is
33.33% in case of NE States/hilly areas, SC/ST entrepreneurs & their Co-
operatives and Women Farmers. The scheme has been recently revised by
enhancing the maximum capacity to 30,000 MT with maximum ceiling on subsidy
of Rs. 3 crores for areas other than North Eastern States and by enhancing the
maximum capacity to 25,000 MT with maximum ceiling on subsidy of Rs. 3.333
crores in respect of North Eastern/Hilly States. The scheme is demand-driven,
back-ended and not location specific. The scheme is further being revised in the
EFC under process.
218
As on 31st January 2013, a number of 30,574 Godown projects have been

sanctioned with creation of storage capacity of 38.36million tonnes under the
scheme. An amount of Rs.1017.32crores of subsidy has been released to various
banks and Cooperatives through NABARD and NCDC.
2. Development/Strengthening of Agricultural Marketing, Grading and
Standardisation (AMIGS) Scheme:
The Central sector scheme was launched on 20.10.2004 under which credit
linked investment subsidy is provided for general or commodity specific marketing
infrastructure for agricultural and allied commodities and for strengthening and
modernization of existing agricultural markets, including those of wholesale, rural,
periodic in nature. It is a linked to implementation of three reforms, namely (
i)Setting up Markets in Private and Cooperative sector,(ii) Provision for Contract
Farming and (iii) Provision for Direct Marketing and is being implemented in those
States/ UTs which have amended their APMC Act accordingly. The assistance is
available to various categories which include individuals, group of farmers/
growers/ consumers, Partnership/ Proprietary firms, NGOs, SHGs, Companies,
Corporations, Cooperatives, etc. Under the scheme subsidy of 25% of the capital
cost of the project is provided with a ceiling of Rs.50 lakh per project. In respect of
North-Eastern States, Hilly and Tribal areas and entrepreneurs belonging to SC/ST
and their cooperatives, subsidy of 33.33% is provided with a ceiling of Rs.60 lakh
per project.
Since Inception of the scheme up to 31-12-2012, a total number of 8087
marketing Infrastructure projects have been sanctioned and subsidy of Rs 782.14
crores has been released.
3. Marketing Research and Information Network (MRIN) Scheme:
An ICT based Central Sector Scheme of Marketing Research and Information
Network (AGMARKNET) was launched in March, 2000 to provide electronic
connectivity to important wholesale markets in the country for collection, collation
and dissemination of price and market related information for the benefit of farmers
and other market users. The scheme is being implemented in collaboration with
Directorate of Marketing and Inspection, National Informatics Centre, State
Agricultural Marketing Directorate/Board and APMCs. Information relating to
prices, arrival of commodities and other market related information is provided on
the portal. Information on prices and arrivals of more than 400 commodities and
3000 varieties are collected and reported/uploaded on daily basis. More than 3200
markets are covered under the scheme.
4. Strengthening of Agmark Grading Facilities (SAGF)
The Agricultural Produce (Grading and Marking) Act, 1937 provides for the
grading and marking of agricultural produce. It involves framing of grades,
standards and certification of agricultural commodities included in the schedule
appended to the Act. The SAGF Scheme aims to support 11 Regional Agmark
laboratories and a Central Agmark Laboratory, Nagpur with lab equipments etc. for
219
carrying out their research and analysis work for developing and promoting grading
and standardization of agricultural commodities under Agmark. Agricultural
Produce (Grading & Marking) Act, 1937 is being implemented through standards
set for various commodities and agricultural produce under Grading and Marking
Rules framed from time to time. So far 108 Rules for agricultural commodities have
been framed.
5. Institutional Intervention in Development of Agricultural Marketing
Department of Agriculture and Cooperation has three Organizations dealing
with marketing under its administrative control, namely, the Directorate of
Marketing & Inspection (DMI) Faridabad for promotion of standards and grading of
agricultural and allied produce, to pursue States to bring marketing reforms and to
promote market information network;
Ch. Charan Singh National Institute of Agricultural Marketing (NIAM), Jaipur
for providing training in the field of agricultural marketing; and Small Farmers
Agri-business Consortium (SFAC), New Delhi for promoting agri-business for small
and marginal farmers.
A. Directorate of Marketing and Inspection: The Directorate of Marketing and
Inspection (DMI) is an attached Office of the Ministry of Agriculture. It was set
up in the year 1935 to implement the agricultural marketing policies and
programmes of the Central Government. Since its very inception, the Directorate
continues to be responsible for bringing about an integrated development of
marketing of agricultural and allied produce in the country with a view to
safeguarding the interests of producer-sellers as well as the consumers. It
maintains a close liaison between the Central and the State Governments in the
implementation of agricultural marketing policies in the country.
B. Small Farmers’ Agribusiness Consortium (SFAC): Small Farmers Agri-
Business Consortium (SFAC) was registered on 18th January, 1994 as a society
under the Societies Registration Act, 1860. Currently, the members include RBI,
SBI, IDBI, EXIM Bank, Oriental Bank of Commerce, NABARD, Canara Bank,
NAFED, United Phosphorous Ltd. etc. The mission of the society is to support
innovative ideas for generating income and employment in rural areas by promoting
private investment in agri-business projects. A Central Sector Scheme for agri-
business development is being implemented by SFAC in close association with
Commercial Banks for providing:
(i) Venture capital to agribusiness projects and
(ii) Assistance to farmers/producer groups for preparing quality Detailed Project
Reports (DPR).
For effective implementation of the scheme, SFAC has already signed MOU with
21 commercial banks. The scheme is open to women entrepreneurs also. SFAC has
been mandated for promotion of FPOs and procurements of oilseeds and pulses
under MSP and for promotion of clusters for vegetables.
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C. National Institute of Agriculture Marketing (NIAM), Jaipur: Ch. Charan

Singh
National Institute of Agricultural Marketing (NIAM) is a premier National level
Institute set up by the Government of India in August, 1988 to offer specialized
training, research, education and consultancy in the field of Agricultural Marketing.
NIAM is playing a vital role in expediting the reform process and availability of
quality managers through its mandate. NIAM is engaged in organising training
programmes in the field of agricultural marketing and allied areas for senior and
middle level officers from various line departments of State Governments,
Cooperatives, Marketing Boards and Agribusiness Entrepreneurs. The institute is
also playing an active role in orienting agricultural extension personnel towards
agricultural marketing. NIAM has been actively involved in Research, Training and
Consultancy in the field of Agricultural Marketing.
22.3.2 Alternative System of Marketing
♦♦♦ Forward Trading:- Forward trading means an agreement or a contract
between seller and purchaser, for a certain kind and quantity of a commodity for
making delivery at a specified future time, at contracted price. It is a type of
trading, which provide protection against the price fluctuations of agricultural
produce.
Benefits
• Price risk management of an agricultural commodity e.g potato.
• Facilitates production, and improve the quality of produce.
• Acts as a price barometer to farmers and other trade functionaries.
• It benefits indirectly to the exporters / farmers through better information,
lower and more stable marketing and processing margins. It gives an idea of prices
to the consumers, which enable them to enter forward contract margins.
• It ensures a balance in demand and supply position throughout the year.
• It promotes an integrated price structure throughout the country
♦♦♦ Contract Marketing: - The “Contract marketing” is a system in which the
commodity is marketed by farmers under a pre-agreed buy-back contract with an
agency engaged in trading or processing. In contract marketing, a producer will
produce and deliver to the contractor, a quantum of required quality of produce,
based upon anticipated yield and contracted acreage, at a pre-agreed price. In this
agreement, agency contributes input supply and renders technical guidance. The
company also bears the entire cost of transaction and marketing. By entering in to
contract, farmer’s risk of price reduces and the agency reduces the risk of non-
availability of raw material. The inputs and extension services provided by the
agency include improved seed, credit, fertilizers, pesticides, farm machinery,
technical guidance, extension, marketing of produce etc. In present scenario,
Contract marketing is one of the way by which producers, especially small farmers,
participates in the production of good quality potato to get higher return.
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♦♦♦ Direct Marketing:- Direct marketing is an innovative concept, which

involves marketing of produce i.e. Red gram by the farmer directly to the
consumer/ miller without any middlemen. Direct marketing helps in better
marketing of the produce.
1. It increases profit of the producer.
2. It minimizes marketing cost.
3. It encourages distribution efficiency of the marketing system.
4. It promotes employment to the producer.
5. Direct marketing satisfy the consumer.
6. It provides better marketing techniques to producers.
7. It encourages direct contact between producers and consumer.
8. It encourages the farmers for retail sale of their produce
♦♦♦ Co-Operative Marketing: - The co-operative societies sale the member’s
produce directly in the market, which fetches the remunerative price. Co-operative
societies, market the member’s produce collectively and secure advantages of
economy of scale to its members.
Benefits
a) Remunerative price to producers
b) Reduction in cost of marketing
c) Reduction in commission charges
d) Effective use of infrastructure
e) Credit facilities
f) Timely transportation service
g) Reduces malpractices
h) Marketing Information
i) Supply of agricultural inputs
j) Collective processing
22.3.3 The Role of NGOs in Rural Marketing
In recent years, rural markets have acquired significance, as the overall growth
of the economy and green revolution has resulted into substantial increase in the
purchasing power of the rural communities. Because of these developments the
rural areas are consuming a large quantity of industrial and urban manufactured
products. Also urban market has reached saturation as most of the capacity of the
purchasers has been already targeted by the marketers. In this context, a special
marketing strategy, namely, rural marketing has emerged. But often, rural
marketing is confused with agricultural marketing - the latter denotes marketing of
produce of the rural areas to the urban consumers or industrial consumers,
whereas rural marketing involves delivering manufactured or processed inputs or
services to rural producers or consumers.
(ii) WHAT MAKES RURAL MARKETS ATTRACTIVE ?
The Indian rural market has a huge demand base and offers great
opportunities to marketers. There are a variety of reasons for corporates to target
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the rural market. Firstly, two-thirds of Indian consumers live in rural areas and
almost half of the national income is generated here. Secondly, increase in income
of people in rural areas has led to a rapid growth in rural demand. The urban
consumer durable market for products like color 'TVs, washing machines,
refrigerators and air conditioners is growing annually at between 7 per cent and 10
per cent. On the other hand, the rural market is zooming ahead at around 25 per
cent annually. Thirdly, the urban market has reached saturation level whereas
rural market has huge potential for growth. Finally, even corporates are now
realizing that not competing in the fast growing rural areas will keep them out of
about half of country's market which is largely untapped.
SPECIAL FEATURES OF RURAL MARKET
Difficulty in prediction and possession of special characteristics make rural
market different from the urban market. Since the rural population is
predominantly agrarian, it is characterized by low and irregular income which
keeps on fluctuating with the monsoon winds.
Before venturing into rural markets, corporates have to address some critical
issues like 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 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.
Opinion leaders play a key role in popularizing products and influencing
consumers in rural market. Nowadays educated youth of rural areas 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 behavior greatly.
22.3.4 Role of NGOs in Rural Market
NGOs can play a significant role in helping corporates by making the rural
populace understand the benefits of their products and services. NGOs use
interpersonal methods of communication, and study the right entry points whereby
they gain the trust of the community they seek to benefit. They would also have a
good idea of the feasibility of the projects they take up. The significance of this role
to the corporate is that NGOs can communicate information about the lives,
capabilities, attitudes and cultural characteristics of people at the local level.
NGOs can facilitate communication upward from people to the corporate and
downward from the corporate to the people. Communication upward involves
informing corporate about what local people are thinking, doing and feeling while
communication downward involves informing local people about what the corporate
is planning and doing. NGOs are also in a unique position to share information
horizontally, networking between other organizations doing similar work. The
synergy between NGOs and corporate could pave the way for better standards of
living of the rural population.
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Government initiative for rural marketing – role of NGOs in rural marketing.
What are the initiatives taken by the government to promote rural marketing?
22.6 SUMMARY
To sustain the rural marketing, the role of government is an inevitable one.
The government should also take certain steps. Further it is a well known fact that
the government does not alone can do anything. The NGOs should also take up the
responsibility for the promotion of rural marketing. These have been discussed in
this lesson.
Brief the role of NGOs in promotion of rural marketing.
1. Panda, T. K. (2007). Marketing Management Text and Cases. Excel Books
Publication.
3. Rickman, H. P. (1961). Meaning in History. London George Allen and Urwin
Ltd.
4. Rogers, E. M. (2003). Diffusion of Innovation 5th Edition . New York
Free Press.
22.9 ASSIGNMENTS
Give certain examples of initiation taken by the government in the context of
rural marketing.
4. Gaur, M. (2013). Rural Marketing-A Radical Perspective. Global
Journal of Management and Business Studies, 605-940.
Visit nearby an NGO and ascertain the initiation taken by them to promote
rural marketing.
22.12 KEY WORDS
Initiation by the Government – schemes for rural marketing – NGOs and rural
marketing
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UNIT. VI
LESSON 23
INTRODUCTION OF AGRICULTURAL MARKETING
23.1 INTRODUCTION
The term agricultural marketing is composed of two words-agriculture and
marketing. Agriculture, in the broadest sense, means activities aimed at the use of
natural resources for human welfare, i.e., it includes all the primary activities of
production. But, generally, it is used to mean growing and/or raising crops and
livestock.
Marketing connotes a series of activities involved in moving the goods from the
point of production to the point of consumption. It includes all the activities
involved in the creation of time, place, form and possession utility. According to
Thomsen, the study of agricultural marketing, comprises all the operations, and the
agencies conducting them, involved in the movement of farm-produced foods, raw
materials and their derivatives.
23.2 OBJECTIVES
 To understand the agriculture markets
 To analyse the nature and scope of agricultural marketing
 To study the objectives of agricultural marketing
 To find out the procedures of agricultural products and their markets
A study of the agricultural marketing system is necessary to an understanding
of the complexities involved and the identification of bottlenecks with a view to
providing efficient services in the transfer of farm products and inputs from
producers to consumers.
23.3 CONTENT
23.3.1 Scope and Subject Matter of Agricultural Marketing
23.3.2 Concept and Definition
23.3.3 New Role of Agricultural Marketing
23.3.4 Markets and Marketing – Meaning
23.3.5 Components of a Market
23.3.6 Dimensions of a Market
23.3.7 Defects/Problems of Indian Agricultural Marketing
23.3.8 Defective Weights and Scales
23.3.9 Illiteracy and Lack of Unity among Farmers
23.3.10 Lack of Financial Resources
23.3.11 Lack of Organised Marketing System
23.3.12 Lack of Transport Facilities
23.3.13 Lack of Store Houses
23.3.14 Lack of Standardization
23.3.15 Lack of Awareness of the Market
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23.3.16 Corrupt Policies of the ‘Mandis’

23.3.1 Scope and Subject Matter of Agricultural Marketing:
Agricultural marketing in a broader sense is concerned with:
• The marketing of farm products produced by farmers
• The marketing of farm inputs required by farmers in the production of
farm products
Mankind is considered the superior to the living things in the world.
Civilization transformed that into producer of food and other basic
requirements from the nomadic behavior in which hunting and snatching were
the way of life. Land cultivation and food production marked the beginning of
civilization particularly in the riparian lands. Mother Nature has to offer Her
blessings to satisfy the food needs of all living creatures. Land cultivation,
otherwise known as farming is influenced by the behavior of natural events
like rainfall, drought, flood, storm and so on and so forth. Food production
has its limitations and so all food cannot be produced in all places. In
other words, food production is restricted to specific locations where the soil,
weather and moisture favour that activity. Nevertheless food produced has to be
consumed worldwide by the human beings, animals, birds and others in need.
A group of people specializing in food production and identified as farmers
shoulder the noble responsibility of feeding the entire world. Hence there is no
need to emphasis that food produced at specific places has to be distributed to
other places of consumption. It is in this juncture, marketing plays its vital role.
Marketing is as critical to better performance in agriculture as farming
itself. Therefore, market reform and marketing system improvement ought to
be an integral part of policy and strategy for agricultural development.
Although a considerable progress has been achieved in technological improvements
in agriculture by the use of high-yielding variety seeds and chemical fertilizers,
and by the adoption of plant protection measures, the rate of growth in
farming in developing countries limping behind the desired levels. This has been
largely attributed to the fact that not enough attention has been devoted to
the facilities and services which must be available to farmers that would
support agricultural sector for its development. Marketing is one of those facilities
needed for over all economic development of nations.
23.3.2 Concept and Definition
The term agricultural marketing is composed of two words – agriculture
and marketing. Agriculture, in the broadest sense, means activities aimed at
the use of natural resources for human welfare, i.e., it includes all the
primary activities of production. But, generally, it is used to mean growing and/or
raising crops and livestock. Marketing encompasses a series of activities involved
in moving the goods from the point of production to the point of
consumption. It includes all activities involved in the creation of time, place,
form and possession utility. Philip Kotler has defined marketing as a human
activity directed at satisfying the needs and wants through exchange process.
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American Marketing Association defined marketing as the performance of

business activities that directs the flow of goods and services from producers to
users. According to Thomsen, the study of agricultural marketing comprises
all the operations, and the agencies conducting them, involved in the
movement of farm-produced foods, raw materials and their derivatives, such
as textiles, from the farms to the final consumers, and the effects of such
operations on farmers, middlemen and consumers. Agricultural marketing is
the study of all the activities, agencies and policies involved in the
procurement of farm inputs by the farmers and the movement of
agricultural products from the farms to the consumers. The agricultural marketing
system is a link between the farm and the non-farm sectors. It includes the
organization of agricultural raw materials supply to processing industries, the
assessment of demand for farm inputs and raw materials, and the policy relating to
the marketing of farm products and inputs.
According to the National Commission on Agriculture (XII Report,
1976), agricultural marketing is a process which starts with a decision to
produce a saleable farm commodity, and it involves all the aspects of
market structure or system, both functional and institutional, based on
technical and economic considerations, and includes pre- and post-harvest
operations, assembling, grading, storage, transportation and distribution.
Agricultural marketing system in developing countries including India can
be understood to compose of two major sub-systems viz., product marketing
and input (factor) marketing. The actors in the product marketing sub-
system include farmers, village/primary traders, wholesalers, processors,
importers, exporters, marketing cooperatives, regulated market committees and
retailers. The input sub-system includes input manufacturers, distributors,
related associations, importers, exporters and others who make available
various farm production inputs to the farmers. However, as Acharya has
described, in a dynamic and growing agricultural sector, the agricultural
marketing system ought to be understood and developed as a link between
the farm and the non-farm sectors. A dynamic and growing agricultural
sector requires fertilizers, pesticides, farm equipments, machinery, diesel,
electricity, packing material and repair services which are produced and
supplied by the industry and non-farm enterprises. The expansion in the
size of farm output stimulates forward linkages by providing surpluses of
food and natural fibres which require transportation, storage, milling or
processing, packaging and retailing to the consumers. These functions are
obviously performed by non-farm enterprises. Further, if the increase in
agricultural production is accompanied by a rise in real incomes of farm
families, the demand of these families for non-farm consumer goods goes up
as the proportion of income spent on non-food consumables and durables tends
to rise with the increase in real per capital income. Several industries, thus
find new markets for their products in the farm sector. Agricultural marketing,
227
therefore, can be defined as comprising of all activities involved in supply of

farm inputs to the farmers and movement of agricultural products from the
farms to the consumers. Agricultural marketing system includes the
assessment of demand for farm-inputs and their supply, post-harvest
handling of farm products, performance of various activities required in
transferring farm products from farm gate to processing industries and/or to
ultimate consumers, assessment of demand for farm products and public
policies and programmes relating to the pricing, handling, and purchase and
sale of farm inputs and agricultural products. Of late trade in the domestic
and international markets also become the part of it.
23.3.3 New Role of Agricultural Marketing
Agricultural marketing scenario in the country has undergone a sea-change
over the last six decades owing to the increases in the supply of agricultural
commodities and consequently in their marketed surpluses; increase in
urbanization and income levels and thereby changes in the pattern of
demand for farm products and their derivatives; slow and steady increase in
the linkages with the overseas markets; and changes in the form and degree of
government intervention in agricultural markets. Therefore, the framework
under which agricultural produce markets function and the factors which
influence the prices received by the farmers now need to be understood in
a different perspective compared to that in the past. The role of marketing now
starts right from the time of decision relating to what to produce, which variety to
produce and how to prepare the product for marketing rather than limiting it to
when, where and to whom to sell.
23.3.4 Markets and Marketing – Meaning
The word market originated from the latin word 'marcatus' which
means merchandise or trade or a place where business is conducted. Word
'market' has been widely and variedly used to mean: (a) a place or a
building where commodities are bought and sold, e.g., super market; (b) potential
buyers and sellers of a product; e.g., wheat market and cotton market; (c) potential
buyers and sellers of a country or region, e.g., Indian market and Asian market; (d)
an organization which provides facilities for exchange of commodities, e.g.,
Bombay stock exchange; and (e) a phase or a course of commercial activity, e.g., a
dull market or bright market.
There is an old English saying that two women and a goose may make a
market. However, in common parlance, a market includes any place where
persons assemble for the sale or purchase of commodities intended for
satisfying human wants. Other terms used for describing markets in India are
Haats, Painths, Shandies and Bazar. The word market in the economic sense
carries a broad meaning. Some of the definitions of market are given below: 1.
A market is the sphere within which price determining forces operate.2. A market
is the area within which the forces of demand and supply converge to establish a
single price.3. The term market means not a particular market place in which
things are bought and sold but the whole of any region in which buyers and sellers
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are in such a free intercourse with one another that the prices of the same
goods tend to equality, easily and quickly.4. Market means a social institution
which performs activities and provides facilities for exchanging commodities
between buyers and sellers.5. Economically interpreted, the term market
refers, not to a place but to a commodity or commodities and buyers and
sellers who are in free intercourse with one another.6. The American
Marketing Association has defined a market as the aggregate demand of the
potential buyers for a product/service.7. Philip Kotler defined market as an area for
potential exchanges. A market exists when buyers wishing to exchange the
money for a good or service are in contact with the sellers who are willing to
exchange goods or services for money. Thus, a market is defined in terms of
the existence of fundamental forces of supply and demand and is not
necessarily confined to a particular geographical location. The concept of a market
is basic to most of the contemporary economies, since in a free market economy,
this is the mechanism by which resources are allocated.
23.3.5 Components of a Market
For a market to exist, certain conditions must be satisfied. These conditions
should be both necessary and sufficient. They may also be termed as the
components of a market. 1.The existence of a good or commodity for transactions
(physical existence is, however, not necessary); 2. The existence of buyers and
sellers; 3. Price at which the commodity is transacted or exchanged. 4. Business
relationship or intercourse between buyers and sellers; and 5. Demarcation of
area such as place, region, country or the whole world.
23.3.6 Dimensions of a Market
There are various dimensions of any specified market. These dimensions are: 1.
Location or place of operation, 2. Area or coverage, 3. Time span, 4. Volume
of transactions, 5. Nature of transactions, 6. Number of commodities 7.
Degree of competition 8. Nature of commodities 9. Stage of marketing 10. Extent
of public intervention, 11. Type of population served 12. Accrual of marketing
margins. Any individual market may be classified in a twelve-dimensional space.
On the basis of the stage of marketing, markets may be classified into
two categories:(a) Producing Markets: Those markets which mainly assemble
the commodity for further distribution to other markets are termed as producing
markets. Such markets are located in producing areas.(b) Consuming Markets:
Markets which collect the produce for final disposal to the consuming population
are called consumer markets. Such markets are generally located in areas
where production is inadequate, or in thickly populated urban centres.10. On the
Basis of Extent of Public Intervention Based on the extent of public intervention,
markets may be placed.
23.3.7 Defects/Problems Of Indian Agricultural Marketing
Even though India is an agricultural country, still its agricultural marketing
has been defective. The Indian farmers are unable to get reasonable price for the
products even after their hard work and are fully exploited by the middlemen.
Too Many Intermediates
229
Agricultural Marketing
Fruit & Vegetables Market
The one main defect of the Indian Agricultural marketing is the presence of too
many middlemen and exploitation of farmers by them. On one hand these
middlemen exploit the farmers by purchasing the produce at lower prices and on
the other hand they exploit the customers by demanding higher prices from them.
The only aim of a number of commission agents, brokers etc. is to derive a higher
income from the middle processes. These middlemen take undue advantage of the
poor former on the basis of their financial resources.
23.3.8 Defective Weights and Scales
One of the biggest defects of agricultural marketing arises due to weights and
scales. Usually, in rural areas bricks, etc. are used as weights and in urban
markets also defective weights are found. Thus, the grain of the farmer is weighed
by a heavier weight for their own gain. Most of the traders keep separate weights for
purchase and sale of grain.
23.3.9 Illiteracy and Lack of Unity among Farmers
The Indian farmers are illiterate who are easier be fooled by the money lenders,
traders, middlemen, due to their simple nature. Similarly, lack of unity among
farmers also causes their exploitation because Indian farmers are spread in distant
areas in rural places. They are unable to meet with each other and resolve their
problems, as a result they do not get a fair price for their produce.
23.3.10 Lack of Financial Resources
In the rural areas there is lack of financial resources, due to which even their
emergency requirements are not fulfilled. In such conditions the farmers sell their
produce before its ripening. Similarly, some financial facilities, like, installments on
loans for pumping-set, tractor, thrasher etc. have to be paid on monthly or
quarterly basis due to which they have to sell the product as soon as possible.
Thus, as the lack of financial assistance, is a problem for the farmers; so does the
receipt of loan also puts them in problem.
23.3.11 Lack of Organised Marketing System
The agricultural marketing is also very defective in India because here
organised marketing is not in vogue, like, cooperative societies, government
marketing activities, regular markets etc. As a result, the farmer remains entangled
in exploitation. Thus, lack of organised marketing system is harmful for the
farmers. That is -why; the farmer sells his product personally to different people.
The middle take full advantage of the unorganized farmers.
23.3.12 Lack of Transport Facilities
The roads from Villages to cities are usually unmade which are not capable of
transport during the rainy season. The bullock carts can take the product only up
to a limited area. During lack of transport facilities the farmer is unable to take his
produce to the appropriate market and is unable to receive a fair price for his
product.
230
23.3.13 Lack of Store Houses

An important deficiency of Indian agricultural marketing is lack of store
houses. Due to lack of this facility the farmer is unable to keep his product safely
until it can fetch a fair price, and he is forced to sell his product at a low price. The
insufficient and unscientific facilities of shortage which are available, waste large
quantities of grains. Approximately 20% to 30% grains are lost due to rats, insects
etc. and the farmers have to bear crores of loss due to lack of these facilities.
23.3.14 Lack of Standardization
The lack of standardization and grading is clearly visible in the Indian
Agricultural marketing, due to which fixing a deal in relation to these products
becomes difficult. Due to lack of proper standardization and grading the customers
have problem in purchasing the product.
23.3.15 Lack of Awareness of the Market
The Indian farmer has no knowledge about marketing. He believes on
information acquired from the businessmen and money lenders of the village.
Mostly, the Indian farmers are illiterate so they cannot read the newspaper. Thus,
they do not have sufficient knowledge about the market. Now, government
transmits the rates of the market on the ratio, which has definitely benefited them.
23.3.16 Corrupt Policies of the ‘Mandis’
If we observe the condition of the mandis, this fact is no more hidden that the
middlemen and the traders jointly make fool the simple farmers. The Indian
Organizing Society has clarified the following facts relating to the corrupt policies of
the mandis
The inappropriate marketing system is so deep laden in India that about 5% of
the amount is deducted from the farmer’s produce in the name of donations,
‘dharmada’, ‘chanda’ etc.
The farmers are paid low price, as they lack appropriate knowledge about
market prices, their fluctuations, government policies etc. Thus, by keeping the
rates secret, the farmers are cheated.
Before the sale, large amounts of grains are taken from the farmers as samples.
By declaring the product to be of sub standard quality minimum prices are paid for
it.
Concept of Agricultural marketing – importance of agricultural marketing –
comments of Agricultural Marketing – its dimensions problems of Indian
Agricultural marketing
1. Write a note agricultural marketing?
2. What is the need of agricultural marketing?
231
23.6 SUMMARY
In a globalised trade regime, it is essential to link the farmers with the markets
with state-of-art infrastructure. This effective linkage can alone remove the
constraints of logistics, quality maintenance and thus, compete with global
products. Analysis of international market development scenario reveals that
encouraging large scale integrated players to develop the supply chains in various
commodities with latest technology infrastructure is the right approach suitable for
Indian conditions. The existing system of fragmented handling of various supply
chains should be converted into integrated handling systems with state-of-art
infrastructure so as to ensure better realization to the farmers. The appropriate
model of marketing infrastructure under Indian conditions should consist of the
following fundamental principles and should meet the following requirements:
s to bare
minimum.
processing, and storage should take place nearer to the farm or production center.
Organizing the farmers into growers’ groups/commodity
groups/cooperatives/self help groups/producer companies is necessary to ensure
the participation of diversely located small and marginal farmers and their linkage
with markets.
ding and
infrastructure creation, instead of leaving to the private retail chains to come up
with their own standards and grades. Private grades and standards, as prevalent in
other countries, will be disastrous to resource poor Indian farmers. This situation
should not be permitted.
to the retail companies to evolve sourcing models,
Government can proactively prepare the farmer groups to interact and establish
linkage with retailers. The infrastructure for primary handling needs to be created
for a village or group of villages in the form of primary value addition and multi-
purpose service Centre’s through Public Private Partnership. These centers could be
managed by Co-operatives, SHGs, farmers’ clubs and producer groups and linked
to wholesale markets/retail markets/direct marketing.
Handling at least 50 percent of perishables through uninterrupted cool chain
from farmer to the consumer.
sting marketing
channels/systems so as to enhance the marketing efficiency and efficiency of
handling the food.
Introducing professional, managerial practices in running the market and
bring efficiency into the system, if required by outsourcing.
232
some of the existing markets under professional management through

Public Private Partnership. Some of them could be outsourced for professional
management.
at better prices.
building for appropriate grading, good agricultural practices and food safety
standards.
that the demand
will drive the implementation of food safety measures. This ultimately enables us to
capture global markets.
incentives will provide demand-pull for quality and safe food and
ultimate traceability.
g the farmers and farmers groups.

Give the agricultural marketing structure of India
1. Acharya S.S and Agarwal NL, 2006, Agricultural Marketing in India.
Oxford & IBH Publishing Co.Pvt.Ltd. New Delhi
2. Kahlon, A.S and Tyagi.D S, 1983 Agricultural Price Policy in India.
Allied Publishers Pvt. Ltd., New Delhi.
3. Kulkarni, K R.1964, Agricultural Marketing in India. The Co-operators
Books Depot, Mumbai.
4. Mamoria, C.B. and Joshi. R L.1995, Principles and Practices of
Marketing in India, KitabMahal, Allahabad.
23.9 ASSIGNMENT
Give a explanatory notes on advantages of agricultural marketing
Visit the agricultural marketing societies and observe their functions
23.12 KEYWORDS
Agricultural marketing – awareness about agricultural marketing
233
LESSON 24
IMPORTANCE OF AGRICULTURAL MARKETING
24.1 INTRODUCTION
Agricultural 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 agricultural development.
24.2 OBJECTIVE
 To study the importance of Rural Marketing
24.3 CONTENT
24.3.1 Role of Agricultural Marketing System
24.3.1 Role of Agricultural Marketing System
India's age-old farming practices have taken a turn in recent decades. There
has been a technological breakthrough – the evolution of high-yielding variety
seeds, increasing use of fertilizers, insecticides, pesticides, the installation of
pumping sets, and tractorization. This technological breakthrough has led to a
substantial increase in production on the farms and to the larger marketable and
marketed surplus. To maintain this tempo and pace of increased production
through technological development, an assurance of remunerative prices to the
farmer is a prerequisite, and this assurance can be given to the farmer by
developing an efficient marketing system.
The agricultural marketing system plays a dual role in economic development
in countries whose resources are primarily agricultural. Increasing demands for
money with which to purchase other goods leads to increasing sensitivity to
relative prices on the part of the producers, and specialization in the
cultivation of those crops on which the returns are the greatest, subject to
socio-cultural, ecological and economic constraints. It is the marketing system that
transmits the crucial price signals. On the other hand, and in order to sustain
the growth of the non-agricultural sector, resources have to be extracted
from the agricultural sector – physical resources to guarantee supplies of food and
raw materials for the agro-industry and financial resources for investment in
non-farm economy as well as for re-investment in agriculture. On the basis of IADP
experience, Kiehl has shown that the "marketing problem" begins to emerge in
the process of shifting from traditional to modern agriculture because of
production surpluses generated by the shift. Indeed, the term modern
agriculture implies a market-oriented agriculture. The scope for moving towards
modern agriculture must include market dimensions if the momentum of
production transformation is to be sustained.
The importance of agricultural marketing in economic development is
revealed from the following:
234
i. Optimization of Resource use and Output Management :An efficient

agricultural marketing system leads to the optimization 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 modern inputs, and thereby sustain
a faster rate of growth in the agricultural sector.
ii. Increase in Farm Income. An efficient marketing system ensures higher
levels of income for the farmers reducing the number of middlemen
or by restricting the cost of marketing services and the malpractices,
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.
iii. Widening of Markets An efficient and well-knot marketing system
widens the market for the products by taking them to remote
corners both within and outside 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.
iv. Growth of Agro-based Industries. An improved and efficient system of
agricultural marketing helps in the growth of agro-based industries and
stimulates the overall development process of the economy. Many
industries like cotton, sugar, edible oils, food processing and jute
depend on agriculture for the supply of raw materials.
v. Price Signals An efficient marketing system helps the farmers in
planning their production in accordance with the needs of the economy.
This work is carried out through transmitting price signals.
vi. Adoption and Spread of New Technology. The marketing system helps
the farmers in the adoption of new scientific and technical
knowledge. New technology requires higher investment and farmers
would invest only if they are assured of market clearance at remunerative
price.
vii. Employment Creation. The marketing system provides employment to
millions of persons engaged in various activities, such as packaging,
transportation, storage and processing. Persons like commission
235
agents, brokers, traders, retailers, weighmen, hamals, packagers and

regulating staff are directly employed in the marketing system. This apart,
several others find employment in supplying goods and services required
by the marketing system.
viii. Addition to National Income Marketing activities add value to the
product thereby increasing the nation's gross national product and net
national product.
ix. 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.
x. Creation of Utility 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 adds 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. The food grain marketing system is more important in India than the
marketing of other agricultural commodities because of the following reasons:(a)
Foodgrains account for around two-thirds of the gross cropped area and 40
per cent of the gross value of crop output in the country.
Food grain marketing,
236
(a) therefore, provides income to most Indian farmers so that they may buy the
required inputs for the farm as well as purchase items of domestic need;
b) The food grain marketing business provides livelihood to lakhs of
traders, processors, commission agents and other persons engaged in the food
grain trade; and
(c) The food grain marketing system helps in providing food for
consumers and fodder for livestock.
Marketing agriculture produce
Agriculture Produce:
 Agriculture sector contributes 18.1% GDP in India as on 2011.
 India is ranked second worldwide in farm output.
 India is the largest producer of many fresh fruits, vegetables, milk,
fibrous plants.
 India is second largest producer of rice and wheat.
 India is third largest producer of dry fruits. World five largest producer
of 80% agri. produce.
 World five largest producer of livestock with fastest growth rate as on
2011.
Marketing of Agriculture Produce
The peculiar characteristic of agriculture produce result in a very complicated
marketing system and in the process rural produce are exploited. The rural credit
survey conducted by RBI in 1951 described marketing system of agriculture
produce as “Inefficient and Exploitative”.
Income of rural consumer depend upon the efficiency of marketing of
agricultural produce irrespective of the technology adopted in production. Any
technology Innovation should go hand in hand with efficient marketing.
Agri-Marketing: Around 700 million people or 70% of India’s population live in
6,38,000 villages in rural areas. 90% of the rural population is concentrated in
villages with population of less than 2000. Rural marketing is as old as the
civilization. Surplus of agro products are exchanged in earlier days in the barter
system. The introduction of currency, transport and communication has increased
the scope of rural market.
The demand for products and services has increased a lot in rural areas. Green
Revolution in North and White Revolution in west has brought about a new
prosperity in the lives of rural people. Government emphasis on rural development
has caused significant changes in the rural scenario. Moreover the special attention
given for infrastructure development through the successive Five-Year plans has
improved the buying and consumption pattern of rural people.
Marketing of Agriculture Produce: The Rural Agro – Products The Peculiar
Characteristic of Agriculture Produce are : Bulkiness Perishability, Wide Varietal
237
Differences, Dispersed Production, Processing need for consumption, Seasonality,

Comparative Advantage
Market them according to needs:There are three marketing functions while
selling of agri-product, Assembling, Preparation for consumption, Distribution,
Selling of agriculture product depends upon, Demand of product, Availability of
storage
Selling strategies: The products can be sold directly or stored. It can be sold as
gathered from the filed or it can be cleaned, graded and processed. Distribution
system needs to match supply with the demand by whole selling and retailing in
various points of different markets. Most of the time the product is sold to
moneylenders where farmers are indebted. It can be sold weekly in village or at
irregular intervals in mandi.
Government Institutions Commission of agriculture cost and prices. Food
Cooperation of India. Cotton Cooperation of India. Jute Cooperation of India.
Specialized market for rubber, tea, coffee, tobacco, spices and vegetables.
Agriculture Produce Act of 1937.
Marketing of Agriculture Produce Agriculture Input can be classified into two
categories A) Consumable Input B) Durable Input Plant food (Manure & Fertilizers)
Farm Equipment (Tractor, harvester, Thresher)Agro Chemical for Plant Protection
Irrigation Equipment (Motor, Pump-(Pest) set)For Power Generation (Diesel, Oil,
Construction Material (Cement, Petrol, Electricity) Bricks)Feed (Cattle, Poultry)
Transportation Equipment (bullock cart, tractor, truck)Veterinary Medicine Farm
Animal (Bullock, Cow, Goat)Packing Material Others (Tiers, Tube, Spare parts)
Approximate Consumption Value of Major Agriculture Equipment Input Value
In Crore (2002 – 03)Fertilizers 10,000Pesticide/Insecticide 3,000Tractor and
agriculture 5,000machineryElectronic motor, pump-set 300and oil engine Seeds
2000Total 20,300
Conclusion:
Rural marketing depends on agricultural produce, the production is seasonal
and the consumption is spread out equalization of demand and supply has to be
done. In addition, the raw agricultural produce as marketed by farmers has to be
processed by many middlemen This include collection and assembling, financing,
grading and standardization, storage, transportation, wholesaling and retailing
these functions performed by village merchants, commission agents, wholesalers,
processors etc. These people seek returns commensurations with their investments
of capital, time and labor. As a result, the middlemen get more share of the price
than the producers.
Cooperative Marketing: A major improvement for rural producers is the
formation of cooperative societies. Farmer’s common interest helped to increase the
incomes of the farmers and avoid exploitation by the middlemen. There are about 5
lac cooperatives working but very few cooperative societies in selected areas like
238
Dairy, sugar, oilseeds, Maha-grape in Maharashtra, tomato growers in Punjab etc.

succeeded in cooperative processing industry.
Cooperative Society: Historically Cooperative society in India started with
enactment of the Cooperative society Act 1904. Although in Bengal and Bihar some
preexisted. The purpose of cooperative societies before independence was to provide
relief to farmer from moneylenders. After independence they became a powerful
instrument of economic development.
New objectives of Cooperative societies: A group of people should not exploit
others. Voluntary participation of planning and implementation plan for economic
development. To avoid concentration of economic powers. This is how the
democratic India was planned to emerge after independence.
Merits of Cooperative societies: They are association of persons with common
needs. They join hands for self protection. Promote social cohesion. Encourage
individual initiative through collaborative actions. They have ideological base,
economic objectives and social approach.
Roles of Cooperative Societies: Increase returns to the farmers. Helpful in
creating marketing infrastructure. Associated with other aspects of agriculture.
Providing inputs and consumer goods. Others: Finances farmer from the sale of
their produce. Bulk purchasing so farmer has to pay less. Provide quantity seeds,
pesticides and fertilizers. Arrange availability of requisite inputs and ensure
distribution.
Regulated Markets A regulated market or controlled market, is the provision of
goods or services that is regulated by a government appointed body. The regulation
may cover the terms and conditions of supplying the goods and services and in
particular the price allowed to be charged and/or to whom they are distributed. It is
common for a regulated market to control natural monopolies such as aspects of
telecommunications, water, gas and electricity supply.
Regulated market: The produce had many defects and the royal commission in
1928 studied this. The royal commission suggested commencing with the regulated
markets and accordingly various market committees were incorporated. The three
basic functions of this committee were: To meet the demand of the Increase in
population and industrial advancement. To increase the quality of agriculture
produce. To fetch an appropriate price for the farmers
Objectives of Regulated Market: To ensure reasonable gain to the farmers by
creating environment in markets for fair play of supply and demand forces. To
regulate market practices and attain transparency in transactions. Aimed at
providing proper method of sale, correct weighing, prompt payment and various
marketing related services. Democratic set up to control and manage markets.
Conclusion: There are more than 5000 primary and secondary agriculture
produce whose assembling markets functioning in the country. These markets are
meant for farmer to take their produce for sale. These markets facilitates farmers,
239
immediate cash payments. The directorate of state Agricultural Marketing Board or

Registrar of cooperative marketing societies is controlling these markets. The
market is run by an elected committee comprising of members from the farmers
community, commission agent/whole sealers and some government nominees from
Directorate of state agriculture / cooperative societies.
Rural Industry: Marketing of Rural/Cottage, Industry/Artisan Product: Rural
and Cottage Industries and rural artisan are very significant to rural economy. They
have proved to be the source of employment and income generation for landless
population who possess certain skills and talent acquired over generations.
Significance: Provide a subsidiary occupation to rural population. Enable the
rural population to supplement their slender income. Provide employment during
off season, drought and famines. Develop the rural talents, help uphold our
culture. Reduce evil of urban Industrialization. Suits a country like India very well.
Classification of Rural/Cottage Industries: Agro Based Ghani Oil, processing of
cereal and pulses, cane gur and khandsari, coir, food processing and preservation,
Textile Handloom, polyvastra and khadiWood related Match industry, carpentry,
bamboo and cane work Metal ware Aluminium vessels, brassware, agriculture tool,
Leather processing, Pottery and ceramic Pots and cups, Chemical Ink and Dyes,
Fishing Dried fish, Miscellaneous Non edible oil soaps, lime, gobar gas, minor forest
produce, shellac
Rural Industry: There is tremendous scope for developing such rural, village
and cottage industries to augment the employment and income of people in rural
areas. To help such rural/cottage industries and rural artisans produce and
market their production, a number of central and state level organization have been
established. The first and the foremost among them are KVIC (Khadi and Village
Industry Comission) of Central Government and KVIB (Khadi and Village Industry
Board) of different state government. These organization help rural folk in:
Technology Up gradation, Getting the artisan organized Getting credit from
Institutions, Procurement and supply of R/M, Domestic Marketing through Retail
outlet, Export Marketing wherever possible.
Understanding the agricultural markets – nature of agricultural markets –
economic importance of agricultural marketing – problems of agricultural
marketing.
1. What are the nature of agricultural marketing?
2. List out the scope of agricultural marketing.
3. What do you understand from agricultural marketing
24.6 SUMMARY
If the rural market has to expand and grow, it is not enough to just concentrate
on marketing of manufactured goods, but it is also necessary to pay adequate
240
attention to the marketing aspect of the rural product namely, agriculture produce
of rural/cottage industries and rural artisan. Such an approach will help rural
population in generating adequate disposable income for purchase of manufactured
goods.
Discuss the importance of agricultural marketing
24.9 ASSIGNMENT
Elucidate the problems existing in agricultural marketing
1. Apte, S. G., ‘Co-operative Agricultural Credit: Some Disquieting
Trends’, Indian Journal of Agricultural Economics, XXVI, 4 (Oct–Dec 1971)
581–2.
2. Arunachalem, R. M., ‘Credit and Capital Formation in the Agricultural
Development of Four Trichy Villages, Madras State, India, 1962–64’, Ph.D.
dissertation (Purdue University, 1966).
3. Athavale, M. C., Mishra, J. P., and Bhave, S. W., ‘Loans Advanced by Land
Development Banks: Utilisation, Diversion and Measures to Prevent
Diversion’, Indian Journal of Agricultural Economics, XXVI, 4 (Oct–Dec 1971)
575.
How do you rectify the problems of agricultural marketing in your area.
24.12 KEYWORDS
Agricultural marketing – credit facilities - problems

348EN240
ANNAMALAI UNIVERSITY PRESS : 2017 -2018

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348EN240

MBA Marketing Management

Dr. C. Samudhra Rajakumar Dr. C. Madhavi

Dr. S. Sriram Dr. S. Gangadaran

MBA MARKETING MANAGEMENT

MBA MARKETING MANAGEMENT

2. Factors influencing rural marketing 12

1.3.5 Growing importance of Rural Market

Durables : Watches, Bicycles, Radio, T.V, Kitchen Appliances Furniture,

increased business operations, professional activities, and services that can

• Similar choices and less variety seeking.

5. Vastness & uneven spread

Rs 1,984.46. Crisil, in its report, has pointed to a marked shift in spending on

2.3.2 Factors of Socio-cultural Environment

Priest –He reads horoscopes, arranges poojas, tells villagers regarding

Location of rural population

2.3.6 CREATING ADVERTISEMENTS FOR RURAL AUDIENCES

Characteristics of wall paintings

2. Best, J. W., & Kahn, J. V. (1986). Research in Education 5th Edition.

3.3.3. Commercial Banks

medium-term credit needs of the farm-ers. In other words, institutional sources

 Most successful story in dairy development has been in Gujarat, Punjab,

Ø Interpersonal communication in order to bring about behavioral change in

Underdeveloped People and Underdeveloped Market – Since 1947 a number

Cycle, bikes, scooters Radio/tapes

4.3.2 Recent Developments

4. Entry and Exit Conditions:

(6) Perfect Mobility of Goods and Factors:

The chain of action reaction as a result of an initial change in price or output,

The oligopolies' demand curve

The features of market structures are shown in Table 1.

4.4 REVISION POINTS

4.8 SUPPLEMENTARY MATERIALS

(a) Zones: The country is divided into four zones.

Infants Milk, Powder, cereals, soaps, Glaxo, Nestle, Johnson and

Magazines, shoes, TV, music Sport star, Computer

Elders Briefcases, spectacles, suitings, VIP, Samsonite, Ray ban,

Seniors Rocking chairs, knee pads, Modfurn, Conybio, Cipla,

(d) Family Size

Income Range % of Rural

Above ` 1,00,000 Household

` 75,001 – 1,00,000 s 4.7

` 50,000 – 75,000 13.0

` 25,001 – 50,000 41.1

` 25,000 & below 37.4

Muslims Mosque, perfumes, white caps. Id-ul-Fitr, Bakrid, Miladun-

(II) Psychographic Segmentation

S.No. Class Characteristics Preference

3 Upper- middle Career oriented dependent Quality of life, products

5 Upper-Lower Above poverty line – Economy, products,

6 Lower-Lower Below poverty line, daily Local unbranded products,

(b) Life Style

Ex-user Stopped using Convince then about benefit

Regular users Repeat buy Appreciate them and advice

Evidently, each category of users is to be treated as a separate segment and

Products may be promoted by developing an understanding of the place where

I Below ` 1000 Wrist watches, Transistor, Fan, Bicycle, Electric

Between ` Two-in-one, TV (B&W), sewing machine, Mixer-

This categorization can be used as a guideline to target the next customer.

➢ Gross cropped area

Class of Markets Index Range No. of Districts Percentage of Market

(c) MICA rating

Sl.No. Product Type Segmentation