GRIPel

gripel@gmail.com
Rural Demand and Distribution
“Need for Different Approach”

Savya Sachi
Senior Director
Dr Reddys Laboratories Limited
 Defining Rural

Definitional conflicts
The census definition
1) A habitation where population is less than 5,000;
2) Less than 75 per cent of male working population engaged in nonagricultural
pursuits; and
3) Density of population less than 400 per sq. km. (1,000 per sq. mile).

The financial world’s definition

Tier 1 cities: Super metros
Tier 2 cities: Other 1 million + Towns with population of 1,00,000 and some
key cities with population above 5 lakhs
Tier 3 cities: Class I towns (mostly state capitals with population above 1
lakh)
Rest – as far as they are concerned – is „rural‟

Rural is what is “NOT URBAN”

 Rural India

Urban : 17.1%
Extra-Urban : 9.6%
Rural : 73.3%

Census 2001 Population : 100 Crore

Understanding
Rural
Rural India

Attitudinal predispositions

The urban uninitiated tend to view „rural‟ with blinkers

Dominantly agrarian

Low literacy and exposure

High poverty

Low levels of infrastructure

Low demand for goods and services and low investment potential
Reality Check

Studies have time and again proved this to be a myth

Most people seem to be missing the woods for the trees

The rural transformation is real – and so is its market

potential
Reality Check

The rather large pot of gold

Aggregate annual household savings in rural India is around USD

45 billion
Incomes in rural India have increased by 16% during 2004 and 2007

While urban incomes are growing at 3.2 per cent per annum, rural
incomes are rising by 4.5 per cent a year

1995 – 2005 – increase in spent disposable income from 2.8% to 6.2%

27 million house hold will move into middle income from lower income

Middle income group wil swell up to 59 Million house holds

33% of people receiving remittances in India are farmers

Reality Check

The rather large pot of gold

Some of the estimates for rural India provided by recent studies by

NCAER and IIMS:
The demand for life insurance in rural India is growing strongly and in
2007, a further 12 million rural Indian workers were expecting to buy life
Insurance

The rural market will account for 53 million “buys” of consumer durables
in the next one year

Almost 41% of the households that plan to buy a computer or a laptop

are from „rural‟ areas, which convert to more than 1.1 million in numbers
Reality Check

Rural India isn’t a single homogenous block; it is heterogeneous

Rural India is not only about agriculture there are all kind of
occupations.

Rural Indian are not unexposed to the developments around them,

Rural Indians have small and compact families

As per NCAER the average rural family has 5.08 persons;
the average urban family, 4.81 persons.

Rural India has an average per capita income that is half that or
urban India.
21.7% of the rural population is below the poverty line,
for urban populations, the incidence of poverty is 20.8%, not much lower.

Rural India harbors as many rich households as urban India.

 Reality Check

The dormant market?

Rural India is a major part of India‟s domestic consumption story not just because it
has 70% of India‟s population, but because it already has 56% of India‟s income, 64%
of expenditure and 33% India‟s savings.

The rural share of popular consumer goods and durables ranges from 30% to 60%
and sales to rural India are steadily growing.

Between 2005 and 2008, according to data from the Indian Revenue Service, colour
television sets penetration increased by 7% and packaged biscuits by 10%.

Aggressive categories such as shampoo even increased penetration by 37%.

Emergent Rural India
Emergent Rural
India
Emergent Rural
India
Emergent Rural
India
Rural India : A different terrain
Demographic Challenges

Population : 750 Mn consumers

Villages : 6,38,365

Area : 3.2 Mn SqKm

23% of the total number of villages in

ndia have population less than 200.

21% have population between 200 and 500.

 State No. of towns - No of class No. of class III No of Class IV No. of class V No. of class VI No. of villages No. of villages
Class I [>1lac] II towns- towns - Towns towns towns (500 - 999 less than 500
[50k-1lac] [20k-50k] [20k-10K ] (5000 9999 (4999 - persons) persons
persons) 1000persons)
Andhra Pradesh 61 29 132 498 1,788 13,390 4,467 6,470
W est Bengal 58 19 127 354 1,527 15,311 8,933 11,830
Gujarat 44 37 192 153 807 9,769 4,262 3,075
Karnataka 33 11 153 131 703 10,402 7,367 8,878
Uttar Pradesh 30 14 97 296 2,266 43,791 25,614 25,975
Madhya Pradesh 24 27 155 19 362 13,985 16,277 21,474
Maharastra 20 6 20 262 1,018 17,432 12,074 10,309
Tamil Nadu 19 15 157 168 1,254 9,354 2,801 1,823
Haryana 19 1 24 97 504 4,106 1,205 852
Rajasthan 16 12 46 100 661 13,437 11,058 14,497
Kerala 16 16 92 1,072 207 79 0 6
Punjab 13 9 101 26 273 5,392 3,378 3,209
Orissa 12 4 25 5 180 9,218 11,428 26,698
Assam 10 5 51 19 185 7,934 6,233 10,753
Bihar 10 8 17 630 2,313 18,692 8,499 8,898
Delhi 10 10 39 24 26 89 9 10
Jharkhand 8 13 51 28 174 5,815 7,442 15,895
Chhattisgarh 8 8 55 6 80 5,449 6,465 7,744
Uttaranchal 5 4 28 13 69 1,102 1,890 12,687
Jammu & Kashmir 4 9 128 10 135 2,432 1,664 2,176
Pondicherry 3 21 2 20 63 7 0
Manipur 2 8 6 28 359 326 1,480
Himachal Pradesh 1 1 1 8 834 2094 14,558

Meghalaya 1 6 4 245 690 4,843

Goa 0 4 12 3 23 173 56 92
Tripura 28 106 558 99 67
Non Demographic Challenges

Literacy Rate
Traditional outlook and limited exposure to print media
Resistance to change
Buying decision is low and delayed.

Agriculture dependence

Monsoon dependence
Variable buying - difficult to predict demand.
Infrastructural Challenges

Roads In India*
over 3.314 million km (second largest in world)
47.5% of the total consists of paved roads
Still 40 percent of villages in India lack access to all-weather roads and
remain isolated during the monsoon season
“122,000 km of roads have been completed under PMGSY and work is in
progress in projects covering another 1,00,000 km”
Limited company controlled distribution depth

Limited warehousing facilities

Limited transportation options

Lack of other infrastructure

* Wikepedia
Rural Distribution Challenges
Large number of products and SKU - high inventory and investment
cost
Unorganized retailing and distribution
Credit sales and bad debts.
Poor supply chain network- Travel to feeder town / mandis to collect
products additional cost of traveling.
Buying from whole sellers on Cash and Carry
Large number of small markets
Dispersed population and trade
Poor connectivity
Inadequate banking/ credit facilities
Poor product display and visibility
Poor communication of offers and schemes

Indian Market Research Bureau

Market penetration challanges

Most market size data on rural India takes the aggregate households or
household spend for a predetermined geographical boundary

District boundary is the most used defining characteristic, though some

of the more research savvy look at market sizes down to the block level,
and almost no one looks at up-to-date village level data for their sales
and market planning

Unlike in urban markets where demand is highly concentrated, rural

markets tend to be spread out .This dramatically increases the sales
efforts and costs

Consequently, though many rural markets look good on paper, in reality

they are quite costly to service
Other Challenges - Fake and Look-alikes

Look-alikes- Spell-alikes & Duplicates

Prices range from MRP to 60 % of MRP

Margins range from 60 % to 500 %

Awareness Programs

Legal action

New Package Development

Fakes: Some Examples
Understanding the Rural Consumer

The rural consumer is very conscious about getting value for money.

He understands symbols and colors better

He doesn't like to pay extra for frills he cannot use.

He wants value to be added to him and not taken away from him.

Loss of man days are very critical – Quick remedies work!

Rural Healthcare and Pharmaceutical Industry
 Indian Pharma market

Markets by Geographic Tiers by 2015 Absolute Demand Growth Contribution to total Growth

Metros: more than 1 million population, Class I towns: 0.1-1 mn, Class II-IV: 5k- 0.1 mn, Rural: less than 5k
Source: McKinsey India Pharmaceutical demand model
Increasing Affordability, Shifting Disease Patterns
& Modest Healthcare Reforms….India

Disease Pattern In India Has Undergone A Shift :

Increasingly Stressful Lifestyles Leading To
Significant Increase In The Incidence Of Chronic
Disease
Spending On Healthcare Will Continue To Be Robust –
Rise Of Indian Consumer Markets, Spending On
Healthcare, Will Witness The Highest Growth Rate
Among All Spending Categories Over The Next 2
Decades And To Grow By 14% Of Average
Household Income By 2015 From 7% In 2005
140 Million Indians Will Move Above The Poverty Line
In The Next Decade
20 Billion $ By 2015……

6 InfluencingTrends……. India
 Doubling Of Disposable Incomes & The Number Of Middle-
Class Households
 Expansion Of Medical Infrastructure
 Greater Penetration Of Health Insurance
 Rising Prevalence Of Chronic Diseases
 Adoption Of Product Patents And ………
Aggressive Market Penetration Driven By Relatively
Smaller Co.‟s
Indian Pharma To Move In Top 10
Pharma Market‟s In The World….

 Expansion of Medical Infrastructure

 Greater penetration of Health Insurance
 Rising prevalence of Chronic Diseases
 Adoption Of Product Patents
 Aggressive market penetration driven by relatively smaller Co.‟s
 Per Capita disposable incomes of Middle class will double by 2015
 No. of Hospital beds & Physician to be doubled by 2015
 Health Insurance to be doubled by 2015 to cover 220 Million Indians
 Drug regulatory environment in India- In Transition.. A healthy sign
 Enabling research infrastructure with 450 institutes/colleges and
departments imparting pharmacy education- with more that 25,000
Pharmacy graduates pass out every year from these institutes
 Rising confidence of the Global Pharma Co.‟s in the Indian Market
 Strategic partnerships on the Rise
Anti-Invectives & Gastro-Intestinal Drugs
Will Comprise Half Of The Market…..

 Anti-Infective segment-Cephalosporin's, Penicillin's &

Quinolones to constitute 39% of the total market
 Anti-Peptic Ulcerants to be the fastest growing therapeutic
segments under alimentary & metabolism therapeutic
categories to constitute 11% of the total market
 Total acute therapy to constitute 78% of the total
revenues
 Oral anti-diabetics and Cardiac to be the 3rd largest
therapeutic categories
 Total Chronic therapy to constitute 22% of the total
revenues
Tier-2 Markets ( Rural ) will Account For
Half Of The Growth Potential…..

 Expansion of healthcare facilities in Rural & far flung areas has

enhanced accessibility
 Increased Govt. spending on roads, telecommunication & health
infrastructure has facilitated the foray of Pharma Co.‟s into relatively
distant pockets of the Indian Market
 With sales revenue of US$1.4 billion the Indian Pharma market of
Rural areas witnessed a growth of 39% this year as compared to
the overall domestic market in 2010 has outstripped the growth
across most of the therapeutic categories in both value and volume
terms
 There has been accelerated investment from the private sector in
Healthcare facilities across Tier-II & III cities in the country
 Life style diseases are on the rise in Rural areas
 Rural market, Tier II,III and IV market to contribute half of the
Pharmaceutical growth by 2015
 Sales force coverage & deployment are on the rise in these
markets to capture the market potential
Industry focus continues to be on Driver 4 and 5
Penetration in Rural India!
Rural Markets and Tier 2 Markets ……. 2015

– Shift focus from market share capture to market creation

– Adopt new and differentiated business models

– Strengthen sales and marketing capabilities towards creating

newer markets and adopting different business strategies
Who are the customers ?

Doctors
Chemists
Para Medics
Patients
Professional Associations
Trade Bodies and Channels
Panchayat
Reach vacuum !

More than 7 lakh doctors registered with MCI

Between 1986 – 2002 , 2.6 lakh doctors have been added in
MCI list
This excludes the BAMS / BHMS doctors practicing allopathy
“Pharmaceutical Industry covers 1.25 to 1.35 lakh doctors”

CHEMISTS
5 Lacs Retail chemists
50 thousand Whole sellers
Only 2% organized retail
 Presence of Medical Infrastructure in Rural

Allopathic Allopathic Health Primary Primary T.B. Nursing Medical

Hospital Dispensary Centers Health Health Sub Clinics Homes Practioners
Important Centre Centre (MBBS and
States Non MBBS
UP 2242 2726 1469 1796 3335 51 360 33541
Maharastra 1273 3774 558 1712 5439 1566 693 23681
Kerela 1024 939 401 874 1253 26 719 5097
Bihar 943 1808 472 1200 3363 52 192 16395
Tamilnadu 444 482 317 1617 5022 65 189 10606
Jharkhand 433 479 238 467 1444 21 25 1430
MP 412 722 356 1180 6179 30 52 15502
Gujrat 411 788 325 1047 6239 267 268 14582
AP 393 515 527 1725 9757 39 788 15857
Karanataka 230 1757 313 1621 6742 77 349 10457
West Bengal 171 5608 593 1127 5043 89 220 25096
Chattisgarh 148 365 99 503 2105 18 10 5541
Punjab 136 2459 526 785 1191 69 188 7234
Rajasthan 46 791 1224 1522 6336 41 122 8580
Harayana 14 98 194 402 2256 21 115 4924
All INDIA 8320 23311 7612 17578 65704 2432 4290 205320
Census 2001
Huge patients Capital
HT PREVALANCE GAP

PATIENTS ON ANTIHYPERTENSIVES
HT
2005 7.2 Cr 1.5 Cr
+ Government Supply

Tier Two markets contribute to around 7 Cr of Hypertensive population out of which 55

lac patients are treated currently

CVD prevalence from the Report of the National Commission of Macroeconomics and Health, 2005

Treatment estimates from IMS 2007

Four A‟s for rural
penetration

Accessibility Acceptability

Affordability

Awareness
Four A‟s for rural Product Promotion - Pharma
penetration

Push strategy – sales force and trade promotion

Pull strategy – Disease awareness and diagnosis

– Advertising and Multi Media
Four A‟s for rural Promotion- Adaptations for Rural
penetration Markets
Conventional Non- Conventional

Personal communication Haat , Mela and Mandi

Direct Mailer Multmedia, Electronic

Media

Medical Camps Video Van and tele

medicine
Awareness Programs – Word of mouth
Doctors, Trade and
Patients
Advertising Health Worker
Four A‟s for rural Levels of Distribution - Pharma
penetration

Level Partner Location

1 Company Depot/ C & FA National/ State level

2 Distributor/ Van Operator/ District level

Super Stockist

3 Sub Distributor/ retail Tehsil HQ and towns

Stockist/ sub stockist/star
seller

4 Retailer/ Resellers Feeder towns, large villages,

haats
Four A‟s for rural
penetration
Distribution Adaption

• Hub and Spoke Model, Example: Coca Cola

• Use of Affinity groups, Example: Project Shakti
• Haat Activation, Example: Colgate
• Syndicated distribution, Example: Cavin Care &
Amrutanjan
• Use of marketing co-operatives, Example:
Warna Bazaar in Rural Areas
• Mobile traders, Example: FMCG companies
Four A‟s for rural
penetration Packaging

Affordability - Unit Price

Size & convenience

Consumer recognition

Product protection

Packaging material

Aesthetics
Four A‟s for rural
penetration Pricing

• Internal & external factors

• Selecting pricing methods
• Pricing adaptations – Technology & Innovation
• Low price points – Simple packaging
Four A‟s for rural
penetration Price Adaptations

Product sharing services, Example: Tractors

Product Bundle pricing, Example: HUL Operation
Bharat
Free gifts – may sometimes not work in rural
areas
Special event pricing- Hero Honda Rs. 500
campaign
Conclusions !

Rural Strategies cannot be a replica of

urban models
Rural in each state is different !
Rural consumer needs better technology to
get better value for money

“We need to add “Fortune to the bottom of

Pyramid before we look at Fortune at the bottom
of Pyramid”
Thanks
GRIPel

gripel@gmail.com