MARKETING: Can Bharat compete with India? Article by Onkar Pandey for Planman Media

The rural market is the platform for fmcg companies to turn around businesses now. but they need to be really innovative if they want to tap its true potential.

ONKAR PANDEY | Issue Dated: October 2, 2011, New Delhi
Tags : india | agrarian economy | rural market | income | GDP | urban india | FMCG |

India has always been termed as an agrarian economy, but not much has been done to utilise the massive potential of the rural market. It is indeed sad that there have been three major industrial policies since Independence, but not one for agriculture, which was once the prime GDP earner for the economy. But times are changing as urban markets are almost at a critical stage; and marketers all around are hunting for opportunities, nowhere else but in rural India.

In fact, as the income levels rise and rural populace become more aware than ever, companies, especially FMCG players – who are eyeing to treble from $13.1 billion at present to $33.4 billion in 2015 – are revamping their rural strategy, only to grab a bigger piece of the lucrative pie that now contributes to over 54% of India's GDP.

Moreover, of late, Bharat (rural India) has started keeping pace with India (urban India) when it comes to spending on fast-moving consumer goods, forcing the existing players to ramp up their rural operations. In fact, the rural penetration of products such as soaps, shampoos, washing powder, hair oil and biscuits is already at par with urban India. For instance, while toilet soap penetration is as high as 99%, washing powder too boasts of an admirable 97% penetration.�

Broadly, the strategy is to not only have a presence in the larger segments that were traditionally meant for the masses, but also in niches which till now were invisible from the rural landscape. The reason is simple. Today, rural India boasts of a large consuming class with over 41% of India’s middle-class and 58% of the total disposable income. Even a recent survey by the National Council for Applied Economic Research (NCAER) reveals that rural middle class is growing at 12%, almost neck-to-neck with its urban counterparts, which is clocking a growth of 13% per annum. This, combined with the very fact that the rural population is estimated to have risen to over 155 million households by the end of 2011 and urban markets are nearing saturation, the future growth in the sector is bound to come from increased rural and small town penetration.

FMCG players have been looking at every opportunity to penetrate in rural India for years. Reason: The consumers here accounts for 60% of the total consumption and most of the market is still very unorganised and handled by local players. For that matter, players like ITC have already been very successful here with initiatives like e-Choupal and Project Shakti (by HUL) making others to tap this area in a much bigger way.

For instance, FMCG major Godrej introduced a nano refrigerator – Chotu Kool – precisely for the rural market. It was designed such that it could even support power cuts. Priced at Rs 3,200, the little wonder successfully added 5,000 villages to Godrej’s customer base in 2009 only. Such innovations can actually boost the buying power of the immensely value-conscious rural consumer. Even Thums Up have started targeting rural India in a big way, and its sales grew by 37% in 2010 as against 18% in the previous year. And not just FMCG, the automobile sector has also successfully forayed into the rural market. Two-wheeler giant Hero Honda (now Hero MotoCorp) even tied up with various NBFCs last year for loan schemes to promote buying in the region. The reason is simple. Penetration levels in rural India for two wheelers are just 10%.

Even the banking sector is gearing up to use the opportunity as the number of unbanked people in rural India is much more than those banked in urban India. In fact, with its Kamdhenu Cattle Loan scheme ICICI has already started milking the rural market (not to forget the public sector banks that have always focussed on rural India in a big way).

No doubt, everyone wants a bigger piece of the rural pie at the moment, but then it’s not that easy for them to grab one. The biggest challenge is the vast spread of the market, which implies the prospect of managing huge logistics and costs. Although companies are using the hub and spoke model to create that last mile connect, still connecting 6-lakh plus villages (many of them in remote corners) of the country is certainly not an easy task. The second lies in communication. Around 10 years back, the reach of television was very minimal in rural India, therefore, it was difficult for electronic media to reach the masses and dependency was on BTL activities, which turned out to be very costly. However, with 40% of rural areas today equipped with television compared to less than 20% earlier (10 years ago), the dynamics of the game are set to change in the next 5-6 years.

But, there is a catch. Most of the strategies that are currently being adopted by FMCG player to tap the potential of rural market are still the first-generation entry strategies. From treaded-down products to discount offers to easy availability of loans, all are being used by marketers since ages. But, today the consumer in rural India is no more the same, he has high aspirational levels and more money at his disposal. Hence, marketers need to be smart and plan their rural strategies accordingly. Agrees Anand Ramanathan, Manager at KPMG Advisory as he says, “Most of the rural interventions in India have been incremental in nature without really investing in an integrated rural solution.” For example, most companies would tinker with one aspect of the mix such as a treaded-down product, a packaging breakthrough or a rural dealer network etc.

However, they fail to align their remaining mix elements to this innovation and hence have not been able to accrue the true potential of some really good ideas. 

One of my Old articles..written for Business & Economy Magazine