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Inayat Sartaj A3914711001 A-27

Acknowledgement

Apart from the efforts of me, the success of this project depends largely on the encouragement and guidelines of many others. I take this opportunity to express my gratitude to the people who have been instrumental in the successful completion of this project. I would like to show my greatest appreciation to Prof. Dharmendra Pandey. I cant say thank you enough for his tremendous support and help. I feel motivated and encouraged every time I attend his meeting. Without his encouragement and guidance this project would not have materialized.

Objective

To study the rural market To see why FMCG companies should target Rural Market in India To find the channels available To do a research on various buying habits of Rural India To evaluate the opportunities available in Rural Markets in India To find the expected growth in Rural Market in India To study the distribution network of FMCG Companies in Rural India

Research Methodology
Sample Unit
All working people are included both the genders i.e. males and females irrespective of their education level.

Sample Size
100

Sample Region
Sahibabad Region, Gorakhpur

Sample Procedure
Random Sampling

Data Collection Method

Primary Data Primary data was collected through a self administrated questionnaire. Secondary Data Secondary data was collected through magazines, research papers, internet etc.

Research Instruments Questionnaire Design

As the questionnaire is self administrated one, the survey is kept simple and user friendly. Words used in questionnaire are readily understandable to all r es po n d e nt. A l s o te c h ni ca l j a r g o ns a r e a v o i d e d t o en s u r e t ha t t h er e i s no confusion for respondents.

Data Analysis
After a good deal of consumer survey and marketing research, I collected a good collection of data. The analyses of those datas are given as follows:-

Data Analysis for preference of toothpaste in rural market

In the initial years, the rural consumers preferred tooth powers, datoons etc. but from the last decade, the preference of rural consumers towards toothpaste has been changed. A huge number of toothpastes of different companies are selling in rural market. Colgate, Pepsodent are the most popular toothpaste brand sin rural market. The rural consumers preference towards the different toothpaste brands are given in the pie chart.

Demand of different toothpaste brands

Pepsodent

Colgate

Close Up

Babool

Others

10% 10%

35%

15%

30%

As per analyses of above pie chart, we have found that Hindustan Unilivers Pepsodent leads the market with 35% rural market share. 30% of rural consumers prefers Colgate as their favorite toothpaste brand, once again Hindustan Unilivers close up occupies third position with 15% market share.10% of the rural consumers prefers Daburs babool toothpaste and 10% consumers uses other toothpaste brands.

Data Analysis for the Preference of Soap in Rural Market In the survey of preference of my target consumers towards soap, I had found the different preference and different choice of the consumers. On the basis of their choice, I have got the following data given in following table:-

50

30

12 8

Lux

Lifeboy

Rexona

Others

As per given in the above table, the 90% of the soap market is covered by the products of Hindustan Uniliver.50%of rural consumers prefers HULs Lux, where as 30% goes towards HULs Lifeboy third position is also acquired by a HUL product where 15% of the market captured by Rexona. 8% of rural consumers prefer some other soap brands. Data analysis for preference of shampoo in Rural Market As per concern of shampoo, total 31.9% shampoo uses in rural market. It shoes a good number of consumers preference towards shampoo in rural area. From the last few years, the demand of shampoo sachets as well as medium size bottles has increased in rural area. Peoples of every age are interested to use shampoo at regular interval. The preference of consumers towards shampoo is given in following table.

42

30

16

Clinic Plus

Sunsilk

Chick

Others

Demand of Shampoo Brands

32 28

18

12 10

Head & Shoulders

Pantene

Sunsilk

Clinic Plus

Others

Demand of Shampoo in Sachet Category

The consumers preference towards shampoo is as follows:42% prefers clinic plus. 30% consumers prefer sunsilk. 10% consumers go through Calvin Cares Chick. 8% consumers prefer other shampoos or no shampoo users. Preferences of shampoo in sachets are as follows:32% of consumers use Heads & Shoulders. 28% goes through Pantene. 18% prefers sunsilk. 12 % prefers clinic plus. 10% includes non shampoo users or users of some other brands, This analysis shows that a vast majority of rural consumers prefers HULs clinic plus and Sunsilk in high and medium size sample. But on the other hand, in sachet sample there is different story. More than 50% of the rural consumers prefer the brands of P&G (Heads & Shoulders and Pantene).

Data Analysis of consumer preference toward Detergents Detergent is another more preferable product for rural consumers. Approx 87.4% penetration level of detergent is gone to rural consumers. The preference of rural consumers towards detergents is given in following table.

42

34

13 6

Wheel

Ghari

Tide

Surf Excel

Others

Demand of Detergents

Others 10% Arial 12%

Tide 43%

Surf Excel 35%

Demand of Detergents in Sachets

As per given in above table, the consumers preference towards detergents are as follows:42% consumers prefers HULs wheel in medium or large sample, but consumers not prefer it in sachet. 34% consumers prefer ghari detergent in medium or large size sample, but not in sachet. 13 % consumers prefer P&Gs Tide in medium or large size sample but it is leading brand in sachet category with 43%. Surf exel of HUL is second leading brand in sachet category with 35% consumer preference which is prefers only 6% in large samples due to its price. 5% consumers prefer other local detergents for their personal use. As given in the above table, lump sum the half of the detergent market is covered by HUL and P&G products. Nirma which was the initiator of introduction of detergent in rural market is currently out of the market. This condition shows that the rural consumers are also want to quality products, only price is a factor in front of them.

QUESTIONAIRE

NAME

_____________________________________

OCCUPATION _______________________________________________

TOTAL INCOME PER MONTH A) BELOW Rs6000 ___ B) Rs6000 TO Rs12000___ C) MORE THAN Rs12000___.

ADDRESS _________________________________________ _________________________________________

PHONE NUMBER ____________________

1) WHICH TOOTHPASTE DO YOU USE? A) PEPSODENT__ B) COLGATE__ C) CLOSE UP__ D) OTHERS__.

2) WHAT DO YOU PREFER TO USE? A) DETERGENT PACKETS ____ B) DETERGENT SACHETS ____

IF PACKETS, WHICH ONE? A) SURF EXEL__ B) TIDE__ C) NIRMA__ D) WHEEL E)GHARI__ F)ARIAL__ G)OTHERS__. IF SACHETS, WHICH ONE? A) SURF EXEL__ B) TIDE__ C) NIRMA__ D) WHEEL E)GHARI__ F)ARIAL__ G)OTHERS__.

3) WHICH SOAP DO YOU USE? A) LUX__ B) LIFEBOY__ C) REXONA__ C) OTHERS__.

4) WHAT DO YOU PREFER TO USE? A) SHAMPOO BOTTLES ___ B) SHAMPOO SACHETS ___

IF BOTTLES, WHICH ONE? A) SUNSILK__ B) HEADS &SHOULDERS__ C) PANTENE__ D) CHICK__ E)OTHERS__. IF SACHETS, WHICH ONE? B) SUNSILK__ B) HEADS &SHOULDERS__ C) PANTENE__ D) CHICK___ E)OTHERS__.

Introduction
There was a time when the FMCG companies ignored rural market, they took no interest to produced or sell products in rural market in India. It was the initial stage of FMCG companies in India. As per as the time had passed, the strategy and marketing style of FMCG companies have been changed. With the presence of 12.2% of the world population in the villages of India, the Indian rural FMCG market is something no one can overlook. Increased focus on farm sector will boost rural incomes, hence providing better growth prospects to the FMCG companies. Better infrastructure facilities will improve their supply chain. FMCG sector is also likely to benefit from growing demand in the market. Because of the low per capita consumption for almost all the products in the country, FMCG companies have immense possibilities for growth. And if the companies are able to change the mindset of the consumers, i.e. if they are able to take the consumers to branded products and offer new generation products, they would be able to generate higher growth in the near future. In 1970, Nirma was the first FMCG Company to initiate and produce goods according to rural consumers. In the early 1970s, when Nirma washing powder was introduced in the low-income market, Hindustan Lever Limited reacted in a way typical of many multinational companies. However, Nirmas entry changed the whole Indian FMCG scene .It became a great success story and laid the roadmap for others to follow. MNCs like HLL, which were sitting pretty till then, woke up to new market realities and noticed the latent rural potential of India. 1983, C K Ranganathan started selling shampoos in a sachet with an investment of Rs 15,000 and dared to take on the multinationals, Lever and P&G, the unquestioned leaders in that segment. He targeted rural and small-town consumers who used soaps to wash their hair. He introduced the sachet at 90 paisa and then reduced it to 50-paise. And thats when the multinationals sat up and noticed him. Sales zoomed from 35,000 sachets to 12 lakhs. Initially they took any sachet, but after three months they restricted to Chik sachets. Now at the present time, rural market is one of the best opportunity and focusing sector for the major FMCG companies in India. Each and every company is set to invest a huge capital for competition in rural market. According to the Federation of Indian Chambers of Commerce and Industry, the number of rural households using FMCG products has grown from136 million in 2004 to 143 million in 2007, a clear indication that rural consumers are shifting from commodities to branded products. Urban consumers, on other hand, could

go slowly on FMCG expenses, thanks for inflation spiral, rise in fuel cost and costlier credit. Evidence suggests that for the first time, the rural market has grown faster than the urban market in key product categories in April-May 2008, the latest months for which such information is available, according to market research firm AC Nielsen. In those days, the rural market is the one of the best opportunity for the FMCG sector in the India. It is wider and less competitive market for the FMCG. As the income level of the rural consumers increasing, the demand of FMCG is increasing continuously. The various need of the study is given as follows:To determine the rising demand of FMCG products in rural area. Know about the different choices of rural consumers. The study of opportunity for FMCG products in the rural market is a sum total of different analytical survey of different FMCG products in the rural area. In one sense, we can say that it is determination of how much market captured by different FMCG companies. With a population of 1 billion people, India is a big market for FMCG companies. Around 70% of the total house hold sin India resides in the rural areas. The total number of rural households is expected to rise from 135 m in 2002 to 153 m in2010, which represents the largest potential market in the world. An average Indian spends around 40% of his income on groceries and 8% on personal care products. A larger part of the total spending pie along with a large base (in terms of population) makes India one of the largest FMCG markets. Rising per capita income, increased literacy and rapid urbanization have caused rapid growth and change in demand patterns. The rising aspiration levels, increase in spending power has led to a change in the consumption pattern. Due to the large size of the market, penetration level in most product categories like jams, toothpaste, skin care, hair wash etc. in India is low. This is more visible when comparison is done between the rural and the urban areas. The average consumption by rural households is much lower than their urban counterparts. Existence of unsaturated markets provides an excellent opportunity for the industry players in the form of a vastly untapped market as the income rises. Rural markets are for marketers with perseverance and creativity. The market is extremely attractive with its vast potential but also provides challenges. It is a classic case of risk return situation. It is a high risk area but with the promise of a large customer following as the prize for those who succeed. The key to reducing the risk is to understand the market, the consumer need and behaviors. A marketer needs to understand that rural consumers are not a homogeneous lot.

The rural market is not synonymous with the farmer. The consumer groups here differs by occupation, income, social and cultural grouping. The rural marketer will find it useful to identify consumer groups who require products purchased in the urban market. Adaptation to consumer needs of the rural market is reflected in products offered and the message used. Understanding and communication in the language that the rural consumer comprehends is a challenge the market has to face. The communication strategy that allows flexibility and autonomy to meet the local situation is important. Consumer purchase behavior is also reflected in distribution decisions. The periodic markets are an important social institution that marketers can user to supplement reaching the rural consumer.

Content
The Indian rural market is expected to grow more than tenfold to become a USD$100 billion opportunity for retail spending in the next 15 years, The Nielsen Company has found. Details of the findings were unveiled at Nielsens flagship Consumer 360 conference in New Delhi, India. The study showed that in more than half the largest FMCG categories, rural India is now contributing more to their growth than urban. One of the key drivers of this trend appears to be the unprecedented growth of smaller packaging options in rural India. While the ability of lower priced packs to improve accessibility is known, their pace and presence has been unrelenting said Prashant Singh, Vice President, the Nielsen Company, India. In addition, premium skin care brands typically associated with urban areas are growing nearly twice as fast in rural. The good news is that the opportunity neednt overwhelm smart marketers. For instance, even a mere 2.5 percent of villages, if selected correctly, can generate a 20 percent jump in sales growth. The rural market is currently worth approximately USD$9 billion in consumer spending in the FMCG space annually. The study findings show that food categories are currently driving the bulk of the additional USD$91 billion into the marketplace by 2025. One of the most telling points is the unprecedented pull of consumer demand fueled by an overdrive of awareness and acceptability. This will allow, and propel manufacturers to swing into full gear, said Prasun Basu, Executive Director and Vice President, The Nielsen Company. The study also found a surprising set of priorities. In rural areas, education of children ranked second after having a good crop. On the consumption front, a third of rural consumers are eating biscuits for breakfast and one in six rural buyers of hair dye now uses colors other than black to indulge in the trend of externalized beauty that is picking up fast in rural areas. These emerging cues that seem to be on the fringes of the larger market, or EmerFringe trends are the signs of a future that has arrived. The rural consumer is no longer merely experimenting with urban products because of a phase of prosperity rather, she is reveling in it and indulging unabashedly, providing gratification to her senses and her self-esteem, said Basu.

The study also revealed that:

Rural purchasing power has grown faster than urban in the last six quarters Faster growth in rural is not limited to penetration; today the rural consumers frequency of consumption is growing faster as well, demonstrating their entrenchment in these categories. Instant noodle sales are growing nearly twice as fast in rural India compared to urban in both penetration and frequency. Seemingly urbane brands in categories like deodorant and fabric softener are growing much faster in rural India than urban

Now that the new phase of rural consumption appears here to stay, marketers will need to evolve new strategies to connect and communicate with a more aware and unreserved consumer than ever before, the study found. With this, product and brand development cycles will need to undergo a dramatic change. This growth is proving to be systemic and sustainable as multiple factors converge:

Government spending in rural India has tripled over the last four years and is now translating into higher consumer spending. Significant progress on literacy levels 99 percent of the villages have a primary school within a 1 km walk Rural consumers are consuming more premium and convenience oriented categories that are typical of their urban counterparts DTH television connections in rural are more than double that of urban and have grown dramatically; today two out of five new mobile telephone connections are in rural.

Todays rural consumer is not just indulgent, but smart too: she wants products that carry the best of traditional wisdom and modern science; ones that provide her convenience and individualism in one go. This means product and brand strategies that respond to these demands are more likely to succeed. This bolder and more individualistic consumer is unafraid to exhibit and externalize the need to indulge. Recognizing this and coupling it with ideas that offer individualized convenience will separate the brands that will win from the others. These findings have wide-ranging, practical implications for creating successful portfolio strategies and packaging formats that recognize these traits and appeal

to the rural consumers senses. Combined with a smarter selection of locations and targeted distribution plans, brands can transform their plans for growth dramatically and profitably to make the most of the next big rural opportunity. In recent years, rural markets have acquired significance, as the overall growth of the economy has resulted into substantial increase in the purchasing power of the rural communities. On account of green revolution; the rural areas are consuming a large quantity of industrial and urban manufactured products. 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. What Makes Rural Markets Attractive? Rural market has following attributes and the following facts substantiate this: 742 million people

Estimated annual size of the rural market FMCG Durables Agri-Inputs (including tractors) 2 / 4 Wheelers Rs. 65,000 Crore Rs. 5,000 Crore Rs. 45,000 Crore Rs. 8,000 Crore

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-debit cards in urban), with cumulative credit of Rs. 977 billion resulting in tremendous liquidity. Of the 20 million Rediffmail sign-ups, 60% are from small towns. 50% of transactions from these towns are on Rediff online shopping site.42 million rural households (HHs) are availing banking services in comparison to 27 million urban HHs. Investment in formal savings instruments is 6.6 million HHs in rural and 6.7 million HHs in urban.

Opportunities Infrastructure is improving rapidly - In 50 years only, 40% villages have been connected by road, in next 10 years another 30% would be connected. More than 90% villages are electrified, though only 44% rural homes have electric connections. Rural telephone density has gone up by 300% in the last 10 years; every 1000+ pop is connected by STD. Social indicators have improved a lot between 1981 and 2001 -Number of "pucca" houses doubled from 22% to 41% and "kuccha" houses halved (41% to 23%). Percentage of BPL families declined from 46% to 27%. Rural literacy level improved from 36% to 59%.

Low penetration rates in rural areas, so there are many marketing opportunities Durables CTV Refrigerator Urban 30.4 33.5 Rural 4.8 3.5 Total (% of Rural HH) 12.1 12.0

FMCGs Shampoo Toothpaste

Urban 66.3 82.2

Rural 35.2 44.9

Total (% of Rural HH) 44.2 55.6

Marketers can make effective use of the large available infrastructure -

Post Offices Haats (periodic markets) Melas (exhibitions) Mandis (agri markets) Public Distribution Shops Bank Branches

1,38,000 42,000 25,000 7,000 3,80,000 32,000

Proliferation of large format Rural Retail Stores, which have been successful also DSCL Haryali Stores M & M Shubh Labh Stores TATA / Rallis Kisan Kendras Escorts Rural Stores Warnabazaar, Maharashtra (Annual Sale Rs. 40 crore)

Channels In recent years the various innovative channels that are being experimented by FMCG majors in India are: Partnering with Self Help Groups in Rural India. Internet based Rural Kiosks/Hubs Direct Selling We will discuss in detail each of these channels in terms of their current reach and its future growth potential and the role they play in the future of the FMCG distribution. Partnering with Self Help Groups in Rural India as Hindustan Unilever Limited (HUL) sought to reach rural markets, they faced two hurdles. The first was size: rural markets were scattered over large areas, and per capita consumption rates were low. Thus, while the aggregate rural potential was massive, the potential of

each of the 638,000 scattered markets was very low. The second was reach: rural markets were not connected to urban centers and road connectivity was poor. Even when feasible, accessing remote markets meant additional costs. HUL found an innovative solution. Hindustan Lever partnered with micro-credit recipients by offering them opportunities for micro-enterprise. Thus Project Shakti was born. A member of a Self Help Group (SHG) in each of the chosen villages was appointed a Shakti entrepreneur. As Shakti brand endorsers known as Shakti Ammas they borrowed money from their respective SHGs and with that capital purchased HUL products to sell in their villages. The Shakti brand endorsers are underprivileged rural women trained to manage businesses, to communicate the benefits of the brands and to effectively engage with consumers. Partnerships with NGOs and support from state governments facilitate these efforts of training. Now there is a network of 35,000 entrepreneurs reaching 100 million rural consumers in 100,000 villages. This effort makes a lot of business sense: it means a significant increase in penetration and market shares for HUL. The typical chain for a grocer store FMCG product will be: Manufacturing plant -> Company Ware House -> Regional Ware House -> Regional Stockist -> Super Stockist -> Stockist -> Distributor -> Retailer Main Godown -> C&F Agents/Super Stockists -> Distributors as per the territories > Wholesalers/Retailers

So, the retailers either buy from the distributor or they buy from the local wholesaler. Each has its own advantages and disadvantages. Distributor provides you with better servicing, replacement of spoilt products, credit facility of 2

weeks, etc. On the other hand, the wholesaler will give you more margins, but no credit facilities, and you dont have compulsion of storing a set of SKUs, etc. The inventory is under the ownership of the company only until it reaches the distributors by the C&F agents. The stockists are responsible to distribute to the retailers. Each stockist may serve around 500-1000 retailers in proximity. Also, all the stockists are not the same in their storage. Every stockist may have his own set of categories which he can store the best, like a stockist can store rice, sugar, teapowder, biscuits, and snacks. Some may be specialists in handling premium products, and some in frozen foods. The company generally categorizes the stockists based on their specialty and allocates different super-stockists. For example, HUL categorizes them as U1 and U2 stockists, where U1 is general products and U2 stockists handle only premium products. The distribution network for premium products is different from that of discount and popular as they require much deeper distribution penetration unlike the premium products. Company categorizes based on their storage capacities where company has some standards that every stockist and distributor should have 2 months and 3 weeks of stock. The stockists appoint salesman who take the orders from the retailers, and the delivery is made on a van. Each stockist may have 6-10 vans, and 10-12 people for the delivery process. The link between the manufacturer and the stockist is maintained by the manufacturers employees Area Sales Manager, Territory Sales Manager, Activation Manager, and the Re-Stockist Salesman (RSSM) manages all the distribution, purchases, labor management, and supervises the delivery process. Every month the sales targets are set by the company to all its salesforce TSM, ASM, Sales InCharge, etc. and they handle all the relations with the distributor and sometimes push the stock onto the distributor to meet their sales targets. Companies try to motivate the channel partners with workshops about business & marketing, good warehouse practices, and a lot of other incentives. They follow a strict rating mechanism with all its channel partners and evaluate them continuously on a set of parameters. Though each company has its own distribution strategy and flow, most of the companies follow the above distribution framework. Radiohms Agencies Limited is one of India's largest Channel Distribution Company, Catering to more than 500,000 Retail Outlets and 500,000 whole sale outlets across the country, covering the smallest village grocery shops to Mega Lifestyle Chains and Hyper Markets in Metros.

India is a country, which is currently dominated by the mass market. Almost half of retail market in 2006 is in rural India; although share of urban market is increasing by almost 5% every 8-10 years .Rural India consists of 720 Million consumers across 627,000 villages. 17% of these villages account for 50% of the rural population and 60% of the rural wealth implying reaching out to almost 100,000 villages to address even 50% of this rural opportunity India is one of the most fragmented and price sensitive - markets in the world which is spread over 12 million outlets. 95% of outlets are smaller than 500 sq ft. Highest number of outlets is 7 per 1000. Indian retail space per capita at 2 sq ft/ person is lowest in the world. Indian retail density of 6% is highest in the world To cater to these outlets RAL has relied on Price, Positioning, Logistics and market intelligence. RAL has developed a robust manpower of 1000 field force which is directly in touch with the market. Not to forget our strong Logistics and IT to cater such varied formats. Currently on 3% of the retail sector is organized. Remaining 97% is still organized. Organized sector will be able to rach 10% market share by the year 2010. Thus to capture the retail market in India a very strong and robust distribution network is required which is RALs strength. Radiohms Agencies Limited is geared up for the challenges ahead. They have developed credibility by breaking into the portable energy market in the 1970's. In the 70's our competitors eveready enjoyed 100% market share. Today they have neck to neck competition with our Nippo Batteries as we enjoy 32% market share close there at 37%. RAL has 2000 small vans which go into the remotest and smallest hamlets where there are no shops and retail. Radiohms Agencies Limited has industry veterans on its roll who understand the complex Indian market and the needs of Mega Lifestyle and Hyper Bazar Chains. RAL has been dealing with multinational companies globally from Japan, Sweden, US, UK, Germany, China since last three decades and understand their needs. We are thus able to bridge the gap between the Multinational and the local shopkeeper

Conclusion and Recommendations

As I has analyzed the various data based on questionnaire, a fact has came into light that HULs products are the most known and popular Brand in context of home FMCG products in rural market f o l l o w ed by D A B U R , IT C a n d P& G . B e ca us e o f h ug e pr o d uct line, cheaper cost, brand loyalty, good publicity and advertisement, the rural consumers generally prefers the products of HUL in all segments. Except it, people firstly prefer for good quality and comparatively low prices products. Thus looking at the challenges and the opportunities which rural markets offer to the marketers it can be said that the future is very promising for those who can understand the dynamics of rural markets and exploit them to their best advantage. A radical change in attitudes of marketers towards the vibrant and burgeoning rural markets is called for, so they can successfully impress on the 230 million rural consumers spread over approximately six hundred thousand villages in rural India. The rural market is very large in comparison to urban market as well as it is more challenging market. The consumer wants those products which are long lasting, good, easy to use and cheaper. The income level of rural consumers is not as high as the income level of urban consumers thats why they want low price goods. It is one of the reason that they sell of a sachet is much larger in the rural area in all segments. It is necessary for all the FMCG major companiesto provide those products which are easy to available andaffordable to the consumers. It is right that the profit margin is very low in the FMCG products, but at the same time the market size is much large in the rural area. The companies can reduce their prices by cutting the costs on the packaging because the rural consumers dont need attractive packaging. Application of 4A is also a major task for the major companies in this area.

Bibliography

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