70 percent of Indian consumers live in rural areas, still marketers are focusing on urban consumers. Why?

IT services Indian villages are finally getting to benefit from the IT revolution in India. E-Panchayats are slowly taking over rural India and an 'E-medicine' scheme for rural areas has been launched by the Gujarat government's health department in May 2008. A study by internet research firm JuxtConsult reveals that one out of every seven regular internet users is from the rural belt and surprisingly, the rural net users are younger than their urban counterparts. Moreover, BPOs are slowly growing roots in rural areas.

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Comat Technologies (P) Ltd, a Bangalore-based global business solutions organisation has 800 rural business centres in Karnataka and 290 centres in Haryana. It will soon open centres in Sikkim, Tripura, Uttarkhand and Uttar Pradesh. SerWizSol, a Tata enterprise, has a 250-seater BPO at Ethakota in rural Andhra Pradesh, and one in rural Gujarat in Mithapur which is a 100-seater. SREI Sahaj e-Village Ltd will set up 25,000 IT kiosks to be known as common service centers (CSC) across West Bengal, Bihar, Orissa, Assam, Uttar Pradesh and Tamil Nadu, by 2010.

Automobiles The Indian automotive industry currently has a turnover of US$ 34 billion. However, the automobile market remains untapped in rural India which has a strong purchasing power. Nearly 50 per cent of the Indian rural market, which includes 220 million households, is potential car buyers. Two-wheeler penetration in rural belts is still very low with less than 10 per cent households owning a two-wheeler. Sensing a huge opportunity many automobile companies are trying to woo the rural consumer.

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Hyundai Motors India has introduced a new marketing initiative 'Ghar Ghar Ki Pehchaan'-- to tap the India rural car market. The company has rolled out special schemes for government employees in rural areas and members of gram panchayats on the purchase of Santro. After establishing a strong foothold in urban and semi-urban markets, Maruti Suzuki has launched a pan-India campaign - 'Mera Sapna Meri Maruti' - to tap the rural market. Hero Honda has devised a major expansion strategy for the rural markets and is planning to strengthen retail financing to support the initiative, which could lead to setting up of its own finance arm. M&M, Bajaj Auto and TVS Motor have also launched special marketing schemes for rural markets.

Consumer durables A survey carried out by the Federation of Indian Chambers of Commerce and Industry (FICCI), indicated that the consumer durable goods sector is all set to witness 12 per cent growth in 2008. The rural market is growing faster than the urban markets, although the penetration level in rural area is much lower. The rural Indian market, which accounts for nearly 70 per cent of the total number of households, witnessed a 25 per cent annual growth while the urban consumer durables market reflected an annual rate of 7 to 10 per cent. Many leading companies are now increasing their presence in rural India.

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LG has set up 45 area offices and 59 rural and remote-area offices. Samsung rolled out its 'Dream Home' road show which was to visit 48 small towns in 100 days in an effort to increase brand awareness of its products.

The road ahead The rural revolution is fuelled by rising purchasing power, changing consumer habits, increased access to information and communication technology, better infrastructure and increased government programmes to boost the rural economy. The recent study by Associated Chambers of Commerce and Industry of India (ASSOCHAM), disclosed that around 200 million out of 700 million rural population in India are engaged in agricultural and non-agricultural

activities, and have a decent per capita income. A large section of the rural population is choosing dairy, food processing and packaging as professions, beyond traditional farming. Furthermore, large retail players like Reliance, Spencer's and Subhiksha are procuring farm commodities in bulk directly from farmers, giving them better money for their produce. The rural population is now looking at better options beyond post offices and commercial banks for higher returns on their surplus earnings. However, Rural India lacks a good distribution system. Rural Indian purchasing habits exhibit an "earn today, spend today" mentality. Most rural homes have restricted storage space and no refrigeration so villagers tend to only buy their immediate requirements. To succeed, corporations need to understand the psyche of the rural family along with the rural distribution network. For example, Hindustan Lever used a strategy of volume driven growth in rural markets, which was hugely successful.

The success of these companies has as much to do with understanding the psyche of the rural family as it has to do with a rural distribution network. A typical rural family is a price conscious consumer and this is where the key to success lies. Hindustan Lever, for example, extended its strategy of volume driven growth into rural markets and met with much success. Britannia on the other had launched Tiger to take on the existing economy brands in the market.

Profile of the rural consumer: 1. Size of the Rural Consumer: The size of the rural consumer group can be understood from the following details provided in the table:

Population of India Rural v/s Urban: 1971, 1981, 1991 and 2001 Population Total % Total % Total % Total % 1971 1981 1991 2001 Rural Population 43.90 cr 82 50.20 cr 76.3 64.1 cr 76 74.2 cr 72.3 Urban Population 10.91 cr 20 15.62 cr 23.7 20.3 cr 24 28.5 cr 27.8 Total Population 54.81 cr 100 65.82 cr 100 84.4 cr 100 102.7 cr 100 Rural population forms a major portion of the Indian population as seen in the table. If we consider the state level picture, in several states like Uttar Pradesh, Rajasthan, Madhya Pradesh and Kerala, the rural population constitutes more than 80% of the total population. In states like Bihar and Orissa 90% of the population is in rural areas. 2. Location Pattern of Rural Consumer: The urban population of India is concentrated in 3200 cities and towns and the rural population is scattered over 6, 38,365 villages. Statistics shows that out of the 6,38,3645 villages have populations of more than 5000 persons each. About 55% of the villages have population in the range of 500 people or less. The influence is clear, rural demand is scattered over a large area, unlike the urban demand, which is highly concentrated. 3. Literacy Level: It is estimated that there are 23% literate in rural India as compared with 365 of whole country. The rural literacy in the rural area is on an increase. Among the rural population Kerala tops with 77%. The literacy rate has its implication in communication with the rural population. It appears that communication should not prove a hurdle, provided appropriate means are chosen. 4. Rural Income: An analysis of the rural income pattern reveals that nearly 60% of the rural income is from agriculture.

Rural prosperity and the discretionary income with rural consumers are directly tied up with agricultural prosperity. The pre-dominance of agriculture in the income pattern has one more significance-rural demand is more seasonal. 5. Rural Savings: The rural consumers have been drawn into the saving habit in a big way. The commercial banks and the co-operative have been marketing the saving habit in the rural areas for quite some years. Today nearly 70% of the rural households are saving a part of their income. The habit is particularly widespread among salary earners and self-employed non-farmers. 6. Significant Aspects: It can be seen in general sense low purchasing power, low standard of living, low per capita income, low literacy level and overall low social and economic positions are the traits of the rural consumers. By and large, the rural consumers of India are a tradition bound community; religion, culture and even superstition strongly influence their consumption habits.

DISTRIBUTION STRATEGIES IN RURAL MARKETS

Distribution strategy A one of the ways could be using company delivery vans which can serve two purposes it can take the products to the customers in every corner of the market and it also enables the firm to establish direct contact with them and thereby facilitates sales promotion. The mediocre companies with sizable resources may chip in for syndicated distribution. Haats and Melas could also be a great platform to display merchandise. Also, every region consisting of several villages is generally served by one satellite town termed as Mandi where people prefer to go to buy their durable commodities. If marketing companies use these feeder towns they can have a vast coverage of rural arena.

Delivery Vans Companies can use their own delivery vans to reach the rural consumers. There are certain advantages of using delivery vans. They take the products to customers and retail outlets in every corner of selected rural markets and enable the company to establish direct contact with the consumers which helps in sales promotion. We can take the example of HLLs distribution strategy in rural market. In 1998, HLL landed "Operation Harvest" with an objective to increase penetration, increase brand awareness, encouraging trials and identification of key distribution points and retail points. Around 30,000 villages having high growth potential, having a population of at least 2000, and well connected by roads, were selected. The vans were retrofitted with a public address system and their audio-visual equipment. These vans covered six villages a day for six days in a week. The cycle was repeated couple of times in the same villages. On reaching the villages, they would play audio-cassette and video-films. These cassettes and films had songs and sequences from popular films with advertisement of HLL coming at some intervals. Company representatives distributed free samples. Small shops of villages were provided with HLL products like Lifebuoy and Wheel. This helped company to understand the potential of the market.

Joint Distribution by Non-Competing Companies Companies having lesser distribution reach in rural areas can collaborate with companies already having wide network in rural market. This type of tie-up can prove to be beneficial as one can reach to large number of retail outlets by utilising the network and the other one can earn better revenue. Also, this type of joint collaboration can help both companies to reduce distribution costs and can convert operation which seems to be unviable into financially viable operation. Some examples of effective distribution tie-ups in rural market: y Samsung has tied-up with the Indian Farmers Fertilizer Cooperative (IFFCO). Thus, Samsung will use IFFCO's cooperative network for marketing the hand-sets to rural consumers over a wide area. y Nokia has entered into a partnership with HCL for distribution of its hand-sets. y Motorola and Nokia have partnered with ITC e-Choupal which gave them wider reach in rural market. y Procter & Gamble had tie-up with Godrej and Marico Industries, and now it is planning one with Nirma as well for distribution of Camay Soaps. y Godrej has tie-up with Jyothi Labs to use its extensive distribution network for marketing Godrej Tea across the country.

Distribution up to Feeder Towns / Mandis Companies can cater to the needs of rural consumers by making their products available upto feeder towns or mandis. Feeder markets or mandis provide excellent scope for distribution of products like consumer durables, clothes, kitchen equipment, agri-inputs and tools. The rural consumers visit these towns at regular intervals not only for selling their agricultural produce but also to purchase clothes, jewelry, hardware, radio, and other consumer durable products. Haats Along with permanent retail outlets, haats can also be utilised to make the products available to rural consumers. Haats are held on a particular day of every week. Typically, an average haat has 300 stalls. A haat usually serves around 5000 visitors. So if we consider average population of an Indian village to be 1000, then one haat caters to the needs of 5 villages. There are almost 47,000 haats in India. The sale per haat per day is Rs. 2.25 Lakh (approximately) and average sale per outlet is Rs. 900 (approximately). large number of retailers also buy products from haats for their village stores. About 90% of sales on haats are on cash basis. The participation fees at haats are a flat Re. 1 to Rs. 5 per stall which is very low. These figures show that targeting haats for distribution purpose can prove to be beneficial for companies. Companies can tap the rural consumers for clothes, cosmetics, FMCGs, kitchen equipments and agricultural tools at these haats. Leading manufacturers are introducing sachets of tea, blues and washing powders in these haats to create a demand and then meet the demand in affordable packages. Melas Over 25,000 melas are held every year all over the country. Out of these, 5000 are commercial melas, 2,000 are cultural melas and 18,000 religious melas. The following facts regarding melas will help us to understand their importance to marketers: y y y y

Number of visitors per mela is approximately 7.5 lakh. On an average, 850 outlets are set-up in every mela. Average sale per day in a mela is Rs. 25 Lakh. Visitor turn-out in a mela is very high.

y A large part of the visitors in these melas are women and children, which is significant because rural women are restricted to leave village often.

Melas are generally used to sell durables, high-priced items and new products launched. Examples of effective use of melas by marketers are: y Active participation of Maruti in rural melas like the kisan mela (Ludhiana), Sonepur mela (Bihar), Kila Raipur sports mela (Punjab) and Pushkar mela (Rajasthan). The melas provide both a platform for demonstration and improving product awareness, and also booking new sales. y In 2001, HLL ran a campaign at the Allahabad Kumbh Mela to demonstrate to the visitors the importance of usage of soap for better health and hygiene. Rural people in general believe that washing hands with water alone is enough, so there is no need to use soaps. HLL representatives educated them about use of soap for better health and hygiene. This awareness campaign has helped HLL to increase the sales of Lifebuoy in rural market.

Hub & Spoke Method of Distribution The urban model of distribution in which the products are transported directly from the bottling plant to retailers is not very effective in rural markets as taking stock directly to retail point would be costly due to the long distance to be covered. So Coca Cola has opted for a hub and spoke method of distribution system. It worked this way: Coke bottles were transported from the bottling plants to the hubs (large distributors) and from hubs to spokes (smaller distributors) situated in small towns. These spokes then distribute the stocks to village retailers who cater to the demand in rural market.

Distribution Adaption( Indicative)

y y y y y y 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

ITC e-Choupal About ITC-IBD ITC is one of India's foremost private sector companies with a market capitalisation of over US $14 billion and a turnover of US $3 billion. ITC has a diversi_ed presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Branded Apparel, Greeting Cards and other FMCG products. Its International Business Division (ITC IBD) was created in 1990 as an agricultural trading company; it now generates US $150 million in revenues annually.

ITC e-Choupal and the Strategy

ITC followed a di_erent media/communication strategy which is more elaborate and extensive in rural marketing so far, which bene_ts both the farmers and the organization. The strategy is use the Information Technology and bridge the information and service gap in rural INDIA which gives an edge to market its products like seeds, fertilizers and pesticides and other products like consumer goods. With this strategy it can also enhance its competetiveness in global market for agri exports. A pure trading model does not require much capital investment. The eChoupal model, in contrast, has required that ITC make signi_cant investments to create and maintain its own IT network in rural India and to identify and train a local farmer to manage each e-Choupal. The company has initiated an e-Choupal e_ort that places computers with Internet access in rural farming villages; the e-Choupals serve as both a social gathering place for exchange of information (choupal means gathering place in Hindi) and an e-commerce hub. The computer, typically housed in the farmers house, is linked to the Internet via phone lines or, increasingly, by a VSAT connection, and serves an average of 600 farmers in 10 surrounding villages within about a _ve kilometer radius. Each e-Choupal costs between US $3,000 and US $6,000 to set up and about US $100 per year to maintain. Using the system costs farmers nothing, but the host farmer, called a sanchalak, incurs some operating costs and is obligated by a public oath to serve the entire community; the sanchalak bene_ts from increased prestige and a commission paid him for all e-Choupal transactions. The farmers can use the computer to access daily closing prices on local mandis(governmentmandated markets), as well as to track global price trends or _nd information about new farming techniqueseither directly or, because many farmers are illiterate, via the sanchalak (the village farmer who runs the e-Choupal and acts as ITCs representative in the village). In addition they can also know about weather forecast(local) and best practices in the world from e-Choupal website. They also use the e-Choupal to order seed, fertilizer, and other products such as consumer good from ITC or its partners, at prices lower than those available from village traders; the sanchalak typically aggregates the village demand for these products and transmits the order to an ITC representative. At harvest time, ITC o_ers to buy the crop directly from any farmer at the previous days closing price; the farmer then transports his crop to an ITC processing center, where the crop is weighed electronically and assessed for quality. The farmer is then paid for the crop and a transport fee. Launched in June 2000, 'e-Choupal', has already become the largest initiative among all Internet-based interventions in rural India. 'e-Choupal' services today reach out to more than 3.5 million farmers growing a range of crops - soyabean, co_ee, wheat, rice, pulses, shrimp - in over 31,000 villages through 5200 kiosks across six states (Madhya Pradesh, Karnataka, Andhra Pradesh,Uttar Pradesh, Maharashtra and Rajasthan). Implementing and managing e-Choupals is a signi_cant departure from commodities trading. Through its tobacco business, ITC has worked in Indian agriculture for decades, from research to procurement to distribution. ITCs translation of the tactical and strategic challenges it faced and its social commitment into a business model demonstrates a deep understanding of both agrarian systems and modern management. The principles followed in implementing the e-Choupals are

_ Re-engineer, Not Reconstruct Present Mandi system have some success factors in it. ITC decided to build e-Choupal on existing system. Already ITC has trading agents in local mandis for its tobacco business. It retained the e_cient providers and created roles for ine_cient people. It recruites and engages members of landscape thereby making their expertise available to ITC. With this principle ITC can avoid the reinventing the system in areas where it can add no value with its presence i.e., in areas where e_cient agents are there. _ Address the Whole, Not Just One Part The farmers various activities range from procuring inputs to selling produce. Currently, the village trader services the spectrum of farmers needs. He is a centralized provider of cash, seed, fertilizer, pesticides, and also the only marketing channel. As a result, the trader enjoys two competitive bene_ts. First, his intimate knowledge of the farmer and village dynamics allow him to accurately assess and manage risk. Second, he reduces overall transaction costs by aggregating services. The linked transactions reduce the farmers overall cost in the short term, but create a cycle of exploitative dependency in the long-term. Rural development e_orts thus far have focused only on individual pieces rather than what the entire community needs. Cooperatives have tried to provide agricultural inputs, rural banks have tried to provide credit, and mandis have tried to create a better marketing channel. These e_orts cannot compete against the traders bundled o_er. Functioning as a viable procurement alternative, therefore, must eventually address a range of needs, not just the marketing channel. ITC e-Chopal provide services as a bundle what the entire agricultural community needs. _ An IT-Driven Solution Delivery of real-time information independent of the transaction. In the mandi system, delivery, pricing, and sales happen simultaneously, thus binding the farmer to an agent. E-Choupal was seen as a medium of delivering critical market information independent of the mandi, thus allowing the farmer an empowered choice of where and when to sell his crop. _ Risk analysis & challenges { Radical shifts in computing access will break community-based business models. { The sanchalaks are ITCs partners in the community, and as their power and numbers increase, there is a threat of unionization and rent extraction. { The scope of the operation: the diversity of activities required of every operative and the speed of expansion create real threats to e_cient management. { If ITC fails to ful_ll the aspirations of farmers, they will look elsewhere for satisfaction. 4.5 Strategies to be followed (1). Adopt the ability to determine the grades of the crop(grains) in the _eld which commands the price premium for the crop.

e.g: Wheat (2). Build the concept of traceability into the supply chain which will allow to address the food safety concerns. e.g: For perishables such as shrimps, which decays quickly with in short 19 period of time, it need to de_ne standards of production and product quality. (3). Provide the service as market-place for commodities where ITC is not a sole buyer. It will reduce the operational cost of e-Choupal such as IT infrastructure and transaction costs. e.g: co_ee grains. (4). Marketing value added products and services to rural INDIA , in addition to marketing agri inputs, through e-Choupal system. (5). Sourcing IT-enabled services from rural INDIA. Telemedicine, ecotourism , traditional medicine and traditional crafts are some of the services that can be sourced from rural INDIA. 4.6 Conclusion ITC e-Choupal, an innovative strategy which is elaborative and extensive in rural markets sofar. Critical factors in the apparent success of the venture are ITCs extensive knowledge of agriculture, the e_ort ITC has made to retain many aspects of the existing production system, including retaining the integral importance of local partners, the companys commitment to transparency, and the respect and fairness with which both farmers and local partners are treated.