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 Hi.
You know me. I am your typical marketer: I've done the drill;
been to an engineering college, onwards to a B-school, before
landing up at this big marketing machinery. My job, as that of
everyone else in my profession, is to figure out how to sell to
you, the consumer, more and more of what my company makes. And
today, I am going to make a confession, tell you a secret, if
you will: Thank you, C.K. Prahalad, but none of us knows how to
sell to India's teeming poor, almost all of whom live outside
of our big cities and towns. Yes, you do have urban poor, but
they are not really poor-at least, compared to the rural poor.
So, here I go:
Do me a favour, shoot the guy who said that
India was a market of one billion people. There is no denying
the fact that Indian market, being one of the fastest growing
in the world, offers immense prospects, but the fact is big opportunities
exist only at the top of the pyramid, comprising around 300 million
people, and not at the bottom, as many marketers would have you
believe. The truth is that almost 60 per cent of the market, which
is loosely called rural, is yet to turn into a real market. Right
now, it is just a promise. In fact, many a hapless marketer like
me who took the plunge into this "unexplored virgin market"
in the hope of hitting a goldmine has come back bruised (just
ask my friends at Coke and Pepsi). Sure, there are guys at Hindustan
Lever and itc Foods who are at it. But for them, it is an investment
in the future and not a present opportunity. And those who claim
to be making hay from rural markets, are not talking of real rural
markets at all.
| Challenges In Rural Marketing |
»
Poor infrastructure: Only 40 per cent of
the villages have access to good roads and although on paper
90 per cent of the villages are electrified, only a third
of the rural house holds have electric connections
»
Poor availability of shops: Around 30 per cent of the villages
have no regular shops, forget about proper distribution chains
»
Poor literacy rate: According to Census 2001, rural literacy
was at 59.4 per cent against urban literacy of 80.3 per cent
»
Poor media penetration: Only 57 per cent of the total rural
households have access to mass media of any kind. Of these,
23 per cent have access to print media and 36 per cent to
TV |
Don't believe me? Listen to what this guy
who spent a lot of time spearheading HLL's rural initiative, Project
Shakti, until just about a year ago told me. "Topline or
bottom line, growths should not be the objective of getting into
rural markets. For as of now, all these markets offer is a future
opportunity. One can't really make fortunes out of these markets
as yet," said Sharat Dhall. He says the investments being
made, both in terms of efforts and capital, in rural markets would
take a long time to yield worthwhile results. "Rural marketing,
as of now, is all about seeding the markets, creating awareness
about brands and promoting a culture for consumption," he
told me recently.
Guess what? Dhall's isn't the lone voice.
"Rural markets provide a marginal utility (as of now). Incremental
margins from these markets are not huge," S. Sivakumar, Chief
Executive (Agri Businesses), ITC, confided in me recently. Part
of the problem is that penetrating a rural market takes a lot
of money, thanks to the poor infrastructure (see Challenges In
Rural Marketing), bigger and diverse nature of these markets and
low per capita incomes of consumers. "It's only those who
have a cost-effective distribution channel like ours can sustain
themselves in these markets," explained Sivakumar, trying
hard not to boast. I agree with him. According to Census of India
2001, around 750 million of our countrymen live in some six lakh
villages. The 35 metros (mainly state capitals) house only around
110 million people, 359 Class-I towns have 90 million and the
urban rest, which is around 4,000 towns, houses another 90 million.
Interestingly, HLL and ITC, which my friends tell me are the most
spread out companies, have a direct presence in only around 2-2.5
lakh villages and another 1-1.5 lakh are connected through Project
Shakti and ITC's e-choupal. (My peers at consumer durables and
automotive companies haven't even touched the real villages as
yet). The rest, as is evident, have yet to be cracked.
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| Survival strategy: ITC's Sivakumar sees
the answer in cost-effective distribution |
A Misplaced Bet?
I know what you are itching to ask me: Why
did we start looking at the rural markets at all? Well, there
was a time-in the late 90s and early 2000-when we marketers thought
that to continue growing, we would need to tap rural markets.
"Urban markets seemed more or less saturated around early
2000. Back then, disposable incomes were spent on durables, vehicles,
houses and entertainment, while spends on FMCG were taking a beating,"
my friend who heads the home and personal care business at an
FMCG major told me the other day when we were talking about rural
markets. In other words, rural India was virgin territory and,
hence, a land of great promise.
The result was companies such as HLL, P&G,
ITC, Coke and Pepsi made a beeline to rural households. In a bid
to make their products more relevant to rural consumers, they
either cut prices or launched smaller and cheaper versions. The
strategy helped as volumes in most cases grew tremendously. "Our
volumes grew 39 per cent in 2003-2004 because of a huge walk-in
from rural consumers," a top cola company executive I know
told me a few days ago. But soon, it started hurting because the
growth in volumes was not commensurate with value. "We were
to realise the mismatch a little later as the value growth was
only around 20-25 per cent," he added.
Just What Is Rural?
It is not what it is considered to be. |
| According to
the census of India, villages with clear surveyed boundaries
not having a municipality, corporation or board, with density
of population not more than 400 sq. km and with at least 75
per cent of the male working population engaged in agriculture
and allied activities would quality as rural. According to
this definition, there are 585,764 villages in the country.
Of these, only 0.5 per cent have a population above 10,000,
and 2 per cent have population between 5,000 and 10,000. Around
50 per cent of the villages have population between 200 and
1,000, and another 18 per cent has a population less than
200.
Interestingly, for FMCG and consumer durable companies,
any territory that has more than 20,000 and 50,000 population,
respectively, is rural market. So, for them, it is not rural
India which is rural. According to them, it is the Class-II
and III towns that are rural. According to the Census of
India 2001, there are more than 4,000 towns in the country.
It has classified them into six categories-around 400 Class-I
towns with one lakh and above population (these are further
classified into 35 metros and rest non-metros), 498 Class-II
towns with 50,000-99,999 population, 1,368 Class-III towns
with 20,000-50,000 population, 1,560 Class-IV towns with
10,000-19,999 population. It is mainly the Class-II and
III towns that marketers term as rural and that partly explains
their enthusiasm about the so-called "immense potential"
of rural India.
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Soon, it became evident that rural markets
were a tough nut to crack. Most companies took a hit on their
bottom lines and came back a little wiser. Most of them increased
prices-HLL and P&G, for instance, rolled back the price cuts
initiated in 2003, Coke and Pepsi increased prices by 30-40 per
cent last year, and LG and Samsung, which played their own version
of price-cutting game to attain volumes, also increased prices
of their products this year. "Rural markets don't lend a
model for value growth," I remember Dhall telling me. Another
of my friends at LG, Girish Rao, who is Vice President (Sales),
said something interesting too: "Value-led growth comes from
the top-end premium products, which are not relevant for rural
markets." "Rural markets are about low-price high volume
growth," says ITC's Sivakumar.
Actually, the point Rao and Sivakumar are
making is corroborated by an ACNielsen study, which reveals that
villages (around six lakh as mentioned earlier) contributed 30
per cent to total FMCG consumption in 2005, while the top 35 towns
contributed 29 per cent. While, on the face of it, it might seem
that opportunity at the bottom and the top ends of the market
is almost the same, experts I know point out a dichotomy. "The
30 per cent rural demand came in from 750 million consumers, whereas
the 29 per cent demand was on account of only 110 million consumers
living in the top 35 towns," Bhuwan Singh, Director (Client
Services), ORG-GFK, had pointed out to me recently. Put differently,
rural markets have yet to achieve an economy of scale and become
more accessible to warrant a business model around them.
Not Quite Rural, Then?
'So what about companies that claim to be
deriving 30 to 40 per cent of their sales from rural markets?'
you ask me. My answer: Ask them how they define rural. Incidentally,
I did ask my buddy P. S. Sunder, who heads marketing at Hero Honda,
that and this is what he had told me: "Rural is defined by
the character of the territory. Loosely, we term 400 towns beyond
top 50 as rural." Around 7.5 million two-wheelers were sold
in the country in 2005 and, according to Sunder, 35 per cent of
these were sold in 'rural markets'. Interestingly enough, according
to IRS 2005 data, only 8.4 per cent of rural households have two-wheelers.
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| Defining rural: Go by the head-count,
says Videocon's Dhoot |
Consumer durable companies like LG, Samsung,
Videocon also follow more or less the same definition. I remember
Venugopal Dhoot, Chairman, Videocon Group, telling me: "For
us, markets with a population of less than one lakh are rural."
He's another one who claims to be generating 45 per cent of his
sales from rural markets, and once again, penetration figures
for various product categories don't support such claims. According
to IRS 2005, colour television penetration in rural households
was only 11 per cent, black and white TVS were no better at 19
per cent and refrigerators, a bare 4.2 per cent. "For most
marketers, rural is semi or non-urban, which is not actually rural,"
is what Madhukar Sabnavis, Director (Discovery and Strategy),
Ogilvy & Mather, had told me when I called to check.
Don't get us marketers wrong, though. When
we say that rural India has immense potential, we really mean
semi-urban, which is the towns beyond the top 35. And it is not
just instinct that tells us so. The ACNielsen study, for example,
terms the Class-I towns housing 90 million people as emerging
India. The study says that though metros remain the hot-spot of
consumption, Class-I towns offer future growth. As my friend Singh
says, the benefits of a growing economy are gradually trickling
down to this population. The per capita income is on the rise
and hence, consumers are exhibiting a propensity towards consumption.
This explains the enthusiasm of the marketers about the so-called
rural markets.
Although this is my story, I'll let my buddy
Rahul Malhotra, Head (Marketing), P&G India, have the last
word: "There is potential for growth at all levels. It is
only that winning in rural and urban India requires different
go-to-market approach," he keeps telling me. But as any book
on strategy will tell you, you can't be everything to everyone.
You have to pick your customers. That means, the real rural markets
will have to wait till we get to them.
-additional reporting by Pallavi
Srivastava
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