Marketing practices by fmcg companies for rural market shailu (2)

DISSERTATION REPORT

ON

“Marketing Practices by FMCG Companies for Rural Market”

ByVISHAL DAHIYA

PGDM (PG-14-90020)

SUBMITED TO – Ms. MANI TYAGI

ACCMAN INSTITUTE OF MANAGEMENT, GREATER NOIDA

ACKNOWLEDGEMENT

First and foremost I would want to thank my ACCMAN INSTITUTE OF MANAGEMENT, GREATER NOIDA, for giving each and every student a platform of such nature where even before the completion of course, interaction with the industry and exposure to the same is made possible.

I learnt a great deal from relevant people of such stature where I was able to obtain valuable feedback on my evolving thoughts about the changes that have been taking place in the rural India.

Last but not the least I am grateful to all those persons who were involved with me in the project for their co-operation and support.

VISHAL DAHIYA

CONTENTS

PAGE

CH-0 ABSTRACT 4

CH-1 LITERATURE REVIEW 6

CH-2 BACKGROUND OF FMCG SECTOR 11

CH-3 RURAL MARKETING- INDIAN PERSPECTIVE 14CH-4 ANALYSIS OF THE RURAL MARKET IN INDIA 16

CH-5 EVOLUTION OF INDIAN AND RURAL MARKETING 17

CH-6 PROBLEMS OF RURAL MARKETING 22

CH-7 MYTHS ABOUT RURAL MARKET 24

CH-8 STRATEGIES FOR SELLING IN RURAL INDIA 26 CH-9 RECOMMENDED STRATEGIES FOR RURAL MARKETING 29

CH-10 ADVERTISING IN RURAL INDIA 31

CH-11 KEY ISSUES FACED BY FMCG IN RURAL MARKET 32

CH-12 PRICING BY FMCG IN INDIA 38

CH-13 PILLARS OF FMCG 42

A-MARKETING B-MARKETING REASEARCH C-MARKET SEGMENTATION AND POSITIONING D-ADVERTISING AND PROMOTION CH-14 FMCG CONSUMPTION IN RURAL INDIA 52

CH-15 DATA INTERPRETATION 58

CH-16 CONSUMER DEMOGRAPHICS 69

CH-17 BIBLIOGRAPH 71

CHAPTER-0

ABSTRACT

A thorough understanding of the rural markets has become an important aspect of marketing in the Indian marketing environment today. This attraction towards the rural markets is primarily due to the colossal size of the varied demands of the 230 million rural people. In fact, the rural markets are expanding in India at such a rapid pace that they have overtaken the growth in urban markets. This rate of growth of the rural market segment is however not the only factor that has driven marketing managers to go rural. The other compelling factor is the fact that the urban markets are becoming increasingly complex, competitive and saturated.

The vast untapped potential of the rural markets is growing at a rapid pace. The policies of the government largely favour rural development programmes. The rural market is emerging stronger with a slow but an increase in disposable income of the rural people. In addition, better procurement prices fixed for the various crops and better yields due to many research programmes have also contributed to the strengthening of the rural markets. Thus, with the rural markets bulging in both size and volume, any marketing manager will be missing a great potential opportunity if he does not go rural.

This however raises a fundamental problem of fathoming the differences between urban and rural markets in India. Rural and urban markets in our country are so very diverse in nature, that urban marketing programmes just cannot be successfully extended to the rural markets. The buying behavior demonstrated by the rural Indian differs tremendously when compared to the typical urban Indian. Further, the values, aspirations and needs of the rural people vastly differ from that of the urban population. Buying decisions are still made by the one who is oldest male member in the rural family whereas children influence buying decisions in urban areas. Further, buying decisions are highly influenced by social customs, traditions and beliefs in the rural markets.

Another contrasting feature is the precision in the assessment of purchasing power of the consumers. In urban markets, income levels are generally used to measure purchasing power and markets are segmented accordingly. However, this measure is not adequate for

defining the purchasing power in rural areas because of the single fact that rural incomes are grossly underestimated. Farmers and rural artisans are paid in cash as well as in kind. However, while reporting their incomes, they report only cash earnings, which then affects the calculation of their purchasing power. This is the reason why marketers are often surprised to find that their products are sometimes consumed by people who, according to their surveys and estimates do not have the purchasing power to do so. Every marketing manager must therefore make an attempt to understand the rural consumer better so that he can plan his strategies in such a manner that they produce the desired results.

For most companies wanting to enter the rural markets, distribution causes a serious problem. Distribution costs and non availability of retail outlets are major problems that are faced by the marketers these days. But if one takes a closer look at the characteristics of the rural market, it will be made clear that distribution is not a problem at all.

In rural India, annual melas are organised with a religious and festive importance are quite popular and provide a very good platform for distribution. Rural markets come alive at these melas and people visit them to make several purchases by rural people. According to the Indian Market Research Bureau, around 8000 melas are being held in rural India annually. Besides these melas, rural markets have the practice of fixing specific days in a week as Market Days when exchange of goods and services are carried out. This is yet other potential low cost distribution channel which is available to the marketers. Also, every region consisting of several villages is generally served by one satellite town where people prefer to go to buy their durable commodities. If marketing managers use these towns they will be able to cover a large section of the rural population very easily.

While planning strategies that are promotional in rural markets, marketers should be very careful in choosing the vehicle used for communication. They must remember that only 16% of the rural population has access to a vernacular newspaper. Although television is undoubtedly a powerful medium, the audio visuals must be planned to convey a right message to the rural folk. The marketers must try to rely on the rich people and traditional media forms like puppet shows and folk dances to which the rural consumers are familiar to and are comfortable, for putting a high impact on product campaigns.

Thus, 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.

CHAPTER-1

REVIEW OF LITERATURE

LITERATURE REVIEW

(I) ‘Strategies For Rural Marketing By an Organization’

Course Project Report by Rajarshi Rakshit and M.L. Narsimhan ITC e-Choupal an innovative strategy which is elaborative and extensive in rural markets so far. Critical factors in the apparent success of the venture are ITCs extensive knowledge of agriculture, the effort ITC has made to retain many aspects of the existing production system, including retaining the integral importance of local partners, the company’s commitment to transparency, and the report and fairness with which both farmers and local partners are treated.

(II) The Marketing Mastermind (2003), Hindustan Lever rural marketing Initiatives by "A Mukund" Marketing Mastermind has given the perspectives in which HLL has approached towards rural markets.

Promotion of brands in rural markets requires the special measures. Due to the social and backward condition the personal selling efforts have a challenging role to play in this regard. The word of mouth is an important message carrier in rural areas. Infect the opinion leaders are the most influencing part of promotion strategy of rural promotion efforts. The experience of agricultural input industry can act as a guideline for the marketing efforts of consumer durable and non-durable companies. Relevance of Mass Media is also a very important factor.

(III) The Economic Times (2003), "The rural market likes it strong" the strength of rural markets for Indian companies. Financial express, June 19, 2000 has published the strategy about FMCG majors, HLL, Marico Industries, Colgate Palmolive have formula had for rural markets.

The Indian established Industries have the advantages, which MNC don't enjoy in this regard. The strong Indian brands have strong brand equity, consumer demand-pull and efficient and dedicated dealer network which have been created over a period of time. The rural market has a grip of strong country shops, which affect the sale of various products in rural market. The companies are trying to trigger growth in rural areas. They are identifying the fact that rural people are now in the better position with disposable income. The low rate finance availability has also increased the affordability of purchasing the costly products by the rural people. Marketer should understand the price

sensitivity of a consumer in a rural area. This paper is therefore an attempt to promote the brand image in the rural market.

(IV) RURAL MARKETING A CRITICAL REVIEW

By Miss. P. PIRAKATHEESWARI, Lecturer in Commerce, Sri Sarada College for Women (Autonomous), Salem 16.

‘Go rural’ is the slogan of marketing gurus after analyzing the socio-economic changes in villages. The Rural population is nearly three times the urban, so that Rural consumers have become the prime target market for consumer durable and non-durable products, food, construction, electrical, electronics, automobiles, banks, insurance companies and other sectors besides hundred per cent of agri-input products such as seeds, fertilizers, pesticides and farm machinery. The Indian rural market today accounts for only about Rs 8 billion of the total ad pie of Rs 120 billion, thus claiming 6.6 per cent of the total share. So clearly there seems to be a long way ahead. Although a lot is spoken about the immense potential of the unexplored rural market, advertisers and companies find it easier to vie for a share of the already divided urban pie.

The success of a brand in the Indian rural market is as unpredictable as rain. It has always been difficult to gauge the rural market. Many brands, which should have been successful, have failed miserably. More often than not, people attribute rural market success to luck. Therefore, marketers need to understand the social dynamics and attitude variations within each village though nationally it follows a consistent pattern 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.

(V) Monish Bali, "The rural market likes it strong", The Economic Times, [Interview by An Awasthi], August 23, 2000; Neeraj Jha, "Gung-ho on rural marketing", The Financial Express, June 19, 2000.‘Creating brands for rural India’

Rural markets are delicately powerful. Certain adaptations are required to cater to the rural masses; they have unique expectation and warrant changes in all four parameters of product, price, promotion and distribution.

A lot is already emphasized on adapting the product and price in terms of packaging, flavouring, etc and in sachets, priced to suit the economic status of the rural India in sizes like Rs.5 packs and Re.1 packs that are perceived to be of value for money. This is a typical penetration strategy that promises to convert the first time customers to repeated customers.

The promotion strategies and distribution strategies are of paramount importance. Ad makers have learnt to leverage the benefits of improved infrastructure and media reach. The television airs advertisements to lure rural masses, and they are sure it reaches the target audience, because majority of rural India possesses and is glued to TV sets!

Distributing small and medium sized packets thro poor roads, over long distances, into deep pockets of rural India and getting the stockiest to trust the mobility is a Herculean task. Giving the confidence those advertisements will support. Sales force is being trained to win the confidence of opinion leaders. Opinion leaders play an important role in popularizing the brand. They sometimes play the role of entry barriers for new products.

(VI) History of FMCG in India

In India, companies like ITC, HLL, Colgate, Cadbury and Nestle have been a dominant force in the FMCG sector well supported by relatively less competition and high entry barriers (import duty was high). These companies were, therefore, able to charge a premium for their products. In this context, the margins were also on the higher side. With the gradual opening up of the economy over the last decade, FMCG companies have been forced to fight for a market share. In the process, margins have been compromised, more so in the last six years (FMCG sector witnessed decline in demand).

NESTLE INDIA

Nestlé India is a subsidiary of Nestlé S.A. of Switzerland. With six factories and a large number of co-packers, Nestlé India is a vibrant Company that provides consumers in India with products of global standards and is committed to long-term sustainable growth and shareholder satisfaction.After India’s independence in 1947, the economic policies of the Indian Government emphazised the need for local production. Nestlé responded to India’s aspirations by forming a company in India and set up its first factory in 1961 at Moga, Punjab, where the Government wanted Nestlé to develop the milk economy. Progress in Moga required the introduction of Nestlé’s Agricultural Services to educate, advise and help the farmer in a variety of aspects. From increasing the milk yield of their cows through improved

dairy farming methods, to irrigation, scientific crop management practices and helping with the procurement of bank loans. Nestlé set up milk collection centres that would not only ensure prompt collection and pay fair prices, but also instil amongst the community, a confidence in the dairy business. Progress involved the creation of prosperity on an on-going and sustainable basis that has resulted in not just the transformation of Moga into a prosperous and vibrant milk district today, but a thriving hub of industrial activity, as well. For more on Nestlé Agricultural Services.

Hindustan Unilever Limited ( HUL)

The Global arm of Hindustan Unilevers Limited is Unilever's and its mission is to add Vitality to life. Their products meet everyday needs for nutrition, hygiene, and personal care with brands that help people feel good, look good and get more out of life.

HUL has deep roots in local cultures and markets around the world which gives them a strong relationship with their consumers, which are the foundation for their future growth. They benefit from there wealth of knowledge and international expertise to the service the local consumers - a truly multi-local multinational.

HUL believes that an organization’s worth is also in the service it renders to the community. HUL is focusing on health & hygiene education, women empowerment, and water management. It is also involved in education and rehabilitation of special or underprivileged children, care for the destitute and HIV-positive, and rural development.

COLGATE PAMOLIVE INDIA LTD

From a modest start in 1937, when hand-carts were used to distribute Colgate Dental Cream, Colgate-Palmolive (India) today has one of the widest distribution networks in India. is a household name in India with one out of two consumers using a modern dentifrice. Consistently superior quality, innovation and value for money products emerging out of advanced technology employed, has enabled Colgate to be voted ‘The Most Trusted Brand’ in India across all brands

BRITANNIA

Britannia strode into the 21st Century as one of India's biggest brands and the pre-eminent food brand of the country. It was equally recognized for its innovative approach to products and marketing: the Lagaan Match was voted India's most successful promotional activity of the year 2001 while the delicious Britannia 50-50 Maska-Chaska became India's most successful product launch. In 2002, Britannia's New Business Division formed a joint venture with Fonterra, the world's second largest Dairy Company

NIRMA

Nirma is one of the few names - which is instantly recognized as a true Indian brand, which took on mighty multinationals and rewrote the marketing rules to win the heart of princess, i.e. the consumer.

India is a one of the largest consumer economy, with burgeoning middle class pie. In such a widespread, diverse marketplace, Nirma aptly concentrated all its efforts towards creating and building a strong consumer preference towards its ‘value-for-money’ products.

CHAPTER-2

THE FMCG SECTOR

BACKGROUND:

The FMCG sector has been the cornerstone of the Indian economy. Though, the sector has been in existence for quite a long time, it began to take shape only during the last fifty-odd years. To date, the Indian FMCG industry continues to suffer from a definitional dilemma. In fact, the industry is yet to crystallize in terms of definition and market size, among others. Generally, FMCG refers to consumer non-durable goods required for daily or frequent use. The sector touches every aspect of human life, from looks to hygiene to palate. Perhaps, defining an industry whose scope is so vast is not easy.

Post-reforms, the industry's growth has been hinging around a burgeoning rural population which has witnessed significant rise in disposable incomes. Consequently, the rural markets have been witnessing intense competition in almost all the consumer product classes. Another reason which has led to rise in this trend is the saturation in urban markets in most of the consumer non-durable goods categories. This has led to the industry players scrambling for greater rural penetration as a future growth vehicle, the area which accounts for 70% of the total Indian households

The FMCG sector consists mainly of sub segments viz. personal care, oral care and household goods. This can be further sub-divided into oral care, soaps and detergents, Health and Hygiene products, beauty cosmetics, hair care products, food and dairy-based products, cigarettes, and tea and beverages. Of late, there seems to be a liberal approach towards branding of the companies/products as FMCG; companies in businesses like liquors (United Breweries), paints (Asian Paints), adhesives (Fevicol) too are being labeled as FMCG stocks in the stock market parlance. Quite interestingly media stock Zee Telefilms was labelled as FMCG stock by a mutual fund, which had Zee as its top holdings in its FMCG sector scheme at one point of time!

So far, it has been a chequered graph for the MNCs operating in the Indian FMCG industry. Domestic companies are only beginning to make their presence felt in the industry. It has taken tremendous consumer insight and market savviness for the FMCG players to reach where they are today. But, the journey seems to have just now begun for the players as the majority of the rural populace are yet to get access to the items of daily usage like toothpastes, soaps and shampoos.

Things however started to change post-reforms during the nineties. The floodgates were opened. And MNCs who had saturating home-markets and who were hungrily looking for markets elsewhere rushed in. Categories were created which were in categories products such as hair-oil, skincare, and many new product categories were also created. Facets which were untouched of the Indian consumer were explored. The FMCG players had in front of them a vast untapped market and a market that was fast growing. Income-levels were rising. A new class which was upwardly mobile was emerging.

Television, satellite and cable televisions were helping the market to grow on further in rural areas by changing aspirations and lifestyles.

The canvas got widened for the FMCG players, but also the challenges. Rules of this game has been changed. Strategies, in their true sense, came in the front. Quite unlike in the past, companies started looking for ways to expand their product-portfolios and distribution reach. Acquisition of brands became the norm of the day because it gave the players an easy option of attaining growth in the FMCG sector. That is true of the MNCs who are known for their deep down pockets .

With domestic consumption close to Rs 80,000 crore, the FMCG sector has today become the one of the largest in the country. In terms of size and importance, it is going to grow further. Notwithstanding experts' predictions that there would be enough room for everybody to co-exist, the name of the game is going to be competition and more and more of competition. One of the biggest challenges that is facing the Indian FMCG industry is to get to the next level of innovation. "You people need a strong local product ranges," says McKinsey's Fernandes.

So, the key to success in the Indian FMCG industry lies in: cutting down the costs, investing in brand building in the form of marketing, advertising and promotions, providing good price points and aggressive pricing, offering products such as packaged atta and milk that add value and convenience and protecting their human talents from poachers.

Alongside, FMCG players also need to go in for some new initiatives. Consider HUL for instance. The company has made it very clear that Internet is going to be its key delivery vehicle which will have expedite in its distribution and sales efforts. Surely, Internet is going to alter the way FMCG companies plan and do its business. With reasons. Internet provide so many opportunities for FMCG companies in the areas of logistics, interface with customer and value added chain.

Considering the Internet's role in the logistics. FMCG players can use the Internet to extend their logistic’s network beyond the traditional expensive and time consuming EDI-based solutions. Fernandes:says "Internet is the huge value-driver for an industry with such a wide reach media and the huge SKU complexity." This would start with connections between the factory and C&F ,and then move on to huge complex networks reaching to key urban distributors and dealers. And over thet time, even time to rural dealers and retailers.

As far as interface with customer is concerned, Internet have wonders here. Over the time, successful e-marketeers(electronic marketers ) can use the Internet to develop user-friendly communities, which are very important in creating loyalty and in testing the worth of the products. Whats more, FMCG companies can come altogether to make e-purchasing portals and increase their purchasing range and able to find smaller suppliers.

Fine. All these call to make productive partnership between the FMCG industry and the government. Experts see this full of opportunity. A partnership between the government, which have intention to drive Internet penetration into smaller towns, and FMCG companies who has it’s own interst to ride off a shared infrastructural network to have superior logistics and enable product communications. Thia partnership can jointly enable the Internet network deeper in the Indian heartland.

CHAPTER-3

RURAL MARKETING - INDIAN PERSPECTIVE

What’s different about rural marketing?

Price have influencing role . Companies have, in fact, launched lower-priced products targeted at the rural market. Some time back, Escorts Yamaha had priced its model YD 125 at Rs 30,000 to clear the stock and the scheme was a runaway hit. Besides pricing, the second most important thing is repetition of communication to increase recall value. The repetition should not be too soon as it then tends to get monotonous, nor should it be too long. The ideal time is after one month and before three months. This helps establish the image of the companies and allows the target audience to differentiate products. This is important because of the widespread prevalence of spurious products in the rural market. Innovative tools should focus on providing entertainment along with delivering the message. In this regard, our concepts like rural mobile fairs, caravans, screens at the Kumbh Mela etc have been well received by the consumers.

The Indian rural market have vast size and also demand offers provide great opportunities to marketers. Two-thirds of Indian consumers live in these rural areas and estimated almost half of the national income is generated fromthese rural areas. It is very natural that rural markets consist an important part of the total market of India. Our nation is having around 450 districts, which consist approximately 630000 villages which having there own parameters such as literacy rate, , income levels, accesbility, connectivity with nearest towns, etc.

The success mantra for a brand in the Indian rural market is still as unpredictable as rain. It always seems difficult to gauge the rural market. Many companies, who should have been successful as they tried very hard, have failed very miserably. People’s attribute in rural market success to luck. Therefore, marketers should understand the social aspects and attitude changes within each village, but nationally it follows a consistent pattern.

While the rural market provide a big attraction to the marketers, it would be simple to think that any FMCG company can easily move into the market and go away with sizable share. Actually the market abound with variety of problems. The main problems facing rural marketing are:

Physical Distribution Channel Management Promotion and Marketing Communication

The problems of physical distribution and channel management adversely affect the service as well as the cost aspect. The existing market structure dwell of primary rural market and retail outlet. The structure includes stock points in the feeder towns to service

these retail outlets at village levels. But sometimes it becomes very difficult to maintaining the necessitate service level for the delivery of the product at retail level.

One of the way could be using company delivery vans which can serve two purposes- it can take the products to the customers in every nook and corner of the market and it also enables the firm to establish direct contact with them and thereby facilitate sales promotion. However, only the big giants can afford this channel. The companies having relatively fewer resources can make joint distribution, where a joint venture estanlished between non-competitive marketers to facilitate distribution.

As a general rule, rural marketing have more intensive personal and door to door selling efforts compared with urban marketing. Marketers should understand the mentality of the rural consumers and then perform accordingly. To effectively tap the rural market a brand must associate itself with the same things the rural folks do. This can be possibly done by utilizing the various rural local media to reach them in their own language and in large numbers so that the brand can be establish association with the countless rituals, celebrations, festivals, and other activities where they socialy assemble.

One very good example can be quoted of Escorts, where they concentrate on deeper penetration .In September-98 they established rural marketing sales. They did not depend on T.V or print advertisements rather give effort on focused approach depending on geographical and market parameters like fares, melas etc. Looking at the ‘kachha’ roads of village they positioned their mobike as tough vehicle. They present advertisements showed Dharmendra riding Escort vehicle with the punch line ‘Jandar Sawari, Shandar Sawari’. And as a result, they hit sales of 95000 vehicles annually.

One more example, which can be quoted best , example of HUL. A last year HUL started ‘Operation Bharat’ to capture the rural markets. Under this campaign HUL passed out, low–priced free sample packets of its toothpaste, fairness cream, Clinic plus shampoo and hair oil, and Ponds cream to approxmatily twenty million households.

Hence ,looking at the threats and the opportunities which rural markets provide to the marketers it can be understand that the future will very promising for those who can understand the aspects of rural markets and use them to their best advantage.

CHAPTER-4

ANALYSIS OF THE RURAL MARKET IN INDIA

Rural market of India consists of about 80% of the population of the country. Apparently in terms of the number of people, the Indian rural market is almost twice as large as the entire market of USA or Russia. This market is not only large, but very much scattered geographically. It is also as diverse as it is scattered. It exhibits linguistic, regional and cultural diversities and economic disparities, and hence, it can easily be considered as more complex than the market of a continent as a whole.

The rural market scene has undergone a steady and encouraging change over the last three decades. Inspite of several barriers to faster growth, the growth has not only been quantitative, but also qualitative. This change has been possible because of new employment opportunities and new sources of income made available through rural development programmes which have resulted in green and white revolutions and a revolution in rising expectations of rural masses.

The rural buyers in India provide a tremendous range of .contradictions and paradoxes which baffles the urban-based marketing people and, even more so, the foreign observers. Rural consumers are less homogeneous than compare to their urban counterparts and different from region to region.

The rural market is made up of two broad components i.e., the market for consumption goods and the market for agricultural inputs. The rural markets are by and large less exploited. Another important features of the rural market is that at least in the present context, it is largely agriculture oriented. Green revolution and the consequent prosperity is restrict to very few selected areas in the country. As a result, the effective demand for consumer items has not spread all over rural India. Income generated from the money sent by the members of their families employed in towns and abroad also helped the rural people to spend more on consumer goods.

It has been noted that the rural consumer is discerning and the rural market vibrant. At the current rate of growth it will soon outstrip urban market. Surveys and audits for a number of consumer products and services have, over the years, clearly highlighted the emerging importance of this sector.

The rural market is no more sleeping. 'Go Rural' Is the latest slogan. Rural consumption of all products is growing by leaps and bounds, since the urban market has reached near saturation levels in a number of categories.

In short, the sheer size of the rural population will serve as a large potential demand base for a variety of products:

CHAPTER-5

EVOLUTION OF INDIAN RURAL MARKETING

EVOLUTION STAGES:

STAGE I : AGRICULTURAL MARKETING

STAGE II : RURAL INPUTS MARKETING

STAGE III : RURAL MARKETING

FLOW OF GOODS


RURAL TO URBAN


URBAN TO RURAL

STAGE III : RURAL MARKETING

URBAN /RURAL TO RURAL

TYPE OF PRODUCTS:


AGRICULTURAL PRODUCE


AGRI. INPUTS LIKE SEEDS,MACHINES,FERTILISERS ETC

STAGE III :RURAL MARKETING

CONSUMER DURABLES, FMCG,CONSUMABLES FOR CONSUMPTION AND PRODUCTION ETC

RURAL CLASSIFICATION

CONSUMER MARKET: ALL KINDS OF CONSUMMABLES, FOOD

PRODUCTS, TOILETRIES, COSMETICS, TEXTILES,

FOOT WEAR ETC WATCHES, BICYCLES,

RADIO, TV, KITCHEN APPLIANCES, FURNITURE,

SEWING MACHINE, TWO WHEELER ETC.

INDUSTRIAL MARKET: AGRICULTURAL AND ALLIED ACTIVITIES,

FARMING, COTTAGE INDUSTRIES, HEALTH

CENTRE, SCHOOL, COOPERATIVE, PANCHAYAT,

OFFICE ETC. SEEDS, FERTILISERS, PESTICIDES,

TRACTORS ANIMAL FEED, ETC

SERVICES MARKETS: REPAIRS, TRANSPORT, BANKING, CREDIT,

INSURANCE HEALTHCARE, EDUCATION, COMMUNICATION , POWER ETC.

ATTRACTIVENESS OF RURAL MARKET

- LARGE POPULATION

- RAISING PROSPERITY

- GROWTH IN CONSUMPTION

- LIFE-STYLE CHANGES

- LIFE CYCLE ADVANTAGES

- MARKET GROWTH RATES HIGHER THAN URBAN

- RURAL MARKETING IS NOT EXPENSIVE

- REMOTENESS IS NO LONGER A PROBLEM.

DIFFERENCE BETWEEN RURAL AND URBAN MARKETING

ASPECT URBAN RURAL

PHILOSOPHY MARKETING MARKETING AND SOCIETAL AND SOCIETAL, DEVELOPMENT,

GREEN,RELATIONSHIP RELATIONSHIP

MARKET

DEMAND HIGH LOWCOMPETITION ORG SECTOR UNORG.SECTOR

CONSUMERS

LOCATION CONCENTRATED WIDELY SPREADLITERACY HIGH LOWINCOME HIGH LOWEXPENDITURE PLANNED,EVEN SEASONALNEEDS HIGH LEVEL LOW LEVELINNOVATION ADOPTION FASTER SLOW

PRODUCTS

AWARENESS HIGH LOWCONCEPT KNOWN LESS KNOWNPOSITIONING EASY DIFFICULTUSAGE METHOD EASILY GRASPED DIFFICULT TO GRASPQUALITY PREFERENCE GOOD MODERATEFEATURES IMPORTANT LESS IMPORTANT

PRICE

SENSITIVE YES VERY MUCHLEVEL DESIRED MEDIUM-HIGH LOW-MEDIUM

DISTRIBUTION

CHANNELS MULTI VILL SHOPS, SHANDIES, HAATS, YATRAS

TRANSPORT FACILITIES GOOD AVERAGEPRODUCT AVAILABILITY HIGH LIMITED

PROMOTIONADVERTISING ALL TV,RADIO, MULTI

LINGUALPERSONAL SELLING DOOR 2 DOOR OCCASSIONALLY

FREQUENTLY

SALES PROMOTION ALL GIFTS,DISCOUNTS,DEMO

PUBLICITY GOOD OPPORTUNITIES LOW

FACTORS CONTRIBUTING TO RURAL BOOM

The marketing boom in the rural areas is caused by such factors as increased discretionary income, marketable surplus of product, like vegetables and eggs, rural development schemes, unproved infrastructure, increased retailing and retailers, increased awareness with information explosion, expanding TV networks, liberalised Government policies for rural development, emphasis on rural markets by companies, new cadre of entrepreneurship, competitive and creative sales promotion, packaging revolution and, changing life styles in the rural areas. .

CHAPTER-6

PROBLEMS OF RURAL MARKETING

In the Indian context, rural marketing is 4 complex subject. For a business organisation, rural marketing is beset with a number of problems. The prices of rural marketing poses many problems due to the vastness of the country and a high potentiality for providing an effective marketing system.

Besides, a few other problems stem from the under developed markets and illiterate and gullible people constitute the major segment of the markets. More purchasing power is not enough. It is not enough to have some consumption pioneers. The activation of buying on a wide scale is an essential precondition for the exploitation of the rural market.

It is now unanimously accepted that the rural salesmanship in India has been insufficient and inadequate and out of proportion to the agriculture revolution. This calls for strong bias in favour of raising the rural demand as against the urban demand. The traditional marketing activities of promotion, distribution, sales and servicing, undertaken so far in the urban and semi-urban contexts are to be extended to cover a much wider area in a rural environment by introducing appropriate innovation, selection and adoption. There are about 5,76,000 villages in India, 79 percent of them with a population of less then 1,000 each.

MAJOR PROBLEMS IN TAPPING THE RURAL MARKET

1. High distribution costs

2. High initial market development expenditure

3. Inability of the small retailer to carry stock without adequate credit facility

4. Generating effective demand for manufactured foods

5. Wholesale and dealer network problems

6. Mass communication and promotion problems

7. Banking and credit problems

8. Management and sales managing problems

9. Market research problems

10. Inadequate infrastructure facilities (lack of physical distribution, roads warehouses

and media availability)

11. Highly scattered and less populated markets

12. Low per capita and poor standards of living, social, economic and cultural back-

wardness of the rural masses

13. Lower exposure to different product categories and brands

14. Cultural difference between urban based marketers and rural constumers.

The development of the rural market will involve additional cost both in terms of promotion and distribution. In rural marketing, often it is not promotion of a brand that is crucial, but creating an awareness concerning a particular product field, for instance, fertilizers and pesticides.

Urban and semi-urban based salesmen are not able to tap the full potential in the villages. Here, it may be suggested that the marketers may select and employ the educated unemployed from villages.

CHALLENGES

Rural market in India is very large and fast growing consumer market with over 75% of the population residing in rural and semi-urban areas. With the increase in competition and saturation of urban market, corporates are now working hard to tap the potential of rural market to increase their market shares. Business Managers are devising aggressive marketing and promotional strategies to create brand consciousness and loyalty among the rural consumers. On the other hand, with the increase in disposable income the rural consumers are more brands sensitive and willing to pay for quality. To tap this market potential and increasing brand consciousness among rural consumers, major corporates are today organising campaigns and participating in rural hats, melas and exhibitions for market promotions, visibility and brand building

CHAPTER-7MYTHS ABOUT RURAL MARKET

HERE are some myths on the rural market to mull over: The rural market is a homogeneous mass, urban ads are equally suitable for rural audiences, Western market research methodologies are suitable for rural markets too.

Mr Pradeep Kashyap, Managing Director, MART and member, The Rural Network, demolished these rural myths and several others while outlining his theme presentation at a conference on rural marketing and communications organised by FICCI here today.

Mr Kashyap said that it was a myth that the rural market could be treated as a single entity. Instead it has a vast cultural diversity and vastly varying rural demographics. The second myth is that purchasing power is low. He said that at 15.6 million `middle class' households, the rural areas compared well with 16.4 million urban households. For the same income level, disposable surplus in the rural area is much higher than urban, he said. Another myth he said is that ad agencies and marketers bank on TV to reach rural areas. However, he said that television reach is only 36 per cent of households. Urban ads, Mr Kashyap explained, was not always suitable for rural audiences - another myth.

The mother of all myths, Mr Kashyap said, was that the rural boom was over. However, he said that rural market size has grown rapidly and while it was true that growth has tapered off, it already presented a huge market. Mr Kashyap dwelt on the key challenges in the future for rural marketers. One of them was market penetration. Marketers also had to look at increasing occasions for use of FMCGs in rural households.

Rural incomes needed to be increased through rural market growth. One other challenge lay in making effective use of the large available infrastructure of post offices and public distribution shops and haats and melas. Companies would have to meet the challenge by creating an independent rural marketing team with its sales targets and budgets, said Mr Kashyap. They would also have to design appropriate products keeping rural usage and environment in mind and be innovative with their distribution channels.

The future, he said, would see technology play a key role in transforming markets. There will also be a proliferation of large format rural retail stores, he said.

agency team to help focus on rural markets

"RURAL marketing is often confused with below-the-line communication such as promotions and contests," says Mr R.V. Rajan, Managing Director, Anugrah Madison Advertising, a rural marketing communications outfit, referring to the absence of understanding of the rural markets by many brands.

He says that although companies are aware about potential of the rural market, but they lack the long-term perspective in planning. "Instead of investing in research, they enter in the market implement activities for short-term gains," he adds.

To change this foolish situation, The Rural market Network, an alliance agreement between four rural communication agencies (Rural Relations, Marketing & Research Team (MART), Sampark Marketing & Advertising Solutions, and Anugrah Madison), are planning to held seminars to provide help to clients to understand the realities of the rural market.

"We are also planning to held specific workshops to give training to middle-level managers who can tackle issues related with rural communications," he says. The first seminar is planned to be on September 6 in Mumbai.

Mr Rajan briefs that the main objective of creating this joint network is to exploit the integral strength of each partner and get benefit from the synergies as a group. "There are no institution which can provide strategic planning about rural markets and implementation on as a whole all-India level under one roof," points out Mr Rajan.

Thus , this network, reportedly the first and only of its kind, is taking on the regional expertise of each of its partners to provide a national perspective, to develop rural marketing long term strategies. Its main objective is to provide customised research, strategic planning services, implementation and understanding of rural marketing initiatives. A client may also permits complete access to the huge database of rural markets that this network has collected..

At lower level like an operational level, these four partners of the Rural Network work on a revenue-sharing arrangement.

CHAPTER-8STRATEGIES FOR SELLING IN RURAL INDIA

OPPORTUNITY

The Indian rural market with its vast size and demand base offers a huge opportunity that MNCs cannot afford to ignore. With approxmatily 128 million households, the rural population is almost three times the urban.

As a result of the growing wealthiness, powered by good monsoons and the increase in agricultural production to 200 million tonnes from 176 million tonnes in 1991, Rural India has a large consuming class with 41 per cent of India's middle-class and 58 per cent of the total disposable income.

The importance of the rural market for FMCG and marketers is underlined by the fact that the rural market includes for close to 70 per cent of toilet-soap sell and 38 per cent of all two-wheeler purchased.

The rural market includes the sale of half the total market for TV sets, , pressure cookers, bicycles, washing soap, blades, salt , toothpowder and tea, . the rural market for FMCG products is seems to grow much faster than compare to their urban counterpart.

THE 4A APPROACH

The rural market may be alluring but it is not without its problems: Low per capita disposable incomes that is half the urban disposable income; large number of daily wage earners, acute dependence on the vagaries of the monsoon; seasonal consumption linked to harvests and festivals and special occasions; poor roads; power problems; and inaccessibility to conventional advertising media.

However, the rural customer is not unlike his urban counterpart in many aspects.

The more daring MNCs are meeting the consequent challenges of availability, affordability, acceptability and awareness (the so-called 4 As)

(I) AVAILABILITY

The first challenge is to ensure availability of the product or service. India's 627,000 villages are scattered over 3.2 million sq km; 700 million Indians may still live in rural areas, know about them is not easy. However, the state of road is poor, it is an even bigger challenge to regularly supply products to the far-flung villages. Any serious marketer must hit to reach at least 13,113 villages having a population of more than 5,000. Marketers must decline the distribution cost with the incremental market penetration. Over the many years, India's largest MNC, Hindustan Unilever, a subsidiary of Unilever, has built a strong distribution channel system which helps its brands reach to the interiors most of the rural market. To provide the service to remote village, stockists use autorickshaws and manual rickshaw sometimes , bullock-carts and even boats in the backwaters of Kerala. Coca-Cola, which counted rural India as a future growth driver, has provide a hub and spoken distribution model to arrive the villages. To ensure full advantage, the company provide supplies, twice in a week, large distributors those who act as hubs. These distributors and dealers appoint and supply, once in a week, smaller distributors in adjoining areas. LG Electronics considers all cities and towns other than the seven metros cities of india as rural and semi-urban market. To capture these untouched country markets, LG has set up 45 local area offices and 59 rural/remote area offices.

AFFORDABILITY

The second big challenge is to ensure affordability of the product or service. With low consumable incomes, products need to be quote at the affordable price to the rural customer, most of whom are depend on daily wages. Some companies have understand the affordability problem by opening small unit packs. Godrej recently launched three brands of Cinthol, Fair Glow and Godrej in small 50-gm packs, priced at Rs 4-5 meant specifically for Madhya Pradesh, Bihar and Uttar Pradesh — the so-called `Bimaru' States.

Hindustan Unilever, among all the first MNCs to understand the potential of India's rural market, has introducsed a variant of its largest selling soap brand, Lifebuoy at Rs 2 for 50 gm. This is done to mainly target the rural market. Coca-Cola has explained the affordability issue in good manner by introducing the returnable 200-ml glass bottle priced only at Rs 5. The initiative has worked: now 80% of new drinkers come from the rural markets. Coca-Cola has also introduced Sun fill which is a powdered soft-drink concentrate. The ready-to-mix and Sunfill is available in a two kind of sachet, a single-serve sachet of 25 gm priced at Rs 2 and mutiserve sachet of 200 gm cost of Rs 15.

(II) ACCEPTABILITY

The third challenge is also difficult to gain acceptability for the product or service offered. Therefore, there is a need to introduce products that suit the rural market. First company which has reaped huge profit by doing so is LG Electronics. In 1998, it introduced a customised TV for the rural people and christened it Sampoorna. It was a recorded hit selling 100,000 sets in very first year. Because of the less supply of the electricity and lack of refrigerators in the rural areas, Coca-Colintroduced low-cost ice boxes — a tin boxes for new outlets and thermocol boxes for seasonal outlets.

The insurance companies that provide tailor-made products for the rural market have performed well. HDFC STANDARD LIFE has topped private insurers by giving policies worth Rs 3.5 crore in total period. The company collaborated with non-governmental organisations and providing reasonably-priced policies in the form of group insurance covers.

(3)AWARENESS

With large parts of rural India is not accessible to conventional advertising media — only 41 per cent rural households have access to TV — building awareness is also another challenge. Fortunately, however, the rural consumer also has the same likes as the urban consumer — watching movies and listening music — and for both the urban and rural consumer, the family is the important or key unit of identity. However, the rural customers expressions different from his urban counterpart. For the farmer outing is confined to local fairs and festivals and watching TV is confined to the state-owned Doordarshan. Consumption of branded products is not common rather treated as a special treat or indulgence.

Hindustan Unilever relies heavily on its own company-organised media. These are some promotional events organised by dealers. Godrej Consumer Products, which is trying to push its soap brands into the far interior areas, uses radio to reach deeper to local people in their language.

Coca-Cola brand uses a combination three TV, cinema and radio to reach 53.6 per cent of rural households. It doubled its budget on advertising on Doordarshan, which alone has reach to 41 per cent of rural households. This brand has also used banners, posters and grabbed all the local forms of entertainment. Since price is the key issue in the rural areas, Coca-Cola advertising stressed itsnew `magical' price point of Rs 5 per bottle in all media.. LG Electronics uses different way it uses vans and road shows to reach rural customers. The company also uses local language in advertising. Philips India adopt wall writing and radio advertising to gain its growth in rural areas.

The main dilemma for MNCs ready to tap the large and fast-growing rural market whether they achieve this without hurting the company's profit margins. Mr Carlo Donati,

Chairman and Managing-Director, Nestle, while admitting that his company's product range is mainly designed for the urban consumers, cautions companies from plunging headlong into the rural market to capturing rural consumers can be expensive. "Any generalisation" says Mr Donati, "about the rural India you could be wrong and one should first focus on high GDP growth areas, be it urban, semi-urban(town) or rural."

CHAPTER-9

RECOMMENDED STRATEGIES FOR RURAL MARKETING

The past practices of treating rural markets as appendages of the urban market is not correct, since rural markets have their own independent existence, and if cultivated well could turn into a generator of profit for the marketers. But the rural markets can be exploited by ruralising them, rather than treating them as convenient extensions of the urban market. To expand the market by grabbing the countryside, more and more MNCs are plunder into India's rural markets. Among those that have made some headway are Hindustan Unilever, Coca-Cola, LG Electronics, Britannia, Standard Life, Philips, Colgate ,Palmolive and the foreign-invested telecom companies.

The focus should be on infecting marketing culture into the villages. The educated unemployed youth of the near by villages could be trained to wrok for this mission.

Overcoming the income variability

Savvy firms create innovative opportunities for the rural segments that are lagging behind in purchasing power. The local distribution for Akai in India, Baron International, realized that the market for new television sets are primarily urban. However, there was a considerable inertia when it came to replacing a working TV set of a previous generation.But Baron also knew that there existed a market, primarily rural, for used televisions. Rural retailers can only purchased traded-in sets from urban dealers. Urban consumers can got something for their old TV sets, urban retailers made their own margins from selling the traded-in sets, rural retailers also made a profit on used TVs and rural consumers were provided TV sets they could easily afford.consequently, Baron’s sales increased by 1500%

Wider competition for a product

Many of the rural buyers tend to have very little stock of money, only a flow. resultantly, they ready to make purchases only to meet their day to day needs and have very little capacity to build inventory. The marketing implications of this are far-reaching. Not only are pack sizes and price points affected, but in turns out that consumers have to make a selection from a much wider array of product categories. Thus the nature of competition for any given product is much broader. For instance, in a

village haat, Coca Cola competes not just with Pepsi, but with a broad set of purchases that the rural consumers consider as “treats”.

Preference for Low Unit Packs (LUP)

Trial is often encouraged by Low Unit Packs (LUP) or sachets. The sachet packaging strategy caught the popular FMCG imagination in the early 1990s and it

Basic strategies as per the above mentioned :-

1. DECENTRALISING RURAL MARKETS

Decentralizing the Rural Market by detaching them from the urban bases. A give-and-take two-way approach should replace the present one-way exploitation

2. SELECTION OF THE SALESMAN

The salesman in rural markets should be selected from the educated unemployed villagers, trained well and appointed as salesmen. The town-to-villages shuttling salesmen are to be replaced by stationary salesman in villages "

3. EDUCATE THE VILLAGERS

Companies should also adequately concentrate on educating the villagers to save them from spurious goods and services .

4. NEW PRODUCTS MARKET

Rural markets are laggards in picking up new products. This pshyc will help the companies to frame their marketing efforts accordingly. This will help to sell inventories of products which is out dated in urban markets.

CHAPTER-10

ADVERTISING IN RURAL INDIA

MARKETING COMMUNICATION, LANGUAGE, AND CONSUMERISM.

A dramatical change is in the progress. Villagers who used to crack open peanut M & M candies, eat the nut and throw away the shell are now demanding chocolate candies that will melt in their mouths, not in their hands. Charcoal-cleaned teeth is not a common sight; so is the case with twigs of niim (neem) and babul (babool) tree. Today, the bright shine of Colgate or other international brand of toothpaste have more appeal than the traditional methods of cleaning teeth. Even the native methods of cleaning teeth, such as daatun karnaa and musaag lagaanaa, are also being replaced by new methods such as paste karnaa, 'to brush teeth with paste'. Even a very simple query such as: Where are you from? is not free the overtones of marketization and globalization in the rural discourse. Globalization and consumerism and is occupying parts of India where, some would venture to say, time seems to have ceased for centuries.

These small villages and small towns, which were once inconsequential dots on the maps, are now getting the attention from global marketing giants and media planners. Thanks to globalization, economic liberalization, IT revolution, female power, and improving infrastructure, middle class of rural India today has more disposable income than urban India. Rural marketing is getting new heights in addition to rural advertising.

Rural India shows the heart of India. Approximately 80% of Indian lives in over ahalf of million villages (627,000), generating more than half of the national income. Based on the interviews with consumers, media giants, and analysis of case studies, following insights can be derived:

Various facets of rural media (conventional and non-conventional) and integrated marketing communication. In addition to rural market discourse, media forms such as wall paintings, calendar advertising, outdoor advertising, print, radio and television advertising.

Art of crafting messages to meet rural tastes and sensibilities. In particular, uniquely Indian media forms such as video van technology, which has changed the face of not only marketing but also political campaigning. Rural markets (haat) which are the mobile McDonald's or Walmarts of India.

Targeting women and religious groups in addition to rural population. Marketing taboo products such as 'bidi', cigarettes, sanitary supplies, and other

such products. Globalization and its effects on product naming, product monitoring, rural

discourse and media forms.

Creativity and deception, together with guidelines for advertisers and marketers.

CHAPTER-11

KEY ISSUES OF THE INDIAN FMCG MARKET

Heavy launch costs

Companies incur huge costs on the launch of new products. The entire launch process goes through a series of processes such as product development, market research, test marketing. All this require huge cash outflow. Further, in order to build brand awareness and develop franchise for a new brand initial expenditure is incurred on launch advertisements, free samples and product promotions. Launch costs are as high as 50-100% of revenue in the first year and these costs progressively reduce as the brand matures, gains consumer acceptance and turnover rises. For established brands, advertisement expenditure varies from 5 - 12% depending on the categories. It is very common to give occasionally push by re-launches, which include positioning of brands with sizable marketing support.

Less capital intensive

The sector is not so capital intensive as majority of the product classes require very low investment in fixed assets. The sector is also characterised by high turnover to investment ratio; turnover is typically five to eight times the investment made in a greenfield plant at full capacity. Another reason for the sector being less capital intensive is that bulk of sales from manufacturers takes place on a cash basis.

Contract Manufacturing

Manufacturing of products by third party vendors is quite common. In order to keep a check on costs and hence increase affordability of their products, companies in many cases prefer to go for contract manufacturing by third party.

Marketing Drive

Marketing assumes a significant place in the brand building process of the industry players. This helps in reaching out to a large consumer base and fight with the existing brands. Even for an existing brand it requires constant marketing efforts to keep the demand alive and kicking.

Market Research

Before the launch of any new product, conducting market research to gauge the consumers' reaction is very important. This is because consumers' purchase decisions are based on perceptions about brands and which keep on changing with fashion, income and changes in lifestyle. Also in case of consumer goods it is difficult to differentiate products on technical or functional grounds, unlike in the case of industrial products. Now with increasing competition, there is tremendous pressure on the companies to do extensive market research, test market it before coming out with any new product.

Presence of a large unorganized market

The FMCG sector is characterized by a huge unorganized market. Factors like low entry barriers in terms of low capital investment, fiscal incentives from government, low brand awareness, especially in rural areas led to the mushrooming of the unorganized sector.

Other features

In urban areas, the consumption dispersion is logically and practically broken up by the population strata i.e. the Town Class. The urban elite, or the people living in metros, consume a proportionately higher value of FMCGs. This has an effect on the retailing structure also, as the retailer varies his stocking pattern and his basket of services, according to the needs and the purchasing habits of the consumer on the one hand and his own desire to differentiate from other such service providers on the other.

The key to success in the Indian FMCG industry consist: cost cutting , investment in brand building in the form of positive marketing, advertisements and promos, providing good price s and aggressive pricing, offering products such as packaged atta and milk that add value and convenience and protecting their human talents from poachers. Alongwith, FMCG players need to move for new initiatives. Consider HUL for instance. The company has made it ver clear that the Internet is going to be its key delivery vehicle, which will have expedite its distribution and sales efforts. Sure, Internet is going to change the way FMCG companies strategize and do business. With reasons. Internet provide huge opportunities to FMCG companies in the areas of logistics interface with consumers and value added chain.

Building a solid distribution network calls for massive investments. Indian FMCG players, not like their foreign counterparts, will not take chances with new brands, just incase they failed. But more than thses financial handicaps, it was a rigid mentality framework that was responsible for the laid down attitude: they were complacent, anti-change and anti-growth. This mindset clouded their own vision and strategy. Dabur has seems to be a slow-changer to date. Some of the McKinsey recommendations such as exiting from non-core businesses met with strong objections from some members of the promoter family. Family feuds, so typical of Indian corporates, left domestic FMCG majors with little time for marketplace battles and strategizing.

Major Indian consumer product companies (like Britannia, P&G, HUL, etc.) have a very strong presence through their strong brands. These companies make considerable investment in R&D to sharpen and maintain their edge in the business. Diversified portfolios, wide distribution networks and scale economies of these companies deter new players from entering. Brand equity, therefore, is an extremely important factor in FMCG industry. One of the other most critical factors is the ability to build, develop, and maintain a robust distribution network.

The major issues that new MNC entrants face are low income levels, non-existence of super markets in India, an incredible 5 million retail outlets, and a typically slow moving low consumer demand resulting in dealers/retailers being reluctant to allocate their resources and time.

The pace of competition

MNCs had both good product propositions and deep pockets to back them. Their parent's wide product range ensured that the new products kept hitting the Indian market. Players like Cadbury redefined the basic tacts of the chocolate confectionery industry. It not only launched new varieties and flavors, but in fact helped to change the consumption patterns.

Take the case of Cadbury's exercise as positioning its chocolate as a snack food. Others like Procter & Gamble (P&G) and SmithKline Beecham had chosen to be little different. They decided introduction of new products through their 100 per cent subsidiaries instead of their Indian subsidiaries which were already existing. In P&G's case, though the move was targeted at avoiding and protecting it from high costs of product launches and brand building, it might have deprived the Indian arm the opportunities of leveraging P&G's global brands and high growth areas.For a fairly long time, Indian FMCG players remained low-decibel advertisers. It was only Nirma, who was a deliberate low-decibel advertiser, at its own will. It still is. Such was its corporate philosophy. It did not even come in the 1999 top-ten list of advertisers, which had Dabur at number two, and Marico at four. When practically everybody else have increased their advertisement-budgets, Nirma continued to gain volumes by passing on the cost-benefits to its consumers. Nirma proved that finally what matters is understanding the consumer and his needs. Which is more a positioning strategy rather than a marketing ploy. Another Indian major FMCG which have reaped hefty benefits from its innovative positioning is Dabur.

Value for money

Since the global recession of 1991-94, which had hit the consumer spending hard, value-for-money became the buzzword for FMCG companies globally. These FMCG companies relied heavily upon major restructuring and cost rationalization exercises as business had continued to become very competitive. Many packaging innovations were also resorted to India was not different. There was a paradigm shift towards value-for-money products and, to some extent and obviously towards the rural market.

What Nirma continued to do all these years suddenly became the must-do for many FMCG players. Price cuts became unavoidable to keep the market share from squeezing. Sometimes, the cuts touched to ridiculous levels. Economic recession hit the urban peoples’ pockets badly and forced the companies to train their guns on rural India, which had started witnessing a major change in its aspiration and lifestyles and even had an income that translated into increasing volumes. Companies such as HUL, Colgate and Britannia who already had a strong rural focus, geared up the gas further. HUL uncovered its "Operation Bharat". Britannia pushed its brand called Tiger biscuits to every nook and corner of the country, while Colgate went about wooing the rural masses by offering low-priced products like Colgate tooth powder and other products in convenient packaging.

Those who could not do it on their own went to rely on somebody else. P&G, whose distribution is largely urban, decide to leverage Marico's retail reach.

P&G and SmithKline Beecham, are another interesting cases with small product range like theirs, they have been able to achieve what others could not and proved that what you need is a good and convenient product, marketed effectively and sold at the right price, i.e. less price to price sensitive consumers.

Acquisitions all the way

Of late, an interesting trend seen in the Indian FMCG sector has been brand acquisitions. This represents an increasing awareness among the FMCG players are talking today more and more of product "fits" while discussing the brand acquisitions. It is not acquiring anything and everything as it was in the past.

Forget brands, protect those who make them. Though there was some amount of brand acquisition, the real worry of the domestic FMCG players was to protect the makers of their brands from getting copied. The real challenge for all FMCG players, however, is in holding on to human talent which makes the brands rather than the brands themselves. FMCG marketers are known to be the best marketers globally and have takers in industry as diversified as telecom and cellular, even insurance. HUL has learnt it the hard and long way.

Consider the role of Internet in logistics. FMCG players can leverage Internet to extend their network of logistics beyond the traditional expensive EDI-based solutions. This would begin from having connections between the factory and C&F and then moving on to more complex networks reaching out to key urban distributors and wholesalers. And time to time, even to rural wholesalers and retailers. As far as interface with consumers is concerned, Internet can work wonders here. Over time, marketers who were successful could leverage the Internet to develop user-communities, which are invaluable in creating loyalty and in testing the products. What more, FMCG companies can come together to form e-purchasing portals and accelerate their purchasing power and ability to find smaller suppliers. All these demand a productive partnership between

the FMCG industry and the government. Experts see this as an growing opportunity. A partnership between the government, which wants to drive Internet penetration deeper into smaller towns, and FMCG companies who want to ride off a shared infrastructural network to enable higher and superior logistics and drive product communications. Such a partnership can jointly drive the Internet network deeper into the Indian industry. It seems the excitement is just beginning to start in the Indian FMCG industry.

Rural marketing has become the latest marketing tact or the so-called ‘mantra’ of most FMCG majors. Truely, rural India is huge with unlimited opportunities. All waiting to be tapped by the FMCGs. It will not be surprising that the Indian FMCG sector is busy putting in place a rural marketing strategy which is parallel to urban marketing strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, Colgate-Palmolive and Britannia Industries are only a handful of the FMCG majors who have been gung-ho about rural marketing. With reason India’s agrarian economy is fundamentally strong. Rural India accounts for as much as 70 per cent of India’s population. That means rural India can bring in the much needed volumes and help FMCG companies to log in volume-driven growth. That should be like music to FMCGs who have already hit onto saturation points in urban India.

Certainly, rural marketing holds the key to success of FMCGs, which are very desperate to find ways out to gain deeper penetration in the markets. Not that the rural population is numerically large, it is growing richer day by day. Of late, there has been a phenomenal increment in rural incomes and rural spending power. Successive good rains have led to dramatic boost in crop yields. Consider this statistics: foodgrain production touched 200 million tones during fiscal 1999 against 176 million tones logged during fiscal 1991. Not only the crop yields have improved but also tax-exemption on rural income too has been responsible for this enhanced rural purchasing power.

FUTURE OUTLOOK

Domestic market is witnessing a structural shift in terms of demand with rural markets beginning to show increased demand for FMCG products. This is happening at a time when the urban market is showing signs of saturation. However, the low level of penetration in the rural areas is a cause of concern. For a number of consumer expendables the penetration levels are extremely low, but are expected to increase with the passage of time and rise in income levels. For instance, for toilet soap, the average expenditure per user household for low-income households is Rs. 237, while it has increased to Rs. 706 for high-income groups. Rural market at a staggering 122 million, five times the urban market, is hard to ignore for anyone.

This on the other hand also provides an excellent opportunity for the industry players in the form of a vastly untapped market. However, to propel the demand in the rural areas, issues like taxes and costs would be very crucial, given the cost-conscious nature of the consumers there. Recent Bugdet hike in FMCG products like toothpastes do

not bode well for the companies's efforts to focus on spreading awareness about oralcare in these areas and the increased usage of oral care products there.

Another area which offers immense growth opportunities is unbranded segment. However, cost will again be the determining factor for success here. The increased inflow of imported consumer goods in the country, especially from China, as a result of lifting of the QRs (Quantitative Restrictions) by the government, is also expected to give the domestic players a run for their money. In recent times, the markets have been seeing a veritable war over the retail shelf, which promises to intensify in the foreseeable future. Lifting of the quantitaive restrictions and dereservation of several items, which were earlier reserved for SSIs, are expected to lead to intense competition in the market place.

In the wake of such developments, the crucial success factor will be the distribution strength a company would be able to have or develop. However, in the wired world that alone won't be enough as a entry barrier. Internet is fast becoming a strong distribution channel and the new players are finding it very easier to launch assaults through this medium effectively. That is why we are seeing web intiatives from market majors like HLL, Godrej etc. which want to pre-empt competitors in that space. And, it won't be an exaggeration to say that the next FMCG war will be fought on the wired turf.

Brand building will be another key issue. There has been a spurt in promotional activities, which has resulted in an increasing fight for the customer's attention at the point of purchase. This has made brand differentiation at the retail level extremely difficult. This has been further aggravated by brand extension strategies adopted by the companies. One good example is the Hindustan Lever. The company, in some of the product categories like soaps, have relied heavily on brand extensions. In case of Lifebuoy, a toilet soap, so many variants have flooded the shelves, however this could also mean diluted focus, on part of the company and confusion for the consumers. HUL has recently planned to trim its product portfolio and concentrate on key brands only. It is expected to withdraw from the markets variants of its toothpaste brand "Close Up" such as Close Up Renew and Close Up Oxyfresh.

Companies will be increasingly reviewing the quantity versus quality equation, as well as distribution synergies, to try and leverage for the best possible distribution at the least possible cost. This could be a crucial factor in deciding the fate of players.

The key factors that are expected to trigger future growth for the FMCG industry include reduction in excise duties, relaxation of licensing restrictions and reduced dominance of unorganized sector due to creation of level playing field. The growing reach of advertising medias like satellite and cable TV too is expected to give a boost to the market penetration initiatives of the industry players.

The results of a survey done by National Council of Applied Research (NCAER) suggest that Indian FMCG space is all set to enter a new growth phase, sample this: the study says that the lower income group is expected to shrink from over 60 percent (1996)

to 20 per cent by 2007 and the higher income group is expected to rise by more than 100 per cent. It looks, as if the industry is all set for a fast-paced race in future.

CHAPTER-12PRICING BY FMCG COMPANIES

It's a volume-value game. Most Indian FMCG majors knows this very well. That is why FMCG companies are gearing up for bigger advertisement and sales promotion campaigns aimed at the rural buyer. high-pitch rural marketing exercise involves repositioning of brands, repackaging of products and re-pricing them, all with considering the rural wallets. The companies has been working constantly on extending its parallel rural sales and distribution networks, which already finds a place among the industry’s top three. Concerns be over the inability of rural markets to meet the soaring of rural ambitions of the Indian FMCG majors. Is the perception that industry majors such as Hindustan Lever are on the verge of diluting their rural focus true? Does the urban customer featured hihghlighted on the cover of Hindustan Lever’s 1998 annual report reflect this shifting focus? It is a tactical shifting, it is a trade-off between value and volume, between the urban and the rural market". For, focusing all out of one of these markets at the cost of the other could be big mistake . That is why a few FMCG companies are not putting in efforts to go for the rural market. Instance of the case of Cadbury. The company has clarified that it is not entering the rural market, at least for now. Meanwhile, Marico is trying harder to get into the market of premium-end hair-oil . What do all these point at? Rural marketing could open the doors of opportunities, but the path is paved with thorns. One major limitation here is this that most FMCG players just do not have the critical size to start rural marketing. That is why the most of FMCG players are expected to be concentrate both on rural marketing and urban marketing: focus on the urban markets for value and, focus on rural marketing for volumes. One result-oriented marketing strategy here is this: offer value-additions to existing product lines to lure the urban consumer and alongside offer the rural consumer wide-ranging choices within a single product category in a bid to generate high volumes.

There are lot more problems existing in rural marketing. Success in rural market calls for a sound network and a deep understanding of the rural mentality. Rural consumer’s are price-sensitive and this is something that the FMCG players should be alive to. Rural income are largely determined by the condition of monsoon and therefore rural demand is not a steady horse to ride on. This makes rural marketing a uncertain. It is more like a gamble for FMCG minors who do not have a clutch of strong brands across product segments. These FMCG minorss are not able to cross-subsidize their products and go for product experimentation. The result: FMCG minors have a limited reach, are not able to erect entry barriers and have no ways to minimize the impact from loss of sale opportunities. The diverse rural market calls for multi distribution networks, efficient logistics and friendly infrastructure.

Another issue is the stark difference in the characteristics of the consumers. The consumers stand apart as two different markets as is evident from their current consumption baskets, and their attitude towards essential and luxury items. In addition,

although the evolution is towards a better lifestyle therefore product and brand choice is there in both these markets, the rate of evolution is highly different.

The real test will lies ahead. One major hindrance in rural marketing is: whether an FMCG player will be able to provide the best price and aspirational values to the rural consumer ,who has a peculiar tendency to emitate his urban counterpart. So, what should FMCG players do now? These should not only price that products competitively, but also provide their rural prospects maximum value for money. Certainly, reaching to 3.33 million retail outlets is like an uphill task. The only way for Indian FMCG players to: put in place an aggressive cost structure, which will enable them to offer low-price and value-for-money products. But then, FMCG is a low-margin business with a high cost of raw materials. Take the case of Marico: its material cost works out to a high level of 59 per cent on sales. Therein lies the rural marketing paradox. However, the customer-centric and the market-savvy FMCG companies have always been chased prospects when they perceive there is a latent demand. For example, Hindustan Lever’s Rin, Surf and Lux detergent are available even in India’s most interior villages. Hindustan Lever had been given shape to its rural strategies , a few years ago when it perceived that its urban market was going down due to an industrial slowdown.HUL s Operation Bharat that mainly focused on personal care products made the most of surging rural incomes. These result was there for every one to see. The company has able to clock in double-digit profits every three years and gain double-digit revenues every four years. Like Britannia with its Tiger brand of biscuits and Colgate-Palmolive with its low-priced and conveniently packaged products designed for the rural people have been other pioneers in the rural marketing. Thus, Britannia and Colgate-Palmolive have been able to derive more than 30 percent of their revenues from rural markets.

Sure, there is a lot of income in rural India. But, there are obstacles. The main obstacle is that the rural customer is still evolving. Only FMCGs with deeper pockets, unblinking rural commitment and staying in power can enjoy this rural game. Cost of setting up a huge retail network has saw many casulaties, the notable being the P&G which abandoned its plan to fight the likes of Lever in the rural segment on its own. Instead, it is aiming to piggyback on the Marico Industries which has got a strong presence in these markets through its flagship brand "Parachute". The FMCG stalwart Hindustan Lever has started its ambitious project "Project Shakti", a five-month old marketing initiative involving women belonging to micro-credit self-help groups (SHGs) in the Nalgonda district of Andhra Pradesh, similar to the highly successful experiment Bangladesh's Grameen Bank used in rural areas of the country.

The recent price cuts by FMCG giants, Hindustan Unilevers Ltd (HUL) and Procter and Gamble (P&G) proves, once again, that the Indian market still, by and large, supports only volumes, not value propositions. No matter how hard one may try and brand a product price sensitiviness over rules the brand preference — if its not quoted right price, it's just not going to generate sufficient volumes.

Realisation has touched to P&G — although a bit late and but now it wants to become more 'affordable'. By cut down prices from nearly 25 to 50 per cent on its two

detergent brands, Tide and Ariel, P&G has not only redefine the balance of brand power in India, but has also hurt HUL — and itself — where it hurts the most … its bottom line.

As the two traditional rivals in the global FMCG market carry out their rivalry in India, their share values have toppled; P&G which has launched the price war seen at 14 per cent decline in its share price, the HUL stock fell 19 per cent on the same day. The share of an uninvolved Nirma, too, was brought down by eight per cent.

P&G's move from the premium niche to the mass based, is indeed a proactive marketing work. But, as industry watchers point out, HUL's reaction in slashing its prices is merely an attempt to protect its turf. If so, is 'marketing' really about how low you can price your product?

Concepts like 'market research', 'value', 'branding' and 'loyalty' seem to have been dumped with HUL's counter offensive of a price cut of its own. The rationale, in HUL's words, is to face competition without blinking.

Till recently, the price war was restricted to HUL and P&G. Now, to round off the probability that customer loyalties will shift with price cuts, even smaller players have entered the market. Henkel Spic has cut down the prices on its detergent brand Henko Stainchampion by 15 per cent to Rs.75 per kg.

With revenues already hard to generate and margins under tight pressure, this decision is going to prove expensive for HUL. Analysts estimated that the price cuts will cost HUL between Rs120 and 150 crore.

As a market leader in almost all the major product lines that it operates in, HUL did what it had to do. But then, as a market leader with a share of40 per cent of the detergents market, as opposed to P&G's 10 per cent, isn't the onus of growing the market on the market leader?

The small sachet was an innovative stroke of marketing genius that reduced product differentiation and changed the growth of the detergents market. Today, sachet sales made about 15-20 per cent of the detergents market. But innovation seems to have deserted the soaps and detergents industry ever since.

With penetration at it's highest and the market saturated, the Rs4,000-crore detergents market has been stagnating for almost five years. Compounding this problem

are the smaller players like Ghari detergents, who offer products of similar quality, at almost half the price.

On the face of it, the price cuts seem logical. Lower prices should get new users into the market and propel others to upgrade

from the not-so-premium brands to Tide, Ariel or Surf Excel. P&G saw the volumes of its sachet sales almost tripling when it halved the prices on the 20-gram packs of Tide and Ariel, to Re 1 and Rs 1.50 respectively, in September 2003.

But will price cuts on larger packs prove equally successful? And if not, then will there be another round of price cuts? HUL, at least, has definitely ruled that out, saying there was "no room for more price cuts on Surf Excel".

A further round of price cuts indeed seems unlikely for both manufacturers since raw material costs have been rising. The Consumer Guidance Society of India has already initiated a probe, to find out if there has been any degradation in the quality of products to enable the current round of price cuts.

Everybody knows that India is a 'volumes' market, and as marketers, both HUL and P&G understand that pricing and distribution are the key to success. But unless marketers come up with something radical, cutting prices will only get them thus far and no further. A sustained growth will be hard to come by, and players will just have to make do with a shrinking pie.

What is needed now from the rivals is something like a 'sachet', a conceptual breakthrough, to stimulate fresh growth

CHAPTER-13

PILLARS OF FAST MOVING CONSUMER GOODS

The Fast Moving Consumer Goods (FMCG) business is built on two pillars - Brands and Distribution. The under given is the comprehensive conceptual coverage of these and other key marketing concepts

1. BRANDING

2. VALUATION OF BRANDS

3. DISTRIBUTION

4. MARKETING

5. MARKET RESEARCH

6. MARKET SEGMENTATION AND POSITIONING

7. ADVERTISING AND PROMOTIONS

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BRANDING

What is a brand ?

A brand is name, term, sign, symbol or design or a combination of them which is intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors’

A Trade mark is "a brand or a part of brand that is given legal protection because it is capable of exclusive appropriation."

Manufacturers can use their own brands (known as Manufacturers’ brands) or brands of their distributors (Distributors’ brands).

Why branding?

Manufacturers/ distributors use brand names for a variety of reasons from simple identification purposes to having legal protection for unique features of the products from imitations and help consumers recognize certain quality parameters. In some cases, brands are just used to endow the product with unique story and character which itself can be a basis for product differentiation.

Special importance of brands for FMCG products

While brands can represent all types of goods or entities, they have special importance for FMCG products. Brand equities are stronger in FMCG products as the consumer is reluctant to try unknown brands/ unbranded products for the following reasons

these products individually account for a small part of household spending. most of these products are personal use In many cases, it is difficult to differentiate a product on technical or functional

grounds and therefore the consumer is reluctant to switch to an unknown brand. Successful brands generate strong cash flows, which enable the owner of the

brand to reinvest a part of it in the form of aggressive advertisements/ promotions. This reinforces the perceived superiority of a brand.

How can a brand be created ?

FMCG companies spends enormous sums on building a brand equity by way of-advertisements/publicity -freesamples-lowentryprice- promotions (schemes for dealers, consumers etc)

Advertisement and promotion can induce trials but for sustained loyalty, the manufacturer has to offer superior quality and value for money. Most successful brands are founded on a chance discovery of a new product/ process or assiduous research and development work. Major players invest in R&D on their existing brands and improve the product quality continuously to maintain their edge over competitors.

Branding strategies

a) Individual brands Vs Umbrella brands

Individual brand has its own identity and the corporate or common name is not used to promote its equity. In case umbrella brand, there is a generic brand with association of some values. For instance, Hindustan Lever follows individual branding strategy and has several brands in the same category such as Lux, Liril, Rexona soaps etc. Competitor Nirma has mainly followed the umbrella branding strategy such as Nirma Bath, Nirma Beauty, Nirma Super, Nirma Shikakai soap etc. Only recently, the company for the first time diverted from its strategy of umbrella branding with the launch of Nima.

Advantages of Individual branding strategy are

Some of the products which flop in the market, do not have negative spill over impact on other brands. For example, Nirma is associated with popular end of products, which becomes a major deterrent for its expansion in the premium segment.

Consumers looking for a change are offered distinctly new brands by the same manufacturer.

But individual branding requires expensive advertisements and brand building exercises. Also, each new brand does not benefit from the positive perceptions of earlier brands.

In umbrella branding, manufacturers have advantage of

Establishing a new product quickly with association of quality/ benefits of the mother brand (a classic case in Indian context has been Godrej).

No need for name research, expensive advertisement for creating brand names, recognition and preference.

b) Brand extensions

Brand extensions are used for a group of products such as Clinic Plus Shampoo, Clinic All Clear., Clinic Plus hair oil or Close Up Renew, Close Up Oxyfresh, Close Up Sensation, etc. The brand has some unique USP and there are cosmetic/ functional variations in the extensions. The strategy is to build upon initial success of a brand entry by creating flanker it ems and minor variants of the basic brand. Brand extensions may be used within product categories (In some products like shampoos, there can be natural variants such as shampoo for normal hair, dry hair or for specific problem solving like anti-dandruff). It may also be used for different product segments (eg Sunsilk brand being extended to hair oil)

c) Multi brands

Marketer introduces brands mostly in large markets, which compete with each other in almost the same segment. In multi branding, there is cannibalization but overall result is greater market share. Net incremental market share is enough to justify the investment in the new brand. For instance Hindustan Lever has several brands (Lux, Breeze, Hamam, Rexona, etc) in the same category ie toilet soaps.

Accounting for brand expenses

Expenses incurred by way of advertisements, free samples, promotions etc are treated as revenue expenditure by accountants, as they do not create any tangible assets. The intangible assets created in the form of a brand pays back in the form of repeat buying and pricing power over a long period of time. An established brand is a precious asset and when sold, fetches a price several times the value of tangible assets required to manufacture the product.

There is no generally accepted methodology for valuing and accounting for brands. Also, all methods recommended for valuing brands suffer from lack of objectivity and consistency. There is considerable risk as expenses incurred on a unsuccessful brand has to be written off almost entirely. But the same are paid back several times in case of successful brands. In case of FMCG companies, assets are considerably understated as they do not include value of brands. Inclusion of brands in assets will - dilute return on networth - reduce gearing ratio.

It can be argued that high return on networth shown by established companies is overstated as assets (ie Brands) are understated. Similarly, in case of companies in investment phase, making extensive investment in new brands, would exhibit depressed return on networth as investment in brands is being written off, pulling down the profits.

Some companies defer writing off a part of the expenditure for brand building. The expenditure not written off in the year is treated as deferred revenue expenditure.

VALUATION OF BRANDS

Valuation of brands

Value of a brand is represented by the incremental cash flow resulting from a product with a brand versus a product without a brand name or with weaker brand name.

Brand valuation is a complex process and involves a lot of subjectivity. There are no widely accepted techniques of brand valuation. There are several considerations which cannot be standardized or quantified such as

To pre-empt competition from taking over a brand Synergy with the company acquiring existing brands/ businesses Strategic entry into a new product category Prevent damage to existing brands. Many a times stiff competition results in price

cutting, aggressive promotions, lower margins for all the competing brands. Confidence in the acquirer of the brand to rejuvenate a languishing brand.

Value of an acquired brand

In case of an acquired brand, price paid for the brand over and above the value of tangible assets, represents value of the brand. For accounting purposes consideration paid for the brand is typically broken up as follows :

1. Goodwill 2. Trademark and patents 3. Technology and knowhow 4. Non compete agreement

Some of the popular methods for valuation of brands are discussed below :

Bert technique (Intra-brand Plc) values brands based on following factors. It gives scores on each factor and values the brand as multiple of sales/ earnings based on the aggregate score.

- USPs of the brand- Stability of the brand

- Markets namely the industry in which the brand is in use.- Internationality of the brand commanding a higher weightage than a local brand.- The long term trends of the brands- Brands receiving consistent investment are more valuable.- Legal protection commanded by brands through registration and trade mark laws.- Quality of support received by the brands.

Cost basis - The valuation is done by aggregating all costs incurred on a brand from the conception stage. These costs include market survey, research & development, launch and subsequent advertising expenditures. These costs are adjusted for inflation and present values are calculated. Then adjustments are made to provide for discount in case of a declining trend in the product life cycle or premium in case of ascending trend in market share and product life cycle.

Market value - Valuation at market price (the best bidder quote) can be at divergence from the fundamental value of the brand. For instance, a large company may pay an abnormally high price to protect its major brand or remove a nuisance from the market or derive synergies in its existing business. Such valuations are subjective.

Earnings model - In this method, valuation is done by identifying, separating and quantifying earnings that can be attributed to the brand and capitalizing these earnings at a suitable discounting rate. The multiple would depend on several factors such as category growth prospect, emerging competition and brand’s relative position, edge in terms of technology, strength of loyalty to the brand etc.

Some case studies on brand valuation, acquisitions and transfers

Brand valuation

1. Infosys brand valuation

Brand takeovers

1. Cibaca takeover by Colgate

2. Lakme takeover by Hindustan Lever

3. Captain Cook and Tarla Dalal by International Bestfoods

Brand transfers

1. Marico

2. Navneet

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DISTRIBUTION

Distribution channels and network

Marketing or Distribution channel refers to the set of marketing intermediaries which manufacturers link together to reach their products to the ultimate consumers. Depending on the product, nature of market and manufacturers’ resources/strategy, there can be one or more links between the manufacturer and consumer.

a. Manufacturer - Retailers b. Manufacturer - Wholesalers - Retailers c. Manufacturer - Stockists - Wholesalers - Retailers .

Why use distribution channels

There are several benefits for a manufacturer particularly in case of consumer goods to rely on these marketing intermediaries rather than develop one’s own distribution network.

Efficiency in performing the basic marketing task by these intermediaries who through their experience, specialization, knowledge of local conditions, contacts and scale, offer services which manufacturers can scarcely do on their own.

Cost advantage most of these intermediaries in India are family owned outfits. Their cost of operations and overheads are substantially lower.

Focus : Manufacturers can concentrate on their core activity and optimize return on assets.

Retailing

In India, there are over 5 million retail outlets dispersed all over the country. The retailing industry provides employment to over 18mn people. 1 out of every 25 families in India is engaged in the business of retailing. Ownership and management are predominantly family controlled. However in sharp contrast to developed countries, unit average size of a retail outlet in India is very small.

Organized retailing, however, has been a recent phenomenon and is relatively undeveloped. There are no large super market chains/ shopping malls. Consumers are unwilling to pay a premium for convenience shopping as their counterparts in the western countries do. While small chain stores called Apna Bazaars and Sahakari Bhandaars, which offer products at reasonable prices have been fairly popular, Department Stores and Food Stores are slowly gaining popularity. A large number of corporates have recently ventured into retailing.

The retail outlet in India can be broadly categorized as follows:

Grocery storesGeneral purpose storesFood storesPan bidi shopsChemist/ drug storesCold chains Others

The relative share of grocers dropped from over 50% in the early 90's to 35% in the late 90's. Chemist outlets on the other hand, have been expanding their product range to include high margin FMCG products from shampoos to ketchup. Panwallas are also emerging as full fledged consumer product outlets.

Table : Growth in retail outlets (m nos)

Year Urban Rural Total

1978 0.58 1.76 2.35

1984 0.75 2.02 2.77

1990 0.94 2.42 3.36

1996 1.80 3.33 5.13

Composition of urban outlets

Grocers 34.7%

Cosmetic stores 4.0%

Chemist 6.3%

Food Stores 6.6%

General Stores 14.4%

Pan + stores 17.0%

Others 17.0%

Composition of rural outlets

Grocers 55.6%

General stores 13.5%

Chemist 3.3%

Others 27.6%

MARKETING

Marketing

Direct marketing

In direct marketing manufacturers reach the consumers directly. Direct marketing can be undertaken in several ways such as mail order, own retail outlets, mobile vans etc. A new innovative approach to direct marketing viz Multilevel marketing, is becoming increasingly popular. Also gaining ground slowly is E-tailing ie selling products through the internet.

Multilevel marketing model

Multi level marketing refers to direct marketing through an ever-increasing number of direct distributors. Independent distributors sell products directly to the consumers and appoint new distributors and train them. The distributor earns commission at two levels, one is his/ her own commission and two a proportion of commission earned by other distributors appointed by him/ her. None of these distributors are employees of the company.

Distributors are not allowed to sell these products to retailers. The company saves about 25% of realizations by eliminating retail channel, which is shared with distributors.

The company insists that the distributors should take prior appointment with the consumer. Personal interaction is not only convenient but adds value as customer get valuable advice on the product and how to use it. This helps in creating awareness and removing misconceptions like cosmetics are harmful for the skin.

Direct marketing (multi level approach) in personal care products is extremely popular abroad. In Brazil, about 60% of personal care products are sold through direct marketing. In India, direct marketing has been slowly growing. Word of mouth has a strong impact on purchase decision of a consumer, specially in personal care and cosmetic products. Direct marketing has mainly been undertaken by the new MNC entrants (notably Oriflame, Avon). Hindustan Lever has also recently launched a new personal product brand Aviance which is sold directly to consumers exclusively by trained beauty specialists. Direct marketing has also been extensively used in marketing of household appliances like Vacuum cleaners. However given the widely spread geographical area in India, direct marketing cannot be easily used to build aan extensive national reach and is more likely to be used as a supplementary channel.

MARKET SEGMENTATION AND POSITIONING

A market is defined as individuals, organizations with purchasing power, and desire/ willingness to purchase. Markets can be categorized based on the buyers as follows :

Producers market trade in raw material, equipment, supplies, machines etc.

Reseller market trade in finished goods, services from producers

Consumer market : refers to market where end consumer buys the products for personal or household use. Consumer market can be bifurcated into durables and non-durables markets. The non-durable products are also known as fast moving consumer goods.

Market segmentation

Markets comprise of heterogeneous segments of consumers. Market segmentation refers to process of identifying a group of buyers with similar buying desires and requirements. Each segment is targeted by the marketeer with a distinct marketing mix.

Broadly markets can be segmented on the following basis :

Geographic : location, nations, states, cities, rural, urban areas etc

Demographic variables such as age, sex, family size, marital status, income, occupation, education, family life cycle, religion, nationality, social class.

Psychographic variables such as lifestyles, personality, buying motivation, product knowledge.

Benefits segmentation divides the market along buying motives. For instance, in case of toothpastes, benefits could be decay prevention, white teeth, fresh breath, good taste, low price etc.

Within a segment, there can be further segmentation such as a market segmented along geographic areas can be further segmented on the basis on income and so on.

Income segmentation

Income segmentation is one of the most popular and convenient way of segmenting the market. Consumers can be broadly divided into low income, middle income and high income group. Most FMCG products are also segmented along the target consumer segments in economy, popular and premium categories. Price differential between popular and premium products is significantly higher than what would be warranted by manufacturing cost differentials. Marketeers create product differentiations with focussed advertisement/ promotions and superior packaging also.

CHAPTER-14

FMCG CONSUMPTION IN RURAL INDIA

Here the rain gods still play havoc with one's dreams. The dusty village path winds past a cluster of slumbering cottages and leads one to a weekly rural bazaar or haat, brimming over with din, bustle and transaction. This is where the real India resides. Telephone is a luxury here. Electricity, if at all, comes here only in fits and starts. And a delivery by road may take any stretch of time.

However, things are changing fast now. Thanks to the increasing literacy level and media explosion, people are becoming conscious about their lifestyles and about their rights to live a better life. Brand consciousness is increasing. This, clubbed with increasing disposable income of rural households, has made the rural consumer more demanding and choosier in his purchase behaviour than ever before. And the dusky village damsel has now learned to pine for a satin rose.

The rural market in India offers a tremendous market potential. A one percent increase in India's rural income translates to a whoppin Rs 10,000 crore of buying power. Nearly two-thirds of all middle-income households in India are in rural areas. And close to half of the nation’s buying potential lies in its villages. Thus for the country's marketers, small and big, rural reach is increasing and is rapidly becoming their most important route to growth. Realizing this, Corporate India is now busy investing a noticeable chunk of its marketing budget to target the rural market.

Organizations like Hindustan Lever Ltd., Nirma Chemical Works, Colgate Palmolive, Parle foods and Malhotra Marketing have immersed themselves into the heart of rural markets. Various categories of products have been able to spread their roots deep into the rural market and achieved significant recognition in the country’s households. And, in the process, the regional brands, local brands and the other unbranded offerings got displaced by the leading brands

Company Household penetrationHULNirma Chemical WorksColgate PalmoliveParle FoodsMalhotra marketing

88%56%33%31%27%

Category % volume of local brands/unbranded

Washing cakes/bars TeaSalt

88%56%33%

Of the expenditure on consumer goods in rural household, approximately, 44% is on food articles such as biscuits, tea, coffee and salt, 20% on toiletries, 13% on washing material, 10% on cosmetics, 4% on OTC products and 9% on other consumables. A number of category products have established themselves strongly in the rural households.It is clear that in the villages low-priced brands are well accepted and one might feel that a larger chunk of the purchases made in rural market can be attributed to local/ unbranded players. Surprisingly, the unbranded/local component contributes to a substantial portion of the volume of only a few of the highly immersed categories.

Category Category Penetration

Brand with highest penetration

Toilet SoapWashing cakes/BarsEdible oilTeaWashin powder / liquidSaltBiscuits

91%88%84%77%70%64%61%

LifebuoyWheelDouble iran mustardLipton TaazaNirmaTata SaltParle G

INCREASING BRAND AWARENESS In the rural families, studies indicate a slow but determined shift in the use of categories. There is a substantial improvement in the form of products used. For instance, households are upgrading from indigenous teeth-cleaning ingredients to tooth powder and tooth-pastes, from traditional mosquito repellant to coils and mats. There is also an evident shift from local and unbranded products to national brands and also from low-priced brands to premium brands.

FOCUS ON URBAN CATEGORIES

Though the commodity products have greater penetration, traditionally urban categories such as skin creams and talcum powder have also made a mark. While the urban talcum powder market suffered a de-growth, the rural talcum powder market darted ahead. Similarly, growth of rural skin cream market was at par with that of urban skin cream market. This clearly indicated that after being considered urban for a long time, some categories are now wearing a rural face. And, in many a case, it is the rural market that is actually driving the growth of category.

PREMIUM BRANDS

Pond's is the leader in the talcum powder category with a penetration of 65% and volume contribution of 56%. Its rivals viz. Nycil and Liril are trailing far behind. Moreover, 60% of the Pond's users have purchased no other brand i.e. they are 100% brand loyal. This reflects the strength of the brand in rural bazaar.

Category Household Penetration Skin creams Talcum Powders

18% 15%

the skin care category, Fair & Lovely fairness cream, with a penetration of 75%, accounts for 60% of the skin care market in rural India. It also enjoys the undistinguished patronage of 58% of its user households. Both Pond's and Fair & Lovely are enjoying a monopoly in the rural markets in their respective categories.

Rural India does not escape trying out the premium brands at high prices. A study indicated that a majority of the premium brand users are using the brand for the first time. Similarly 0.9% of the talcum powder-using families have started using Denim talc and 0.7% of the shampoo using households started using Pantene. Surveys also reveal that trials are not restricted to the more affluent echelon of the villages. The experimenting households are more-or-less evenly spread across the various socio-economic clusters of the rural market. This should further encourage the marketers to focus their attention on rural buyers.

Brand Penetration of category users Surf Ariel Pantene Denim

6.2% 4.5% 1.8% 1.8%

The rural youths are more open to fresh concepts as against their elderly family members. Their difference in choice of products/brands with the seniors of the households often leads to a “dual-usage” of product categories. As an instance, 20% of the households using tooth powder also use tooth paste. Similarly, many of the households using premium brands also use mass market brands. For example, while 15% of Surf and 12% of Ariel using families also use Nirma detergent, 3% of Denim users use Pond's Dreamflower talc and 18% of Pantene using households use Clinic shampoo as well.

RURAL MARKETING – THE “HINDUSTAN UNILEVER LIMITED PRESPECTIVE

THE CHALLENGE

Around 700 million people, or 70% of India's population, live in 6,27,000 villages in rural areas. 90% of the rural population is concentrated in villages with a population of less than 2000.

The statistics is daunting. Particularly for companies, such as HUL, which market Packaged Mass Consumer Goods (PMCG) of everyday use, the size of the rural market makes it essential to tap.

Indeed, we have traditionally focused on the rural market. Several of company's major business categories, such as Fabric Wash, Personal Wash and Beverages, already get over 50% of their sales from rural areas. Our distribution system is the best amongst PMCG companies.

But the company also recognize that there is much more that needs to be done. To service rural markets, the key issues that need to be addressed are availability, awareness and overcoming prevalent attitudes and habits.

EXTENDING AVAILABILITY

Data on rural consumer buying behavior indicates that the rural retailer influences 35% of purchase occasions. Therefore, product availability can determine brand choice, volumes and market share.

Project Streamline was conceptualised to significantly enhance HUL’s control on the rural supply chain through a network of rural sub-stockists, who are based in these very villages. As part of the project, higher quality servicing, in terms of frequency, credit and full-line availability, would be provided to rural trade. Thereby, giving the company a substantial competitive edge over the next decade.

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The principle of Project Streamline is to leverage HUL’s scale and organisational synergy to increase reach in rural markets. The pivot of Streamline is the Rural Distributor (RD), who has15-20 rural sub-stockists attached to him. Each of these sub-stockists is located in a rural area. The sub-stockist then performs the role of driving distribution in neighbouring villages using unconventional means of transport such as tractor, bullock cart, et al.

From 1998, the project has been rolled out in select states of the country where the terrain or poor stage of market development typically makes any distribution system unviable. The Streamline system has extended direct HUL reach in these markets to about 37% of India's rural population from 25% in 1995. Most important, the number of HUL brands and SKUs stocked by village retailers has gone up significantly. Having done that, the project now aims to expand the company’s coverage to 50% of rural population by 2003.

Distribution will acquire a further edge with Project Shakti, HUL's partnership with Self Help Groups of rural women. The project kicked off in 2001, has already covered over 5000 villages in 52 districts of Andhra Pradesh, Karnataka Madhya Pradesh and Gujarat, and is being progressively extended. The purpose is to reach over 100,000 villages, thereby touching about 100 million consumers. The SHGs have chosen to adopt distribution of HUL's products as a business venture, armed with training from HUL and support from government agencies concerned and NGOs. A typical Shakti woman entrepreneur conducts business of around Rs.15000 per month, which gives her a monthly income in excess of Rs.1000 on a sustainable basis. Most of these women are below the poverty line, and live in very small villages (less than 2000 population, this earning is very important, and is almost double of their past household income. For HUL, the project is bringing new villages under direct distribution coverage. Plans are being drawn up to cover more states, and provide products/services in agriculture, health, insurance and education. This will both catalyse holistic rural development and also help the SHGs generate even more income. This model creates a symbiotic partnership between HUL and the consumers those who belong to HUL, some of whom will also draw on the company for their livelihood, and helps build a self-sustaining virtuous cycle of growth.

INFLUENCING AFFORDABILITY

Project Streamline focused on extending distribution, and Project Bharat's influence was restricted to raising penetration and awareness levels. On the anvil, is a new rural programme, which will reach villages with a population below 2000 and influence income as well.

This path-breaking venture aims to facilitate the doubling of HUL’s share of the rural consumer's wallet in three years. The model is unique in that it influences all the variables that influence growth. This model triples physical reach, doubles communication reach, creates a platform for influencing attitude changes and raising

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incomes.

The company’s rural growth engine raises incomes of rural families by channel intervention through rural Self-Help Groups (SHG), which operate like direct-to-home distributors. The model consists of groups of (15-20) villagers below the poverty line (Rs.750 per month) taking micro-credit from banks, and using that to buy HUL products, which they will then directly sell to consumers. In the process, generating employment and incomes for themselves, and increasing the reach of our products.

HUL is tying up with various Non-Governmental Organizations, United Nations' Development Programme (UNDP), and voluntary organizations to propagate health and hygiene messages. The goal is to reach 2,35,000 villages up from the current 85,000; 75% of the population up from 43% today; and a message reach of 65% up from the current TV reach of 33%. In the process the company aim to increase access, influence attitudes, create a channel to raise awareness of its brands and catalyse affluence in rural India.

ENHANCING AWARENESS

Mass media reaches only 57% of the rural population. Generating awareness, then, means utilising targeted, unconventional media including ambient media. HUL has been utilising events such as fairs and festivals, haats, et al, as occasions for brand communication. Cinema vans, shop-fronts, walls and wells are other media vehicles that the company has utilised to heighten brand and pack visibility.

OVERCOMING ATTITUDES AND HABITS

Creating distributive reach is not sufficient to tap the rural markets. Market development can be a difficult task because in rural India, both consumption and penetration is low. For instance, only three out of 10 people in rural areas use toothpaste or talcum powder, or shampoo and skin care products, and only six use washing powders. Even in categories with high penetration, such as soaps, consumption is once per five bathing occasions. Project Bharat, the first and largest rural home-to-home operation to have ever been mounted by any company, sought to address many of these issues. The operation was conducted in high-potential districts of the country. The exercise was started by HUL’s Personal Products Division in 1998, and covered 13 million households by the end of 1999. In the course of the operation, company vans visited villages across the country and distributed sample packs comprising a low-unit-price pack each of shampoo, talcum powder, toothpaste and skin cream priced at Rs. 15. The distribution was supported by explanation of product usage and a video show, which was interspersed with product communication. Thus HUL generated awareness of its product categories and the availability of affordable packs. Consumers were also made aware of the superior benefits of using our products vis-à-vis their current habits, and the affordability of the pack sizes on offer. The project, thus, successfully addressed issues of awareness, attitudes and habits.

CHAPTER-15DATA INTERPRETATION

VIJAYAWADA (2008 – 2010)

Rural India constitutes ‘the heart of India’, generating more than half thenational income. According to the National Council of Applied Economic Research(NCAER), with about 74% of its population living in its villages. India has perhapsthe largest potential rural market in the world.A potential of 742 million rural consumers live in 6,38365 villages across India.Rising incomes, improving infrastructure, and favorable government policies offerhuge potential for rural marketing.“If you see a woman in a village milking a cow, do you see an opportunity?but that is exactly where Dr. Varghese kurien saw an opportunity and it gave birth toone of the most successful organizations in India-Amul .”

The need to look at rural markets:

The “Green Revolution” has in turn, brought a socioeconomic revolution inIndian villages. On account of the green revolution the rural areas are consuming alarge quantity of not just the essential commodities but premium products as well.The younger generation in rural areas is now spending more on personal care andgrooming products.

The above data [table 1] indicates, the Indian rural market with its vast demandbase, offers great opportunities to companies. FMCGs demand in India nearly 53%comes from the rural market. For consumer durables the figure is 59%, these results has evidently helped, going by the significant share contributed by rural areas to the total revenue of several leading consumer product companies. [Table-2]

Rural markets are already proving vital for company’s growth, clearly indicatingthat these markets can not be ignored by big players.Industry analysts have projected that urban households will grow by 4% while their rural counterparts are expected to

grow 11% by 2009-10, implying that if the rural income rise by 1%, then the spending power of consumers will increase by about Rs.10,000cr. According to FICCI, by the end of 2025, rural consumption is expected to nearly three times of what it is today.There is no denying the fact that Indian market is the fastest growing market in the world and the fact is that about 60% of the market considered rural market is yet to turn into a real market.

What is Rural Market?

According to the Census of India 2001, there are more than 4,000 towns in thecountry. It has classified them into six categories, class-I towns with one lake andabove population , Class-II towns with 50,000-99,999 population, Class-III townswith 20,000-50,000 population and Class-IV towns with 10,000-19,999 population.It is mainly Hindustan Unilever and ITC, most FMCG and consumer durablecompanies, define Class-II and III towns that are rural.[table-3]

From this above data one can analyze the economics of cost involved in ruraldistribution coverage.

Rural Marketing Challenges:

Poor InfrastructureNon-availability of shopsHigh levels of povertyUnemploymentPoor literacy ratePoor media penetrationSkeptical customers (less use new brand )Rigid social customsAccording to Dr. MS. Swaminathan of the swaminathan Research Foundation,rural areas can only be developed if the financial, structural, economic and socialaspects are addressed in a holistic manner. This is possible if these areas areFrom this above data one can analyze the economics of cost involved in ruraldistribution coverage.

Rural Marketing Challenges:

Poor InfrastructureNon-availability of shopsHigh levels of poverty

UnemploymentPoor literacy ratePoor media penetrationSkeptical customers (less use new brand )Rigid social customs

According to Dr. MS. Swaminathan of the swaminathan Research Foundation,rural areas can only be developed if the financial, structural, economic and socialaspects are addressed in a holistic manner. This is possible if these areas aresupported by adequate funds, equipments, infrastructure and education.Indian consumers are poor but not backward. The future lies with thosecompanies who see the poor as their customers. Companies should focus oncreative solution and product engineering to reduce their costs and offer tremendous‘life time value’ to the ‘Bottom of the Pyramid’ customers. Effective ruralmarketing is one and only solution to reach the BOP segment

Rural Marketing Strategies:

Rural marketing concept is a customer-centered ‘sence and respond’philosophy. The following section deals with how MNC’s and local companies havesuccessfully established themselves in the rural market.

[1] Product Strategy:

The rural consumer is very conscious about getting ‘value for money’. Lowprice, high quality and multiple uses is basic principles rural product design.

Case 1: HUL Breeze 2-in-1HUL developed a combined soap and shampoo that was cost-effective and also less harsh on hair than ordinary soaps. HUL launched the new soap-cumshampoo ‘Breeze 2-in-1’

Strategy: “value-added product would create a loyal customer”

Case 2: HUL pure-it [a water purifier brand]

HUL launched a innovative product ‘pure-it’ a water Purifier brand. Pure-it is available at economical price for the rural consumer as there is no clean drinkingwater in villages.

Strategy: “Corporate social responsibility meanscome up with business models to cater to the BOP”

Suggestions:

Innovative product designs and packaging.Avoid the marketing myopia, which means the costumer will have the sameneed but will want the new product.10Application of value engineering, which means costly metal being replacedby cheaper reinforced plastic. This technique does not sacrifice thefunctional efficiency of a product but lower the product price.Using chinese product design strategy and raw material.Be care full on product duplicates and using security features

Marketers must often understanding rural customer’s needs and aspirationseven better than customers themselves do and creating products and services thatmeet existing and latent needs, now and in the future. A fair amount of research isrequired to understand the latent needs and desires of rural customers and providesuitable products.

[2] Price Strategy:

Rural markets are low price high volume growth markets. The rural marketsbeing intensely price-sensitive in comparison to urban markets, reaching at a lowercost is a major challenge.

Case 1: Nirma

Nirma’s yellow detergent powder- a mass- marketPhenomenon. Nirma’s low price policy has penetrated intothe deepest rural markets in India.

Strategy: “value- for- money”

Case 2: Cavinkare’s Chik shampoo

Cavinkare launched Chik in 50 paise sachets. Cavinkaretargeted rural and small town customers who used soaps towash their hair. it became the market leader in the ruralmarkets with over 50% market share. It create a‘sachet revolution’.

Strategy: “low unit price packs.” (LUP)

Case 3: P&G price cut strategy

P&G in 2004 started price cut strategy in theirdetergent brands. P&G’s increase in the market share wasmore at the cost of the low-priced detergents. There wasa 200% increase in Tide after the price cut .

Strategy: bring in the required ‘Economies of Scale’ which would lead toprofitability.

Case 4: Britannia Tiger biscuits

Britannia also tasted success because of smallaffordable packaging of ‘Tiger’ biscuits it is specially designto the rural market, it’s helping the poor become consumers.

Strategy: “low price strategy is begun to appeal target segment”

Case 5: Nestlé’s Maggi

Nestle’s rural initiatives have largely been based onPrice-led initiatives. Brand such as Maggi noodles arepriced at Rs.5. It helped Nestle in making in roads in torural market.

Strategy: “small pack - lower price”

Case 6: Marico parachute

Marico launched ‘parachute mini’ a bottle shapedsmall pack being sold at an MRP of RS.1, 20 ml parachutea RS 5 that enables loose oil users ad to parachute.

Strategy: “consumers to trail out the products with very little risk”

Suggestions:

Use backward and forward integration.Using value-based pricing strategy . That means fixing of price, starting withcustomer and end with product.Use psychological tricky pricing strategies. That means method of oddnumber pricing etc.Effective total quality management is helps to low price high qualityproduct.Companies should focus on creative solutions and product engineering toreduce their cost. Second, the company can design basic models minus frills to save

cost.

[3] Promotion Strategy:

The challenge is to create communication that would help the ruralconsumer in recognizing brands, logos, visuals and colors. To effectively tap therural markets, a brand must associate with their culture and personality.

Case 1: Coca-cola

Coca-cola ad ‘thanda matlab coca-cola’ caughtattention of the rural consumers so much. Aamir khanplaying foot sic with village bells.

Strategy: “Using a renowned celebrity from in rural background”

Case 2: HUL Lifebuoy

HUL launched a direct rural contact program called‘Lifebuoy Swasthya Chetana’ campaign, made sales goesup by 20% in 17,000 villages.

Strategy: “lifebuoy has always been positioned on the platform of health and .hygiene”

Case 3: HUL Vim

HUL launched a dish washing bar Vim. HUL Started tocommunicated the brand in rural area through publicchallenging campaigns. In this campaigns is succeed peoplewashing utensils with sand are being educated to shift to dishwashing bars.

Strategy: “Brand awareness creates people using local unbranded products tonational brands”

Case 4: Dabur Chyawanprash

Dabur Chyawanprash was able communicate its corebenefits of energy and immunity by involving locals in a gameof bowling wherein, the nine pins, symbolizing various diseases,were demolished by a chyawanprash ball.

Strategy: “For a brand to succeed in India, its communication and image mustrespect Indian values and serve to uphold them”.

Case 5: HUL Surf

Surf used the ‘Lalita ji; campaign to communicate themessage of ‘getting more for your money’ to housewivesand this message is well received by them.

Strategy: “value for money need not necessarily mean cheap”

Suggestions:

Provide social outlet campaigns, the outlet provide free to any one, whatbrand they choose. Its creates a ‘trust factors’ to the consumers.Be care full on retail margins other wise they promoted local brands.Face-to-face ‘below the line’ touch, that means feel and talk mode at heats,melas and mandis.To capture the local sprit in the communication. Using local language.Patience is the name of the game. That means a rural consumer is not in ahurry and you can take your time in communicating the message.Developed a website, which gathers valuable feedback from satisfiedcustomers and also display the total amount saved by consumers with theproduct impact.World-of-mouth communication strategy works better in rural marketsas these markets enjoy limited reach media. Once people become familiar withthese products, they would perceive them as necessities.

[4] Distribution strategy:

Planning physical distribution, managing logistics and controllingmarketing communication are major impediments for entering rural markets. Thedistribution structure involves stock points in feeder towns to service these retailoutlets at the village levels.

Case 1: Coca - Cola

Coca -Cola is a pioneer company in distributionnetwork. Coca-Cola has evolved a ‘hub and spoke’distribution model for effectively reaching and servingrural markets. Coca-Cola provides low-cost ice boxes tothe small distributors in rural areas because of the lackof the electricity. In this marketing strategy a wake up callfor coke’s rural focus.

Strategy: “Coke is available where, even water is not available”

Case 2: HUL

Hindustan unilever, the pioneer and a largeplayer in India’s FMCG market. HUL is the first companyto step into the Indian rural marketing. HUL launched‘operation stream line’, distributed HUL’s products in villagesusing unconventional transport like ‘bullock carts’, ‘tractors’and cycles. Today HUL’s products touch the lives of two out ofevery three Indians.

Strategy: “HUL product can reach a place, where you can not reach”

Suggestions:

Best solution for enter into the rural markets, that is the company shouldstart the production in rural areas. Then it is easy to distribute and also itsincrease the local sprit.Tie’up with public distribution system (Fair Price Shops). In our country,

the public distribution system is fairly well organized. The revamped PDSplaces more emphasis on reaching remote rural areas of hills and tribaks. SoFMCG companies collaborated with the PDS to utilize its well-establishedsales and distribution network in the rural markets.Develop rural shopping malls. Rural shopping malls act as a two-way supplychain. While selling goods to the farmers and also buy their farm produce.Use a combination of wholesalers and retailers to penetrate every nook andcorner of rural market.Going paces ahead of small packs and sachets’ the corporate world is nowcoming out with ‘Rural Malls’ and ‘Self help groups’ as channel partners topromote consumer products in rural India. Unilever and ITC are working towardsincreasing their visibility and reach through marketing - cum social responsibilityprojects such as ‘shakti and e-choupal’ respectively.

Conclusion:

A silent revolution is sweeping the Indian countryside. It hascompelled marketing whizkids to go rural. The marketing battle fields has shiftedfrom the cities to the villages, but in this battle both consumers and companies arewinners, it is a win-win situation. ‘Go Rural’ seems to the latest slogan. Stopdepending on research number. Go and meet up with a million villagers and askwhat they want. Create the products and services that is relevant to their needs.Thus, it is quite clear value-for-money offerings companies could convert luxuriesin to necessities for the Indian rural consumers.

CHAPTER-16

CONSUMER DEMOGRPHICS

POPULATION DISTRIBUTION OVERALL INDIA

19.7

25.531.5

23.31.43.4

West (%)

East (%)North (%)

South (%)Total UT

Other states

URBAN AND RURAL DISTRIBUTION POPULATION

020406080

100

Rural %Urban %

AGE DISTRIBUTION OF POPULATION %

-105

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0 to 4 5 to 14 15 to 59 60 &Above

AGE GROUP

PERC

ENTA

GE

1992

1997

2007

AGE DISTRIBUTION OF POPULATION %

-105

2035506580

0 to 4 5 to 14 15 to 59 60 &Above

AGE GROUP

PERC

ENTA

GE

1992

19972007

CHAPTER-17

BIBLIOGRAPHY

1) WWW.GOOGLE.COM

2) WWW.EEPCINDIA.COM

3) Kannan, S. (2001). Rural market – a world of opportunity. The Hindu.

4) Krishnamacharyulu Ramakrishnan (2004) Rural Marketing

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Marketing practices by fmcg companies for rural market shailu (2)

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