On October 31^st 2013, Unilever CEO Paul Polman said that Unilever could grow as much as six times if it were to tap the market potential in rural India. Coming from the CEO of a company which makes 60% of its sales in emerging-market countries, this deserves closer inspection.

With the slowdown of emerging market economies, it becomes essential for corporates to find new markets in these countries. According to the latest available census, around 70% of the Indian population resides in 600000-odd villages, and a large portion of this market is underserved.

According to a Nielson report, a 1% increase in rural incomes could mean an approxiamately ₹10000crore increase in buying power. Hence marketers are rolling up their sleeves and throwing in their gauntlet to battle it out for this consumer space.

The challenges facing marketers are many. But they are discovering that rewards are there to be reaped, if only they change their marketing paradigms.

The Indian rural consumer has traditionally been looked at as a one-dimensional, utilitarian, agrarian consumer. This condescending view may even have been true at some point, but as our economy has opened up and our markets have evolved, so have consumer lifestyles and preferences.

The SEC (Socio-Economic Classification), the market segmenting tool used by most companies in the Indian context, has also been revised to reflect this. The new SEC does not recognise urban and rural markets separately indicating that these markets are coming of age. There are several reasons for this.

Firstly, in the age of free flow of information and communication, the most expensive activity for marketers-that of category development – has been made much easier. Through mass media, and in some cases, innovative marketing schemes, marketers have been able to change the mind-set of the rural consumer to accept the concept of a disposable income and its consumption.

Secondly, disposable incomes have increased in rural India in real terms. This aspect is perhaps the one most ignored by those who sing paeans and dirges about Indian economic liberalisation alike. All official estimates agree that poverty levels in India are declining- the latest figures put it at 22% compared to 37% earlier. This means that wealth creation post liberalisation has permeated to all strata of the economy in some form. Though the quantum of growth is different, an NCAER (National Council for Applied Economic Research) study has shown that rural income growth is keeping pace with urban income growth.

The above two factors synergise and add a third positive dimension- that of the value sensitive rural customer. Rural audiences are now willing to pay higher than the lowest price for gaining tangible and intangible benefits.

The presence of these factors in rural India, though encouraging, does not imply that marketers can blindly apply the same formulae which spelt success in the urban setting and hope to succeed in the rural landscape. In fact, ignoring the unique rural barriers may spell doom not only for the ill-advised marketer but perhaps for the category itself as competitors will tend to stay away from a market which has bred a failure story.

A low disposable income implies that rural consumers will be willing to spend more frequently on smaller SKUs than their urban counterparts. Cadbury, for example, which plans to reach 80% of rural India in the next 2-3 years is aware of this and makes sure that their products are available within the ₹5-₹10 price range that a rural child gets to spend per week.

 The smaller SKUs increase the complexity of the distribution channel for marketers. Firms are looking at innovative ways to reduce their distribution costs. HUL’s (Hindustan Unilever) Project Shakti is just one such example. By encouraging female entrepreneurs, they have gained business partners who in turn help them reduce distribution costs.

Purchase decisions in the rural setting are subjected to greater effects of influencers and buyers than in cities. This is because familial ties are stronger and pooled usage of certain items may occur. However this does not mean that personal care products do not sell in the rural setting. Talcum powder and sachets of shampoo are two cases in point illustrating either extreme of this argument.

Taking the rural customer’s needs for granted will incur a heavy price. Good marketing practice suggests that products and services be introduced only after evaluating their fit to a market and not based on success in other urban or even other rural markets. This is more valid in the rural context because cultural implications are more varied across rural. In contrast, though urban markets are individually cosmopolitan, a fair degree of homogeneity can exist across urban centres.

Marketers must also not be surprised to find new uses of their products in rural markets. The use of Horlicks as a health food for cattle in Bihar and Godrej Hair Dye as a cosmetic to improve the market value of buffalo in North India illustrate this point. Unstated consumer needs are just as likely to occur in rural markets and it is upto the marketers to sharpen their peripheral vision for capitalising on these.

However, all these challenges are outweighed by one compelling argument. In an underserved, underdeveloped market, each brand has the opportunity to define its category. Chik Shampoo and Ghadi detergent did exactly this and have acquired a sizeable customer base. Firms willing to take the risk will reap the benefits in the long run by creating a positioning which will be tough to unsettle.

By the looks of it, firms are willing to take the risk. But sustainable success can be bred only by losing the condescending attitude towards rural markets and accepting that they are a much more complex challenge than earlier envisioned.