On October 31st
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.
