Rural Marketing

Session 16
In the previous session
• Promotion and price decisions
In this session
• Cases by group 7 and 8
• Price and place decisions
 Pricing Objectives of the Company
• Broadly, pricing objectives need to be compatible with the
marketing strategy, including target market selection and
the desired product positioning

• There is usually a trade-off between the quality on offer

and the price, so price is an important variable in
positioning

• Hence, the firm’s pricing objectives must be clearly

identified in order to determine the optimal pricing. The
importance of pricing increases when the company focuses
on price-based competition rather than on non- price-based
factors such as promotion or availability
 Pricing Objectives of
the Company

• Profit maximization in the long run

• Companies should not expect short-term profits
when entering the rural market
• Initially, they should develop the market by
introducing the product at a low price with low
profit through penetration pricing of the
product (setting the price lower than the
eventual market price to attract new customers)
 Pricing Objectives of the
Company
• Keeping up with the competition
• Firms whose objective is to meet the competition set a price to beat the
leader’s price.
• In the rural market, companies face major competition from regional and
local brands. Due to their low production and distribution costs, regional
players are able to offer lower prices and take a significant market share
away from national players
• Products like Ghari detergent, Wagh Bakri tea, Anchor toothpaste,
Priyagold biscuits, Emami cosmetics, Parakh foods, and Maxo mosquito
repellent are pegging their prices in competition with the price leader in
their respective regions, and managing to attract huge business away from
their competitors
 Pricing Objectives of the Company

• Increasing sales volume and market share

• In sales maximization, the management sets an acceptable level of
profitability and then tries to maximize sales. To accomplish this
objective, the firm needs to not only keep its prices low, but also make
investments in R&D, distribution, and other elements of the marketing
mix. With large-sized rural markets, marketers are assured of availing
economies of scale
• This objective fits well with product categories high on price sensitivity,
for example CavinKare’s Chik shampoo in 50-paise sachets
• Generally, it is FMCG companies that adopt this pricing
objective
 Pricing Objectives of the
Company
• Minimum return on sales turnover
• It is difficult to make instant profits in rural markets. Therefore,
initially a company thinking of going rural should prepare its
pricing objectives in such a way that it can recover the costs
involved in distribution, production, and dealer margins
• Deeper penetration of the market
• Here, the objective is market expansion, so the company
launches its product at a lower price. Britannia launched Tiger
biscuits at INR 1, INR 2, and INR 4 price points.
• With the launch of Tiger biscuits, Britannia’s share of the rural
market increased
 Pricing Objectives of the Company
• Other objectives include:
• Social and ethical considerations
• Status quo objectives
• Non-profit organizations and government agencies
use social and ethical objectives to cover their costs
wherever possible, and to raise money for their
activities
• Non-profit organizations use pricing to achieve social
goals.
• Government agencies use pricing to recoup some or
all of their operating costs while delivering needed
services
 Pricing Objectives of the Company

• Status quo objectives maintain the market share by meeting

competitors’ prices, achieving price stability, or maintaining the
public image. This is common in industries where the product is highly
standardized
• Prestige pricing objectives establish a relatively high price to develop
and maintain an image of quality and exclusiveness
• Importantly, we should remember → Companies usually go for a
blend of pricing objectives along with other elements of the marketing
strategy to ensure their success in business
 External factors
• The price sensitivity of customers, channel costs,
competitors, and the environment are the external factors
determining pricing. Marketers have no control over these
factors.
• Price Sensitivity of Customers When it comes to making a
purchase decision, customers assess the overall ‘value’ of a
product and then assess the price. When deciding on a
price, marketers need to conduct customer research to
determine what ‘price points’ are acceptable. Pricing
beyond these price points could discourage customers from
purchasing
• It is imperative that marketers understand the price
sensitivity of customers who form the target segment of the
products they are trying to sell
 External factors

• Channel costs Distribution is perhaps the most difficult task in

rural areas because of approximately 700,000 village locations.
• Marketers have to consider the compatibility of the company’s
target customers with a particular retail format, and their
preferred mode of payment for a particular product category.
• For example, the retailer in a village is compelled to extend
credit to his customers, while the retailer in a haat sells only on
cash.
• Similarly, mobile traders extend credit facilities to their regular
customers
 External factors
• Competition While setting the price of a
product, the competitor costs, prices, and
market offerings should be taken into
consideration. Consumers in rural areas
compare the price charged by one manufacturer
with the price offered by competitors
• If the marketer has the ability to price lower
than the competition and still be profitable, he
can capture a greater market share which can
benefit in the long run.
• In such a situation though, there is a chance
that the competitor would perceive that (your)
low pricing has the potential of reducing their
market share or impacting their influence in the
industry, and may respond with an even lower
price
 External factors
• Environment Within the environment, government
policies, change in the economy, and new technology
are the main factors affecting price.
• Changes in the economy, like poor monsoons and crop
failures, affect the pricing of products. A poor
monsoon destroys crops, which decreases the
purchasing power of rural consumers.
• This forces companies to lower the prices of their
products in rural markets, especially companies like
HUL and Dabur, which earn a significant share of
revenue from rural areas.
Distribution Strategies
 Introduction

• Distribution to rural areas poses a challenge to the best of

companies. Even the greatest of products fail in rural areas as
companies are unable to build supply chains that can provide small
quantities of goods over large distances.
• Distribution remains a crucial element in any marketing strategy
designed to serve rural markets
• Several companies have tried to solve this puzzle in different ways
• Initiatives like ITC’s e-choupal, HUL’s Project Shakti, Tata Tea’s Gaon
Chalo, Honda’s Go Rural and other companies have succeeded in
establishing sustainable rural distribution models
 The distribution puzzle

• However, many other large chains like Hariyali stores,

Godrej Aadhaar and Kisan Seva Kendras, Triveni’s rural
push, Six Ten and Suvidha stores have either scaled down
or shut down completely. Even ITC’s Choupal Sagar and
Reliance Fresh had to withdraw from some cities
• Distribution in rural areas does not mean simply to send
goods to villages; it also means solving some problems of
isolated people
 Catering to the rural customers

• The first step in building distribution channels for rural

areas is to understand the buying behaviour of the rural
customer
• For the purpose of designing distribution channels, we
consider three factors in rural buyers’ behaviour—
• socio-economic factors,
• type of goods sold and
• place of purchase
 Catering to the rural customers - Socio-economic factors
• Consumers belonging to different socio-economic segments exhibit distinct behaviours
Socio- Description Place of purchase
economic
status
High-income Exposed to urban lifestyles, have their Most of the purchasing is done in bulk
families own vehicles – which are used for from nearby towns during weekly or
leisure as well as business monthly trips to the town; some products
are bought locally
Middle- Somewhat exposed to urban lifestyles, Most of the purchasing is done from the
income have aspirations village. Occasional trips to the nearby
families town for purchase of high value items

Low-income Less exposed to urban lifestyles, Buy in small quantities and sachets from
families limited means local retailers; non-routine goods are
purchased at village fairs
 Types of goods sold
• Consumers in villages wait for special occasions like festivals and fairs, usually
held around the harvest time for big ticket purchases – tractors/commercial
vehicles/insurance/cattle
• Marriages are other opportunities of rural splurges. These are the times when
a large portion of a company’s annual sales is accomplished – white
goods/personal vehicles/apparel/furniture/electronics
• Other times of the year – FMCG/Clothes/vegetables/daily supplies

• Supply chains have to be built accordingly to cater to high seasonal demand and
very little demand for the rest of the year
 Places of purchase

• Low value items, food items and routine products are

purchased from local retailers, but the rural consumer
takes an occasional trip to the nearby town or city to buy
products of a non-routine nature

• It is also important to remember that people in rural areas

treat the trip to the nearby town as a fun outing and it
becomes a ritual to buy some products that are not
available with the rural retailer
 Product Place of purchase
Daily items, toiletries, personal Rural retail store, village fairs and
care products nearby towns

Clothing, apparel, footwear Village fairs, visits to nearby

towns and rural retail stores,
travelling traders
Food items, grains, pulses Village shops

Household items like utensils, Visits to nearby towns

electricals, fans

Agricultural inputs like fertilizers, Dealer located in nearby town

seeds and pesticides
 Product Place of purchase
Electronics, consumer Dealer located in nearby
durables town, village fairs

Higher education Nearby towns and cities

Specialized medical services Nearby cities
Financial services Moneylenders, post office,
rural and cooperative banks,
banking correspondents

Vehicle purchase and Dealers in nearby towns

servicing
Entertainment Village fairs, nearby town
and cities
 Places of
Purchase
• Small traders often fill in the gap
and supply goods to villages. In
many villages people depend on
travelling merchants who supply
goods, then on the village fair or
similar gatherings and finally on
a trip to nearby towns
• Rural markets also consist of the
less well-off who buy their daily
requirements from local traders
in small quantities. Travelling
salesmen and merchants bring
non-routine goods to their
doorstep. Much of this
distribution is aimed at helping
consumers avoid trips to nearby
towns for their requirements
 Models of distribution

• Sales through rural sales force :

• Some companies appoint rural sales force to visit dealers and
retailers in villages
• Goods are then supplied through the company depot in the town.
Small companies follow this route and are able to achieve deep
penetration in their areas of operation. Wholesaler commissions are
avoided but the company bears the cost of distribution
• This is an expensive option since the company has to add a large
number of salespeople on its payroll
• The advantage is that the company can serve the areas it wants to
cover and is not dependent on the wholesaler or the sub-dealer.
 Models of distribution

• Company outreach programmes:

• Outreach programmes are an effective way to reach villages,
especially when demos or consumer education are
required. The company uses BTL techniques to involve
communities in their brands.
• Excitement is built by multimedia devices and direct
customer experience. Consumers can experience products
directly through this method, and brand loyalty can be
achieved
 Models of distribution

• Village entrepreneurs (‘feet on the street’):

• This approach is called ‘feet on the street/ground’ approach, in
which the company trains and develops entrepreneurs in villages
who act as distributors and brand ambassadors.
• Project Shakti and Colgate’s bicycle entrepreneurs are examples of
this approach.
• The advantage of this model is that the company can reach the
remotest of the villages. The village entrepreneur creates customers
for the company and works for mutual benefit
 Models of distribution

• Local influencers:
• In this case, the company works through people who can influence
others.
• Well-known or respected people in the village arrange community
meetings and product demos to influence consumers and inculcate
brand loyalty.
• At times, the influencers may even stock a small quantity of the
products
 Models of distribution
• Rural retail chains:
• Companies can work with retail chains established to serve rural areas.
Chains such as Hariyali, Aadhaar and Choupal, or tying up with petrol
pumps – these are easier ways to reach villages. However, many of these
initiatives have failed
• NGOs and other networks:
• Another way of reaching villages is to piggyback on existing networks of NGOs,
microcredit groups or SHGs. Companies work with these groups to tap their existing
members. This initiative was used by Tata Tea, which started its ‘Gaon Chalo’ initiative
with NGOs and SHGs.
• This is a beneficial model as the company gets access to a set of people who are
connected by a common cause. Building trust becomes much easier