Concept of Rural Market

Professor M. K. Awasthi
Indian Institute of Management, Lucknow
 Evaluation

Evaluation Plan
Class participation 10 %

Assignments / Case discussion 30 %

Final Examination 60 %
 Why Rural Market ?

Why Companies are moving in rural area ….. ?

• Saturation in urban market ?

• Escape Competition ?

• Growth ?
 Rural Market Potential
1. 164 million households (96.6 crore)

2. Accounting for 56% of India’s total income, 64% of expenditure and 33% of
savings. (Population of Europe 78 crore)

3. Rural Economy accounts for 25 %

4. Rural sector is likely to reach a valuation of Rs 14 lakh crore per annum by 2025.

5. Fast Moving Consumer Goods (FMCG) business in rural and semi-urban India is
expected to reach US$ 100 billion by 2025.

6. Higher growth in durables and FMCGs sale as compared to urban market

(At present, the rural FMCG market accounts for 30% to 50% of the total
revenue of FMCG majors. Growth rate 15 %)

7. Villages having less than 500 population are falling

8. Villages having 2000 + population most prosperous.

Purchasing Pyramid

48 Top cities
(>25 % Purchasing Power )

7800 towns
(>25 % Purchasing )

640000 Villages
(>50 % Purchasing )
 Rural India: The Exploding Middle Class
2020
Positive but declining
urbanization rate but
absolute number is rising

– Pyramid transforming into a diamond shape

 Exploding Rural Market

•Lower cost of living

leads to higher
proportion of
disposable income

•Rising rural monthly

expenditure
 Government rural thrust
boosting bottom of pyramid
(BoP) incomes

 Increase in agricultural
productivity and shift to cash
crops increasing agricultural
income

 Rural infrastructure being

developed in the areas of roads,
electrification, education and
health
 Definition of Rural
Organization Definition of Rural Limitation

• Several hamlets demarcated by physical

boundaries The term “rural” is
• Towns are urban areas that satisfy: not defined, nor is
Census  Minimum population 5,000 the upper limit of
 Population density > 400 per sq. Km. population for
 75% of the male population engaged in villages
non-agricultural activities

Widening of
• Similar to Census except that the
definition allows a
IRDA percentage for male population in towns
larger market to be
is 25% and not 75%
considered as rural

Rural: All locations with a population of up to

10,000 Distinction defined
RBI Semi-urban: All locations with a population only by population
between 10,000 and 100,000
 Definition of Rural

Organization Definition of Rural Limitation

Town
Planning Towns with population up to 15,000 are
characteristics not
Commission considered rural
defined

Locations with shops/commercial Town or village

Sahara establishments up to 10,000 characteristics not
population. defined

All population centres other than the 7

Population criteria
LG Electronics metros are considered rural or semi-
is not considered
urban
 Rural Marketing Concept
To

Rural Urban

Rural

From

Urban

Source: M. Jha, Rural Marketing- Some Conceptual Issues, EPW, 1988

 Scope of Rural Marketing
Domain of Dimensions of the transaction
Rural
Marketing

Participants Products/ Modalities Norms Outcomes

services

Rural to
Rural

Rural to
Urban

Urban to
Rural
Changing landscape of Rural India
1. Rural Ecosystem

•Non –food, cash crops

• Food Grain Crops
•Livestock & fisheries
• On land activities
•Manufacturing &
services
• Farm Activities
Changing landscape of Rural India
2. Rural Consumer

• Poverty
•Rising Income
• Illiteracy
•Literacy
• Aspirations
•Seek Value for money
• Basic needs
Satisfaction
Changing landscape of Rural India
3. Rural Market
• Un-organised
•More organised
• Extensions of urban
markets •Customized

• Few Products •More Products

• Basic needs • More than basic needs

 Rural Marketing Mix

• The 4 Ps of marketing – price, product, place and

promotion – replaced by 4 As in rural markets

Affordability Availability

Awareness Acceptability
 Rural Marketing Mix

• Rural consumers are driven by value proposition and not

Affordability by cost

• Single largest challenge for marketers in rural markets

Availability • Paucity of data for villages and small towns is a
hindrance

• Media reach is increasing

Awareness • Need for specific messages aimed at the rural psyche
• Use of alternative rural means of communication

• Rural consumers look for productive assets

Acceptability • Specific needs should be looked into while designing
products for rural consumers
 Rural Market landscape

There are currently more than 20,000 villages in the 5,000—

10,000 population strata.
Majority of rural institutions, agri markets and rural banks are located in
larger villages and towns, up to 10,000 population.

The characteristics in terms of occupation, consumption and buying

behaviour change from rural to urban in locations of more than 10,000
population.

Many villages have been notified as towns due to their economic

growth over the last thirty to forty years, but they continue to retain
their rural character
 Perspective of Companies

• Leaving aside Hindustan Lever and ITC, most

companies in the FMCG sector would define rural as any
place with a population up to 20,000.

• Similarly, durable and agri-input companies would

consider any town with a population below 50,000 as
rural.
Changing rural market landscape
• Growth in agriculture has resulted in the rapid rise of
rural incomes.

• The consuming class households (annual income

between Rs. 45,001 and Rs. 215,000) in rural India
equals the number in urban India.

• It is well known that for the same level of income, the

disposable surplus (purchasing power) in rural areas is
much higher because food, shelter, primary education
and health are virtually free, whereas in urban India 60 to
70 per cent of the income is spent on these necessities.
 Myths About Rural Market
• Rural people do not buy brands.

•Rural customers buy cheap products.

•In reality, they seek value for money.

•Rural market is a homogeneous mass.

•In fact, it is fascinatingly heterogeneous.
 Rural Consumer myths
– Value driven and looks for products that add to earning
capabilities or to status

– Increasing literacy and exposure to mass media,

increasing aspiration levels

– Better road infrastructure leading to increased mobility

– Highest change amongst children and youth,

increasing their role as influencers
 The Challenges
• Understanding rural consumers,

• Reaching products and services to remote rural

locations

• Communicating with vastly heterogeneous rural

audiences such as co existence of poor and rich.

• Lack of investment in rural market research