Session 8  Rural Marketing with a focus on distribution

Selling in rural India  An important phenomenon in India’s consumer culture is the emergence of the rural market for several basic consumer goods  Three-fourths of India’s population lives in rural areas, and generates one-third of the national income  The rural market has been growing steadily over the years and is now bigger than the urban market for FMCG’s (53% share of the total market) with an annual size in value terms currently estimated at around 50,000 crore

Contd.  NCAER projects that the number of middle and high-income households in rural India are expected to grow from 100 million to 130 million by 2010  The higher income group in Rural India is growing at a phenomenal rate

Changing rural customer  Different SEC groups are being exposed to similar media influences owing to Cable & TV penetration  People prefer time & convenience besides better bargains  The concept of brand & quality are very much prevalent

Rural market penetration levels Durable Rural share % Product Penetration % Refrigerator Coffee Coffee 7 Black and white television Biscuits Biscuits Washing machine Toilet soap Pressure cooker 51.51Toothpaste Instant Water heater Talcum powder 16.4 Mixer/grinder Hair oil 16.0 Colour television 28.77Shampoo Scooter Razor blade 47.1 Motorcycle Skin cream

Rural Distribution in India Challenges for Marketing in Indian Hinterland  Lack of infrastructure, big geographical areas and wide dispersion of the villages makes regular redistribution uneconomical for the companies.

Challenges of targeting the BOP  Mind boggling logistics – 638,365 villages, 24.3% have a population of and 25.5% have a population 500 – 999.  That means 50% of the villages have 2-3 small shops as the market. – How will a distributor generate enough business?  Huge geography on which they are spread. – How can small volumes of sales support high transportation cost?

Challenges – contd…  Infrastructure? Till date only 36% of these villages are connected by a pucca road. – How can you actually send the goods there?  Low purchasing power – Apart from food & clothing, other categories tend towards luxuries rather than necssities.  That means almost 16 crore of India’s population is inaccessible or unprofitable to reach. - Challenge? Opportunity?

Product and Branding  Do the rural customers only look at price?  Can the same product be given in smaller quantities at lesser price points?  Can the core product be given with only the basic offering and strip it of peripheral features?  Adaptability, Availability, Affordability, Awareness

Retailer – The key element in rural business  Companies are realizing that rural retailer holds much bigger control over the shopping behavior than urban because of the following factors:  Khaata – Monthly account held at the retailer for all rural customers. Big influence on what they purchase.  Vishwaas – Perception that dealer is more knowledgeable as he interacts with the outside world more. Becomes their advisor.  Even for purchase of agri-machinery like tractors, they buy from local dealer.  How to engage or co-opt him into the distribution?

Rural Distribution adopted by most of the companies  Rural buying behaviour is different from urban customers.  The major income comes only at the harvesting time.  Majority of the bulk buying happens when the farmers go to the nearby towns for selling the produce while daily consumption items are bought from local retailers / Haats.  Durables, clothing, 2-wheeler companies limit their coverage to these hub towns.  FMCG companies have direct distribution in towns with a minimum population size.  More use of the indirect coverage channel i.e. wholesalers in the feeder towns from where rural retailers buy.

The existing rural distribution channels  More levels in the channel required. Challenge to ensure their profitability.  Wholesalers – Mostly village retailers buy from some feeder town close by.  Traveling agents – Commission workers collecting orders from village market and bringing the material from the feeder town.  Trade Melas – Once or twice a year event with big crowds; generally tied to a festival. There are Haats, 6800 Mandis and Melas as per the Government records. Cos. are asking the feeder town distributors to put up stalls at weekly haats.

Some other strategies  Video Vans – Run by companies for adv & ready selling. Combined promotion and selling activities. Apportionate the expenses over selling & marketing budget.  Another solution – use of cycle based salespersons, but their reach & suitability to all products is limited.  Recognize other qualitative factors – shraddh months, other inauspicious / auspicious occasions.  Effective PR – Utilize the strong influence of Sarpanch and the village elders (Opinion Leaders)

Growing trends  Using non-motorized transportation – Usually bullock carts, rickshaws & push carts, camels in desert areas, elephants in NE.  Innovative ways like combining the buying and the retailing activity - rural hypermarkets like Haryali Kissan Bazaar, Choupal Sagar  Going the e-way – e-choupal. ITC becomes a trusted partner in their lives.  Entrepreneurial empowerment – HUL Shakti.  Engaging MFI, SHG & NGOs

Special products / packs by some companies  Britannia Biscuits  Annapurna Salt  Cold drinks  Sachet Packing of Detergents, Shampoos, Hair Oils etc.  Sampoorna TV from LG

Some Innovative Strategies  LIC, cement and fertilizer manufacturers push their brand through tractor dealers.  Titan has tied up with HLL van for distribution of its Sonata range in small towns and villages.  Chik shampoo’s demonstration program.  Dabur Chayawanprash organizes bowling games where nine pins represent nine diseases which it fights.

Understanding ‘ rural’  Government classification on the basis of population and the primary occupation is not adequate.  Within all metros, there are rural pockets.  Migrated people living in slums in big cities will be similar in psychographics to their rural cousins.

Targeting the urban BOP  Rural population in urban areas is easier to reach.  Existing distribution but different products can do the trick.  The last-mile delivery to the retailers in such pockets has to be usually by a manual mode.  Promotion generally through nukkad nataks, Ram Lilas and puppet shows etc.

Illustration  Rural distribution of LPG – Indane Gas

Research on Opportunities in Rural Insurance  Commissioned by LIC in 2006

Key Findings of the Research – Opportunities in Rural Insurance  Rural sector offers a huge business opportunity for insurance companies  Savings ratio is a healthy 30% of income across all socio economic segments  Awareness about Life Insurance is near universal  51% of all respondents have expressed intention to purchase a life policy  There are a total of 124 million rural households  Nearly 20% of all farmers in rural India own a Kissan Credit Cards. The 23 million credit cards issued till date offer a huge data base and opportunity for insurance. Macro Study

Key Findings of the Research (contd.)  Delivery infrastructure in the form of District Cooperative Banks, Cooperative Societies, NGO’s and Self Help Groups already exists in most villages.  Rural connectivity through IT.  E-choupal of ITC and other similar initiatives are available as additional delivery channels of insurance  An extensive rural agent network for sale of Life insurance products exists  The agent plays a major role in creating awareness, motivating purchase and rendering other insurance services Macro Study

Key Findings of the Research (contd.)  78% of respondents prefer various combinations of life insurance like life + accident, life + loan, life + health + accident.  Flexibility in Premium payments is important.  Security of income and bulk returns, especially for daughter’s marriage and children’s education are major persuasions for taking life policy.  While individuals are undecided about purchasing insurance from private players, members of different groups are favorably disposed to purchasing group insurance through a private player vetted by the group… Herd mentality…Safety in numbers. Macro Study

Name of the institution/ instrument Accessibility/ coverage of each branch Rural presence/ penetration Regional Rural Bank15-20 villages5000+ pop size village Commercial bank (Rural Branch) 5000 account holders spread over (35-40 villages) pop size village Post office5-6 villages2000+ pop size village Cooperative society10,000 members spread over villages pop size village *ITC E choupal5 to 7 villagesProsperous village District cooperative bank7500 accountsBlock head quarter Kissan Credit Card12% of total no. of farmers in rural area Farmer of any village * E-choupals manned by a “Sanchalak” provided with computer and internet connectivity for procurement of agri produce and giving information on variety of services to villagers. Complementary Delivery Systems Macro Study

Evaluation Criteria Available Channels Feasible Channels Banks Panchayats NGO’s & SHG’s Cooperatives Agents Post Offices Industrial Fin Inst. Cybermediaries Eco Exchange Pts Brokers Coop Banks Panchayats Cooperatives Agents Reach Support requirements Business acquisition capability Influence on target segment Operational discipline Customer servicing Financial transaction handling E-Bima New Channel Trust & reliability Distribution Channels Micro Study

BLOCK COORDINATOR (14) Coop Bank PanchayatsCooperatives AgentsE-Bima DISTRICT COORDINATOR (1) No of Channel Units per Block Insurer’s Resources Suggested Strategy Model Av. No. of Agents per LIC Dev Officer : 37 Micro Study

 Infrastructure A Van A Computer with a Printer Video-Audio Facility  Human Resources One Driver Two sales cum administrative staff / agent  Site and Mode of Operation Moves Village to Village Parks at Panchayat, Local School, Village Chaupal Visits 2 Villages and one haat a day Works 8 Hours a day E-BIMA Micro Study

Role Awareness Programmes Relationship Building and Management Business Acquisition Policy Servicing and Business Retention through Premium Collection facilities Other Benefits Support to other Channels for Policy Servicing, Premium Collection, Policy Query Handling, Complaint Handling, Assistance in Claim Processing Overcome limitations of channels Role and Benefits of E-BIMA Micro Study