This article originally appeared in Indian Management magazine, April 2009 issue
Some time in 2007, Hero Honda, the country’s largest two-wheeler company, set up its rural vertical. Five hundred rural sales representatives, on the rolls of the dealers, were asked to meet opinion leaders in villages (panchayat members, school headmasters, postmen and so on) and display the company’s products in village fairs to generate sales. They also had to map the tastes, satisfaction and profile of their customers. 

It was a well thought-out strategy. Arch rival Bajaj Auto was fast catching up with Hero Honda and the market leader needed to think out of the box to maintain its position. The answer was to unleash this 500-strong sales force on rural customers under the “Har gaon, har angan” (every village, every courtyard) campaign. The results are there for all to see. While Bajaj Auto, which had focused on the urban market, has seen sales dwindle in the past few months, Hero Honda has grown at a fast clip. It is now laps ahead of its rival. “The rural vertical is our foundation for tomorrow,” says Hero Honda Senior Vice-President (marketing and sales) Anil Dua with evident satisfaction. 

In the last six months or so, companies cutting across sectors have discovered the importance of the rural market. With urban India in the grip of a slowdown, the rural market is helping industries like automobiles, cement, consumer electronics, textiles, telecommunications and fast-moving consumer goods grow. While urban organised retail is in pain, its rural counterpart is thriving. All of a sudden, the consumer in the laidback Indian village is being spoilt for choice. 

Rural market specialists find themselves in demand. Anugrah Madison Advertising, founded in 1986 as Anugrah Marketing and Advertising Services and fully acquired by Madison Communications in 2007, can boast of almost 20 clients including Philips and ACC. Pune-based Rural Relations has offices in ten states and clients like Hindustan Unilever, Microsoft, Mahindra & Mahindra and Reuters. Samsika Marketing Consultants, says Managing Director Jagdeep Kapoor, has enquiries pouring in on how to tackle the rural market. The same is true for Delhi-based rural market consultancy MART. 

The global economic meltdown has taken its toll on the manufacturing and service sectors of the economy, which in turn have slowed down the urban market. The credit crunch (worried about their non-performing assets, banks are reluctant to lend) and the fears of joblessness have made the urban consumer cut expenditure across categories. While housing and automobiles felt the heat right away, there is anecdotal evidence that consumers are down-trading in items like FMCG too.

Flush with cash
The rural market, in contrast, is thriving. Experts attribute several reasons for this. To begin with, the United Progressive Alliance (UPA) government at the centre has put large sums of money in the hands of the rural folk. Unlike the past when money meant for rural development was used to build infrastructure and give food to people, it decided to hand out the compensation in cash. 

The government launched the National Rural Employment Guarantee Scheme (NREGS) in 2006, which promised employment of at least 100 days to every member of a poor rural household. They would be employed in digging canals, putting up embankments and land development. This served three purposes: It built rural infrastructure, plugged pilferage of funds and boosted the disposable income of rural families. Last year, the scheme was extended to all the 596 districts of the country. All told, Rs 66,800 crore have been earmarked for the programme. 

Apart from NREGS, the government has steadily raised the minimum support price of key crops like wheat and paddy. Rains in the last few years have been good, leading to bountiful harvests of these crops. In fact, last year foodgrain production touched an all-time high of 230 million tonnes, up from 217 million tonnes in the previous year. Left to market forces, there was the possibility that prices could have crashed in a glut. By raising the minimum support price of paddy by 33 per cent and wheat by 56.3 per cent since 2004-05, the government has ensured that a glut-like situation does not erode rural incomes. These increases in support prices are way above the rise in input costs for farmers. Water and power are subsidised by most states and the possible rise in fertilizer prices due to the rise in crude oil prices was absorbed by the central government in the form of enhanced fertilizer subsidy. 

The last few years have also seen the rapid construction of rural roads which has helped farmers to bring their produce to bigger markets. This, in turn, has helped them get better prices. The evidence suggests that their realisation goes up by 20-25 per cent once they cart their farm produce to bigger markets in towns and cities. Ever since it came to power in mid-2004, the UPA has built 11 million km of rural roads. In the preceding five years, the National Democratic Alliance had built only 5.5 million km. 

Another boost for liquidity among farmers came with the farm loan waiver of Rs 65,318 crore carried out by the government last year. So, while urban consumers are reeling under the cash crunch, their rural counterparts are enjoying easy liquidity.

Research also shows that about 10 per cent of the rural population receives its income from the government such as post office employees, ex-servicemen and teachers. Their disposable income improved handsomely once the Sixth Pay Commission gave its award last year.

No urban woes
The stock market crash of almost 60 per cent since January last year, which has dampened urban spending power, has not impacted rural incomes at all. Traditionally, villagers park their savings in post offices, nationalised banks and government-backed savings instruments. Their exposure to the stock markets is almost zero. A steep fall in stock prices creates a negative wealth effect among consumers — they cut down consumption because of the perceived loss in wealth. But the rural market is safe from any such ill-effects of the stock market crash. 

“Farmers have always been exposed to seasonal risks. Hence, they know when to spend and preserve money. They comprise a market that is three times the urban market,” says RC&M Business Head (experimental marketing) Priya Monga. 

DCM Shriram Consolidated Chairman Ajay Shriram was recently shocked to find at one of his Haryali stores (the company runs a chain of over 100 rural retail stores in the North) that farmers came and bought insurance with a premium of up to Rs 10 lakh in cash! Impressed beyond belief with their prosperity, Shriram has started stocking everything you could find in a rural home, from simple farm implements to all household consumables.

Village-bound
In short, the rural market is the place to be. Research done by some agencies shows that rural families have no plans to cut down the expenditure they have planned on weddings, pilgrimages and construction of houses. All this ought to be music to the ears of businessmen who are struggling to find ways to beat the recession. “It is not China or India but rural India which will save the world,” says Kapoor. 

The rural and semi-urban markets already account for 60 per cent of FMCG sales in the country, while 63 per cent of durable sales come from these markets, and of the 300 million new telephone connections expected in the country by 2012, almost two-thirds will come from the villages. Primary data collected by the National Council of Applied Economic Research (see tables on pages 14, 17, 19 and 20) show that the share of the rural market will go up in the demand for products like motorcycles, cars, TVs, edible oils, health beverages, shampoos, soaps, washing powder and biscuits by the end of 2009-10.

Who is the rural consumer?
“Marketers,” says Tata Sky Chief Marketing Officer Vikram Mehra, “often have this sorry image of the rural consumer as a guy who is little more than a poor country cousin. But that is not so. The consumer in the village knows his math and doesn’t merely want the cheapest product. The way they define value is similar to urban consumers.” For example, Tata Sky used to think that interactive applications were only for the urban audience. But its gaming, contest, matrimonial and horoscopes options, which are also available in Hindi, have a huge appeal in the rural market. Unlike the urban audience which had access to the internet, these services became an interactive medium for the rural consumer. 

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Right product at the right price
According to ITC Chief Executive (agri-business division) Shivakumar, the aspirations in villages are similar to those in the larger towns. “It is not that they want different products but just that they have to be at a different price point. In FMCG, spurious products are being passed up for genuine products, even if they are at higher price points,” says he. 

Money and communication have led to this affinity for genuine products. Shivakumar explains, “In the apparel segment, there is a shift from tailored clothes to readymade brands. If earlier, the share was 5 per cent, now it is 30 per cent.” The tailor could go out of employment sooner than later in villages too, like he did in cities some 15 years ago. 

When Tata Sky had launched, direct-to-home was primarily an urban phenomenon. “The starting point of our rural entry had been a package of Rs 99 which was a mini-thali of sorts with a bit of everything. Others were still offering only free-to-air channels for the same price. Then we had Amir Khan as our brand ambassador who is one of the few stars with an appeal cutting across the rural-urban divide,” says Mehra. 

Its programme guide was the first (Bharti DTH being the only other provider) to be available in both English and Hindi, which the company introduced after it received feedback to this effect from its rural customers. “They were scared of the DTH technology and on top of that had to decipher the menu in English,” says Mehra. As a result, Tata Sky’s revenues from rural areas, including lower tier towns, have been rising steadily. He says, “Earlier our sales numbers would come from the top 50 cities and towns; now, there are 4,900 towns and the share from the top 50 is almost equal to the rest of the markets.” 

Similarly, the products that Samsung India supplies to the rural market are customised in terms of features that they offer. The volumes in the rural market come more from low-end products like flat TVs, direct cool refrigerators and semi-automatic washing machines. “Thus, we have introduced features in our products that are more relevant to this market. There is Easy View in flat TVs which has features like channel sorting. We have stabilizer-free operations in direct cool refrigerators to take care of the voltage fluctuations. We have the Silver Nano feature in our semi-automatic washing machines to ensure a cleaner wash even with repeated use of water as is done in the semi-urban market,” says Samsung India Deputy Managing Director Ravinder Zutshi. “For Samsung, the contribution from this market was 25-27 per cent last year. This year, we expect the contribution from this market to touch around 30 per cent.” 

FMCG companies, too, have drawn up products suited specially for the rural market. “The Indian FMCG companies have a larger portfolio for rural India,” says Accenture India Managing Partner (products operating group) Anish Gupta. 

Costs less to promote
Promotional campaigns need to be specially devised for the rural market. When marketing to the rural consumer, Tata Sky, for instance, does a lot of on-ground demonstrations and promotions. Mehra says, “Our local distributors, for example, highlight the benefits of the service. We reach consumers using vans; skits are staged around popular channels. The promotions have to be tailored for the audiences. From an execution perspective, it is extensive but cheaper.” “Rural communication can make the most of the low clutter. One needs to believe that the rural market will bring in the volumes, and hence, not spend the entire budget on urban advertising,” he explains. 

One problem Tata Sky faced to expand its reach was the availability of electric power in rural households. The supply would often be erratic, which hindered uninterrupted television viewing. In 2007, it tied up with inverter companies (“nothing on the national level,” clarifies Mehra) for raising awareness among rural users. “Whichever market has a TV, we have a market there. Of course, the Tata brand name also counts, with which most are familiar, even if it be through trucks,” adds Mehra. 

Samsung is focusing on increasing its visibility in this market through initiatives like the Samsung Dream Home Road Shows, participation in local fairs and exhibitions as well as below-the-line activities. Samsung Dream Home Road Show is a four-day exhibition of Samsung products in smaller markets. “Here we showcase not only our mass products but also premium technology products, the idea being to enhance Samsung brand awareness in this market. We carried out Dream Home Road Shows in around 160 places last year and the number will further increase this Year,” says Zutshi. 

This year, Samsung will focus on setting up flat TV displays in multi-brand counters in the smaller markets. “In 2008, we organised such displays in approximately 2,000 counters and we will be looking at extending this activity this year. In certain markets, we are supporting the rural initiative with mobile vans,” Zutshi adds. 

Innovative channels
Hindustan Unilever, India’s largest FMCG company, took the lead in innovative distribution of products when it launched Project Shakti in the Nalagonda district of Andhra Pradesh in 2001. Under the project, it worked with non-government organisations and self-help groups to identify underprivileged women who could be taken on board as saleswomen in villages. The project was a runaway success and women started making up to Rs 3,000 per month just by selling Hindustan Unilever products in their neighbourhood. It also added to the company’s already formidable reach in the rural market. The project was spread to 15 states and there is a possibility that Unilever, Hindustan Unilever’s Anglo-Dutch parent, may now take it to rural markets in Sri Lanka, Bangladesh and Vietnam. 

The need of the hour is to touch base with rural consumers. This could be done through dealers or sub-dealers. What is surprising here is that Hero Honda, which gets almost 40 per cent of its sale volumes from the rural market, does not have dealerships in villages. But it has created “touch points” with customers in villages through its 500-strong rural sales force. According to Monga of RC&M, not just two-wheeler companies but also four-wheeler makers are increasing dealerships and stepping up customer contact programmes in the rural market. 

Maruti Suzuki, the country’s largest car company, for instance, has targeted village panchayats for its low cost Maruti800. Its dealers have sent 1,500 sales executives into the rural areas. All told, there are 2.1 million panchayat members and 2,00,000 block pramukhs in the country. It is a huge market. The car maker has networked with regional rural banks for this initiative. Ninety-six of them have branches in 14,000 villages. “Earlier, it was mainly awareness communication. Now, it is more of scalable return-on-investment campaigns that will elicit genuine sales enquiries and conversions,” explains Monga. 

Alternative distribution channels are also being spruced up by companies. For those wanting to enter the rural market quickly, opening channels of their own might not be feasible as that takes more time. So, many are piggybacking on existing channels such as microfinance agents and cooperative societies in villages. This is being done for products ranging from Rs 300 to Rs 1,000, including DTH products, according to Monga. 

The country’s top pharmaceutical companies, says Monga, are increasing their distribution and direct marketing networks since the appeal of branded medicines is increasing. “For telecom players, which are already present, there is no need for distribution. For them what remains is the task of sensitising people on saving time by using telecom,” she says. 

There have been a lot of go-to-market activities in sales and distribution. Earlier, there had been little direct distribution in consumer goods as the rural market was largely being serviced by wholesalers. Hence, it was difficult to gauge the rural audience. Now, companies are getting their own distributors, enabling them to push products effectively. 

Nothing shows this better than what LG Electronics India has done. The company has 64 remote area offices that operate under 39 branches which are linked for orders and easy reach. “Besides, 25 per cent of our service centers focus on rural areas. LG also has more than 10,000 sub dealers predominantly in rural areas,” says LG Electronics Director (sales and marketing) V Ramachandran. “I can tell you that we’ve seen that small towns and rural areas have been faring better than urban ones. Entry level products have seen stronger demand.”

ENDNOTE
* The tables are from the book The Great Indian Market, published by the National Council of Applied Economic Research.

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