Rural Marketing

Rural and Urban Markets — Whither Differences?

Let us examine what makes the rural markets different and understand how some organizations came up with successful strategies to meet the challenges of charting marketing programs in a different territory.

The first thing that makes rural markets very different is the population density, which is very low, compared to urban areas. In many countries, population density is one of the criteria that define rural areas. In India, for instance, the rural areas are defined as

1. Areas that have a population density of less than 400 persons per square kilometer,

2. Areas that do not have a municipal body/notified area committee/army cantonment providing utility services — such as clean drinking water, roads, electricity, sewerage system, and other civic services, and

3. Areas where more than 25 percent of the male working population is engaged in agricultural pursuits.

According to the Indian government’s census in 2011, over 833 million persons (69 percent of the total population) live in 640,930 villages. The remaining 377.10 million persons (31 percent of the total population) live in 7933 cities and towns. Table 1 shows the vast difference in rural and urban population spread.

The population density of India’s four largest cities is shown in Table 2.

The table above shows that the population density of large cities is more than 60 times compared to that of the rural areas considering the highest population density of 400 persons per square kilometer for each village.

The second feature that separates rural areas from urban areas is the low- or non-availability of utility services. Since rural areas, by definition, do not have municipal bodies there is a large infrastructure gap when it comes to provision of utility services like electricity, roads, tele-communication, clean drinking water and sewerage system. Consider the contrast between urban and rural areas, in access to utility services (Table 3).

The third feature that separates rural areas from urban areas is the big difference in income levels. A report by the Centre for Monitoring of Indian Economy (CMIE) ^a reported that in 2013, the average household income in urban India was Rs. 240,172 while in rural areas it was Rs. 116,672. Because of the smaller size of households in urban India, the per capita income of urban households was 2.2 times compared to the per capita income of rural households. One major reason for this wide difference is the practice of agriculture by the vast majority of families in rural areas and the fact that agricultural income varies widely by crops, availability of irrigation and agricultural inputs as it does by agro-climatic conditions in different regions.

The fourth feature that makes rural markets unique is the low levels of literacy, particularly female literacy. Table 4 shows the difference in male and female literacy rates for urban and rural India:

Challenges Related to 4Ps

There are many other social, cultural, and environmental factors that make the rural markets unique and different from urban markets, but the features discussed above contribute the most.

Let us turn our attention to the challenges these factors pose to marketers for reaching the rural markets and consumers:

1. Product. If we look at the data on household electrification in villages, it is easy to understand why there is a low demand for consumer electronics like mixer-grinders, refrigerators or ceiling fans in the rural area. The same reason also explains why the market for dry cells was growing at a healthy rate of over 10 percent in rural areas when it was actually shrinking in urban areas. Data on use of cooking fuels explains the limited market for pressure cookers or gas burners in the rural areas (Table 3).

   Therefore, the first lesson marketers learnt was that everything that sells well in urban markets may not sell equally well in rural areas because of different consumer needs and support systems. But it is equally true that a small segment of affluent rural consumers aspire for products used by their urban counterparts. If marketer scan find a way of reaching them, the volumes can be sizeable given the large base of rural consumers. What we are saying is that in a country like India a 5 percent market share gain in rural areas could be equal to a 15 percent market share gain in urban areas. The difference is that the urban consumers are concentrated in smaller urban markets while the rural consumers are spread out across smaller villages. The challenge is to find cost effective ways of distributing the goods across number of villages. Maruti, India’s largest car manufacturer began expanding its sales and service network to the rural markets six years ago — today one-third of its sales is coming from rural areas (see chapter end case study “Maruti’s focus on rural market drives sales”).

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2. Price. The difference in urban and rural incomes explains the low spending patterns in rural areas on branded packaged good. Market research studies by numerous organizations showed that the average rural consumer has limited purchasing power compared to his/her urban counterpart. Marketers learnt that they must rethink technological and management processes to create “affordable” products for the rural consumers. Arvind Mills, the manufacturers of premium denim brands, created ready to stitch brand “Ruff & Tuff” for the rural youth who aspired to wear denim jeans but could not afford to buy high priced readymade denims. “Ruff & Tuff” started selling a complete package of denim cloth, stitching thread, buttons, and leather labels at a fraction of what the popular urban brands cost. The rural consumers could buy the “kit” and get their jeans custom stitched at the local tailor for a very reasonable price. “Nirma,” the largest selling detergent brand in Asia, took on the multinational Unilever by producing a low-cost detergent packed in polythene bags and distributed in villages using local transport solutions like bicycle salesmen.

   Another company that used smart thinking to penetrate rural markets was Cavincare that started marketing “Chic” shampoo in small sachets for one time use. Rural consumers started buying the sachets as they did not have to lock-in a lot of money in bigger packsizes. The success of “Chic” shampoo spawned a whole range of products in smaller pack sizes for rural markets from toothpaste to fairness creams as the companies discovered that the volumes from small packs were growing faster than large packs marketed in urban areas.

3. Promotion. Through mid-1980s and early 1990s, cable and satellite technology was penetrating the urban markets, but the rural markets could access only terrestrial television channels. In India, this meant being able to watch only the state-run TV channel “Doordarshan.” To supplement advertising through the public broadcaster, companies used strategies like use of mobile audio-visual vans, participation in religious festivals and fairs where millions of rural consumers congregated, participation in weekly haat bazaars where buyers and sellers came together from nearby areas, and numerous other strategies like parading elephants or camels for new product launches. Companies also relied on cinema and outdoor advertising forms like wall-sites, bill-boards, and posters/tablets for creating local advertising.

   By the late 1990s cable and satellite had started penetrating the semi-urban and semi-rural areas, and consumers started getting exposed to advertising messages playing on television, and FM radio. However, companies soon learnt that it was incorrect to assume that what appealed to the urban consumer would be liked in rural areas also. Given the different levels of literacy, different lifestyles, and cultural and linguistic differences in rural areas it became imminent that the advertisers needed to use local dialects, rural and folk motifs, culturally appropriate messages, and characters/storylines with whom the rural audiences associate easily. Advertisers and brand marketers started traveling to villages to understand how the rural audiences process their messages, and what clicks and what does not. In his article “Focused communication for rural India,”² R. V. Rajan, Chairman, Anugrah Madison Advertising, noted that tricky, clever, gimmicky, or even suggestive advertising does not work with the rural audience. “Slice of life” approaches, simple, and direct, using aspirational urban-looking models worked very well.

   Soft drinks major Coca-cola was among the early marketers who created very successful campaigns like “Thanda Matlab Coca-Cola” (Cold means Coca-Cola) aimed specifically at rural and small town audiences.

4. Place. One of the most unique features of the rural markets is the spread of consumers over a large number of small villages. As discussed earlier, more than two-thirds of India’s 1.2 billion consumers live in 640,930 villages. It is impossible to supply the products to small retail shops in each village — especially small hamlets of 50–60 households that do not have an approach road and enough buyers to justify the high expense of transporting goods to such remote locations. When multinationals like Unilever, Colgate, Coca-Cola started analyzing the data on the spread of rural population they realized that it will take them years and billions of dollars to connect every retailer in the villages to their distribution network. They realized that it was important to prioritize the villages in which servicing the retailers would allow them to reach a larger number of consumers (hub and spoke strategy). Figure 1 shows that 20 percent of all the villages (with population above 2000 persons) accounted for almost 60 percent of the rural population.

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Figure 1:

Population Spread by Size of Villages.

Companies soon realized that focusing on one-fifth of the villages would allow them to reach 60 percent of the rural consumers, a strategy that itself was sufficient to ensure high growth in times when the urban markets were stagnating.

Companies also learnt that small shopkeepers from very small villages would often visit large villages nearby from where they would pick up branded packaged products and bring them back for re-selling in their villages. The retailers would often use their bicycle or popular modes of rural transport like pony-carts to economize on transport costs. As volumes started to grow, some enterprising shopkeepers started using motorcycles to bring bigger volumes of personal care and food products to their villages for re-selling.

In the meantime, companies like Amul, ITC Agro-products and many other organizations had begun to start using internet and mobile phones for creating networks of farmers who would act as both consumers and spokespersons for their products. The e-choupal ^b network set up by ITC allowed the company to tackle the challenges posed by the unique features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others. The Amul success story through its Anand pattern of co-operatives ^c had demonstrated that it was possible to source milk from small milk producers in small villages, process it in professionally managed dairy plants and sell milk to urban consumers. Amul was successfully using the milk procurement network to distribute cattle-feed and veterinary products to the dairy farmers in villages.