07-08-2012, 12:19 PM
Rural Marketing for Fast Moving Consumer Goods
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EXECUTIVE SUMMARY
It is often said that markets are made not found. This is especially true for the rural market in India. It is a market for truly creative marketer. Rural marketing is distinct specialization of marketing discipline, which encompasses a customized application of marketing tools & strategies to understand the psyche of rural consumers in terms of needs, tailoring the products to meet such need & effectively delivering them to enable a profitable exchange of goods & services to & from the rural market.
Already rural market is proving to be vital for the growth of most companies. Take the largest FMCG Company in the country, Hindustan Lever more than half its annual sales of Rs.11, 700 crores comes from the rural market.
The term rural marketing is synthesis of two words- Rural & Marketing. Rural India is evolving, is dynamic & has stood on its own for centuries Rural India’s population is more than one tenth of the world population, hence, important to India & the World. The rural market consists of more than 100 million households with a total population of about 740 million. In spite of being larger in size, rural areas are charaterised by low per capita income, low literacy, and average agricultural productivity & low level of indutrialisation.
Only FMCG companies, with deep pockets, unflinching rural commitment & staying power can play this rural game at the market. But as stated by C.K. Prahlad, “The future lies with companies, who see the poor as their customer.” It is a high- risk area, but with the promise of a large customer following as a prize for those who succeed. The Key to reducing the risk is to understand the market, consumer needs & behaviour. The rural market is still an area of darkness for India entrepreneurs, an idea that is vast in size, but a amorphous in detail. & yet, it represents the largest potential market in the country, with over 75% of the population. It is a market with potential, but the marketers need to have a long term vision & commitment. The marketer can expect results in the time frame of 10 to 20 years. As these results are not going to come very fast, an approach of gradually building the rural market, in phases, is needed to be successful.
Fast moving consumer goods (FMCG) have attracted Indian villagers when the urban demand for goods is getting saturated. The manufacturing companies look at this development as an opportunity. Large FMCG companies including Multinational companies (MNC,s) are planning their own strategies to enter this large & developing rural market. The marketing Strategies have to be tailor made to suit the rural condition. Leading companies in the FMCG sector in India have taken up a development approach to nourish this new market. The companies are Hindustan Lever Limited (HLL), Nirma, Godrej, Proctor & Gamble, Reckett & Colemn, Karnataka soaps & detergent limited. HLL has done considerable pioneering work in developing FMCG products for the rural market & initiating collaborative & innovative strategies.
INTRODUCTION
The word Market is derived from the Latin word “Marcatus” meaning goods or trade or a place where business is conducted
Kotler defines Marketing as “a social & managerial process by which individual & groups obtain what they need & wants through creating, offering & exchanging products of value with others.”
American Marketing Association (AMA) defines “Marketing is the process of planning & executing the conception, pricing, promotion & distribution of ideas, goods & services to create exchanges that satisfy Individual & organizational goals.”
The word rural means places for away from towns & cities. The census of India (2001) defines rural as that what is not urban & urban is – All locations within a municipality/corporation, cantonment board or a notified town area committee
All other locations satisfying all the following criteria:-
1) Min. population of 5000
2) At least 75% of male workforce engaged in non-agricultural activities &
3) A population density of over 400 persons per sq. km.
RBI- Definition-
Location with population up to 10,000 will be considered as rural & 10,000 to 1, 00,000 as semi-urban
NABARD- Definition- All locations irrespective of villages or town, up to a population of 10,000 will be considered as ‘Rural’
Planning Commission- Definition- Towns with population up to 15,000 are considered as rural.
There are currently more than 20,000 villages in the 5,000-10,000 population strata as per the census of 2001, so any population cut off criteria should definitely include these villages as rural areas. Of the nearly 6.4lakh villages in India, only 20,000 villages have population more than 5,000.For consumer expendables/FMCG the rural market can be defined as all locations having population up to 20,000 irrespective of their status as villages or towns.
As per national commission on agriculture, “Rural marketing is a process which starts with a decision to produce a saleable farm commodity & involves all aspects of market structures or system, functional & institutional, based on technical & economic considerations & includes pre- & post-harvest operations, assembling, grading ,storage, transportation & distribution”
According to Thompson ‘the study of rural marketing comprises all the operations & the agencies conducting them, involved in the movement of farm produced food, raw materials & their derivatives, such as textiles, from the farms to the final consumers & the effects of such operations on producers, middlemen & consumers’
Definition of Corporate Rural Marketing:-
Rural marketing can be defined as a function that manages all activities involved in assessing, stimulating & converting the purchasing power of rural consumers into an effective demand for specific products & services & moving these products & services to the people in rural areas to create satisfaction & a better standard of living & thereby achieving organizational goals.
Rural marketing has also been defined as the process of developing, pricing, promoting, distributing rural-specific goods & services leading to exchange between urban & rural markets, which satisfied consumer demand & also achieves organizational objectives.
Marketing is all about ‘getting to know your customer’
Although the per capita income in rural is less than half of urban, the rural sector already accounts for 53% of FMCG & 59% of durables brought in India. However, rural penetration & consumption levels for most product categories are much lower than urban because of limited purchasing power with villagers. Improved irrigation facilities, infrastructure, and better roads, free trading in agri produce, removal of excise duty on tractors, agri implements; & the insurance scheme for farmers announced in the budget should all give a boost to the rural economy & generate a greater demand for corporate products. However, to benefit from this new opportunity, urban markets will have to gain a better understanding of rural lifestyles, needs & aspirations & design appropriate products. Corporate will need to extend their distribution reach to service this new segment living in six lakh old villages, offer smaller packs at lower process points & communicate in the local Idiom to connect with rural audiences. A pan rural India marketing strategy will not work. Corporate will have to not only think local, but also act local.
Adi Godrej, chairman, Godrej group. “The rural consumer is discerning & the rural market is vibrant. At current rate of growth, it will soon outstrip the urban market. The rural market is no longer sleeping but we are”
FAST MOVING CONSUMER GOODS
A study by the Chennai based Francis Karoi marketing planning services estimated the total value of the rural market at a whooping Rs.1, 23,000 cr., divided into the categories- FMCG Rs.65000 cr., durables Rs.5000 cr., tractors & agri inputs Rs.45000 cr. & two & four-wheelers Rs.8000 cr. Approximately 32.5 cr. Indians lived below poverty line (BPL), which is around one-third of the country’s population. The incidence of poverty in rural areas at 39.4% is much higher than 28.4% in urban areas, although, about 80% of the poor people in India lived in rural areas in 1995 but this does not mean rural population is above the poverty line & in actual terms it turns out to be a large number.
The percentage of BPL families declined from 46% to 27%. But actual number remains more or less the same. The percentage of BPL population varies significantly from one state to other for ex., Orissa with 48% BPL population is poles apart from Punjab where which this figure is just 6%(planning Commission, Government of India) The rural FMCG market, comprising a basket of 20 products was worth Rs.44,000 cr. In 1998, accounting for over half of the all-India market then. The rural FMCG market grew at an annual average rate of over 12% between 1993 & 1998
The rural household spends Rs.3, 203 per years for 22 FMCGs, that is Rs.229 per month & this figure excludes cereals, pulses, vegetables & milk. The 1988-93 periods saw a good average annual growth rate of 5.8% in the FMCG sector. NCAER data shows that in this period the rural FMCG growth was greater than the urban increase. During the next five year (1993-98), the agriculture sectors average annual growth fell to 1.94% but the FMCG growth was around 12%.
The formidable challenge in the FMCG sector is to maintain quality, build aspiration value & at the same time keep the prices lower to make the products affordable to Bottom of the Pyramid (BOP) customers”
FMCG are also termed as non-durable goods- a tangible item that is quickly consumed, worn out or outdated & consumed in single use or a few uses consumer products used for personal, family or household use are further classified as three types: Convenience, Shopping & Special categories.
Characteristics/ Features of FMCG:-
a) The sector touches every aspect of human life, from looks to hygiene to palate.
b) This industry is characterised by a strong focus on the floor Ps Product, Pricing, Place & Promotion.
c) It is a high volume, low value driven industry in most categories.
d) It is brand driven, rather than product driven.
e) The capital investment is in the area of marketing: Brand building & Promotion.
f) Distribution network is extremely vital for the success of an organization in this Industry.
FMCG sector is the cornerstone of Indian Economy. It has been in existence for a quite a long time, but it began to take shape only during the last fifty- odd years. FMCG, the fourth largest sector of Indian Economy which had an estimated market size of Rs.85, 000 cr. in 2003, is a significant direct & indirect employer out of the total spend of Rs.89, 000 cr. more than Rs.53, 000 cr. was attributable to rural areas.
Launch cost is as high as 50-100 per cent of the revenue as the brand matures, gain consumer acceptance & as turnover rises.
Around 60% of Indian FMCG market is unorganized. Local players had nearly 70% of the FMCG market. In the FMCG sector increasing competition is the main reason for loss of pricing poser in most brands. In the FMCG industry in India, companies distribute their products to over 10lakh retail outlets or point of sales.
Cash poor & low level of income the poor consumer has to be accessed differently.
Major Indian consumer product companies (Britannia, P& G, HLL, Colgate etc.) have a very sound presence throughout the Indian market with their strong brands. The leading companies make considerable investment in R & D to sharpen & maintain their edge in the business. Brand equity, therefore is an extremely important factor in FMCG Industry.
Cavinkare gave HLL a run for money in the shampoo market; Anchor challenged the dominance of Colgate & HLL in the toothpaste market. Jyoti labs dislodged the Reckitt & Colemon’s long time leader Robin Blue with its Ujala Fabric Whitening. Flanking attacks make excellent marketing sense for smaller & regional players with limited resources. This is how the brainchild of Karsan Bhai Patel, Nirma detergent powder became a national brand & a household name as well.