A RURAL MARKETING ASSIGNMENT-1

TOPIC:

MARKETING OF MANUFACTURED PRODUCTS IN RURAL MARKET.

SUBMITTED BY: VINAY BHANDOLKAR

2 YEAR PGDBM BATCH JOHNDEERE INDIA PVT LTD

Marketing of Manufactured products in Rural market Date: 19/October/2011

- Vinay Bhandolkar

Introduction:
As the urban markets saturate, Indian corporate are realizing that they need to reach out and tap into rural India. The household consumer expenditure survey for 2009-10, released by the National Sample Survey Office (NSSO), reveals that rural Indian households are spending more on consumer goods like durables, beverages and services as compared to their expenses on such things five years back. The 66th round of the National Sample Survey showed that monthly per capita expenditure (MPCE) in rural India was Rs 953.05 (US$ 20.69) in 2009-10, an increase of 64.6 per cent from 2004-05. While more prosperous states like Punjab, Haryana, Gujarat and Maharashtra continue to indicate a stable growth trend, states that were previously fettered by more anemic growth rates have now come into their own. For instance, markets like rural Bihar, UP, MP, Orissa etc. are witnessing stronger growths. To drive the growth of a large geographic remit however requires both scale and speed. In order to identify the next wave of rural growth requires a focus on large, populous states that have managed to acquire greater pace.

However there is a clear distinction between approaches of marketing in rural India. What differentiates the two markets is not mere income, but a host of other infrastructural & Socio-cultural factors. Thus, the rural market can not be tapped successfully with an urban marketing mindset & would definitely require its thorough understanding. This case study gets into important aspect of rural marketing of manufactured products within the framework of: Marketing of Manufactured products in Rural market Date: 19/October/2011 - Vinay Bhandolkar

(a) (b) (c)

Innovative marketing approach. Developmental marketing approach. Social marketing approach.

Nature of Rural market:

Rural marketing requires the understanding of the complexities. Rural markets present their own sets of problems. These include poor infrastructure, dispersed settlements, lack of education and a virtually nonexistent medium for communication. Furthermore, retailers cannot be present in all the centres as many of them are so small that it makes them economically unfeasible. Rural marketing in India is not much developed there are many hindrances in the area of market, product design and positioning, pricing, distribution and promotion. Companies need to understand rural marketing in a broader manner not only to survive and grow in their business but also a means to development of the rural economy. One should have a strategic view of the rural markets so as to know and understand the markets well. In the context of rural marketing one has to understand the manipulation of marketing mix has a properly understood in terms of product usage. Product usage is central to price, distribution, promotion, branding, company image and more important farmer economics, thus any strategy in rural marketing should be given due attention and importance by understanding the product usage, all elements of marketing mix can be better organized and managed. Marketers in India have not been able to tap the existing opportunities in rural market which is well reflected in the penetration figures across the various product categories. One of the key reasons can be attributed to their failure to address the issue of affordability in Indian Hinterland. Affordability, in turn, is related to larger issue of development on socio-economic front which will result in wealth generation. This in turn will kindle the latent need for various products and services in the Rural Market. Still this aspect has been largely ignored by most of the Marketers, barring a select few. This case study highlights few success stories in rural markets.

Marketing of Manufactured products in Rural market Date: 19/October/2011

- Vinay Bhandolkar

Developmental Marketing Approach:

It is about creating a market from scratch by first developing it, solving its basic problems, figuring out what it needs and then designing a product or service built around that one need that a company could, probably, service. It sounds exhausting (and somewhat evident). Developmental marketing, as we christen it, is a long, hard grind. There may be no TV or print to reach out to people, there is usually no supply chain to manage because there are no roads or electricity. Yet dozens of companies are taking this exhausting route. The reason is simple: more than 742 million people (or about 65 per cent of India) with rising incomes and aspirations. According to IRS data, over half of the 145 million rural homes in India earn between Rs 1,000-Rs 5,000 per month. Estimates put the rural market in India at Rs 80,000 crore. ITCs e-Choupal initiative: ITC Limited has now provided computers and Internet access in rural areas across several agricultural regions of the country, where the farmers can directly negotiate the sale of their produce with ITC Limited. This online access enables farmers to obtain information on mandi prices, and good farming practices, and to place orders for agricultural inputs like seeds and fertilizers. This helps farmers improve the quality of their products, and helps in obtaining a better price. Each ITC Limited kiosk having Internet access is run by a sanchalak a trained farmer. The computer is housed in the sanchalak's house and is linked to the Internet via phone lines or by a VSAT connection. Each installation serves an average of 600 farmers in the surrounding ten villages within about a 5 km radius. The sanchalak bears some operating cost but in return earns a service fee for the e-transactions done through his e-Choupal. Today this initiative of ITC has empowered the lives of people living in 10 states where 40000 villages have 6500 e choupals and around 4 million[1] farmers have been empowered. The initiative taken up by ITC to help the degrading reputation of a farmer has surely made a huge to difference to not only large but also medium and small scale farmers. Above initiative highlight an approach where ITC has to spend good amount of capital to establish a business model but with this model ITC can ensure an uninterrupted supply of agricultural outputs for its requirement and also benefit farmers.

Social marketing approach:

Rural marketing needs to combine concerns for profit with a concern for the society, besides being tilted towards profit.

Marketing of Manufactured products in Rural market Date: 19/October/2011

- Vinay Bhandolkar

Hindustan Unilever Limited (HUL) to tap this market conceived of Project Shakti. This project was started in 2001 with the aim of increasing the company's rural distribution reach as well as providing rural women with income-generating opportunities. This is a case where the social goals are helping achieve business goals. The recruitment of a Shakti Entrepreneur or Shakti Amma (SA) begins with the executives of HUL identifying the uncovered village. The representative of the company meets the panchayat and the village head and identify the woman who they believe will be suitable as a SA. After training she is asked to put up Rs 20,000 as investment which is used to buy products for selling. The products are then sold door-to-door or through petty shops at home. On an average a Shakti Amma makes a 10% margin on the products she sells. An initiative which helps support Project Shakti is the Shakti Vani programme. Under this programme, trained communicators visit schools and village congregations to drive messages on sanitation, good hygiene practices and women empowerment. This serves as a rural communication vehicle and helps the SA in their sales. The main advantage of the Shakti programme for HUL is having more feet on the ground. Shakti Ammas are able to reach far flung areas, which were economically unviable for the company to tap on its own, besides being a brand ambassador for the company. Moreover, the company has ready consumers in the SAs who become users of the products besides selling them. Marketing of Manufactured products in Rural market Date: 19/October/2011 - Vinay Bhandolkar

Innovative marketing approach.

Frugal innovation is a key to success in rural marketing. Price is one of the key drivers in rural market. Both ITCs E-Choupal and HULs project Shakti are good examples of innovative marketing approach in rural India, the innovation can also be in term of product innovation which will make the product very affordable amount rural population. A good example of this is Oorja.

Rural Indian households typically have a joint family structure wherein each household consists of at least 5-6 members. Women in such households typically spend a lot of time in the kitchen, cooking with energy sources such as kerosene. This means that they have to deal with hazardous smoke throughout the day. Cost is also an issue, since the amount of kerosene that one can obtain from the Government-subsidized public distribution system is hardly enough and villagers have to buy kerosene from the market, paying high prices. Kerosenes alternative, LPG, is quite expensive and both kerosene and LPG are inflammable. British Petroleum India Energy Ltd realized that solving this energy problem of rural India can be a business proposition too. It partnered with Bangalore-based Indian Institute of Science to come up with low-cost, smokeless cooking stoves which run on pellets made from agricultural waste. Aptly named Oorja (which means Energy), this stove was pilot-tested in the rural areas of the Indian states of Tamil Nadu and Maharashtra in 2006. The success of this pilot led to BP introducing Marketing of Manufactured products in Rural market Date: 19/October/2011 - Vinay Bhandolkar

Oorja on a commercial scale and it now has more than 25,000 customers. The stove costs Rs. 675 (about $17) and provides a low-cost, clean and safe solution to the energy needs of rural Indian kitchens. Oorja has a chamber for burning pellets and a mini-fan, powered by rechargeable batteries and controlled by a regulator, blows air to fan the flames. This technology increases combustion efficiency. Mukund Deogaonkar, Director of First Energy, the company that took over the rights to the Oorja stove when BP Energy exited the Indian market. In five years, over 470,000 Oorja stoves have been sold across the country, and 14,000-18,000 tonnes of fuel is sold annually. Thats a record to hearten any entrepreneur. The path has been beaten; it just needs more people to walk down it now.

Conclusion:
It is clear that Indias growth trajectory is highly driven by the development of the rural market. Players in various industries such as retail, fast moving consumer goods (FMCG), consumer durables, automobiles et al, are looking towards the untapped potential hinterlands possess. Tapping this potential market poses great challenge and sometimes risk of failure. Companies have to develop an innovative, developmental and social marketing strategies and be ready to spend good amount of capital and resources to be successful.

Marketing of Manufactured products in Rural market Date: 19/October/2011

- Vinay Bhandolkar

RURAL MARKETING ASSIGNMENT-2

TOPIC:

MARKETING OF SERVICES IN RURAL MARKETS.

SUBMITTED BY: VINAY BHANDOLKAR

2 YEAR PGDBM BATCH JOHNDEERE INDIA PVT LTD

Marketing of Manufactured products in Rural market Date: 19/October/2011

- Vinay Bhandolkar

Introduction:
Rural markets in India constitute a wide and untapped market for many products and services which are being marketed for the urban masses. There is a demand for telecommunication services, banking & insurance services, entertainment services to be provided in these areas. Till now it was government which was trying to reach the villages through various initiates, but the rural marketing services are still very poor and can be improved only through the introduction of modern and suitable technology along with participation from the private operators. The paper here would like to make a strong case for the use of mobile technology, innovative & developmental marketing approach for rural areas, and that the initiative has to come from the private telecom operators rather than the government end. The various marketing issues related to marketing of services in rural areas area seen through the 4 As framework. This 4A model is similar to the 4P model of marketing mix, the difference it shows is main streamline and rural market. 4A perceived to be more customer oriented. The 4As are Affordability, Availability, Awareness, and Acceptability.

1. Affordability: Here affordability does not mean that cheaper products should be made and marketed; the meaning is to reach the customer by satisfying their needs. The designing of the product should match the needs of the customer. The customer should not think that they cannot buys it, that means is from different ways, So by keeping this in mind most of the companies should design the product in such a way that it reaches the customer. 2. Availability: The greatest problem in the rural market is to reach the customer or retailer. Its the logistics way to make the product available there. Once it reaches the retailers shelf then there will not be any problem. This is because there will be lesser number of brands available at market and the influence or image / relationship of the retailer makes the difference. The companies should work out to reach the customer in time. Most of the products are promoted well but by the time it reaches the customer it gets late. So reaching the market should be considered. 3. Awareness: The awareness program should be in such a manner that it should reach the customers mindset. The main way of reaching the customer is through the commercials on media like TV, Radio and outdoor. The awareness programs should be conducted at the area where the village heads meet. The awareness program should be in such a way that it should contain some message to the audience, there should be some concern for

Marketing of Manufactured products in Rural market Date: 19/October/2011

- Vinay Bhandolkar

them and their place. The promotional activities should be good in local language. 4. Acceptability: The most important theme of marketing mix is acceptability. The customer should think that they can buy the product by putting an extra money on that. They should feel that the product is designed as per their needs and it should deliver a great solution to the customer. They should think that the product gives some value to them.

Service marketing is the marketing of processes deeds and performances, i.e. anything which is essentially intangible in nature. This criterion of intangibility also differentiates goods from services and underlines the importance of marketing of services to be managed in a different manner as compared to marketing of products. The services marketing process is also different because services are more heterogeneous in nature; again, as compared to products which are more standardized in nature. Another important difference between goods and services is that services have to be produced and consumed simultaneously and cannot be stored (inventorzied) for future consumption because of their perishable nature. The service marketing mix is also known as an extended marketing mix and is an integral part of a service blueprint design. The service marketing mix consists of 7 Ps as compared to the 4 Ps of a product marketing mix. Simply said, the service marketing mix assumes the service as a product itself. However it adds 3 more Ps which are required for optimum service delivery.

Marketing of Manufactured products in Rural market Date: 19/October/2011

- Vinay Bhandolkar

Indian Rural Marketing challenges:

India lives in villages, close to 70 percent of Indian population lives in rural areas. In the country we have 6.36 lakh villages out of which only 13 percent have population above 2000. The rural economy contributes nearly half of the countrys GDP (ETIG 2002-03) which is mainly agriculture driven and monsoon dependant. More than 50 percent of the sales FMCG and Durable companies come from the rural areas. The McKinsey report (2007) on the rise on consumer market in India predicts that in twenty years the rural Indian market will be larger than the total consumer markets in countries such as South Korea or Canada today, and almost four times the size of todays urban Indian market and estimated the size of the rural market at $577 Billion. Census of India defines rural as any habitation with a population density less than 400 per sq. km., where at least 75 percent of the male working population is engaged in agriculture and where there exists no municipality or board, and the same definition being accepted for the paper here. A marketer trying to market his product or service in the rural areas is faced by many challenges; 1. First is posed by the geographic spread and low population density in the villages in the country. 2. Challenge is from the low purchasing power and limited disposable incomes in these parts of the country. But this has been changing in the last few decades with agricultural growth rate faster in the 1990s and 80s than the 1970s (CMIE 1996). Green revolution through the introduction of hybrid seeds, fertilizers and systematic irrigation had a major impact on agricultural productivity, and combined with it was a price policy which ensured minimum support price, and in turn insulated the farmers from market risk, cheap input policy and a stable demand (Vyas 2002) . These all lead to a quantum jump in the incomes of farmers in the country. Initially the impact of green revolution could be seen only in the prosperous agricultural states of the country but now slowly its influence has spread across the country with the increase in irrigation (Bhalla & Singh 2001). Though the income levels overall are still very low there are many pockets of prosperity which have come up in the rural areas in the country. According to NCAER 2002, the number of rural middle class house holds at 27.4 million is very close to their urban counterpart at 29.5 million. The improvement in the support prices being offered to farmers also has an impact on the disposable income with the farmers. And between, 1981-2001 there has been tremendous improvement in the literacy levels, poverty and rural housing in the villages of the Marketing of Manufactured products in Rural market Date: 19/October/2011 - Vinay Bhandolkar

country. Rural literacy levels have improved from 36 percent to 59 percent, the number of below poverty houses have declined from close to half to 46 percent and the number of pucca houses have doubled from 22 percent to 41 percent. These figures provide us with a clear picture that rural India with the increase in agricultural income and improving standards is on the verge of becoming a large untapped market which marketers have been aspiring for a very long period of time. Thus the current status of rural markets makes it an attractive market for marketers. Marketing Issues in Rural Telecom To address the issue of the urban and rural gap and reaching to the rural masses can be addressed by falling back on the Bottom of the Pyramid (BOP) marketing strategies as advocated by Prahalad (2004) and the 4 As Availability, Affordability, Acceptability and Awareness (Anderson and Biliou, 2007, Kashyap and Raut, 2005). The BOP marketing strategies basically talk about aggregating the demand of consumers who have low individual purchasing power and are spread out. The basic commercial infrastructure suggested by Prahalad and Hart (2002) for the bottom of the pyramid markets constitutes of four things, creating buying power, improving access, tailoring local solutions and shaping aspirations. The 4 As model described in Figure 1

Availability the first A is about making the product reach the consumers. The studies have shown this to be the biggest barrier to be overcome. It has been acknowledged by many that distribution systems are the most critical component and a barrier which needs to be overcome (Prahalad & Hammond 2002) for success in marketing in rural areas. The task of distribution in these areas is considered to be more difficult than in urban areas, low density of population and inaccessibility makes the problem of servicing villages individually difficult and often neconomical. Direct delivery of goods even to the top one percent of villages cost twice as much as servicing urban markets. Acceptability issues would include issues needed to be addressed to improve the willingness to consume, distribute or sell a product. It would also include how the product or service could be made more acceptable to the rural consumers by incorporating features which would make it attractive to them. Marketing of Manufactured products in Rural market Date: 19/October/2011 - Vinay Bhandolkar

Innovation is needed at both the ends to be able to tackle both the issues. Affordability issues for example in telecom would include two sets of issues, the first being a fixed cost and an initial barrier for a villager to start with the service needs to be brought down. The last A, Awareness is linked to the issues of promotion of services in rural areas. The promotion of the services also needs to be adapted to the village environment; the language and means of communication used should be in the local language. The best places to promote the services could be the local haats and melas which is frequented by the villagers, the local festivals should also be included in the promotional plan, so should be the agricultural cycles.

The Success stories in Rural Service marketing

Rural India to drive mobile phone market growth: report

Rural India is expected to fuel the growth in mobile phone services in the next four years, as cell phones become a vital tool for the government in its financial inclusion programme, according to Global consultancy group Deloitte. The next wave of growth in subscriptions will come from semiurban and rural areas. Today, the penetration of mobile phones in urban areas is already 100 per cent while in rural areas it is only 23 per cent, it said. The rural segment services includes selling and procurement information and support for farm commodities, educating farming community on best practises, delivery of healthcare and education to remote village via the mobile broad band network. Mobile phone subscribers base has increased by 35 per cent between March 2009 and 2010 with an even higher increase in lowend subscribers and in rural areas. Many companies including the market leader Nokia are working on low cost handsets which could be of use in rural areas. Within the product there is a need for customization in terms of language and user friendliness. The rural population where illiteracy is very high needs to be taken into consideration before coming out with the product and the feature which would be included in the product need to be rethought; the needs of rural consumer need to be taken into consideration. In a rural area a radio combined with a mobile might make more sense to the rural consumer than perhaps a camera. And while designing the phone one needs to

Marketing of Manufactured products in Rural market Date: 19/October/2011

- Vinay Bhandolkar

keep the problems related to the power shortages in the villages. The second component of recharge also tailored according to the needs of rural masses.

Financial services in Rural India.

Financial exclusion in rural India, which comprises 60 per cent of the Indian populace, is acute, with about 76 per cent of the rural populace facing financial exclusion. It is increasingly difficult for banks to expand in rural areas because of various infrastructure, manpower, and operational problems. RBI has focused its 100 per cent financial inclusion plan on the public sector Banks. SBI, the countrys largest public sector bank is currently piloting two initiatives for financial inclusion that are based on the mobileplatform. SBI at present has a tieup with two organisations for providingbanking services in rural areas. Both initiatives were carried out in alliance with the application developers.

Agricultural

Agency

Lending

Model

Mahindra Shubhlabh co-operation with ICICI Bank. ICICI bank innovated lending by effectively delegating a large part of the lending and collection process to de facto agents such as traders or agricultural service providers or local brokers that are close to the farmer by the nature of their business. In the ICICI Bank Farmer Service Center operating model with Mahindra Shubhlabh, (figure 4) ICICI identified an integrated agricultural services provider (IASP) that has a good relationship with the farmer and provides genuine and timely information through extension services. ICICI enters into a tripartite agreement with the IASP and the output buyer. ICICI provides credit to the farmers on the recommendation of the IASP, the farmer pledges its produce to the output buyer, and the IASP provides inputs to the farmer. Loan processing, disbursement and collection are effectively done by the IASP, while the credit decision remains nominally with ICICI Bank. At the end of the season, the farmers supply the crop to the output buyer and the output buyer deducts the loan amount from the sale proceeds and remits the loan to ICICI Bank in full settlement of the loan amount. The IASP receives a service fee for the loan processing and supervision services (1.5 percent on recovered loans). Currently 45 Shubhlabh offices operate on a franchise basis, financing around 4,000 farmers. Loan default rates have been significantly lower with this integrated model that traps receivables and provides little actual cash to farmers. Transaction costs are reduced through more efficient loanprocessing by an agent close to the farmer and a de -facto wholesale credit approval process at ICICI. This agency model allows ICICI to lend to farmers without a significant branch network and with almost no Marketing of Manufactured products in Rural market Date: 19/October/2011 - Vinay Bhandolkar

due diligence costs. The Shubhlabh model uses spokes as agents itself, usually medium-sized but respected farmers that recommend borrowers. Sub-agents supervise borrowers through regular visits. The crop loan insurance and risk management scheme would be a natural extension of the outlined MSSL ICICI cooperation. MSSL acts effectively as ICICI agent with farmers and would simply expand current ICICI services offered to farmers through this scheme. MSSL is currently preparing a few of these pilot schemes in AP and MP. Roles and relationships in the scheme are illustrated in the following chart. ICICI Bank provides crop loans through various agents in rural areas, one of them is Mahindra Shubhlabh (MSSL), an agricultural services and input provider essentially a one-stop-shop for farmers. Part of the contract farming package deal that MSSL has with its farmers is a crop loan with ICICI Bank. MSSL effectively acts as an agent of ICICI Bank. Thanks to the close relationship between MSSL and farmers that includes backward linkages to output buyers, the default risk due to moral hazard is limited. Loan default rates are lower than those of comparable banks that lack these strong agency arrangements.

Marketing of Manufactured products in Rural market Date: 19/October/2011

- Vinay Bhandolkar