RURAL CONSUMERS SOME INSIGHTS

A brief mention of the fact that rural India makes up close to three-fourths of Indias population and 51% of
the total disposable income is enough to ascertain that this market holds a significant amount of potential.
Some might be lead to believe that the per capita calculations would prove the previous statement
incorrect. However, the fact that rural India forms 41% of Indias middle class and a mere one percent
increase in Indias rural income translates to a mind-boggling Rs 10,000 crore of buying power is
evidence enough to know that this market holds promise.
In order to draw insights from the rural consumers behaviour, lets look at some of the indicators that
represent their characteristics as of today :
1. Increase in potential market size - Close to 96% of the Indian rural consumers fall in the
category of low income and mass affluent groups. Out of these, low income households represent
close to five-sixths of the total with the rest being mass affluent households. The chart given
below highlights the growth in the number of low income and mass affluent households in India.
These facts make it easy to infer that this segment of the market is fast presenting a lucrative
business opportunity.

2. Increase in incomes As highlighted by the graph above, the incomes for the relevant groups,
i.e. low income and mass affluents is also on the rise signifying a greater purchasing power.
3. Mindset
a. It is the mindset of the urban consumer, which gives importance to value rather than price
that is reflected in the rural consumer today.

b. Not only that, rural consumers are upgrading from locally made substances to (eg. sand
mix for washing hands) to convenience products (eg. soaps) which may be unbranded.
This signifies an effort to move towards better and easy to use products. However, this
change is only reflected in the buying patterns of the younger sections of the family. The
elders still prefer to use age-old natural solutions.
4. Awareness Several modes of communication, both conventional and unconventional, have
made their way through the hinterlands of India. The rural consumers are today exposed to a
variety of entertainment sources and other stimuli because of the extensive media reach and
scope. Around 35% of rural India watches television, which attempts to influence consumer
patterns.
5. Consuming potential According to the Central Statistical Organization (CSO), India is a
consumption led economy because of its high private final consumption expenditure (PFCE)
levels of 60% of its GDP. The chart below highlights the share of the rural market in terms of
consumption of various products and services. It is clearly evident that contribution of the rural
markets cannot be ignored (their PFCE is 31.7% of GDP).

6. Position in the consumption chain This relates to their income levels which determine the
avenues into which the additional income generated will fall into. For the urban consumer, it could
be entertainment or some investments. However, in rural households, a small part of the
additional income gets saved and the rest will go into consumption.
7. Consumption pattern The pie chart given below gives a depiction of the expenditure heads of
a rural household.

8. Penetration of branded items The graph given below draws a comparison between the
penetration in rural and urban areas for various FMCG product categories.
Penetration and per capita consumption
Rural - urban penetration (2002)
Category

Market

Urban

Rural

Total

Size

Penetration (%)

Penetration (%)

Penetration (%)

(US$
million)
High Penetration categories
Fabric Wash

1210

89.6

82.9

84.9

Wash

938

97.9

90.7

92.8

Packet Tea

635

91.2

82.2

84.9

Personal

Low Penetration categories

Toothpaste

409

69.8

32.3

43.5

Skin

312

36.6

19.8

24.7

Hair Wash

230

40.1

16.3

23.3

Powder

148

66

36.8

45.1

Branded Atta

107

44

30.2

34.3

Dish Wash

102

54.6

11.5

24.4

Talcum

Instant Coffee

55

R&G Coffee

30

Ketchups

25

12.5

0.7

4.2

Deordorants

19

Jams

13

It is very noticeable through this table that basic FMCG goods have a deep penetration in the
rural markets.
CATEGORIES OF UNBRANDED / UNPACKAGED GOODS
In order to determine the reasons behind the preference for unbranded / unpackaged goods, we need to
look at the kind of products that come under this category :
1. Food & beverages etc Flour, snack items, cooking oil, salt, tea, tobacco
2. Personal care products Skin care, hair care, dental care, feminine hygiene
3. Furniture Beds, chairs and tables
4. Feel good / luxury items Jewellery, watches, textiles and apparel
5. Home care products Fabric wash, Household cleaners
6. Other items Building materials (eg. Paints, cement etc)
7. White goods Fans, electrical fittings, irons etc.
8. Healthcare services
9. Entertainment
A point to note is that there are many product categories where unbranded goods are not possible such
as white goods like mobile phones, washing machines and TVs etc. This is because of capital
investments and technological competencies cannot be easily achieved by small operators.
CHALLENGES FACED IN PURCHASE STAGES
Before we begin to delve into the approaches that will build brands in the rural marketplace, let us analyze
the reasons for the existence of unbranded / unpackaged goods and the stage should they be most
fiercely countered at:

1. Low prices The cost of the inputs, i.e. both materials and labour make it possible for
unbranded goods to be sold at much cheaper rates than their branded counterparts.
2. Local aspect Many unbranded goods are manufactured by regional players and hence the
products are tuned to the local preferences of the region.
3. Derived benefits The rural consumer used to be more price-conscious than value-conscious.
The mindset for securing quality for an extra additional price, i.e. value consciousness has now
seeped in. eg. MARICO claims that its brands of low cholesterol oils have penetrated rural areas
to a great extent.
4. Rural income levels The incomes in rural areas are not as much as compared to urban areas.
Hence, many items fall out of the purchasing capacity of the rural consumers
5. Rural income generation Even if rural consumers do have the aggregate monthly income to
purchase branded products, they tend not to have enough money at one point of time to actually
make the purchase of an item. This is why in areas where branded products are available, they
are often sold in loose quantities since they fall into the purchasable range.
6. Counterfeits Even though these counterfeit products would be branded, if a consumer is not
satisfied with the value that he is getting out of the product, his buy in into the branded products
will take a downturn.
7. Mindset for quality As soon as the rural consumer is convinced that branded goods are
expensive because of their quality, which is beneficial to him, he will switch over thereby
becoming a part of the branded goods purchaser category. It is important to realize that all brands
need to reinforce a quality mindset into the rural consumer in a concerted manner.

8. Lack of awareness It is the lack of information about products that can add convenience to the
life of a rural consumer. This lack of awareness can be a result of a companys insufficient
promotional efforts or even illiteracy of rural consumers. eg. mobile phones, medicinal items etc.
ACTION ORIENTATIONS
From the product categories mentioned on the previous page & the branded goods penetration table, we
can divide the product categories based on the action orientation that branded product categories should
follow to generate greater returns from the rural market. These action orientations are aimed at targeting
the different sections of the consumer pyramid and will eventually lead brands to the bottom of the
pyramid:

1. Drive visibility and trial These would be feel-good items such as jewellery, apparel, furniture &
white goods etc. Interestingly, penetration of brands in these product categories in urban areas is
not as high as FMCG goods & other items.
2. Drive penetration This category is again host to a wide range of FMCG goods. Other
categories under this purview would include building materials etc.
3. Drive up gradation and consumption This is for product categories that already have a high
level of penetration in the rural markets. These would include mostly very basic FMCG goods.
From the current & future action modes depicted above, we get a directional framework to increase brand
sales in rural markets. Currently, brand presence is not generating commensurate trials & repeat
purchases. However, action points are being framed to make sure that visibility induces sufficient trials &
satisfactory trials generate further trials & penetration. This will generate acceptance in the rural
consumer for branded goods thus making him a desirer of a greater quantity and variety of such goods
thereby giving consumption a fillip.
ENABLING THE ACTIONABLE FRAMEWORK
Many marketers feel that strategies and operations being employed for urban markets can be suitably
adapted to rural markets. The authors would like to make it clear through several examples that a
comprehensive understanding of rural market dynamics and a new and non-conventional approach is
needed to garner response from rural markets. Discussed below are several action points, that will ensure
success of brands (local or national) in rural markets, through a 4Ps framework :

PRODUCT
1. New product development New products can be developed to meet the needs of rural
consumers. eg. Low cost car or mobile washrooms.
2. Variants Modification of existing products can cater to needs of specific sects of the
rural market. eg. Head & Shoulders shampoo variant meant for South Indian women who
are frequent hair oil users. This shampoo helps them remove hair oil effectively. However,
as far as products suited to local tastes are concerned, Bagh Bakri tea in Gujarat
(branded packet tea) gave even HLL a run for its money which just shows that even local
brands can create and sustain their own markets.
3. Stock keeping units These should be developed keeping in mind the usage quantities
(per capita or per time period).
4. Packaging It sounds unbelievable, but a greater amount of branding along colour
schemes needs to be done for rural markets as compared to urban markets. This is
because the illiteracy or lack of complete information prevents consumers from
differentiating between brands and he chooses based on the colour of the product
packaging since its an easier method of identification.
5. Alternative usage It is more than surprising that
o

Horlicks is used to fatten cattle in Bihar

Washing machines are used in Punjab to make lassi

Iodex is used to relieve the muscular pain of animals and so on. Marketers might
not take this into account while drawing up expectations from rural markets but
then several alternate uses of products stare us in the face. After all, close to
60% of Godrej dyes sales come from rural areas, where men usually wear
turbans and women cover their heads with their attire. It may bode well for
brands to actually conjure alternative uses of its products and subtly deliver these
ideas to the rural consumer. However, precaution should be exercised since it
can affect the equity of a brand.

PRICE
1. Margins Rural markets hold potential because of large volumes which compensate for
smaller margins. It is essential to understand that for rural consumers to buy a branded
product, it has to suit his pockets before he analyzes the value of the product offering.
2. Stock keeping units Smaller product sizes / volumes deliver a cost-effective solution to
rural consumers as they are in accordance with his income characteristics. Such SKUs
will also eliminate the problem of branded goods being sold in loose quantities.
Interestingly, shampoo consumption has jumped close to 3 times since the introduction of
sachets a decade ago. 73% of todays shampoo sales are through sachets and their

proportion is not only high in rural areas, but in urban areas also. However, smaller SKUs
do increase the logistical aspects of distribution.
3. Affordable solutions Baron International ran a successful exchange scheme for TVs in
the urban areas and sold old exchanged sets after reconditioning them in the rural
market. The lesson to learn is even though the rural consumer would demand the best of
products, his pocket may not support his desires. In such a case, an alternative solution
can work in the favour of a brand.
PROMOTION
1. Non conventional media Conventional forms of media have made their way to the rural
hinterland but they dont have the desired effects on the consumer. Other forms that are
currently in use are puppetry, folk theatre etc. eg. Use of video vans by HLL. These vans
screen movies are no cost to villagers and the commercial breaks in these movies are
advertisements of HLLs products.
2. Awareness Given the literacy ratio of rural India, it is important to connect to rural
consumers in their dialects to inform them of available product offerings.
3. Social initiatives Contributing to the welfare of the rural populace, by helping them out
in infrastructure development, resolving conflicts in aid with NGOs etc will create a
positive image of a brand that is involved with them. eg. ITCs e-choupals are used for
distant learning programmes also.
PLACE
1. Retailer margins - The rural consumers interact directly with their retail salespersons who
has a strong conviction power and whose recommendations carry weight. Hence it is
important that the retailer is either an exclusive one or has reason to push a particular
brand.
2. Supporting retailers The retailers relationship with customers is based on an
understanding of their needs and buying habits and is cemented by the retailer extending
credit. Some of the successful manufacturers creatively develop new revenue activities
for the rural retailer. An Indian crop protection company realized that its small farmers
were not applying pesticide, or applying it inappropriately since the capital cost of the
equipment was placed out of reach of small farmers and most rural retailers. The
company designed a program in which it arranged for bank loansfor its rural retailers to
purchase application equipment thereby creating additional revenue possibilities from
renting this equipment to small farmers.
3. Reach - Several problems such as lack of infrastructure & scattered populations make
the task tougher for marketers in India. However, this challenge is an opportunity to come
up with innovative models of distribution which help deliver a personal touch to the
consumer thereby influencing their purchasing decisions.

The first example to support this point would be Hindustan Levers Shakti Amma,
where local village women have been empowered to be sales representatives of
HLL. These ladies are financially supported by local self help groups, trained by
HLL and are required to sell the companys products to nearby villages.

A time-tested example is also that of Pepsi Co which evolved a hub- and-spoke

system of supplying to the rural / geographically spread areas. Each spoke in this
model receives supplies from a hub and most spokes also double up as a hub for
smaller spokes.

CONCLUSION
For years the scale of brand vs price tipped the price side. Today, the consumer is discerning and equates
brand dot a certain added value. India has consumers displaying their preference for brands. This is
rather surprising in a country as diverse as India, where past loyalties have changed for a 10% difference
in pricing for price-sensitive products.
The Indian consumer is more price conscious compared with most overseas counterparts, primarily on
account of a fragmented market structure, and a high degree of differential pricing structures between
national brands and unbranded goods and services. Even the more affluent classes prefer to shop at
discount stores for basic daily necessities. Striking the value-for-money equation right is one of the most
critical success factors for both branded goods manufacturers and retailers.
Since serving the rural areas requires a significant rethinking of managerial practices, it is legitimate for
managers to ask whether it is worth the effort. We think the answer is yes. After all, what can be a more
pressing concern and a bigger opportunity than serving the 70% of India's population, which resides in its
rural areas.