Rural Updates

Source: TOI (Brand Equity) 15th Dec’10

Rural Marketing – A Symbiotic Relationship

A “symbiotic relationship” is how Sanjeev

Chadha, chairman and CEO of PepsiCo India,
describes the work that the food and beverage
multinational undertakes with thousands of
farmers across India.
“We help them with progressive farming
techniques and they are of huge benefit to us
in securing a reliable supply chain,” he says.
Rural Marketing – A Symbiotic Relationship

Some observers would call what Pepsi is doing

corporate social responsibility (CSR);

Others more cynically might say it’s simply

another example of multinational
corporations (MNCs) trying to figure out how
to make inroads in India’s challenging, but
potentially lucrative rural market.
MNC’s Efforts towards Mutual Growth - Rural
& Self
Filling the gaps left by government, MNCs
have :
– built roads in rural India that help them deliver
their goods,
– provide education and health care for
communities whose workforces they rely upon
– implement environmental programs to protect
precious natural resources needed to keep supply
chains running smoothly.
MNC’s Efforts towards Mutual Growth - Rural
& Self
Filling the gaps left by government, MNCs
have :
– built roads in rural India that help them deliver
their goods,
– provide education and health care for
communities whose workforces they rely upon
– implement environmental programs to protect
precious natural resources needed to keep supply
chains running smoothly.
MNCs Continued Efforts in this Arena

• After years of false starts, missed opportunities and flawed

strategies, a number of MNCs’ India businesses are getting close.
• Others already are there and are ramping up their rural
investments.
• None can take that fine balance between doing good and doing
business for granted, as Nokia, Coca-Cola and Max New York Life
— among the companies profiled in this special report — show.
• And it’s for that reason that at PepsiCo India, the “rural agenda
has been driven by purpose and now is moving into
performance,” says Chadha.
Increased Spending Power
• Two-thirds of the country’s one billion
consumers live in rural India, where almost
half of the national income is generated.
• A report by Technopak Consultants and the
Confederation of Indian Industries, estimates
that the country’s rural consumer market
generated US$425 billion of revenue, up from
US$266 billion the previous year.
Increased Spending Power

• The big reason for the growth is that India’s rural

consumers are steadily gaining more spending power.
• The number of rural households earning less than
US$760 a year is down from 65% to 24% since 1993,
while those with an income of US$1,525 have more
than doubled from 22% to 46%.
• Combine these factors with improved roads and other
infrastructure in rural India to help products reach
their markets, and it’s easy to see rural India’s
attraction.
Increased Spending Power

• “We are finally beginning to see that rural India

has cash and is able to spend at the same time,”
says Vijay Govindarajan, professor of
international business at Tuck School of
Business at Dartmouth College in New
Hampshire, who is also the chief innovation
consultant for General Electric. “This is a
remarkable combination for companies.” .
Challenges
• But any company coming to India for the first time that thinks
it will be easy to take advantage of that combination is
mistaken.
• Rural India is hugely complex, not least because of its diverse
pace of development.
• As a recent study from IMRB International, a research
company in Mumbai, notes, some markets are big but not as
affluent as other markets (Uttar Pradesh, Bihar) while some
are affluent but not very large (Himachal Pradesh, Goa).
• Experts also say that strategies need to take into account the
vast number of languages and cultural differences across
India’s hinterland, while keeping strategies highly flexible and
adaptable.
• It can mean developing products and services tailored
specifically to the rural market.
Relevance Marketing
• When LG entered India in the mid-1990s, numerous brands
were vying for shelf space with hardly anything to distinguish
them from competitors.

• The South Korean company developed two color television

sets for the rural market, Sampoorna (which means
“complete” in Hindi) and Cine Plus.

• At US$65 and US$107 respectively, the sets were priced

slightly higher than the black-and-white televisions that other
manufacturers were selling in rural markets and that had
become obsolete in urban homes.
Relevance Marketing
• LG was also the first to offer gaming with its cut-price TVs and
menus in English and Hindi.

• Now LG has refrigerators, washing machines and microwave

ovens targeted at price-sensitive consumers sold from
hundreds of retail and distributor outlets across the
hinterland, with rural markets contributing 40% of its
revenue.
Relevance Marketing
• Much also depends on the sector and products sold. In fast-
moving consumer goods, for example, MNC products are
capturing a sizable portion of rural consumer spending in a
number of areas, with year-onyear increases in rural spending
in 2009 on MNC shampoos (70%), washing powder (60%) and
toothpaste (112%), say researchers at IMRB. What’s more,
they say, the average spending on these products is growing
faster in rural than in urban markets.
SOAP OPERAS
•  In the course of ramping up the performance of their rural strategies, MNCs
are applying the lessons already learned. One of those lessons is that the
benefits of a first-mover advantage are tough to hang on to as rural Indian
consumers’ tastes change rapidly, with questionable brand loyalty.
    That applies even to a groundbreaker like Hindustan Unilever, the
country’s largest consumer-products company owned by Anglo-Dutch
Unilever. It made waves in the hinterland in 2001 when its Shakti Project
enlisted self-help groups to develop a network of women — largely from
very low-income households — into entrepreneurs, selling baskets of HUL
products door to door. In early 2010, there were 42,000 women earning a
living by selling HUL products in more than 100,000 villages in 15 states.
“India’s rural narrative has been defined by HUL,” notes Pradeep Lokhande,
founder of Rural Relations, a Pune-based consumer-relationship
management organization.
• In the meantime, HUL has embraced other novel distribution strategies, such as
selling products like its Sunsilk and Clinic shampoos in small, inexpensive packets for
low-income Indians in the hinterland with little spare cash. Thanks to those efforts,
the company has one of the most extensive distribution networks in the country,
with 6.3 million retail outlets, including one million that it services directly. Rural
India currently accounts for nearly half of HUL’s revenue.
    But HUL’s lead regularly comes under threat. In December 2009, for example, rival
MNC Procter & Gamble launched Tide Naturals, which is a 30% cheaper version of its
Tide detergent targeted at rural consumers — a global first for the Cincinnati-based
MNC. The launch was part of the parent company’s “purpose-inspired growth
strategy” to “touch and improve more consumers’ lives in more parts of the world.”
Within weeks of its launch, Tide Naturals shook up India’s US$8 billion detergent
market by clinching a 0.6% share of the market, according to AC Nielsen. HUL’s
response has been to turn to a local court to contest P&G’s use of the word
“naturals” to promote its new product. With neither side backing down, the case
continues.
• While other MNCs aren’t necessarily going to
be airing their competitive grievances in court,
they can expect fast, nimble competitors to
take them by surprise and grab market share if
they don’t stay close to their customers —
which is no small feat in a country like India,
which has 642,000 villages, some with
populations as low as 500.
 ‘UNCHARTERED WATER’
• Nowhere is that more evident than in mobile telephony. Mobile phone
penetration in India jumped from 1.4 units per 100 people in 1995 to 51
units currently. In the 12 months to September 2009, the number of
mobile subscribers increased 55% to 142 million, according to the
Telecommunications Regulatory Authority of India.
    Taking a lead in that growth has been Nokia, the US$55 billion Finnish
mobile handset maker. As part of a global emerging market focus since
2006, rural India now accounts for 40% of Nokia India’s US$5 billion
annual revenue. But it’s a crowded business to be in. Along with
Samsung, LG, Sony Ericsson and Motorola, there are a number of handset
makers not only from China selling cut-price handsets, but also from
India’s homegrown companies that are chipping away at Nokia’s market
share lead with hand sets that are cheaper, more practical or both.
 ‘UNCHARTERED WATER’
• Now Nokia, like other handset makers, is branching out and forging
alliances with various partners to offer mobile banking and other
services along with its handsets. “It’s uncharted water” — as Gerald
Faulhaber, a business and public policy professor at Wharton, puts it
— one in which “customers are pushing the companies and taking
them out of the comfort zone.”
    Doing so successfully requires one thing: “listen to people,” states
Karishma Kiri, a Seattle-based strategy and product management
consultant at The K2 Group, who was a director of Microsoft’s
Unlimited Potential initiative which provides computers, software
and IT training in emerging markets. “A lot of companies tend not to
listen to [what] rural consumers say they need.”
 ‘UNCHARTERED WATER’
• That’s not as clear-cut as MNCs might think. The jury is
still out on the mobile services launched by news agency
Reuters last year and other service providers to deliver
agriculture information to farmers’ mobile phone.
According to Rural Relations’ Lokhande, the demand
hasn’t been strong. “There’s a perception mismatch
between the farmers and the service provider,” he notes.
While the companies assert that the service is useful,
affordable and personalized, many farmers figure they can
get daily rates from their state agriculture
marketing boards for two cents, or half the price.
 ‘UNCHARTERED WATER’
• In rural areas, finding the magic price points that don’t eat into margins yet
boost volume is an ongoing battle, with a lot hinging on distribution. “We have
to build, and are building much deeper ‘go-to-market’ systems in rural India.
They have to be extremely cost-efficient, much more so than they are in the
urban areas,” says PepsiCo’s Chadha.
    The US$43.2 billion MNC has been in India for more than 20 years and now
claims to have overtaken Nestle as the top food and beverage company in the
country. Overall, India has indeed been treating the company well, even during
the downturn. India revenue at its drinks business grew 40% last year, while
volume jumped 32%, well outpacing most other countries in PepsiCo’s
portfolio.
    But it’s not resting easy. In 2009, it invested US$200 million — the most ever
in any single year — as part of a US$500 million plan to expand its distribution
infrastructure, while increasing R&D and adding four new plants to the 45 it
already has in the country.
 ‘UNCHARTERED WATER’
• To make those investments pay off, rural India — which currently
accounts for 20% of PepsiCo India’s business — is taking center stage.
“Over the next 10 years, I see rural India forming 40% to 50% of our
national business, and in the future, growth will be powered by the
rural areas,” says Chadha.
    Is that a long time to wait? “If any company wants [quick] financial
results from the rural initiative, it is seriously mistaken,” says Tuck’s
Govindarajan. “You have to look at the next decade and not the next
quarter.”
    K2 Group’s Kiri agrees. “The rural incubation work of multinationals is
part of their business,” she says. “But they need to be less focused on
[year-onyear] success and spend more energy on building innovative
solutions and business models for this segment. It’s a long haul.”