ROLE OF FMCG COMPANIES IN RURAL SECTOR

Role of FMCG companies in the rural sector

Abstract

The Fast Moving Consumer Goods (FMCG) sector is a corner stone of the Indian economy. This
sector touches every aspect of human life. The FMCG producers now realize that there is a lot of
opportunity for them to enter into the rural market. The sector is excited about the rural
population whose incomes are rising and the lifestyles are changing. There are as many middle
income households in the rural areas as there are in the urban. Thus the rural marketing has been
growing steadily over the years and is now bigger than the urban market for FMCGs. Globally ,
the FMCG sector has been successful in selling products to the lower and middle income groups
and the same is true in India. Over 70% of sales is made to middle class households today and
over 50% of the middle class is in rural India. The sector is excited about a burgeoning rural
population whose incomes are rising and which is willing to spend on goods designed to improve
lifestyle. Also with a near saturation and cut throat competition in urban India, many producers of
FMCGs are driven to chalk out bold new strategies for targeting the rural consumers in a big way.
But the rural penetration rates are low. This presents a tremendous opportunity for makers of
branded products who can convert consumers to buy branded products. Many companies
including MNCs and regional players started developing marketing strategies to lure the untapped
market. While developing the strategies, the marketers need to treat the rural consumer differently
from their counterparts in urban because they are economically, socially and psycho-graphically
different to each other. This paper covers the attractions for the FMCG marketers to go to rural,
the challenges, the difference between the rural and the urban market,budget measures.their positive and
outcomes,need ,major strategic roles and challenges and opportunities of FMCG companies in rural sector.

Introduction
The Indian Fast Moving Consumer Goods (FMCG) industry began to shape during the last fiftyodd
years. The FMCG sector is a cornerstone of the Indian economy. This sector touches every
aspect of human life. Indian FMCG market has been divided for a long time between the
organized sector and the unorganized sector. Unlike the US market for FMCG which is
dominated by a handful of global players, India’s Rs. 460 billion FMCG market remains highly
fragmented with roughly half the market going to unbranded , unpackaged home made products.
This presents a tremendous opportunity for makers of branded products who can convert
consumers to buy branded products.
Globally, the FMCG sector has been successful in selling products to the lower and middle
income groups, and the same is true in India. Over 70% of sales is made to middle class
households today and over 50% is in rural India. The sector is excited about a burgeoning rural
population whose incomes are rising and which is willing to spend on goods designed to improve
lifestyle. Also with a near saturation and cut throat competition in urban India , many producers
of FMCGs are driven to chalk out bold new strategies for targeting the rural consumer in a big
way. MART, the specialist rural marketing and rural development consultancy, has found that 53
per cent of FMCG sales and 59 per cent of consumer durable sales lie in the rural areas. Of two
million BSNL mobile connections, 50 per cent went to small towns and villages; of 20 million
Rediffmail subscriptions, 60 per cent came from small towns; so did half the transactions on
Rediff's shopping site. According to a study by Chennai-based Francis Kanoi Marketing Planning
Services Pvt Ltd, the rural market for FMCG is worth Rs.65,000 crore, for durables Rs 5000
crore, for tractors and agri-inputs Rs.45,000 crore and two- and four-wheelers, Rs.8000 crore.
In total, a whopping Rs.123,000 crore. This could be doubled if corporates understood the rural
buying behaviour and got their distribution and pricing right.

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Impulse to go Rural

There are many reasons that has urged the FMCG companies to enter the uncharted territory of
rural India. Some of the attractions are discussed below;

1. Large Population
The rural Indian population is large and its growth rate is also high. Over 70% India’s one billion
plus population lives in around 627,000 villages in rural areas. This simply shows the great
potentiality rural India has to bring the much needed volumes and help the FMCG companies to
bank upon the volume driven growth.

2. Rising Rural Prosperity

India is now seeing a dramatic shift towards prosperity in rural households. To drive home the
potential of rural India just consider some of these impressive facts about the rural sector. As per
the National Council for Applied Economic Research (NCAER) study, there are as many ‘middle
income and above’ households in the rural areas as there are in the urban areas. There are almost
twice as many ‘lower middle income’ households in rural areas as in the urban areas.

3. Growth in Market
The purchasing power in rural India is on steady rise and it has resulted in the growth of the rural
market. The market has been growing at 3-4% per annum adding more than one million new
consumers every year and now accounts for close to 50% of volume consumption of FMCG. The
growth rates of lot of FMCG are higher in rural markets than urban markets.

4. Effectiveness of Communication
An important tool to reach out to the rural audience is through effective communication.``A rural
consumer is brand loyal and understands symbols better. This also makes it easy to sell look -
alike",. The rural audience has
matured enough to understand the communication developed for the urban markets, especially
with reference to FMCG products. Television has been a major effective communication system
for rural mass and, as a result, companies should identify themselves with their advertisements.
Advertisements touching the emotions of the rural folks, it is argued, could drive a quantum jump
in sales.

5. IT Penetration in Rural India

Today there are over 15 million villagers in India who are aware of the Internet and over 300,000
villagers have used it! Ten years back, history was created with Public Call Office phone booths
(essentially manually operated payphone facilities), opening in every corner of the country
Web connectivity through various types of communication hubs will surely impact the currency of
information exchange. As the electronic ethos and IT culture moves
into rural India, the possibilities of change are becoming visible.

6. Impact of Globalization
The impact of globalization will be felt in rural India as much as in urban. But it will be slow. It
will have its impact on target groups like farmers, youth and women. Farmers, today 'keep in
touch' with the latest information and maximize both ends. Animal feed producers no longer look
at Andhra Pradesh or Karnataka. They keep their cell phones constantly connected to global
markets. Surely, price movements and products' availability in the international market place
seem to drive their local business strategies

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Rural Vs Urban Consumers – Challenges

The biggest mistake a FMCG company can make while entering the rural India is to treat it as an
extension to the existing urban market. But there is a vast difference in the lifestyles of the rural
and urban consumers. The rural Indian consumer is economically, socially, and
psychographically different from his urban counterpart. The kind of choices that an urban
customer takes for granted is different from the choices available to the rural counterparts.
The difference in consumer behavior in essence stems from the way of thinking with the fairly
simple thought process of the rural consumer in contrast to a much more complex urban
counterpart. On top of this there has hardly been any research into the consumer behavior of the
rural areas, whereas there is considerable amount of data on the urban consumers regarding things
like - who is the influencer, who is the buyer, how do they go and buy, how much money do they
spend on their purchases, etc. On the rural front the efforts have started only recently and will
take time to come out with substantial results. So the primary challenge is to understand the buyer
and his behavior.
Even greater challenge lies in terms of the vast differences in the rural areas which severely limits
the marketer’s ability to segment, target and position his offerings. The population is dispersed to
such an extent that 90% of the rural population is concentrated in villages with population of less
than 2000. So the geographical spread is not as homogeneous as it is with the urban areas owing
to vast differences culture and education levels. Also with agriculture being the main business of
rural sector the purchasing power of rural consumer is highly unpredictable which can lead to
high variations in demand patterns.
One more gray area that needs to be probed into is the importance of retailer in rural trade. Rural
consumer’s brand choices are greatly restricted and this is where the retailer comes into the
picture. The rural customer generally goes to the same retailer to buy goods. Naturally there’s a
very strong bonding in terms of trust between the two. Also with the low education levels of rural
sector the rural buying behavior is such that the consumer doesn't ask for the things explicitly by
brand but like "laal wala sabun dena" or "paanch rupey waali chai dena". Now in such a scenario
the brand becomes subservient to the retailer and he pushes whatever brand fetches him the
greatest returns. Thus, as there is a need to understand the rural consumer, similarly need is there
to study the retailer as he is a chief influencer in the buying decision
.
Developing effective rural marketing strategy

Till recently most FMCG companies used to treat rural markets as adjuncts to their urban
strongholds and rural consumers as a homogeneous mass without segmenting them into target
markets and positioning brands appropriately. However it is beyond doubt that the treat rural
markets are not dumping grounds for low-end products basically designed for an urban audience.
The winning strategy instead is to focus on their core competency such as technological expertise
to design specific products for the rural economy. The most remarkable example in this context is
the launch of sachets which has transformed the rural market considerably as packaging in
smaller units and lesser-priced packs increases the product’s affordability. Also companies like
HLL and Nestle who have adopted this strategy have benefited tremendously. Another case is of
Britannia with its Tiger brand of low priced and conveniently packaged biscuits becoming a great
success story in rural markets.
Companies also need to change the profile of their brand managers as they are usually urban-bred
MBAs, fed on a staple diet of western marketing principles and are alien to the rural India. A step
in this direction like hiring managers from the Institute of Rural Management Anand (IRMA)
could probably go a long way in improving the situation. Along with the cultural dynamics, the
needs and latent feelings of the rural people have to be well understood before launching products
in rural segments. Marketers would do well to first understand this and then designing products
accordingly. For example, Cadburys has launched ChocoBix, a chocolate flavored biscuit which
is based on the consumer insight that rural mothers opt for biscuits rather than chocolates for their
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children.
Another very important factor that needs to be looked at is the proliferation of spurious products.
Rural masses are illiterate people and they identify a product by its packaging (color, visuals, size
etc.). So it becomes very easy for counterfeit products to eat into the market share of established
reputed brands. The retailer also gets a larger profit on selling the counterfeits rather than the
genuine products and hence is biased towards the fakes. Brands such as "Jifeboy", "Bonds
Talcum", "Funny & Lovely" etc., which are doing the rounds of rural markets, pose considerable
challenge to rural marketers.
Companies would also do well to have a proper sales and distribution network. In terms of sheer
reach the companies can gain significant competitive advantages as the rural market is highly
fragmented and a brand needs to be on the shop shelf before it can be sold. Companies should
also make sure that the prices of their products are not pushed up because of a channel of
middlemen who are neither required nor add any value to the product. The rural market remains
quite price-sensitive and thus squeezing costs at every stage is of vital importance. Some FMCG
giants like HLL are in process of enhancing their control on the rural supply chain through a
network of rural sub-stockists, who are based in the villages only. Apart from this to acquire
further edge in distribution HLL has started Project Shakti in partnership with Self Help groups of
rural women. However not all traditional strategies need to work and the need is to generate
creative ideas. A very significant step for change could be an effort to directly tap the haats,
mandis, melas and local bazaars which provide an opportunity of promoting the brand in front of
a large congregation of rural consumers.
Finally an effective rural strategy for FMCG companies must include the use of traditional media
for creating awareness about their products in the rural markets. The need for unconventional
media arises as the mass media is too glamorous, interpersonal and unreliable for a rural
consumer. The traditional media on the other hand with its effective reach, powerful input and
personalized communication system will help in realizing the goal. Besides this when the
advertisement is couched in entertainment it goes down easily with the villager. The advantages
of traditional media which make it a powerful marketing communication channel are:
accessibility is high, it involves more then one sense, interest arousal capability is high and
minimum cost. There are few companies which have used traditional media effectively and
reaped rich dividends. Brooke Bond Lipton India Ltd (BBLIL) markets its rural brands through
magic shows and skits. Reckitt and Colemen uses NGO's in rural areas to educate customers
about product benefits which establishes one to one communication channels.

Recent Developments in Fast Moving Consumer Goods (FMCG) Sector

FMCG sector is no doubt registering an up trend in growth. According to CNBC, FMCG sector growth
story will continue because of the positive budget. Nevertheless, there are some barriers to the growth of
the sector. Indirect taxes constitute no less than 35% of the total cost of consumer products - the highest
in Asia. Last year, Finance Minister proposed to introduce an integrated Goods and Service Tax by April
2010.This is an exceptionally good move because the growth of consumption, production, and
employment is directly proportionate to reduction in indirect taxes.

BUDGET MEASURE

Farm sector has been given the top priority. Agriculture investments to go upto 2% of GDP.

Duty on edible oil has been reduced.

Customs duty on food processing machinery and their parts is being reduced from 7.5% to 5%

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Excise duty has been fully exempted on biscuits of per kilogram retail sale price equivalent of Rs 50 or
less.
Excise duty on food mixes, including instant food mixes, has been reduced from 16% or 8% to Nil.

Free samples and displays are exempt from the purview of FBT.

Venture capital investing in dairy industry will get a pass through status.

Better rural infrastructure development to be an area of focus.

Increase in dividend distribution tax from 12.5% to 15%.

1% higher education cess to charge.

The dividend distribution tax on dividends paid by money market mutual funds and liquid mutual funds
increased to 25 % for all investors.

Duty reduction on edible is a positive for companies like Marico.

Exemption of excise on biscuits is positive for Britannia [Get Quote ], ITC and Parle.

Reduction of excise on food mixes is beneficial to ITC, as this segment is a new growth area.

With increase on focus on agriculture, the rural income is likely to go up. This will be beneficial to the
FMCG companies, as rural areas are a big market for them.
FMCG companies spend a lot of money on advertising and brand building. Exclusion of samples and
displays from FBT will help them in promoting their products
Better infrastructure will help better access and more distribution network to the FMCG companies. It
will help them improve the supply chain.
Companies have huge investments in the liquid funds; the higher tax on dividend distribution will reduce
their other income.
The impact of higher tax (cess) on the industry is likely to lower net margins, albeit marginally.

KEY POSITIVES
Growth potential: Rural penetration levels are still low. Also, according to estimates, only about 7% to
8% of the total food production (US$ 75 bn) is consumed in processed form. This speaks for itself,
highlighting the scope for growth. The planned development of roads, ports, railways and airports, will
increase FMCG penetration in the long term.

Increasing focus: Companies are increasingly focusing on key products and brands, cost efficiencies and
rural markets to grow. This is a sign of market sophistication, both from the manufacturer's point of view
as well as the consumer's point of view.

The India advantage: Owing to India's cost advantage, many MNC companies have started using their
Indian operations as their manufacturing base. Alternatively, some Indian companies have tested foreign
shores like Bangladesh, Sri Lanka [Images ], the Middle East and Pakistan among others.

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Favourable tax structure: The introduction of VAT at the start of FY06 is a long term positive for the
FMCG sector. This had been a long pending demand of the FMCG sector. Post this; the tax ambiguity
will get reduced, benefiting the sector.

Modern trade growth robust: Modern retailing stores are the future and are growing at exponential
rates. With the modernisation of the retail sector, rapid growth in sales of supermarkets, department
stores and hypermarkets is inevitable due to the growing preference of the affluent and upper middle
classes for shopping at these types of retail stores. Since FMCG companies have tied up with these
retailers, growth for FMCG companies will also be faster.

KEY NEGATIVES
Increasing competition: New entrants in the sector have heightened competition in key segments like
soaps and detergents, putting pressure on profitability.

Infrastructure: The infrastructure for free transport of goods is not adequate in the country. Also, the
fall in agricultural output continues to cast on FMCG sector's prospects in the short term.

Unorganised threat: A large part of the branded market continues to be threatened by spurious goods
and illegal foreign imports, which remain a challenge for large companies, particularly during times of
cyclical downturns.

NEED OF FMCG IN RURAL AREAS

After years of growth derived primarily from the urban markets, the FMCG companies have now realized
that India lies in its rural villages. So much so that rural marketing has become the latest marketing mantra
of most FMCG majors. With extensive competition not only from MNCs but also from the numerous
regional players and the lure of an untapped market has driven the marketers to chalk out bold new strategies
for targeting the rural consumer in a big way. To gauge the extent of shift in focus of the FMCG giants just
sample this: recently Godrej Consumer Products Ltd (GCPL) did something that it hadn't done before; it
introduced smaller pack sizes of some of its soaps and put them on the market for Rs 5. And FMCG giant
HLL has just launched a green variant of Lifebuoy soap, which, it hopes will be a winner in the rural areas.
Also, don't be too surprised if you village folk having their hair washed and dyed as they are only taking
advantage of the live demonstrations conducted by Chennai-based CavinKare Products. So it is clear that
rural markets have caught the eyes of FMCG marketers and it is being targeted through experiments in a big
way. 
Over 70% of India’s 1 billion plus population lives in around 627,000 villages in rural areas. This simply
shows the great potentiality rural India has to bring the much-needed volumes and help the
FMCG companies to bank upon the volume–driven growth. Also, the rural market has been growing
steadily over the years and is now bigger than the urban market for FMCG’s (53% share of the total market)
with an annual size in value terms currently estimated at around 50,000 crores. It is a definite boon in
disguise for the FMCG majors who have already reached the plateau of their business curve in urban India
and are desperately seeking new ways to increase sales.
To drive home the potential of rural India just consider some of these impressive facts about the rural
sector. As per the National Council for Applied Economic Research (NCAER) study, there are as many
'middle income and above' households in the rural areas as there are in the urban areas. There are almost

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twice as many 'lower middle income' households in rural areas as in the urban areas. At the highest income
level there are 2.3 million urban households as against 1.6 million households in rural areas. According to
the NCAER projections, the number of middle and high-income households in rural India is expected to
grow from 80 million to 111 million by 2007. In urban India, the same is expected to grow from 46 million
to 59 million. Thus, the absolute size of rural India is expected to be double that of urban India. But despite
the high rural share in these categories, the rural penetration rates are low, thus offering tremendous
potential for growth.
Thus it becomes amply clear that rural India has to be the hot target in future for FMCG companies as it
presents a plethora of opportunities, all waiting to be harnessed. Many of the FMCG companies are already
busy formulating their rural marketing strategy to tap the potential before competition catches up. All
biggies in the industry be it HLL, Marico, Colgate-Palmolive or Britannia, are showing deep interest in rural
India. However not everything is all rosy and there exist some gray areas in the rural strategies also.

MAJOR STRATEGIC ROLES OF FMCG COMPANIES IN RURAL

SECTOR ARE
Rural markets and rural marketing involve a number of strategies, which include:
 Client and location specific promotion
 Joint or cooperative promotion.
 Bundling of inputs
 Management of demand
 Developmental marketing
 Unique selling proposition (USP)
 Extension services
 Business ethics
 Partnership for sustainability

Client and Location specific promotion involves a strategy designed to be suitable to the location and the
client.
Joint or co-operative promotion strategy involves participation between the marketing agencies and the client.
'Bundling of inputs' denote a marketing strategy, in which several related items are sold to the target client,
including arrangements of credit, after-sale service, and so on.
Management of demand involve continuous market research of buyer’s needs and problems at various levels
so that continuous improvements and innovations can be undertaken for a sustainable market performance.
Developmental marketing refer to taking up marketing programmes keeping the development objective in
mind and using various managerial and other inputs of marketing to achieve these objectives.
Media, both traditional as well as the modern media, is used as a marketing strategy.
Unique Selling Propositions (USP) involves presenting a theme with the product to attract the client to buy
that particular product. For examples, some of famous Indian Farm equipment manufacturers have coined
catchy themes, which they display along with the products, to attract the target client that is the farmers.
English version of some of such themes would read like:
 The heartbeats of rural India
 With new technique for a life time of company
 For the sake of progress and prosperity
Extension Services denote, in short, a system of attending to the missing links and providing the required
know-how.
Ethics in Business. Form, as usual, an important plank for rural markets and rural marketing.
Partnership for sustainability involve laying and building a foundation for continuous and long lasting
relationship.

RURAL MARKETING STRATEGY

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Considering the type of environment the rural market operates and its associated problems, and so also the
experience of the manufacturing and marketing men who operate in the rural market, it is possible to evolve
effective strategies for the rural marketing. 

RURAL MARKET SEGMENTATION 

Unlike urban market it is possible to segment the rural market also. The basis of segmentation can be similar
– demographic profile, socio – economic characteristics, exposure to modernization, and income levels. Given
the rural occupation pattern there are certain specific characteristics which have to be taken into account.
Some of the typical characteristics which help companies in rural marketing segmentation are:- 
• Land holding pattern
• Irrigation facility
• Progressiveness of farmer
• Cropping pattern
• Mix of enterprises
• Education level
• Sociological factor 
• Occupation categories
an appropriate segmentation of the highly heterogeneous rural market and identification of the needs and
wants of different segmentation will form the very basis for rural marketing strategies. For the rural market, it
will be ideal to think of strategies from the marketing mix point of view: product, price, place and promotion.
In addition to the strategies of marketing mix element wise, the recent concept of social marketing has also
been an important concept.
Social marketing is very appropriate for the Indian rural market, since the standard of living is very low and
any effort to educate the rural consumers would result in the expansion and growth of the rural market in a
generic sense.

PACKAGING STRATEGY
1.SMALL UNIT PACKAGING
2. LOW PRICED PACKAGING
3. NEW PRODUCT DESIGNS
4. STURDY PRODUCTS
5. UTILITY ORIENTED PRODUCTS
6. BRAND NAME
For evolving the pricing strategies, the manufacturers and marketing men should think in term of low unit
price and low volume packaging with an impression of sturdiness and utilities which should be enhance.
Wherever necessary, redesigning of the product can be thought of depending on the customs and habit of
rural customers. In addition, a brand name or logo or symbol is very essential for the rural consumer to
identify the product with. It can be seen why the imitation product manufacture adopt the same style of
packaging and printing. “Light joy” and “light boy”, the imitation products of lifebuoy toilet soap also
carry a red and white coloured wrapper. This can also be seen in many more products like “friends and
lovely” face cream. A rural consumer identifies the product from the colour of packaging and also low
purchase price.

PRICING STRATEGY

1. LOW COST /CHEAP PRODUCTS

2. AVOID SOPHISTICATED PACKAGING
3. REFILL PACKS/ REUSABLE PACKAGING
4. APPLICATION OF VALUE ENGINEERING – This is a technique which can be tried to evolve the
cheaper products, by substituting the costly raw material with the cheaper one. Such application can be
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seen in the case of costly metal been replaced by cheaper reinforced plastic. Milk protein is costly but
soya protein is cheaper but the nutrition content is the same. during early 70’s Britannia industries bring a
product called “ PROBISK ” with soya protein.
The pricing strategy for the rural market will entirely depend upon the scope for reducing the price of the
product to suit the rural incomes, and at the same time not compromising with the utility and sturdiness of
the product. As seen earlier, nearly two-thirds of rural population belongs to lower income brackets and
such an attempt will expand the market considerably.

PROMOTION STRATEGY
Given the literacy rate of the rural population and distribution of the rural consumers, the promotion
measures or strategies to be chosen should be cost effective. In addition, consumable products may warrant
the use of mass media, since the target market is very large, but the durables products will require personal
selling efforts because of the smaller size of the target consumers.
1. Mass media
 Television
 Cinema
 Radio
 Print Media
2. Hoardings/wall painting
3. Shandies / Hats / Jathras / Melas
4. Non price competition
5. Special campaigns
6. Other mass media
i. Hand bills and booklets
ii. Posters
iii. Banners
iv. Gift schemes
v. Agro-techniques for crop cultivation
7. Personal selling and opinion leader

DISTRIBUTION STRATEGIES

1. COVERAGE OF VILLAGES: - with improved communication facilities, it is possible to reach

distribution van to the villages. The frequency of visits may be fixed, depending upon the off- takes or
sales realization, so that the distribution cost can be minimized, but not at the cost of cutting down or rural
population. These distribution cabs can be used for promotion works also. For villages with very less
population, the distribution can be left to the initiative of the shop keepers and dealers in larger villages
and to the shopkeepers of the small villages. The distribution arrangement requires serious consideration
by manufacturing and marketing men, if they have to exploit the potential of the rural market

2. USE OF CORPORATIVE :- Over three lakh corporative society operate in the rural areas for or
different purposes like, marketing co operatives, dairy corporative, farmer service corporative societies,
consumer corporative and other multipurpose corporative. Given the number of such societies, there is at
least one corporative society of one form or another for every two or three villages. These societies are
linked to higher level of society like taluk, district or state level. Thus these corporative have an
arrangement for centralized procurement and distribution through their respective state level federation.
Such state level federation can be motivated to procure and distribute consumables items and low level
durables items to the member societies for selling to the rural consumers

3. UTILIZATION OF PUBLIC DISTRIBUTION SYSTEM: - The Public Distribution System (PDS)

in the country is fairly well organized. The revamped PDS places more emphasis on reaching remote rural

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areas like hills and tribal areas. Effective utilization of the PDS system should be explored by the
manufacturing and marketing men, since they already have a distribution set up.

4. UTILIZATION OF MULTIPURPOSE DISTRIBUTION CENTRE BY PETROLEUM / OIL

COMPANIES: - With a view to cater the rural market, the petroleum/ oil companies have evolved a
concept of multi-purpose distribution centre in rural areas. They also provide fertilizers and seeds. The
rural consumer who possesses tractors, oil engine pump sets and mopeds, frequently utilized these outlets
for their requirements. These outlets can be profitably utilized for selling consumable and durable items
also.

5. DISTRIBUTION TO FEEDER MARKETS/ MANDI TOWNS:- The villagers visit these town at
regular intervals not only for selling the agricultural produce but also for the purchase of cloth, jewellery ,
hardware, radios, torch cells and other durables and consumer product. Hence a good distribution network
should touch the identified feeder market and mandi towns. From the feeder market and mandi town, the
stockiest or wholesaler can arrange for distribution to the village shop in the interior places.

ECONOMIC STRATEGIES
1.EMPLOYMENT AND LABOUR WELFARE:When in Rome, do as the Romans do... goes the phrase,
which is partially what consumer goods companies are adhering to. They are hiring local talent to target rural
sales. A company needs employees who are fluent in local language, tastes and culture, and have the ability to
deal with local stockists to help us boost sales from this region. Major fast moving consumer goods (FMCG)
companies like Hindustan Unilever (HUL), Marico, Godrej Consumer Products, Dabur and even brewers like
Sab Miller have stepped up hiring in small towns and rural India — primarily appointing sales staff to
increase visibility and connect, and simultaneously boost sales. Estimatedly over the last 3-4 years the
companies have increased hiring of sales staff from small towns and rural areas by over 20 per cent. In 2010,
it will only rise.

2.Development of infrastructure:High margins, growing demand add to the attraction. Financial inclusion
is turning into a profitable venture for non-banking finance companies (NBFCs), as they are scurrying to fill
the gap left by banks in rural markets that offer better margins. Srei BNP Paribas is entering the agriculture
equipment finance market by April and hopes to disburse around Rs 500 crore in one year under the vertical.

Similarly, Shriram Transport, which has been for long focusing on used truck finance, has also created a
separate vertical for farm equipment finance, and hopes to disburse as much as Rs 5,000 crore in the next
two years.

L&T Finance, which has been more focused on infrastructure finance, is expanding its rural network
through products such as Kisan Bandhu, a product specially launched with a view on the Prime Minister
Gram Sadak Yojana (PMGSY), a rural road construction scheme. The product is targeted at entrepreneurs
who need funding for the acquisition of small-sized transport vehicles.

Magma Fincorp, which has around 70 per cent of its branches in semi-urban and rural areas, is looking at
expanding its high-yield portfolio comprising tractors and loans to small and medium enterprises and used
commercial vehicle finance.

3.reduction in regional disparities:There is large difference in economic prosperity levels among several
states in India, linked to the wealth creation from trade, industrial, and agricultural development. There are
poor districts in many states, classified according to their market potential. India has 500 districts, out of
which 150 districts (category A) and next 150 districts (category B) account for 78% and 15% of the
national market potential respectively. Remaining 200 districts (category C) are backward and account for
only 7% of national market potential. Category C districts have 40% of the geographical share. By providing

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employment opportunities ,infrastructure development ,capital formulation and creating economies of

scale ,they are reducing the regional disparities.

RURAL MARKETING-CHALLENGES AND OPPORTUNITIES

The Indian rural market with its vast size and demand base offers great opportunities to marketers. Two-
thirds of countries consumers live in rural areas and almost half of the national income is generated here. It
is only natural that rural markets form an important part of the total market of India. Our nation is classified
in around 450 districts, and approximately 630000 villages which can be sorted in different parameters such
as literacy levels, accessibility, income levels, penetration, distances from nearest towns, etc.
The rural market certainly offers a big attraction to marketers, it would be naive to think that any company
can easily enter the market and walk away with sizable share. Actually the market bristles with variety of
problems. The main problems in rural marketing are:

1. PHYSICAL DISTRIBUTION AND CHANNEL DISTRIBUTION

The problems of physical distribution and channel management adversely affect the service as well as the
cost aspect. The existent market structure consists of primary rural market and retail sales outlet. The
structure involves stock points in feeder towns to service these retail outlets at the village levels. But it
becomes difficult maintaining the required service level in the delivery of the product at retail level.

2. UNDERDEVELOPED PEOPLE AND UNDER DEVELOPED MARKET

Even today about 75 districts in the country are drought prone and no new technology worth the name has
percolated to increase the living standard of the living of these people. In addition, the farmer with small
agriculture land holding has also been unable to take advantage of the new technology. The no. of the people
below poverty line has not decrease in appreciable manner. Thus, the rural market by and large are the
characterized by underdeveloped people and hence underdeveloped market

3. LACK OF PROPER PHYSICAL COMMUNICATION FACILITY

Nearly 50 % of the villages don’t have road even today. Most villages in the eastern part of the country are
inaccessible during monsoon season, hence the distribution effort put by the manufacture prove expensive
and sometimes of no consequence. To be effective the products have to be physically moved to places of the
point of consumption or place of purchase

4. MANY DIALECTS AND LANGUAGES

Even assuming that media are available for communication, the no. of language and dialects vary widely
from state to state, region to region and probably district to district. The massage has to be delivered in local
language and dialects. Even though the number of recognized language are only 16, the no. of dialects is
estimated to be around 850.

5. LOW PER CAPITA INCOMES 

Even tough about 35 – 37 % of the gross domestic product is generated in the rural areas; it is shared by
66% of the population. Hence the per capita income is low, compared to urban areas. This apart, the
distribution of the incomes is highly skewed, since the land holding pattern, which is the basic asset is highly
skewed. Thus the rural population presents a highly heterogeneous scene. These aspects require very careful
consideration while evolving distribution strategy for the rural market.

6. LOGISTICS, STORAGE, HANDLING AND TRANSPORT

It has been seen that the transportation facility is poor in rural areas. A leading company, which distribute its
consumable product in rural areas use bullock carts and camel back for the physical distribution and
transportation of goods in to inaccessible areas. In some villages there may not be a shop from where

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product can be made available to a rural consumer. Thus willingness to enter the rural market alone is not
sufficient, but identification of shopkeeper, offering them credit assuring periodic supply and motivating
them also become very crucial.
 
7. MARKET ORGANIZATION AND STAFF
The size of market organization and the staff is very important, to have an effective control. Comparative to
the rural market will involve large marketing organization and staff. How many manufacturers and
marketing men can afford such huge investment in term of personnel and also keep an effective control on
it, need examination.

8. PRODUCT POSITIONING 
In a highly heterogeneous market, product positioning become very difficult , otherwise the product range
will be too wide. A wide product range will give rise to distribution problems. Even company like broke
bond have packets priced from 50 paise onwards. The very product positioning limits the market only to
such segments of farmers. While positioning is possible in of durables, positioning is difficult in
consumables. So this warrant designing new products or redesigning the existing one to suit the rural wants
habits and need, based on the purchasing power

9. LOW LEVEL OF LITERACY

The literacy rate is low in the rural areas as compared to the urban areas. This again leads to problems of the
communication for the promotion purpose. Print medium becomes ineffective and to the extent irrelevant in
the rural areas since its reach is poor and so is the level of literacy. The dependence should be more on
electronic media – cinema, Radio and television. While access to the television advertisement is very
expensive so radio and cinema appears fairly easy. Also counterfeiting product with look-alike name and
symbol cut the revenue of the producer of genuine product.

OPPORTUNITIES

The Indian Fast Moving Consumer Goods (FMCG) industry began to shape during the last fifty odd years.
The FMCG sector is a cornerstone of the Indian economy. This sector touches every aspect of human life.
Indian FMCG market has been divided for a long time between the organized sector and the unorganized
sector. Unlike the US market for FMCG which is dominated by a handful of global players, India’s Rs. 460
billion FMCG market remains highly fragmented with roughly half the market going to unbranded ,
unpackaged home made products. This presents a tremendous opportunity for makers of branded products
who can convert consumers to buy branded products. Globally, the FMCG sector has been successful in
selling products to the lower and middle income groups, and the same is true in India. Over 70% of sales are
made to middle class households today and over 50% is in rural India. The sector is excited about a
burgeoning rural population whose incomes are rising and which is willing to spend on goods designed to
improve lifestyle. Also with a near saturation and cut throat competition in urban India, many producers of
FMCGs are driven to chalk out bold new strategies for targeting the rural consumer in a big way. MART,
the specialist rural marketing and rural development consultancy, has found that 53 per cent of FMCG sales
and 59 per cent of consumer durable sales lie in the rural areas. Of two million BSNL mobile connections,
50 per cent went to small towns and villages; of 20 million Rediffmail subscriptions, 60 per cent came from
small towns; so did half the transactions on Rediff's shopping site. According to a study by Chennai-based
Francis Kanoi Marketing Planning Services Pvt Ltd, the rural market for FMCG is worth Rs.65,000 crore,
for durables Rs 5000 crore, for tractors and agri-inputs Rs.45,000 crore and two- and four-wheelers, Rs.8000
crore. In total, a whopping Rs. 1,23,000 crore. This could be doubled if corporate understood the rural
buying behaviour and got their distribution and pricing right.

CONCLUSION
In the end it is certain that FMCG companies will have to really gain inroads in the rural markets in order to
achieve double digit growth targets in future. There is huge potential and definitely there is lot of money in
rural India but the smart thing would be to weigh in the roadblocks as carefully as possible. The companies
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entering rural market must do so for strategic reasons and not for tactical gains as rural consumer is still a
closed book and it is only through unwavering commitment that the companies can make a dent in the
market. Ultimately the winner would be the one with the required resources like time and money and also
with the much needed innovative ideas to tap the rural markets.
A mention of rural India may conjure up an image of abject poverty in the minds of many people. This,
however, does not hold true in the case of a few fast moving consumer goods (FMCG) companies that have
over the years been giving their rural operations a renewed thrust.

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