Changing Senerio of Rural Mktng

7/29/2019 Changing Senerio of Rural Mktng

1/49

A

SEMINAR REPORT

ON

Changing scenario of rural marketing with special referenceto HUL and ITC

2010-2011

Submitted by:

Deependra Singh RathoreMBA II Semester

Subodh Institute of Management & Career Studies(DEPARTMENT OF MANAGEMENT STUDIES)

Rambagh Circle, Jaipur


2/49

ACKNOWLEDGEMENT

. I express my sincere thanks to my project guide, Mrs. Priti Gupta faculty,

Department of Management Studies, Subodh Institute of Management &Career Studies, for guiding me right from the inception till the successful

completion of the project. I sincerely acknowledge him for extending his valuable

guidance, support for literature, critical reviews of project and the report and

above all the moral support he/she/they had provided to me with all stages of this

project.

I would also like to thank the supporting staff of Department of Management

Studies, Subodh Institute of Management & Career Studies, for their help

and cooperation throughout our project.

Signature of student

Deependra Singh Rathore


3/49

Table of contents

1. Preface

2. Executive summary

3. Industry profile

4. Objectives, scope and purpose

5. Research Methodology

6. Core Study: Findings, Data & Analysis

7. Conclusion

8. Recommendations

9. Limitations

10. Bibliography


4/49

Preface

In India the rural economy India is a land of diversity and about 70% of theIndian population lives in villages. These villages contribute in the economicdevelopment of the nation through the production of food grains, vegetables,fruits, etc. Export of these agricultural commodities result in the generation ofcapital and earnings of foreign exchange. There are 600,000 villages in India.25% of all villages account for 65% of the total rural population. So we cancontact 65% of 680 million or 700 million population by simply contacting 150000villages which shows the huge potential of this market. Indian rural market hasa vast size and demand base.

Contributes nearly half of the countrys GDP and the size of the rural

market in durables and FMCG is bigger than its urban counterpart. In recenttimes Rural Marketing has emerged as an important internal sub-division withinmarketing discipline particularly in the context of a large rural economy like India.But questions like Is there any difference between rural marketing andmainstream marketing? have not been answered satisfactorily. Through thecourse, the participants will be introduced to a more holistic perspective of ruralmarketing which includes not only urban-to-rural marketing, but also touchesissues of intra-rural marketing and rural-to-urban marketing. The developmentalangle to rural marketing is also addressed.

In recent years, rural markets have acquired significance, as the overall growth of

the economy has resulted into substantial increase in the purchasing power ofthe rural communities.

Rural areas are evolving into strategic market for companies which include notonly domestic but MNCs too. There is great potential that lies in rural market.More and more stress is therefore being given on marketing products. It is veryinteresting to notice that the rural markets are at par with the urban markets. Thecredit for this scenario goes to the marketing policies.

ITC e-Choupal is the greatest example of information technology in ruralmarketing. Launched in June 2000, 'e-Choupal', has already become the largest

initiative in all internet-based interventions in rural India. ITC followed a differentmedia/communication strategy which is more elaborate and extensive in ruralmarketing so far, which benefits both the farmers and the organization. Thestrategy use the Information Technology and bridge the information and servicegap in rural India which gives an edge to market its products like seeds, fertilizersand pesticides and other products like consumer goods etc.


5/49

They use the e-Choupal to order seed, fertilizer, and other products such asconsumer good from ITC or its partners, at prices lower than those available fromvillage traders. In this Paper we discuss about the role of IT in rural market, e-

Chou pal, different strategy, vision and planning behind the e-Chou pal.

Also rural market is getting an importance because of the saturation of the urbanmarket. As due to the competition in the urban market, the market is more or sosaturated as most of the capacity of the purchasers have been targeted by themarketers. So the marketers are looking for extending their product categories toan unexplored market i.e. the rural market. This has also led to the CSR activitiesbeing done by the corporate to help the poor people attain some wealth to spendon their product categories. Here we can think of HLL (now, HUL) initiatives inthe rural India. One of such project is the Project Shakti, which is not only helpingtheir company attain some revenue but also helping the poor women of the

village to attain some money which is surely going to increase their purchasingpower. Also this will increase their brand loyalty as well as recognition in thatarea. Similarly we can think of the ITC E-Chou pal, which is helping the poorfarmers get all the information about the weather as well as the market price ofthe food grains they are producing. In other view these activities are also helpingthe companies increase their brand value. So as it is given above thesignificance of the rural market has increased due to the saturation of the urbanmarket as well as in such conditions the company which will lead the way will bebenefited as shown by the success of HUL and ITC initiatives.

ITC Limited (BSE: 500875) public conglomerate company headquartered in

Kolkata, India.

[1]

Its turnover is $6 billion and a market capitalization of over $30Billion. The company has its registered office in Kolkata. It started off as theImperial Tobacco Company, and shares ancestry with Imperial Tobacco of theUnited Kingdom, but it is now fully independent, and was rechristened to IndianTobacco Company in 1970 and then to I.T.C. Limited in 1974

The company is currently headed by Yogesh Chander Deveshwar. It employsover 26,000 people at more than 60 locations across India and is listed onForbes 2000. ITC Limited completed 100 years on 24 August 2010.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards & SpecialtyPapers, Packaging, Agri-Business, Packaged Foods & Confectionery,Information Technology, Branded Apparel, Personal Care, Stationery, SafetyMatches and other FMCG products. While ITC is an outstanding market leader inits traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and

Agri-Exports, it is rapidly gaining market share even in its nascent businesses ofPackaged Foods & Confectionery, Branded Apparel, Personal Care andStationery.
http://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=500875http://en.wikipedia.org/wiki/Public_companyhttp://en.wikipedia.org/wiki/Conglomerate_(company)http://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/ITC_Limited#cite_note-0%23cite_note-0http://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Imperial_Tobaccohttp://en.wikipedia.org/wiki/Yogesh_Chander_Deveshwarhttp://en.wikipedia.org/wiki/Forbes_2000http://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=500875http://en.wikipedia.org/wiki/Public_companyhttp://en.wikipedia.org/wiki/Conglomerate_(company)http://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/ITC_Limited#cite_note-0%23cite_note-0http://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Imperial_Tobaccohttp://en.wikipedia.org/wiki/Yogesh_Chander_Deveshwarhttp://en.wikipedia.org/wiki/Forbes_2000http://en.wikipedia.org/wiki/Bombay_Stock_Exchange


6/49

Executive summary

In 1990s HUL set a target of contacting 16 million new villages house holds by1999. The study talks about the HULs rural initiatives like Project stream line,

Project Shakti etc.

In 1910s ITC set ain India and connect the rural market. And start the program invillages e-chopal. Traditionally, HUL & ITC used both wholesaler and retailers topenetrate the rural markets. Delivery vans covered small towns and villages.These vans induced retailers to stock HUL & ITC product and advertisingmaterial in their shops. Company strongly focuses the sales, marketing andproduction of the Power-brand, in the rural market. HUL & ITC initial initiativewas in the form of Project stream Line that was introduced in selected states in1998. Project stream line addresses the problem of rural distribution system toenhance HUL & ITC control on the rural supply chain as well as to increase the

no. of rural retail outlets. The sub-stockist performed the role driving distributionin the neighboring villages using unconventional means like: Bullock-carts andTractors.

As a part of the project HUL & itc aim at providing higher quality services toconsumer in terms of frequency, full-line availability and credit.

In mid 1998 company launched another campaign called Project Bharat to becarried out by the end of 1998. Project Bharat AND ITC was a direct marketingexercise undertaking to address the issue of awareness, attitudes and habits ofrural consumers increase the penetration level of HUL & ITC.

HUL's major brands included Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair &Lovely, Pond's, Sunsilk, Clinic, Pepsodent, Close-up, Lakme, Brooke Bond,Kissan, Knorr-Annapurna, Kwality Wall's etc. These were manufactured over 40factories across the country .

In 2002, ITC set up a network of internet-based kiosks, e-choupals, to help thefarmers in their procurement process. The initiative began with the soya growersin Madhya Pradesh and then expanded to cotton, tobacco, shrimp etc. Startingwith six e-choupals in June 2000, ITC's Internet-based, rural initiative had linked6,000 Indian villages with around 1,200 e-choupals by 2002. The setting up ofeach e-choupal entails an investment of Rs 1-3 lakh .The objectives behind e-choupals was to allow single place procurement and purchase point, allowingfarmers to sell their products directly to ITC on the basis of updated currentprices prevailing in the market. This eliminated middlemen and thus helped ITCto cut its costs.


7/49

Under Project Bharat HUL vans visited villages and sold small packs consistingof low unit price pack each of its detergent, toothpaste, face cream and telcompowder for the Rs.15. During the sales company representative also explained tothe people how to use these products with the help of video show. However thecompany realized that the sampling campaign was not enough to attract first time

user. Therefore, It roled out a follow up program called the Integrated ruralpromotion van which further enhanced the awareness about the HUL productsin villages with the population about 2000.

Another program targeted with a population of less then 2000 was launchedunderstanding program, the company provided self employment opportunity tovillages through self help group. It was operated like direct to home distributorwhere in groups of 15-20 villages who were below the poverty line. (Thosepeople whose monthly income less then 750 per month) were provided with anopportunity to take micro products from banks. Using this money villagers couldby HULs product and sell them to consumers thereby generating income as well

as employment for themselves. In May 1999 the company tied up with variousNGOs, UNDEP to increase awareness about health shy gene in villages


8/49

INTRODUCTION

DEFINITION:OF RURAL MARKETING

According to National Commission on Agricultural: Ruralmarketing is a process which starts with a decision to preferable farmcommodity and it involves all the aspects of market structure or system,both functional and institutions, based on technical considerations andincludes pre and post harvest operations, assembling, grading, storage,transportation and distribution. Seventy percent of Indias population, ofapproximately 700 million people, lives in rural areas (moorthi, 2002). Asof the 2000 census, this equates to just under 2.5 times the population ofthe us. A location is defined as rural if at least 75 percent of the

population is agrarian. With such a large number of potentialconsumers, it is clear why multinational corporations would like tosuccessfully penetrate the rural Indian marker.

Features of Indian Rural Markets

Large, Diverse and Scattered Market: Rural market in India is large,and scattered into a number of regions. There may be less number of shopsavailable to market products.

Major Income of Rural consumers is from Agriculture: RuralProsperity is tied with agriculture prosperity. In the event of a crop failure, theincome of the rural masses is directly affected.

Standard of Living and rising disposable income of the rural customers: It is known that majority of the rural population lives below povertyline and has low literacy rate, low per capital income, societal backwardness, lowsavings, etc. But the new tax structure, good monsoon, government regulation onpricing has created disposable incomes. Today the rural customer spends moneyto get value and is aware of the happening around him.

Traditional Outlook: Villages develop slowly and have a traditionaloutlook. Change is a continuous process but most rural people accept changegradually. This is gradually changing due to literacy especially in the youth whohave begun to change the outlook in the villages.

Rising literacy levels: It is documented that approximately 45% ofrural Indians are literate. Hence awareness has increases and the farmers are


9/49

well-informed about the world around them. They are also educating themselveson the new technology around them and aspiring for a better lifestyle.

Infrastructure Facilities: The infrastructure facilities like cementedroads, warehouses, communication system, and financial facilities are

inadequate in rural areas. Hence physical distribution is a challenge to marketerswho have found innovative ways to market their products.

As part of planned economic development, the government is makingcontinuous efforts towards rural development. In this age of liberalization,privatization and globalization, rural market offers a big attraction to themarketers to explore markets that are untapped.

Overview

With 742 million people living in 6,38,000 villages over an area of approximately32.00,000 sq km of land spread across 35 states and union territories- what haveis a colossal rural market beckoning the marketer. If these figures are notdaunting enough consider this: we have more than 18 languages and 650dialects spoken in India with the accent changing distinctly from region to regionwithin the same state. So is the case with the food habits, culture, income levels,literacy and exposure to media thereby proving to be one of the most diversifiedand heterogeneous of markets on a global scale?In the past few years, rural markets have gained significance, as the growth ofIndian economy has resulted into substantial increase in the purchasing power ofthe rural communities. Leaving aside, a few metropolitan cities, all the districts

and industrial townships are connected with rural markets. Rural areas areconsuming a large quantity of industrial and urban manufactured products. Therural regions comprise of the maximum consumers within the country andgenerate more than half of the country's income. In this context, a specialmarketing strategy, namely, rural marketing has emerged.The concept of rural marketing is often found to form ambiguity with agriculturalmarketing. Agricultural marketing involves marketing of produce of the ruralareas to urban or industrial consumers, whereas rural marketing denotesmarketing of manufactured of processed inputs or services to rural producers orconsumers.Some of the important characteristics of Rural Marketing in India are being listed

below:

Various rural development programmes have increased the employmentopportunities for the rural poor.It is neither exploited nor is it completelyexplored.


10/49

The rural market in India is vast and scattered and offers a plethora ofopportunities in comparison to the urban sector. It covers the maximumpopulation and regions and thereby, the maximum number of consumers.

The income level and literacy is low along with the range of traditional

values and superstitious beliefs that have always been a majorimpediment in the progression of this sector.

The steps taken by the Government of India to initiate proper irrigation,infrastructural developments, grants for fertilizers, and various schemes tocut down the poverty line have improved the condition of the rural masses.

In recent years, rural markets have acquired significance, as the overall growthof the economy has resulted into substantial increase in the purchasing power ofthe rural communities.

Rural areas are evolving into strategic market for companies which include notonly domestic but MNCs too. There is great potential that lies in rural market.More and more stress is therefore being given on marketing products. It is veryinteresting to notice that the rural markets are at par with the urban markets. Thecredit for this scenario goes to the marketing policies.

ITC e-Choupal is the greatest example of information technology in ruralmarketing. Launched in June 2000, 'e-Choupal', has already become the largestinitiative in all internet-based interventions in rural India. ITC followed a differentmedia/communication strategy which is more elaborate and extensive in ruralmarketing so far, which benefits both the farmers and the organization. The

strategy use the Information Technology and bridge the information and servicegap in rural India which gives an edge to market its products like seeds, fertilizersand pesticides and other products like consumer goods etc.

They use the e-Choupal to order seed, fertilizer, and other products such asconsumer good from ITC or its partners, at prices lower than those available fromvillage traders. In this Paper we discuss about the role of IT in rural market, e-Chou pal, different strategy, vision and planning behind the e-Chou pal.


11/49

Issue

HUL and ITC is targeting rural market to account for a major share of itsrevenue.the extensive distribution network paired with its innovative products and

its effective pricing can capture the huge interest of rural markets. at the sametime the penetration levels of FMCG in the rural market is less, which along withhigher firm output and firm prices can offer a huge growth potential for HUL andITC.

Impact/Relative of issue

With successful rural marketing projects like Project Shakti and e-chopal .themain emphasis of HUL and ITC s strategy has been to focus on penetrating the

market down the line and focusing on price point. Hindustan Lever ITC reliesheavily on its own company organized media. These promotional eventsorganized by stockists


12/49

Objectives , Scope of study

Scope of study

Mutual benefits of rural entrepreneurs

It will benefit farmers and rural communities

Creation of opportunities for the rural entrepreneurs for productdifferentiation and innovation by offering them choice

Rural products can participate in the benefit of globalization

Objectives and Goals

E-Chou pal aims to provide Indian farmers ready access to crop-specific real-time information and customized knowledge in their native language. By doingso, ITC wants to improves the farmers' decision-making ability, thereby helpingthem to better align their farm output to the projected demand in Indian andinternational markets

HUL, are to create "income-generating capabilities for underprivileged ruralwomen by providing a sustainable micro-enterprise opportunity" and to improverural living standards through "health and hygiene awareness". For HUL, it is"enlightened self-interest". Creating opportunities to increase rural familyincomes puts more money in their hands to purchase the range of dailyconsumption products - from soaps to toothpastes - that HLL makes. It alsoenables HUL access hitherto unexplored rural hinterlands. Says Sehgal, "Welooked at several models of rural distribution, even at the Grameen Bank modelin Bangladesh, before we decided on the pilot in Nalgonda to figure out thismodel. Now the model has been refined based on our learning here and weexpect to roll out quickly in other states."


13/49

Research and Methodology

It is a descriptive research study.

Title of the study

The study is emphasized on the changing scenario of rural market with specialreference HUL and ITC.Study focused on the way how the HUL and ITC attract rural customers towardsitself by launching low price products.

Descriptive Research

It is more rigid than exploratory research and seeks to describe users of aproduct, determine the proportion of the population that uses a product, or predictfuture demand for a product. As opposed to exploratory research, descriptiveresearch should define questions, people surveyed, and the method of analysisprior to beginning of data collection.


14/49

CORE STUDY

Indian Rural Market

An Overview

The Indian rural market with its vast size and demand base offers greatopportunities to marketers. Two-thirds of countries consumers live in rural areasand almost half of the national income is generated here. It is only natural thatrural markets form an important part of the total market of India. Our nation isclassified in around 450 districts, and approximately 630000 villages, which canbe sorted in different parameters such as literacy levels, accessibility, income

levels, penetration, distances from nearest towns, etc.

Few Facts

70 % of India's population lives in 627000 villages in rural areas. According to theNCAER study, there are almost twice as many 'lower middle income' householdsin rural areas as in the urban areas.

At the highest income level there are 2.3 million urban households asagainst 1.6 million households in rural areas.

Middle and high-income households in rural India is expected to grow from80 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 ofurban India.

Opportunity

The above figures are a clear indication that the rural markets offer the greatpotential to help the India Inc which has reached the plateau of their businesscurve in urban India to bank upon the volume-driven growth.

The Indian rural market with its vast size and demand base offers a hugeopportunity that MNCs cannot afford to ignore. With 128 million households, therural population is nearly three times the urban.


15/49

As a result of the growing affluence, fuelled by good monsoons and the increasein agricultural output to 200 million tonnes from 176 million tones in 1991, ruralIndia has a large consuming class with 41 per cent of India's middle-class and 58per cent of the total disposable income.

The importance of the rural market for some FMCG and durable marketers isunderlined by the fact that the rural market accounts for close to 70 per cent oftoilet-soap users and 38 per cent of all two-wheeler purchased.

The rural market accounts for half the total market for TV sets, fans, pressurecookers, bicycles, washing soap, blades, tea, salt and toothpowder, What ismore, the rural market for FMCG products is growing much faster than the urbancounterpart.

The 4A Approach

The rural market may be alluring but it is not without its problems: Low per capitadisposable incomes that is half the urban disposable income; large number ofdaily wage earners, acute dependence on the vagaries of the monsoon;seasonal consumption linked to harvests and festivals and special occasions;poor roads; power problems; and inaccessibility to conventional advertisingmedia.

However, the rural consumer is not unlike his urban counterpart in many ways.

The more daring MNCs are meeting the consequent challenges of availability,affordability, acceptability and awareness (the so-called 4 As).

Availability

The first challenge is to ensure availability of the product or service. India's627,000 villages are spread over 3.2 million sq km; 700 million Indians may livein rural areas, finding them is not easy. However, given the poor state of roads, itis an even greater challenge to regularly reach products to the far-flung villages.

Any serious marketer must strive to reach at least 13,113 villages with apopulation of more than 5,000. Marketers must trade off the distribution cost withincremental market penetration. Over the years, India's largest MNC, HindustanLever, a subsidiary of Unilever, has built a strong distribution system, which helpsits brands reach the interiors of the rural market. To service remote village,


16/49

stockists use auto-rickshaws, bullock-carts and even boats in the backwaters ofKerela.

Study on buying behaviour of rural consumer indicates that the rural retailersinfluences 35% of purchase occasions. Therefore sheer product availability can

affect decision of brand choice, volumes and market share. Some of the FMCGgiants like HUL and ITC took out project streamline to significantly enhance thecontrol on the rural supply chain through a network of rural sub-stockists, whoare based in the villages only. Apart from this to acquire further edge indistribution HUL started Project Shakti and ITC stared e-chopal in partnershipwith Self Help groups of rural women.

Affordability

The second challenge is to ensure affordability of the product or service. With lowdisposable incomes, products need to be affordable to the rural consumer, mostof whom are on daily wages. Some companies have addressed the affordabilityproblem by introducing small unit packs. Hindustan Lever, among the first MNCsto realise the potential of India's rural market, has launched a variant of its largestselling soap brand, Lifebuoy at Rs 2 for 50 gm. The move is mainly targeted atthe rural market.

Acceptability

The third challenge is to gain acceptability for the product or service. Therefore,there is a need to offer products that suit the rural market.

Awareness

Mass media is able to reach only to 57% of the rural population. Creatingawareness then, means utilizing targeted, unconventional media includingambient media .For generating awareness, events like fairs and festivals, Haats,etc., are used as occasions for brand communication. Cinema vans, shop-fronts,walls and wells are other media vehicles that have been utilized to increasebrand and pack visibility. Ideas like putting stickers on the hand pumps, walls ofthe wells putting on tin plates on al the tree surrounding the pond are some of the

innovative media used by personal wash like Lux and Lifebuoy and fabric washitems like Rin and Wheel. Idea was to advertise not only at the point of purchasebut also at the time of consumption.

With large parts of rural India inaccessible to conventional advertising media -only 41 per cent rural households have access to TV - building awareness isanother challenge. Fortunately, however, the rural consumer has the same likesas the urban consumer - movies and music - and for both the urban and rural


17/49

consumer, the family is the key unit of identity. However, the rural consumerexpressions differ from his urban counterpart. Outing for the former is confined tolocal fairs and festivals and TV viewing is confined to the state-ownedDoordarshan. Consumption of branded products is treated as a special treat orindulgence.

Hindustan Lever relies heavily on its own company-organised media. These arepromotional events organised by stockists.

ITC Limited is one of India's leading diversified conglomerates. Traditionally atobacco and cigarette producer, it has grown into a conglomerate dealing inhotels, packaging, agribusiness, information technology, and fast movingconsumer goods (FMCGs). ITC initiated its e-Chou pal project in 2000 tostreamline its dealings with Indian farmers. This is a project on a massive scalethat ultimately aims to cover every sixth Indian village. Each Chou pal coversaround six villages and 36,000 villages have been covered to date in Madhya

Pradesh, Uttar Pradesh, Maharashtra, Rajasthan, Karnataka, and AndhraPradesh.

The HUL Marketing Effort: Transition to Rural Market

HUL's competitive advantage generated from three sources. First it's strong wellestablished brands, second, its local manufacturing capacity and supply chainand third its vast sales and distribution system. It was soon felt that HUL's sales

and distribution system which had protected it from competitors would be soonreplicated by its rivals and to maintain its edge, the company had to increase itsreach beyond the urban markets. So far the operations of HUL included morethan 2,000 suppliers and associates. The distribution network, consisted of 4,000stockists, covering 6.3 million retail outlets reaching the entire urban population,and about 250 million rural consumers .

Typically, the goods produced in each of the HUL's 40 factories were sent to adepot with the help of a carrying and forwarding agent (CFA). The company hadits depot in every state of the country. The CFA was a third party and gotservicing fee for stock and delivery of the products. In each town, there was a

redistribution stockiest (RS) who took the goods from the CFA and sell them toretail outlets. By the late 1990s, the HUL management realized certain problemswith the existing sales model. First, the model was not viable for small towns withsmall population and small business. HUL found it expensive to appoint onestockiest exclusively for each town. Secondly, the retail revolution in the countrychanges the pattern the customers shop. Large retail self service shops wereestablished. In the response of these problems, HUL redesigned its sales anddistribution channel and the new system was known as 'diamond model' in the


18/49

company. At the top end of the diamond, there were the self service retail storeswhich constituted 10% of the total FMCG market. The middle, fatter part of thediamond represented the profit-center based sales team. In the bottom of thepyramid was the rural marketing and distribution which accounted for 20% of thebusiness .

Almost three-fourth of the total 1.2 billion Indian population resided in the ruralareas and majority of them had a very low per capita income (around 44% of thatof urban India) . Urban market had reached the saturation point, thus changingfocus on rural India. In comparison to just 5,161 towns in India there are 6,38,365villages in India [Exhibit I]. Moreover, more than 70% of India's population lived invillages and made a big market for the FMCG industry because of increasingdisposal incomes and awareness level..

The 4Ps of Rural Marketing

Most of the companies treat rural market as a dumping ground for thelower end products designed for an urban audience. But, this scenario is slowlychanging and importance is given to the need of the rural consumer. Hence it isimportant to understand the 4Ps of rural marketing with respect to a ruralconsumer.

1. Product

A product is the heart of rural marketing. It is a need satisfying entity to a

rural consumer. NCAER has classified consumer goods into 3 categories. Thesecategories cover most of the products from Rs. 100 to Rs. 20000 and above.Category I Category II Category III Pressure Cookers 2-in-1 (mono) C TVs (S)Pressure Pans 2-in-1 (stereo) C TVs (R) Mono Cassette Recorders B and W TV(S) VCRs/ VCPs Wrist watches (mechanical) B and W TV (R) Scooters Wristwatches (quartz) Instant Geyser MopedsRadio/Transistors Storage Geysers Motor Cycles Electric irons Sewing MachinesRefrigerators Ceiling Fans Vacuum Cleaners Washing Machines Table FansMixer/grinders Bicycles the hierarchy depends on the needs of the ruralconsumers. Most of the products under category 1 are of immediate use to thefamily. Category 2 products reduce the strain of the households and also act as a

source of entertainment. Category 3 is a combination of means to supplementincome. Rural branding aims at creating and disseminating the brand name sothat it is easily understood and recognized by the rural consumers. In ruralmarkets, brands are almost non-existent. They identifyFMCG by three things:1. Color,2. Visuals of animals and birds and3. Numbers.


19/49

So a 555, 777, hara goli, pila hathi, lal saboon, saphead dantmanjan arethe Kind of terms with which they identify brands. Hence it is very important forus to understand that a lot needs to be done in terms of communications, media,marketing and branding. There are a number of cases which suggest that to sellbrands in the rural market, it is necessary to simultaneously educate the

consumers. If you have to create brand communication, marketing efforts mustbe supported by education. The following have to be kept in mind while themarketer makes a decision on the product. The product for the rural markets hasto be simple, easy to use and provide after sales service or maintenance. Theproduct has to be packed for low price and convenient usage. The pack has tobe easily understood by the rural consumer. The Information on the pack ispreferred in local language communicating the functional benefit of the product.

2. Pricing

A rural customer is price sensitive and shops for value. This is mainly

because of his lower income levels than his urban counterparts. Hence themarketer has to find ways of making the product affordable to the ruralconsumer. Banks offer loans for tractors, pump sets, television sets and so on tomake the product affordable to a rural consumer. Smaller unit packs arepreferred in the case of FMCG products to offer at lower prices. The productpackaging and presentation offers scope for keeping the price low. Educablepacks or refills are also preferred and are seen as value addition.

3. Placement or Distribution

Distribution of products is one of the biggest challenges of rural marketing.

There are WC (Central Warehousing Corporation) and SWCS (StateWarehousing Corporations) set up in rural areas to store and distribute products.

A three tier rural warehousing setup exists:

A. CWC/SWCsB. Co-operativesC. Rural Godsons

CWC and SWCs reach up to the district levels. The co-operatives are atthe mandi evel. The Rural Godowns are at the village level wherein they areowned by panchayat heads. All these tiers provide warehousing facilities only to

their own members. Hence it is a big problem for a company to store its goods inrural areas. There are some problems of rural distribution:

Transportation has not been fully developed.

Lack of proper channels of communication like telephone, postalservices, and so on pose a lot of problem to marketer to service theretailer as it is difficult to the retailers to place order for goods.

Storage of goods in rural areas is also a problem for the marketers.Multiple tiers push up the costs and channel management is a


20/49

major problem for marketers due to lot of middlemen in theprocess.

Availability of suitable dealer.

Poor viability of rural outlets.

Rural outlets need banking support for remittances to principals, get

fast replenishment of stocks, receive supplies through bank andfacilitate credit. This gets handicapped due to inadequate bankfacilities. There are a lot of private shops in the rural sector.

The rural consumers are classified into the following groups based on theireconomic status:

The Affluent Group: They are cash rich farmers and a very few in number. Theyhave affordability but not form a demand base large enough for marketing firms todepend on. Wheat farmers in Punjab and rice merchants of Andhra Pradesh fall inthis group.

The Middle Class:This is one of the largest segments for manufactured goods

and is fast expanding. Farmers cultivating sugar cane in UP and Karnataka fall inthis category.

The Poor:This constitutes a huge segment. Purchasing power is less, but

strength is more. They receive the grants from government and reap the benefitsof many such schemes and may move towards the middle class. The farmers ofBihar and Orissa fall under this category.

Challenges of marketing in Rural area

There are several roadblocks that make it difficult to progress in the ruralmarket. Marketers encounter a number of problems like dealing with physicaldistribution, logistics, proper and effective deployment of sales force and effectivemarketing communication when they enter rural markets. The major problemsare listed below.

Standard of living: The number of people below the poverty line is more inrural markets. Thus the market is also underdeveloped and marketingstrategies have to be different from those used in urban marketing.


21/49

Low literacy levels: The low literacy levels in rural areas leads to aproblem of communication. Print media has less utility compared to the othermedia of communication.

Low per capita income: Agriculture is the main source of income andhence spending capacity depends upon the agriculture produce. Demandmay not be stable or regular.

Transportation and warehousing: Transportation is one of the biggestchallenges in rural markets. As far as road transportation is concerned, about50% of Indian villages are connected by roads. However, the rest of the ruralmarkets do not even have a proper road linkage which makes physicaldistribution a tough task. Many villages are located in hilly terrains that make

it difficult to connect them through roads. Most marketers use tractors orbullock carts in rural areas to distribute their products. Warehousing isanother major problem in rural areas, as there is hardly any organized agencyto look after the storage issue. The services rendered by central warehousingcorporation and state warehousing corporations are limited only to urban andsuburban areas.

Ineffective distribution channels: The distribution chain is not very wellorganized and requires a large number of intermediaries, which in turn

increases the cost and creates administrative problems. Due to lack of properinfrastructure, manufacturers are reluctant to open outlets in these areas.They are mainly dependent on dealers, who are not easily.

Use of Internet

New information technology infrastructure, especially the wireless internet,provides an excellent opportunity to establish direct contact with rural consumers.It can provide inexpensive way to develop distribution channel in rural areas ashas been demonstrated by the success of ITC's e-Choupal, HUL, TARAhaat,Ruralbazaar, to name a few.

Applications in current industry scenario

Over the last five years, some consumer product companies have recognized thepotential of rural markets and invested time and resources to tap into thisopportunity - understanding and segmenting the consumer, based on theirspends and lifestyles.


22/49

Some companies have re-engineered products, pricing and packaging tocustomize features and value relevant for these markets. For instance, LG hasSampoorna, a customized TV; Godrej soaps have introduced 50-gm packs andSamsung has launched Guru - a mobile that can be charged with solar energy.Some players have developed new communication and distribution channels

within the hinterland (HUL's Project Shakti; Tata Tea's 'Gaon Chalo') and somehave created completely new products

The Union Budget for 2010-11 has hiked the allocation under the National RuralEmployment Guarantee Act (NREGA) to US$ 8.71 billion in 2010-11, giving aboost to the rural economy.

Hindustan Unilever Ltd (HUL) is going beyond the Shakti Ammas to drivepenetration in the rural markets. After witnessing a good monsoon which mightlead to increased rural spending, HUL is planning to bring out branded packscalled Bharat,' targeted at the rural hinterland pegged at Rs 25. Considering

nearly half the FMCG behemoth's turnover (Rs 17,524 crore) comes from therural markets, it is now ready to have customised branded packs with lower-priced SKUs to cater specifically to them. According to industry sources, HUL isnow in talks with rural marketing agencies to create a Bharat Pack.' The packwould comprise smaller SKUs costing Rs 4-5, and consist of toothpaste,shampoos, powder and soaps.

In the recent past, HUL has already tried to drive economies of scale by bringingin its entire portfolio that range from giving demos on Lifebuoy soap tohighlighting the grease-cutting technologies of Vim. HUL is choosing to reach outState by State and today has managed to reach out to 50,000 to 60,000 villages

already. Its microfinance programme under Shakti already covers over one lakhvillagesacross 15 States, and reaches over 30 lakh households every month.

List of products & brands

In FMCG, ITC and HUl has a strong presence in:

Cigarettes: W. D. & H. O. Wills, Gold Flake Kings, Gold Flake Premium,

Navy Cut, Insignia, India Kings, Classic (Verve, Menthol, Menthol Rush,

Regular, Mild & Ultra Mild), 555, Benson & Hedges, Silk Cut, Scissors,

Capstan, Berkeley, Bristol, Lucky Strike, Players and Flake.

Foods: (Kitchens of India;Ashirvaad; Minto; Sunfeast; Candyman;Bingo;

Yippee, Sunfeast Pasta brands in Ready to Eat, Staples, Biscuits,

Confectionery, Noodles and Snack Foods);

Apparel: (Wills Lifestyle and John Players brands);
http://en.wikipedia.org/wiki/Tobacco_industryhttp://en.wikipedia.org/wiki/W._D._%26_H._O._Willshttp://en.wikipedia.org/w/index.php?title=Gold_Flake_Kings&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Kitchens_of_India&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Ashirvaad&action=edit&redlink=1http://en.wikipedia.org/wiki/Mintohttp://en.wikipedia.org/w/index.php?title=Sunfeast&action=edit&redlink=1http://en.wikipedia.org/wiki/Candymanhttp://en.wikipedia.org/wiki/Bingohttp://en.wikipedia.org/w/index.php?title=Wills_Lifestyle&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=John_Players&action=edit&redlink=1http://en.wikipedia.org/wiki/Tobacco_industryhttp://en.wikipedia.org/wiki/W._D._%26_H._O._Willshttp://en.wikipedia.org/w/index.php?title=Gold_Flake_Kings&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Kitchens_of_India&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Ashirvaad&action=edit&redlink=1http://en.wikipedia.org/wiki/Mintohttp://en.wikipedia.org/w/index.php?title=Sunfeast&action=edit&redlink=1http://en.wikipedia.org/wiki/Candymanhttp://en.wikipedia.org/wiki/Bingohttp://en.wikipedia.org/w/index.php?title=Wills_Lifestyle&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=John_Players&action=edit&redlink=1


23/49

Personal care: (Fiama di Wills; Vivel; Essenza di Wills; Superia; Vivel di

Wills brands of products in perfumes, haircare and skincare)[2]

Stationery: (Classmate and Paperkraft brands)

Safety Matches and Agarbattis: [Ship (through ownership of WIMCO);

iKno; Mangaldeep; Aim brands]

Other businesses include:

Hotels: ITC's hotels (under brands including ITC Hotel /Welcomhotel) have

evolved into being India's second largest hotel chain with over 80 hotels

throughout the country. ITC is also the exclusive franchisee in India of two

brands owned by Sheraton International Inc.- The Luxury Collection and

Sheraton which ITC uses in association with its own brands in the luxury 5

star segment. Brands in the hospitality sector owned and operated by its

subsidiaries include Fortune and Welcomheritage brands.

Paperboard, Specialty Paper, Graphic and other Paper;

Packaging and Printing for diverse international and Indian clientele.

InfoTech (through its near-wholly owned subsidiary ITC InfoTech India

Limited which is a SEI CMM Level 5 company)

HULs VIM bar, fair nd lovely, Rin and so on.

Rural initiatives

ITC's Agri-Business is India's second largest exporter of agricultural products.ITC is one of the India's biggest foreign exchange earners (US $ 2 billion in thelast decade). The Company's 'e-Choupal' initiative is enabling Indian agriculturesignificantly enhance its competitiveness by empowering Indian farmers throughthe power of the Internet. This transformational strategy, which has alreadybecome the subject matter of a case study at Harvard Business School, isexpected to progressively create for ITC a huge rural distribution infrastructure,

significantly enhancing the Company's marketing reach.

The company places computers with Internet access in rural farming villages; thee-Choupals serve as both a social gathering place for exchange of information(choupal means gathering place in Hindi) and an e-commerce hub. What beganas an effort to re-engineer the procurement process for soy, tobacco, wheat,shrimp, and other cropping systems in rural India has also created a highlyprofitable distribution and product design channel for the companyan e-
http://en.wikipedia.org/w/index.php?title=Fiama_di_Wills&action=edit&redlink=1http://en.wikipedia.org/wiki/Vivelhttp://en.wikipedia.org/w/index.php?title=Essenza_di_Wills&action=edit&redlink=1http://en.wikipedia.org/wiki/Superiahttp://en.wikipedia.org/w/index.php?title=Vivel_di_Wills&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Vivel_di_Wills&action=edit&redlink=1http://en.wikipedia.org/wiki/ITC_Limited#cite_note-1%23cite_note-1http://en.wikipedia.org/wiki/Classmatehttp://en.wikipedia.org/w/index.php?title=Paperkraft&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=WIMCO&action=edit&redlink=1http://en.wikipedia.org/wiki/Hospitality_industryhttp://en.wikipedia.org/w/index.php?title=ITC_Hotel&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Sheraton_International&action=edit&redlink=1http://en.wikipedia.org/wiki/ITC_Infotechhttp://en.wikipedia.org/wiki/Agribusinesshttp://en.wikipedia.org/wiki/Harvard_Business_Schoolhttp://en.wikipedia.org/w/index.php?title=Fiama_di_Wills&action=edit&redlink=1http://en.wikipedia.org/wiki/Vivelhttp://en.wikipedia.org/w/index.php?title=Essenza_di_Wills&action=edit&redlink=1http://en.wikipedia.org/wiki/Superiahttp://en.wikipedia.org/w/index.php?title=Vivel_di_Wills&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Vivel_di_Wills&action=edit&redlink=1http://en.wikipedia.org/wiki/ITC_Limited#cite_note-1%23cite_note-1http://en.wikipedia.org/wiki/Classmatehttp://en.wikipedia.org/w/index.php?title=Paperkraft&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=WIMCO&action=edit&redlink=1http://en.wikipedia.org/wiki/Hospitality_industryhttp://en.wikipedia.org/w/index.php?title=ITC_Hotel&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Sheraton_International&action=edit&redlink=1http://en.wikipedia.org/wiki/ITC_Infotechhttp://en.wikipedia.org/wiki/Agribusinesshttp://en.wikipedia.org/wiki/Harvard_Business_School


24/49

commerce platform that is also a low-cost fulfillment system focused on theneeds of rural India. The e-Choupal system has also catalyzed ruraltransformation that is helping to alleviate rural isolation, create moretransparency for farmers, and improve their productivity and incomes.

HLL product /Brand profile

Personal care

1. skin care: fair&lovely,ponds2. oral care: pepsodent,close up3. hair care: sunsilk,clinic plus4. deodorant: axe

Soap & Detergent

1. fabric wash : surf,Rin,wheel2. personal wash : lifebuoy,lux,breeze3. household care : vim

Food & Bewerages

1. ice cream : quality walls-cornetto2. ice cream : quality walls-feast3. ice cream : quality walls-max

Popular Foods

1. Annapurna2. Kissan3. Brook bond three roses

4. Brook bond Red Label5. Brook bond A-one6. Brook bond Tajmahal7. Lipton Tazza8. Lippton Yellow label

HUL Project Shakti to cover all Rural India


25/49

Consumer products giant Hindustan Lever Ltd (HLL) is quietly working on amammoth task of reaching out to the last rural consumer in the deepest part ofIndia's hinterland. The mission: to deepen its roots and cover the whole of ruralIndia by the end of 2005. The vehicle: Project Shakti.

As part of its new ventures, Project Shakti had initially started operating in ruralparts of Andhra Pradesh, empowering women through self-help groups toincrease awareness of HLL's products. The project has now been extended toMadhya Pradesh, Gujarat, Karnataka, Tamil Nadu, Chattissgarh, Uttar Pradeshand Orissa, which, as planned, will cover 100 million rural population.

"Project Shakti will be our vehicle to deepen our rural reach to the entire ruralIndia,"said by MS Banga, chairman, HLL, told FE.

HLL has married its rural penetration programme with Project Shakti to achieve

better results, as coverage through the stockist route will not be as effective asusing the rural women folk as agents for marketing its products, in a mannerwhich is similar to door-to-door sellig

"In 10 years from today, Project Shakti will contribute in a major way to HLL'ssales," said Mr Banga.

HLL currently draws a larger sales contribution from the urban market, of about60 per cent, even as the Rs 10,138 crore maker of Lifebuoy, Surf Excel and Luxis considered to have the largest rural backbone its key strength amongconsumer product companies. Launch of this major mega offensive to increaserural penetration to 100 per cent would eventually lead to HLL's salescontribution coming from the rural market to go well beyond 50 per cent.Statistics show that there are over six lakh villages in India, with a population ofover 650 million.

The multinational had about six years back launched Project Bharat, a massiverural sampling initiative in two phases. According to Mr Banga, the current planwill be at a much more larger scale as compared to Project Bharat.

The company had earlier also launched Operation Streamline to further increaseits rural reach with the help of rural sub-stockists. It had appointed 6,000 suchsub-stockists, with the distribution network directly covering about 50,000 villagesreaching about 250 million consumers.

Since 70 per cent of the country's population resides in rural India, penetrationinto this critical market is every marketer's dream.

Brand extension of HUL


26/49

Hindustan Lever Limited (HUL) Plans to lead the development of the brandedfood market by upgrading consumers from unbranded commodities to superiorbranded products. By doing this, the company hopes that the popular fooddivision would emerge as the largest division of the company.Relentless

creativity leading to innovation will be the companys strategy for its growth. Thecompany currently markets the Kissan Annapurna iodized salt and wheat atta inthe Indian market. The company also plans to extend the Kissan brand into awhole range of food products..

(a) MultiBranding:A company may introduce several brands in a productline with different features to appeal to different categories in the same customergroup. Many FMCG companies follow this strategy.

Benefits include:

Flanking of the major brand Occupying more shelf space of retailers Gaining more profits

Disadvantages include:

Each brand may have a small market share Cannibalization of some brands of the company High development costs as many brands are to be developed.

Company Product Group Multi-brands

HLL Soaps Lifebuoy, Liril, LuxGodrej Soaps Cinthol, Ganga, Marvel, Fair flow

(b) CoBranding: Today, we find offers with two or more brands of the samecompany or different companies. When a marketer offers one brand with anotherbrand of the same company or another company it is called co-branding. Suchoffers may take two different forms-(i) Ingredient co-branding

(ii) Product co-brandingIngredient co-branding takes place when-

The maker of the parts. to he visible to the market and to gain image for thebrand, insists on publicizing it.

The part is important and the maker has an image that enhances theconsumer acceptance of the ultimate product, and when


27/49

Competitors are following such practices

(c) Brand Image/Equity Management: When brands are effectivelymanaged they acquire value and become assets with good-will. Effectivebrand image management involves. Enhancing brand personality Protecting

brand identity.

(d) Brand personality: Like a person then, brand is a psychosocial beinghaving an appearance, emotional feelings and rational behaviors. Brandpersonality can therefore be described at three levels.

(e) Sensory: How would the brand see, smell, taste, touch, and hear if it is aperson? What are its demographics? Is it having an attractive and sociallyacceptable personality? EmotionalIf a brand were to become an emotion whatwould it be? What are the underlying subjective, non-functional, emotions of thebrand? Is it trustworthy? Is it a desirable companion?

Selling in Rural India

A HARSH summer sun beats down mercilessly on the drive to Nalgonda districtin Andhra Pradesh. The rocky landscape is parched, scorched by successiveyears of drought. The destination is Peddakaparthy village, 65 kms fromHyderabad, and the seat of a brave new experiment by fast moving consumergoods major, Hindustan Lever Ltd (HLL), undaunted by the vagaries of nature, agroup of village women are attempting to bring about a transformation in theirlives. Through a combination of micro-credit and training in enterprisemanagement, these women from self-help groups have turned direct-to-homedistributors of a range of HLL products and helping the company plumb hithertounexplored rural hinterlands.

From the time HLL's new distribution model, named Project Shakti, was piloted inNalgonda district in 2001, it has been scaled up and extended to over 5,000villages in 52 districts in AP, Karnataka, Gujarat and Madhya Pradesh witharound 1,000 women entrepreneurs in its fold. The vision is ambitious: to createby 2010 about 11,000 Shakti entrepreneurs covering one lakh villages andtouching the lives of 100 million rural consumers.

The benefits and working of project shakti are: Catalyst was part of a media team

that HLL invited to visit Peddakaparthy village to see Project Shakti at work. Theteam visits the house of Jella Sujathamma, whose spouse is a weaver whoweaves the famous Pochampally sarees of AP. However, her income was notenough for her family, which includes three children.

Five years ago, Sujathamma had joined a self-help group (SHG), formed by thedistrict rural development authority. HLL has operated Project Shakti throughthese self-help groups; AP was chosen for the pilot project as its has the most


28/49

number and better established SHGs - there are about 4.36 lakh SHGs in APcovering nearly 58.29 lakh rural women. C.S. Ramalakshmi, Commissioner,Women Empowerment & Self employment, Govt of AP, points out that AP alonehas about half of the SHGs organised in the country. Says Pradeep Kashyap,Managing Director, Marketing & Research Team (MART): "This network has

ensured that AP is the incubator for all our experiments in working out newmodels of distribution of FMCGs and other products." MART, an organizationwhich works in the social sector, implements the on-ground activities for manycompanies wanting to work the rural sector, including HLL. The likes ofSujathamma, among the first Shakti entrepreneurs, have been chosen fromthese SHGs. She, HLL officials explain, is a shining example of the success ofthe model - Sujathamma, on an initial loan of Rs 10,000 from her SHG to startthe enterprise, has a turnover of Rs 10,000-Rs 25,000 a month earns a profit ofRs 750-Rs 2,000 a month, an average return of 8 per cent. Besides, she nowalso sells staples, sugar, edible oil and a variety of other household items.

The Indian rural market with its vast size and demand base offers a huge Opportunity that

MNCs cannot afford to ignore. To expand the market by tapping the countryside, moreand more MNCs are foraying into India's rural markets. Among those that have made

some headway are Hindustan Lever, Coca-Cola, LG Electronics, Britannia, Standard

Life, Philips, Colgate Palmolive and the foreign-invested telecom companies.

I shakti

The Current Scenario

The model was piloted in Nalgonda district of Andhra Pradesh in 50 villages inthe year 2000. The Government of Andhra Pradesh took the pioneering step ofsupporting the initiative by enabling linkages with the network of DWACRAGroups of rural women set up for their development and self-employment. Most


29/49

SHG women view Project Shakti as a powerful business proposition and arekeen participants in it. It has since been extended to in Andhra Pradesh, Bihar,Chhattisgarh, Gujarat, Haryana, Jharkhand, Karnataka, Madhya Pradesh,Maharashtra, Orissa, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh and WestBengal with the total strength of over 40,000 Shakti Entrepreneurs. Other

activities: To improve the business skills of the SHG women, Extensive trainingprogrammes are being held. Such workshops have already covered a largenumber of Shakti Entrepreneurs in Andhra Pradesh, Karnataka, Gujarat, MadhyaPradesh, Uttar Pradesh, Tamil Nadu, Chhattisgarh and Orissa.

As part of their training programme, all HUL Management Trainees spend about4 weeks on Project Shakti in rural areas with NGOs or SHGs. Assignmentsinclude business process consulting for nascent enterprises engaged in themanufacture of products such as spices and hosiery items.

A key factor that has inhibited the development of rural India has been lack ofaccess to critical information and services. As we know, India has large

geography and weak infrastructure; it is often difficult to reach out to the ruralareas.

In order to impact both livelihood opportunities and living standards of ruralcommunities i-Shakti - an IT-based rural information service has beendeveloped to provide information and services to meet rural needs in agriculture,education, vocational training, health and hygiene. The premise of the i-Shaktimodel is to provide need based demand driven information and services across alarge variety of sectors that impact the daily livelihood opportunities and livingstandards of the village community. The i-Shakti kiosk will be operated by theShakti Entrepreneur, which further strengthens the relationship we have alreadycultivated and builds new capacity. HUL expects that the information providedwould improve the productivity of the rural community and unlock economic andsocial progress.Introduction

e-Choupal is an initiative of ITC Limited (a large multi business conglomeratein India) to link directly with rural farmers for procurement of agricultural /aquaculture produce like soybeans, wheat, coffee, etc. The company hasinitiated an e-Choupal effort that places computers with Internet access in ruralfarming villages; the e-Choupals serve as both a social gathering place forexchange of information (choupal means gathering place in Hindi) and an e-commerce hub.

e-Choupal is a Hindi word which means village meeting place. Market is ameeting place where vendors and customers come together to do transactions.e-Choupal is avirtual market place where farmers can transact directly with aprocessor and can realize better price for their produce. e-Choupal has theadvantages of the market but spans very large varieties of vendors andcustomers. Geographical distances do not restrict participation in the e-Choupal.The main disadvantage of conventional market is that information asymmetry is


30/49

inherent in the market where as e- Choupal provides for transparent transactions.This enables the participation of smaller as well as larger players. Elimination ofsome layers of intermediaries allows for larger share of profits to reach the lowerend of value chain. The main attractiveness of e-Choupal is that it can be usedfor connecting large producers/small producers and small users/large users,

thereby eliminating the need for hierarchy of brokers. Internet is used as a lowtransaction cost backbone for communication. Physical delivery of produce to theprocessor is still done through the existing intermediaries. e-Choupal does notattempt total elimination of intermediaries, as intermediaries are indispensable ineconomy like India

where intermediaries are adding value to the every step of value chain at alow cost. Intermediaries have the expertise in storage, transportation, qualityassessment and counter party risk reduction, which are difficult to replicate. eSHG Bank Linkage

A most notable milestone in the SHG movement was when NABARD launchedthe pilot phase of the SHG Bank Linkage programme in February 1992. This wasthe first instance of mature SHGs that were directly financed by a commercialbank. The informal thrift and credit groups of poor were recognized as bankableclients. Soon after, the RBI advised commercial banks to consider lending toSHGs as part of their rural credit operations thus creating SHG Bank Linkage.The linking of SHGs with the financial sector was good for both sides. The bankswere able to tap into a large market, namely the low-income households,transactions costs were low and repayment rates were high. The SHGs wereable to scale up their operations with more financing and they had access tomore credit products.

Advantages of SHGs (Self Help Groups)

An economically poor individual gains strength as part of a group. Besides,financing through SHGs reduces transaction costs for both lenders andborrowers. While lenders have to handle only a single SHG account instead of alarge number of small-sized individual accounts, borrowers as part of an SHG cutdown expenses on travel (to & from the branch and other places) for completingpaper work and on the loss of workdays in canvassing for loans.In other words the organization provides micro loans and a package of services,including self help groups (SHG) for economic empowerment, education, sharing

lessons learned and presumably networking.Additionally, they are used to create an ecosystem for wealth creation and bearsome elements of self-organizing, given they are bottom up in nature. Thesegroups can help overcome some of the pitfalls of launching a new business andare sometimes integrated as part of the overall debt repayment model.


31/49

Vision and Planning Behind the e-Choupals

Implementing and managing e-Choupals is a significant departure fromcommodities trading. Through its tobacco business, ITC has worked agriculture

for decades, from research to procurement to distribution. ITC stranslation of thetactical and strategic challenges it faced and its social commitment into abusiness model demonstrates a deep understanding of both agrarian systemsand modern management. The principles followed inimplementing the e-Choupals are-

Re-engineer, Not Reconstruct

Present Mandi system have some success factors in it. ITC decided to build eChoupal on existing system. Already ITC has trading agents in local mandis forits tobacco business. It retained the e_cient providers and created roles forine_cient people. It recruites and engages members of landscape therebymaking their expertise available to ITC. With this principle ITC can avoid thereinventing the system in areas where it can add no value with its presence i.e.,in areas where e_cient agents are there.


32/49

Address the Whole, Not Just One Part

The farmers various activities range from procuring inputs to selling produce.Currently, the village trader services the spectrum of farmers needs. He is acentralized provider of cash, seed, fertilizer, pesticides, and also the only

marketing channel. As a result, the trader enjoys two competitive bene_ts. First,his intimate knowledge of the farmer and village dynamics allow him toaccurately assess and manage risk. Second, he reduces overall transactioncosts by aggregating services. The linked transactions reduce the farmers overallcost in the short term, but create a cycle of exploitative dependency in the long-term. Rural development e_orts thus far have focused only on individual piecesrather than what the entire community needs. Cooperatives have tried to provideagricultural inputs, rural banks have tried to provide credit, and mandis have triedto create a better marketing channel. These e_orts cannot compete against thetraders bundled o_er. Functioningas a viable procurement alternative, therefore,must eventually address a range of needs, not just the marketing channel. ITC e-

Chopal provide services as a bundle what the entire agricultural communityneeds.

An IT-Driven Solution

Delivery of real-time information independent of the transaction. In the mandisystem, delivery, pricing, and sales happen simultaneously, thus binding thefarmer to an agent. E-Choupal was seen as a medium of delivering criticalmarket information independent of the mandi, thus allowing the farmer anempowered choice of where and when to sell his crop.

Risk analysis & challenges

1. Radical shifts in computing access will break community-basedbusiness models.

2. The sanchalaks are ITCs partners in the community, and as theirpower and numbers increase, there is a threat of unionization andrent extraction.

3. The scope of the operation: the diversity of activities requiredofevery operative and the speed of expansion create real threatstoe_cient management.

4. If ITC fails to ful_ll the aspirations of farmers, they will lookelsewhere for satisfaction.

Woking of Project Shakti

Typically, a woman from a SHG selected as a Shakti entrepreneur receivesstocks at her doorstep from the HLL rural distributor and sells direct toconsumers as well as to retailers in the village.


33/49

Each Shakti entrepreneur services 6-10 villages in the population strata of 1,000-2,000 people -

Typically, as Sehgal points out, a Shakti entrepreneur sets off with 4-5 chief

brands from the HLL portfolio - Lifebuoy, Wheel, Pepsodent, Annapurna salt andClinic Plus. "These are the core brands, they we layer it with whatever else is indemand like talcum powder or Vaseline during winters," elaborates Sehgal.These brands apart, other brands which find favour with a rural audience are:Lux, Ponds, Nihar and 3 Roses tea. Typically, unit packs are small. All thebrands are national and HLL is cool to the idea of creating a rural-specific brandas it will only dissipate the advertising media effort for the brands. To get startedthe Shakti woman borrows from her SHG and the company itself chooses onlyone person. With training and hand-holding by the company for the first threemonths, she begins her door-to-door journey selling her wares.

The impact is slow and HLL too is not expecting any quick returns on this project.In Andhra, so far, since the experiment began, HLL has seen 15 per centincremental sales from rural Andhra, which contributes 50 per cent to overallsales from Andhra of HLL products. But analysts see this rural foray assomething the company has got to do. As Nikhil Vora, Sr. Vice President ofresearch group ASK Raymond James explains, if there is one company take onthe onus of developing the rural markets, it's HLL. Says he: "HLL contributes 20per cent of the total FMCG business in the country. So, clearly, the onus is onHLL to grow the market. Returns may not happen in the next five years, but a lotof consumer understanding and insights comes from an exercise like ProjectShakti, which in turn can lead to product innovation."

An analyst with a leading brokerage points out that a lot of HLL's rural initiativesin the recent past have not paid off because of poor rural incomes. But, amonsoon revival and greater rural incomes can mean payback time for projectslike Shakti. "Large companies like HLL have to push greater into rural areas.Brand loyalty is declining among urban consumers; they're looking mostly forconsumer promos; regional brands too are snapping at their heels. So, to attaingrowth, going rural has become an imperative," she says. Concurs K.N. SivaSubramanian, Sr. Vice President, Franklin Templeton India Ltd: "The (HLL)management had recognised the impending saturation of the urban marketssome time back and launched aggressive plans to capture the rural markets.However, a slowdown in the agricultural sector resulted in rural incomesremaining flat and affecting sales. We believe that by targeting lower price pointsand further expanding the distribution network, companies can tap the potentialof rural markets. Initiatives like Project Shakti will help them in establishing andconsolidating their base in rural markets." Regional brands, or even larger FMCGcompanies, do not have the kind of distribution reach that HLL has establishedand in the long run, that could prove a winner for HLL, according to analysts.


34/49

Vision and Planning Behind the e-Choupals

Implementing and managing e-Choupals is a significant departure fromcommodities trading. Through its tobacco business, ITC has worked agriculturefor decades, from research to procurement to distribution. ITCs translation of the

tactical and strategic challenges it faced and its social commitment into abusiness model demonstrates a deep understanding of both agrarian systemsand modern management. The principles followed inimplementing the e-Choupals are-

Re-engineer, Not Reconstruct

Present Mandi system have some success factors in it. ITC decided to build e-Choupal on existing system. Already ITC has trading agents in local mandis forits tobacco business. It retained the e_cient providers and created roles forine_cient people. It recruites and engages members of landscape thereby

making their expertise available to ITC. With this principle ITC can avoid thereinventing the system in areas where it can add no value with its presence i.e.,in areas where e_cient agents are there.

Address the Whole, Not Just One Part

The farmers various activities range from procuring inputs to selling produce.Currently, the village trader services the spectrum of farmers needs. He is acentralized provider of cash, seed, fertilizer, pesticides, and also the onlymarketing channel. As a result, the trader enjoys two competitive bene_ts. First,

his intimate knowledge of the farmer and village dynamics allow him toaccurately assess and manage risk. Second, he reduces overalltransaction costs by aggregating services. The linked transactionsreduce the farmers overall cost in the short term,but create a cycle ofexploitative dependency in the long-term. Rural development e_ortsthus far have focused only on individual pieces rather than what theentire community needs. Cooperatives have tried to provideagricultural inputs, rural banks have tried to providecredit, and mandishave tried to create a better marketing channel. These e_orts cannotcompete against the traders bundled o_er. Functioning as a viableprocurement alternative, therefore, must eventuallyaddress a range of

needs, not just the marketing channel. ITC e-Chopal provide servicesas a bundle what the entire agriculturalcommunity needs.

An IT-Driven Solution

Delivery of real-time information independent of the transaction. In the mandisystem, delivery, pricing, and sales happen simultaneously, thus binding thefarmer to an agent. E-Choupal was seen as a medium of delivering critical


35/49

market information independent of the mandi, thus allowing the farmer anempowered choice of where and when to sell his crop .

Risk analysis & challenges

1. Radical shifts in computing access will break community-basedbusiness models.

2. The sanchalaks are ITCs partners in the community, and as their\power and numbers increase, there is a threat of unionizationand rent extraction.

3. The scope of the operation: the diversity of activities required ofevery operative and the speed of expansion create real threatsto e_cient management.

4. If ITC fails to full the aspirations of farmers, they will lookelsewhere for satisfaction.

Strategies to be followed

(1). Adopt the ability to determine the grades of the crop (grains) inthe eld which commands the price premium for the crop. e.g: Wheat

(2). Build the concept of traceability into the supply chain which willallow to address the food safety concerns. e.g: For perishables such as

shrimps, which decays quickly within short period of time, it need todone standards of production and product quality.

(3). Provide the service as market-place for commodities where ITC isnot a sole buyer. It will reduce the operational cost of e-Choupal suchas IT infrastructure and transaction costs. e.g: co_ee grains.

(4). Marketing value added products and services to rural INDIA, inaddition to marketing agri inputs, through e-Choupal system.

(5). Sourcing IT-enabled services from rural INDIA. Telemedicine,

ecotourism , traditional medicine and traditional crafts are some of theservices that can be sourced from rural INDIA.

Features of Indian Rural Markets:


36/49

Large, Diverse and Scattered Market: Rural market in India is large, andscattered into a number of regions. There may be less number of shops availableto market products.

Major Income of Rural consumers is from Agriculture: Rural Prosperity is tied

with agriculture prosperity. In the event of a crop failure, the income of the ruralmasses is directly affected.

Standard of Living and rising disposable income of the rural customers: It isknown that majority of the rural population lives below poverty line and has lowliteracy rate, low per capital income, societal backwardness, low savings, etc. Butthe new tax structure, good monsoon, government regulation on pricing hascreated disposable incomes. Today the rural customer spends money to getvalue and is aware of the happening around him.

Traditional Outlook: Villages develop slowly and have a traditional outlook.

Change is a continuous process but most rural people accept change gradually.This is gradually changing due to literacy especially in the youth who have begunto change the outlook in the villages.

Rising literacy levels: It is documented that approximately 45% of rural Indiansare literate. Hence awareness has increases and the farmers are well-informedabout the world around them. They are also educating themselves on the newtechnology around them and aspiring for a better lifestyle.

Diverse Socioeconomic background: Due to dispersion of geographical areasand uneven land fertility, rural people have disparate socioeconomic background,which ultimately affects the rural market.

Infrastructure Facilities: The infrastructure facilities like cemented roads,warehouses, communication system, and financial facilities are inadequate inrural areas. Hence physical distribution is a challenge to marketers who havefound innovative ways to market their products. As part of planned economicdevelopment, the government is making continuous efforts towards ruraldevelopment. In this age of liberalization, privatization and globalization, ruralmarket offers a big attraction to the marketers to explore markets that areuntapped.

Impact of globalization

Globalization will have its impact on rural India also. It will be slow. It will have itsimpact on target groups like farmers, youth and women. Farmers, today 'keep intouch' with the latest information and also look up what is happening globally.Price movements and products' availability in the international market placeseem to drive their local business strategies. On youth its impact is on knowledgeand information and while on women it still depends on the socio-economic


37/49

aspect. The marketers who understand the rural consumer and fine tune theirstrategy are sure to reap benefits in the coming years. The leadership in anyproduct or service is linked to leadership in the rural India except for few lifestyle-based products, which depend on urban India mainly. There has been asubstantial increase in the penetration of consumer durables in the Indian rural

sector. One thirds of the premium luxury goods are now sold in the rural market.Two thirds of the middle-income households are now in the rural market.

Digital transformation

The following have been some of the initiatives of e-choupal:

ITC began the silent e-volution of rural India with soya growers in the villages of Madhya Pradesh. For the first time, the stereotype image of the farmer on hisbullock cart made way for the e-farmer, browsing the e-Choupal website.Farmers now log on to the site through Internet kiosks in their villages to order

high quality agri-inputs, get information on best farming practices, prevailingmarket prices for their crops at home and abroad and the weather forecast allin the local language. In the very first full season of e-Choupal operations inMadhya Pradesh, soya farmers sold nearly 50,000 tons of their produce throughthe e- Choupal Internet platform, which has more than doubled since then. Theresult marks the beginning of a transparent and cost-effective marketing channel.

Farmers grow wheat across several agro-climatic zones, producing grains of varying grades. Though these grades had the potential to meet diverseconsumer preferences, the benefit never trickled down to the farmers, becauseall varieties were aggregated as one average quality in the mandis. ITC's e-

Choupal intervention helped the farmers discover the best price for their qualityat the village itself. The site also provides farmers with specialised knowledge forcustomising their produce to the right consumer segments. The new storage andhandling system preserves the identity of different varieties right through the'farm-gate to dinner-plate' supply chain encouraging the farmers to raise theirquality standards and attract higher prices.

ITCs Aqua Care Centre in Kakinada, Andhra Pradesh, has revolutionized the concept of shrimp seed testing. Its sophisticated laboratory detects the deadlyWhite Spot virus in the shrimp seed and advises farmers on appropriate remedialaction.

echoupal.com has become popular among coffee growers as an effective platform for global trade. Coffee planters in India have for years been tossedbetween the highs and lows of the international coffee market. The informationneeded to manage risks in the volatile global coffee market, price updates andprevalent trends in coffee trading were just not available to them. Launch of e-Choupal.com has equipped India's coffee planters with appropriate knowledgebase and risk management tools. The site arms them with the latest prices


38/49

posted on commodity exchanges like CSCE in New York and LIFFE in London.Planters have access to technical analysis by experts to help them comprehendtrends, trading ranges and chart patterns in simple language. 'Parity Chart' andthe 'Calculator' on the site convert the coffee prices quoted in internationalauctions into raw coffee equivalent for the benefit of the small growers in India.

Tradersnet, a special link on the site, brings together a large number of coffeeplanters, traders and roasters, creating a virtual market for transparent pricediscovery. ITC empowers Indian coffee growers with expert knowledge inlogistics and risk management, thereby enabling them to face global competition.ITC has shown how the rural market can be tapped for mutual benefit of thecustomer and the marketer. Hence, a Rural Information System caters mainly toagricultural marketing. All the above examples give us an idea of what thegovernment and other organizations are doing to help in agricultural marketing.

Multistage Price Determination Process:

The marketing manager knows that the 'cost-plus a reasonable profit' doctrine isself-defeating. Pricing strategy must be based on the consumer (on the demandside), just as strategies on product distribution and promotion are based on theconsumer. Of course, costs (the supply side) are not forgotten but they are givenproper place in the pricing process. Pricing process must start in the market, inthe circle of exchange. Decisions on pricing are taken in the light of marketingopportunities, competition and many other variables influencing pricing. The pricedecisions must take into account all factors affecting both demand price andsupply price. The price determination process involves the following steps: 1.Market segmentation, 2. Estimate of total demand, 3. Market share, 4. Designing

the marketing mix, 5. Estimate of total costs, 6. Selecting pricing policies, 7.Determining pricing strategies, 8. Developing the price structure!

1. Market Segmentation:On the basis of market opportunity analysis andassessment of firms' strengths and weaknesses marketers will find out specificmarketing targets in the form of appropriate market segments. There should be aperfect match or a kind of marriage between the firm and its market. Marketerswill have firm decisions on: (a) the type of products to be produced or sold, (b)the kind of service to be rendered, (c) the costs of operations to be estimated,and (d) the types of customers or market segments sought.

2.Estimate of Demand: Marketers will estimate total demand for theproducts. It will be based on sales forecast, channel opinions and degree ofcompetition in the market. Prices of comparable rival products can guide us inpricing our products. We can determine market potential by trying different pricesin different test markets. Once we know the expected prices, we can computesales volume at several prices.


39/49

3.The Market Share: Marketers will choose a brand image and" the desiredmarket share on the basis of competitive reaction. Market planners must knowexactly what his rivals are charging. Level of competitive pricing enables the firmto price above, below, or at par and such a decision is easier in many cases.Higher initial price may be preferred if you anticipate a smaller market share,

whereas if you expect a much larger market share for your brand, you will haveto prefer relatively lower price. Proper pricing strategy is evolved to reach theexpected market share either through skimming price or through penetrationprice or through a compromise, i.e., fair trading, or fair price to cover cost ofgoods, operating expenses and normal profit margin.

4. The Marketing Mix: The overall marketing strategy is based on anintegrated approach to all the elements of marketing mix. It covers: l.Productmarket strategy, 2. promotion strategy, 3. pricing strategy, and 4.Distribution strategy. All elements of the marketing mix are essential to theoverallsuccess of the firm. Marketers will have to assign an appropriate role to

price as an element of the marketing mix. Price plays an important role in relationto and in support of other elements of the marketing mix. Promotional strategywill affect pricing decisions. The design of the marketing mix can indicate the roleto be played by pricing in relation to promotion and distribution p strategicelement of the marketing mix as it influences the quality perception and enablesproduct or brand positioning. It is also a good tactical variable. Changes in pricecan be made much faster than in any other variable of marketing mix. Hence,price has a good tactical value.

5. Estimate of Costs: Straight cost-plus pricing is not desirable always as it isnot sensitive to demand. Marketing must take into account all relevant costs as

well as price elasticity of demand, if necessary, through market tests.

6. Pricing Policies: Price policies provide the general framework within whichmanagerial decisions are made on pricing. Pricing policies are guidelines to carryout pricing strategy. Pricing policy may desire to meet competition or we mayhave pricing above or below the competition. We may have fixed or flexiblepricing policies. Pricing policies must change and adapt themselves with thechanging objectives and changing environment.

7. Pricing Strategies: Pricing policies are general guidelines for recurrent androutine issues in marketing. Strategy is a plan of action (a movement or counter

movement) to adjust with changing conditions of the market place. New andunanticipated developments may occur, e.g., price-cut by rivals, governmentregulations e.g., (mandatory Environment Audit) economic recession, fluctuationsin purchasing power of consumers, changes in consumer demand, and so on.Situations like these demand special attention and relevant adjustments in ourpricing policies and procedures.


40/49

8.The Price Structure: Developing the price structure on the basis of pricingpolicies and strategies is the final step in price determination process. Thepriceolicies. Price structure will now define selling prices for all products andpermissible discounts and allowances to be given to middlemen as well asvarious types of buyers.

In recent years, rural markets of India have acquired significance, as the overallgrowth of the Indian economy has resulted into substantial increase in thepurchasing power rural communities. On account of green revolution, the ruralareas are consuming a large quantity of industrial and urban manufacturedproducts. In this context, a special marketing strategy, namely

Documents

Changing Senerio of Rural Mktng