Rural Marketing

Learning ObjectivesConceptual clarity about fundamental Rural

Marketing concepts: Rural and Rural Marketing.

Learn about evolution of Rural Marketing in India

Comprehend the Rural Marketing process as Rural Marketing Model

Comparative analysis of Rural vs. Urban Marketing

RuralCensus of India (2001), defines rural as, that what

is not urban. Urban is: All locations with a municipality/

corporation, cantonment board or a notified town area committee. All other locations satisfying all the following Criteria:

a) Minimum population of 5,000. b) At least 75 percent of male workforce engaged in non-agricultural activities and c) Population density of over 400 persons per sq

km

Definition of Rural by Marketing WorldMost FMCG and Agri-input companies define

rural as a place with the population up to 20,000.

Consumer Durable companies consider any town

with population below 50,000 as a rural. Some MNCs define rural/semi urban area as all

cities other than seven metros. Rural in marketing parlance is also defined as an

area, which begins where the controllable distribution and media reach ends.

Rural Urban ContinuumCustomers in India have also been divided into

three broad groups in terms of geography and sociological characteristics (Jha, 2003): a) Urban b) Rural c) Rurban

Rurban being the overlap between the two, with

pretensions to being closer to urban in physical features and proximity to large urban centers, but with deep rural sociological moorings.

Rural MarketingPlanning and implementation of marketing

function for the rural areas.

It is a two way marketing process, which encompasses the performance of business activities that direct the flow of goods from urban to rural areas (for manufactured goods) and vice-versa (for agriculture produce) and also within the rural areas (Gopalaswamy, 2005).

Rural Marketing It is a distinct specialization of marketing

discipline, which encompasses customized application of marketing tools and strategies to understand the psyche of rural consumer in terms of needs, tailoring the products to meet such needs and effectively delivering them to enable profitable exchange of goods and services to and from the rural market.

Rural Marketing Scope: Flow of Goods and Services (Mithileshwar, 2003)

From/To Rural Urban

Urban

1. Consumables & Durable Agricultural Inputs2. Consumables3. Consumer Durables

Not concerned

Rural1. Rural Artisans Services & Products

1. Agricultural & Allied

Production 2. Rural Artisans &

Rural Industry

Products

Phased Evolution of Rural Marketing

Phase

Time period PurposeMajor

ProductsSource Market

Target Market

I

Since independence but

before Green Revolution

Agricultural Marketing

Agricultural produce

Rural Urban

II

Green Revolution to Pre-

liberalisation period

Marketing of Agri-inputs

Agricultural inputs

Urban Rural

IIIPost-liberalisation

period in 20th century

Rural Marketing

Consumables and durables

for consumption and production

Urban & Rural

Rural

IV 21st centuryDevelopmental

MarketingAll Products and Services

Urban & Rural

Urban & Rural

Rural Marketing ModelResearc

h

Segment rural market

Study lifestyle ofrural population of different segments

region

Develop profile of rural consumers

of different market segments

Develop specific need profile for a product category in that region

Develop/Modify Marketing Mix

Implementation

Control

Select target markets

Define and prioritize their needs in general terms

Factors Differentiating Rural Marketing from Urban Marketing

Sr.

List of Factors

1. Infrastructure Availability: electricity supply, media reach, availability of finance facility, education level, roads, connectivity, presence of organized markets; in rural market is very different from that of urban markets.

2. Income Streams: The pattern of income generation in rural areas based on agriculture is seasonal and highly unreliable unlike the fixed monthly income in the urban areas. This creates a consumption pattern, which is different from urban one.

3. Lifestyle: The lifestyle and daily routine of consumers in two markets is markedly different. This creates significantly different profile of consumers for the same product in these two markets.

4. Context: Because of variation of infrastructure and income streams, the context in which an individual exists in rural areas is very different from the one in urban areas. This creates difference in nature and priorities of needs in two markets.

Factors Differentiating Rural Marketing from Urban Marketing

Sr.

List of Factors

5. Socio-cultural Background: Value system and thus perception toward goods /services and consumption is different in two markets

6. Accessibility: The cost and logistics of accessing consumers in a highly widespread and heterogeneous rural market are very different from those involved in reaching urban consumers, concentrated in good number in single location. Thus, demanding two different types of approaches.

7. Media Reach & Habits: The reach of media vehicles and the media habits are very different in rural and urban markets. Requiring very different type of promotional strategy in these two markets.

8. Nature of Competition: The nature and intensity of competition amongst the brands is very different in the two markets.

9. Consumer Behaviour: The response of consumers to marketing stimuli is very different in two markets. Rural consumer’s behaviour is quite different from that of urban buyer’s behaviour.

Learning objectives

To understand demographic profile of rural India

Be aware of different poverty alleviation and

developmental programmes of government in the

rural areas

Analyze the rural consumption and spending

patterns

Learning objectivesDraw an interrelationship between agriculture, rural

income and consumption patterns

Understand the electricity infrastructure availability

across rural India

Comprehend the nature and characteristic of rural

market

Rural India: A Brief Profile75% of India’s and 12.2% of world’s population lives

in 6, 38,365 villages of India spread over 32 lakh

square km.

90% of rural population is concentrated in the

villages with population less than 2000.

Comprises of 13.5 crore households, constituting

72% of total households in India with 48 crore adult

individuals.

Rural India: A Brief ProfileRural is not homogeneous across the country.

Variations in exposure to urban centers and extent of

development in a region have resulted in tremendous

heterogeneity.

The consumer’s willingness to accept innovation

varies significantly from one rural market segment to

another.

Rural Income DistributionRural India is generating more than half of

national income.

41% of Indian middle class homes and 58% of disposable income exist in rural India.

Income contribution of 55.6% to the national income by rural population of 74.6 crore is higher than urban India’s with 25.4 crore people contributing 44.6%.

Rural Income DistributionPer capita income turns out to be significantly lower in

rural areas because of the large population base. Study by NCAER revealed that annual household income for rural areas in 2002 was Rs.56,630 as compared to Rs.1, 02,963 in urban areas.

Rural accounts for 92 lakh middle-income households, having annual income in range of Rs.30,001 to Rs.1,25,000 and urban like consumption.

If there are 1.0 crore high and upper-middle income households in urban India then there are 76 lakh in rural India.

Income in Rural and Urban Areas: A Comparative Analysis

As per NCAER, in 2002 per capita annual income in

rural areas was Rs.9, 481 whereas in urban areas it

was Rs.19, 407 and the national average was Rs.12,

128.

Rural income’s Compounded Annual Growth Rate

(CAGR) between 1970-71 and 1993-94 was 10.95%

compared to 10.74% in urban areas. (ETIG 2002-03)


Rural and urban incomes were more evenly distributed in

1994-95 compared to 1975-76, but all India inequality has

marginally increased. The share of rural income in 1975-

76 was 66.8%. According to the MIMAP survey of 1975-

76, the urban household earned an income on an average

1.82 times the rural households, while the MIMAP survey

in 1996 indicated the gap has widened and increased to

2.1 times. (Pradhan, 2000)


The Gini Index, which is a standard measure of

income distribution among individuals or

households in a country, shows that inequality

had risen from 30 in 1991 to 38 in 1997, owing to

the wide disparity in economic growth and

distribution between rural and urban India.

Income in Rural and Urban Areas: A Comparative AnalysisOnly 3.8% of the rural households, with 2.8% of rural

population reported an income of more than Rs.1200 per

capita per month while 28.5% of households with 24% of

population reported similar income in the urban areas.

Per capita income in rural India is only about half of

urban India’s, the status of disposable income is a

roughly the same with the rural consumer paying

virtually nothing for health, education, housing and food.

Income Distribution in Rural Areas Rural is not as poor as it is widely perceived to be. If

there are large number of poor people in villages than good number of rich are also present.

Between 1982 and 1999 per capita village incomes increased by 70%, population increased by 47% and the share of non-farm income in total village income rose to almost 50%.

In 1971, 82% of men in the 25 to 44 age group in rural areas reported their primary activity was either farming or agricultural labour, this figure dropped to 73% in 1982 and to 53% in 1999.

Income Distribution in Rural AreasBetween 1971 and 1982 the proportion of prime working age men

earning income outside the agricultural sector rose from 10% to 16%, by 1999 this figure had more than doubled to 36%. As this ratio increases, the cyclical and unpredictable nature of Indian agriculture may have lesser impact on rural incomes and consumption than before.

Comparison of findings of MIMAP survey in 1994-95 with similar survey conducted by NCAER in 1975-76 revealed a significant decrease in share of income from farm sector from 37.8% to 20.5%, increase in share of income from salaries from 22.7% to 33.6% and other incomes from 7.2% to 12.4% during the two decades (1975-76 to 1994-95).

Magnitude of Poverty in Rural India

32.5 crore people lived below poverty line (BPL) in India, which is around one third of the population.

Incidence of poverty in rural areas at 39.4% is much higher than 28.4% in urban areas.

About 80% of poor lived in rural areas in 1995, but that does not mean rural is only poor. More than 60% of rural population is above poverty line and in actual terms it comes out to be large number.

Magnitude of Poverty in Rural India Percentage of BPL families declined from 46% to

27%. But, actual numbers remain almost same.

Figure of population BPL varies significantly from one state to another. Orissa having 48% population below poverty line is different from Punjab where it is just 6% (Planning Commission, Govt. of India).

Therefore, far ranging generalities cannot be developed on the basis of nationwide figure and regional variations need to be taken into account while developing any strategies for rural market.

Poverty Alleviation Programmes and Rural Development

Land reforms

Gram Sadak Yojna

Providing Urban Amenities in Rural Areas (PURA)

National Rural Employment Guarantee Act

Integrated Rural Development Programme (IRDP)

Jawahar Rozgar Yojna: largest rural poverty

alleviation programme through public works. It was

launched in 1989 by merging National Rural

Employment Programme (NREP) and Rural Landless

Guarantee Programme (RLEGP).

Rural ConsumptionAs per Francis Kanoi Marketing Planning Services,

rural market for FMCG was Rs.65,000 crore, for

durables Rs.5,000 crores, for tractors and Agri-inputs

Rs.45,000 crore and for two and four wheelers

Rs.8000 crore a total of Rs.1,23,000 crores.

Not competing in rural market removes a company

from about half of necessity products market 1/3 of

emerging products and a 15% of lifestyle products in

value terms.

Rural ConsumptionPer capita expenditure on education of the urban

households was 4.5 times that of rural, twice on health,

five times more on rent.

Rural households hardly change their house or go for

vacation.

They save only fraction of money and spend the rest.

And when there is growth in income, the money goes

straight into consumption.

Thus, the actual disposable income in a rural

household comes nearly to be the same of urban ones.

Rural ConsumptionThere was three-fold increase in consumption of packaged

goods in rural areas (1984-89) and percentage of rural market in all Indian market increased from 28 to 37%.

Rural FMCG market was worth Rs.44,000 crore in 1998 amounting to over half of total Indian market and grew at an annual average rate of over 12% between 1993-98.

The share of expenditure on food item is going down in rural areas. In 1993-94, food accounted for 65% of average rural per capita natural expenditure. By 1999-2000, it had come down to 62%. It is not because of any fall in the real expenditure on food. In fact there has been a sharp rise in the per capita real spending on non-food items.

Rural ConsumptionRural household spends Rs.3, 203 per year for FMCGs

that is Rs.267, per month and this figure excludes cereals, pulses, vegetables and milk. This amount could vary between Rs.365 and Rs.175 depending in the socio-economic status of the household (IRS 1999). This seems to be a small number but in the context of huge market size of rural India it leads to huge numbers.

Rural telephone density has gone up by 300% in the

last 10 years; every 1000 plus population is connected by STD. During 1981 - 2001 number of pucca houses doubled from 22% to 41% and kuccha houses halved (41% to 23%).

Literacy in Rural IndiaRural literacy has improved from 36% to 59%, but a

long way to go.

There is increasing trend of public school education even in rural areas, especially in progressive and developed states like Punjab.

There are more literate people in rural India (16.5 crore) then in urban India (16 crore) but, head of household reported no formal education in 51% of rural households and same was only in 16% of urban households, while the all India level is 41%. The share of income of these 41% of households was only 27.9%.

Literacy in Rural India

More than 55% of head of households reported at

least secondary education in urban areas whereas

figure was 15% in rural areas.

In about 26% households, head was a graduate or a

technical degree/diploma holder in urban areas, had

38.5% of income, while 2.3% of such households

have 4% of income in rural areas.

Electricity Availability in Rural India56% of the households in the country had an

electricity connection in 2005. The majority of

households not having electricity are in the rural

India.

Overall electricity connections, duration of power

availability, and power fluctuation in rural parts,

needs to be considered while designing the products

for the rural market.

Electricity Availability in Rural India

There is a great deal of variation amongst states.

About 90% of houses in Punjab and Goa are

electrified, in Jharkhand it is 25%, whereas in

Bihar, at the bottom it is 10.3%. In states like

Haryana, Jammu & Kashmir, Gujarat, Karnataka,

Tamil Nadu, Maharashtra, Kerala and Madhya

Pradesh more than 70% households are electrified.

Development Indicators in Rural IndiaIndia was ranked 138th as per Human

Development Report (HDR) 1997.

India’s infant mortality rate of 75 per thousand live

births is one of the highest in the world.

Access to potable water, health care, sanitation and

shelter are a far cry, particularly in the rural

sector.

Development Indicators in Rural India

Kerala has highest HDI, 80% higher than national

average, although its per capita income is less then

17states.

India is at 103rd rank in 123 countries in Gender

Disparity Index (GDI) with a value of 0.41. But,

Kerala’s GDI value of 0.597 is at par with

Mauritius, which is 80th in the world and UP’s GDI

value of 0.31 match the tail end countries.

Characteristics of Rural Market Large and Scattered market

Heterogeneous market

Significant %age of Income from agriculture

Lack of Infrastructure Facilities

Learning objectives of this chapter:Outline the challenges in the Rural Marketing

Learn how to overcome those challenges

Understand the opportunities offered by rural market

Comprehend the factors that are leading to increasing opportunities in the rural markets

Know how to make the best use of opportunities offered by the rural markets

Challenges in Rural Marketing High Distribution Cost Understanding Psyche of Rural Consumer Limited knowledge of Rural Market Communication High Cost per Contact Sale of Fakes and Spurious Products Low Budgetary Allocations Urban orientation and bias Lack of right competence and commitment at

frontline level

Some of the other major hurdles in tapping rural markets can be outlined as:Low literacy levels of rural population

Traditional lifestyle

Low per capita income and poor standards of living, average size of farm is 1.5 hectare and 60% of farming is rain fed.

Backwardness of the rural masses

Low exposure to different product categories and brands

Vastness of spread: highly dispersed and thinly populated markets, 42% of villages have population less than 500

Variation in languages & dialects.

Some of the other major hurdles in tapping rural markets Seasonality of demand

Modification of Marketing Mix for rural market

High initial market development expenditure

Inability of small retailer to carry stock without credit facility

Communication problems; Mass media not enough for promotion

Banking and credit problems

Management and sales force managing problems

Inadequate infrastructure facilities (lack of physical distribution, roads, warehouses, poor connectivity, transportation)

Opportunities in Rural MarketsRising Rural Prosperity

Lesser Dependence on Agriculture & Monsoon

Increasing Rural Consumption

Increasing Rural Marketing Efforts

Increasing Sale of Branded Products

Large Population

Why Rural Market is attractive? Rural market has following arrived and the

following facts substantiate this. 742 million people Estimated annual size of the rural market • FMCG Rs 65,000 Crore • Durables Rs 5,000 Crore • Agri-inputs (incl. tractors) Rs 45,000

Crore • 2 / 4 wheelers Rs 8,000 Crore

Why Rural Market is attractive?In 2001-02, LIC sold 55 % of its policies in rural

India. Of two million BSNL mobile connections, 50%

in small towns/villages. Of the six lakh villages, 5.22 lakh have a

Village Public Telephone (VPT) 41 million Kisan Credit Cards issued (against

22 million credit-plus-debit cards in urban) withcumulative credit of Rs 977 billion resulting in

tremendous liquidity.

Why Rural Market is attractive? Of 20 million Rediffmail signups, 60 % are

from small towns. 50% transactions from these towns on Rediff online shopping site

42 million rural HHs availing banking services in comparison to 27 million urban HHs.

Investment in formal savings instruments: 6.6 million HHs in rural and 6.7 million in urban

Opportunities Infrastructure is improving rapidly. • In 50 years only 40% villages connected by road, in

next 10 years another 30%. • More than 90 % villages electrified, though only 44%

rural homes have electric connections.• Rural telephone density has gone up by 300% in the

last 10 years; every 1000+ pop is connected by STD.

Social Indicators have improved a lot between 1981 and 2001

• Number of “pucca” houses doubled from 22% to 41% and “kuccha” houses halved (41%to 23%)

• Percentage of BPL families declined from 46% to 27% • Rural Literacy level improved from 36% to 59%

Opportunities Low penetration rates in rural so there are

many marketing opportunities. Durable Urban Rural CTV 30.4 4.8 Refrigerator 33.5 3.5 Shampoo 66.3 35.2 Toothpaste 82.2 44.9

Opportunities Marketers can make effective use of the

large available infrastructure Post offices 1,38,000 Haats (periodic markets) 42,000 Melas (exhibitions) 25,000 Mandis (agri markets) 7,000 Public distribution shops 3,80,000 Bank branches 32,000

Opportunities Proliferation of large format rural retail

stores which have been successful also. DSCL Haryali stores • M & M Shubh Labh stores • TATA/Rallis Kisan Kendras • Escorts rural stores • Warnabazaar, Maharashtra (annual sale Rs

40 crore)

Learning ObjectivesComprehend rural consumer’s buying behaviour

Know the factors that affect rural consumer’s

purchase decision

Examine the rural consumer’s lifestyle

Develop a generic profile of rural consumer

Know the rural consumer’s shopping habits

Analyse the rural consumer’s increasing trend

towards consumption

Rural Consumer Insights

Rural India buys. Products more often (mostly weekly). Buys small packs, low unit price more

important than economy. In rural India, brands rarely fight with

each other; they just have to be present at the right place.

Many brands are building strong rural base without much advertising support.

Chik shampoo, second largest shampoo brand.

Ghadi detergent, third largest brand. Fewer brand choices in rural: number of

FMCG brand in rural is half that of urban. Buy value for money, not cheap products

Rural Consumer InsightsSome Myths:1. Myth-1: Rural Market Is a Homogeneous Mass

Reality: It’s a heterogeneous population. Various tiers are present depending on the incomes like Big

landlords; Traders, small farmers; marginal farmers: labors, artisans. State wise variations in rural demographics are present viz. Literacy (Kerala 90%, Bihar 44%) and Population below poverty line

(Orissa 48%, Punjab 6%)

Rural Consumer Insights2. Myth-2: Disposable Income Is Low

Reality: Number of middle class HHs (annual income Rs 45,000- 2, 15,000) for rural sector is 27.4 million as compared to the figure of 29.5 million for urban sector. Rural incomes CAGR was 10.95% compared to 10.74% in urban between 1970-71 and 1993-94.

Rural Consumer Insights 3. Myth-3: Individuals Decide About Purchases

Reality: Decision making process is collective. Purchase process- influencer, decider, buyer, one who pays can all be different. So marketers must address brand message at several levels. Rural youth brings brand knowledge to Households (HH).

Factors that Influence Rural Consumers while Purchase of a Product

Socio-cultural factors

Group

Family

Role and status

Sociability

Economic Factors

Political factors

Cultural Factora. Influence of Social Custom Customs are socially accepted norms that

have been in practice over a long period of time.

Rural India, isolated from new practices and customs, tend to follow the customs of its traditional societies

E.g In many part of India touching another person body with one`s feet is considered taboo.

Cultural Factorb. Tradition Traditions are long-standing belief that are

believed to be true in nature and often practiced in a ritualistic manner, without knowing the origin, or questioning the need to do so.

Cultural FactorImpact of Tradition on communication A tradition that after washing the hair, it

should not be left open is based on the believe that this gives an opportunity for `evil spirits` to enter.

In some areas, leaving hair loose reflect loose character of women

Cultural Factorc. The influence of Caste In Rural India, the upper and lower caste

differences still continue and are considered an important facet of everyday life

In Urban classification of houses are LIG,MIG and HIG. While in rural its harijan basti, dompara, brahman tola etc.

Cultural Factord. Sub-Culture

E.g.- Model Incompatibility- A prominent tractor company based in north decided to expand its operation to the south. Armed with the knowledge that the Sikhs farmer representing the agriculture success, the company featured Sikh riding a tractor in field.

The communication was found irrelevant in the south because here Sikh farmer was unknown as a symbol of success

Cultural FactorSocial Class

R1- landlord farmers, educated, exposed to urban environment, with tractor, bike, TV., LPG , refrigerator.

R2- Rich farmers with 5 acre of land, may not be educated, but want children get educated own tractor, bike, TV., LPG , refrigerator.

Cultural FactorR3- Average land holding 2-5 acre, manage

small savings, children sent to village school, low risk take, own product like TV, tractor.

R4- has little or no land, agriculture labor, BPL, a major purchaser from public distribution system

Cultural Factor Product offering by ICICI to each segment

R1- Farm equipment loans and insurance, saving accounts, high value policies and IPO

R2- Working capital loans, farmer saving accounts,Personal accident and health insurance, weather

insurance.

Cultural FactorR3- Crop Loans, commodity financing , farmer

saving accounts, Personal accident and health insurance, weather insurance.

R4- Micro finance, jewel loan etc.

Social FactorsEmergence of new institutions in rural India,

which have become part of social fabric have brought forward new reference point and influence in the form of professional workers such as Anganwadi, SHG, Nehru Yuva Kendra, NGOs etc.

Social FactorsFamilyIndividual are branching off, to form

nuclear families they continue to live in the traditional family compound(under one roof)

These hybrid family is termed as `individualized joint family(IJF).

IJF take decisions independently for FMCG and Consumer durables

Social FactorsRoles and StatusIn rural sector, caste plays a very important

role in defining social status, where as in urban status is linked to the work done by the person, his occupation and profession.

Individuals such as sarpanchs, caste leader, medical practitioners, retired military personnel and priests enjoy a high status in village.

They constitutes the upper level of society regardless of their economic status and represent role models of success.

Social FactorsProduct and status symbolTractors have become symbol of status in

rural life.In parts of India like Punjab, the Horse

Power(HP) of the tractor and company name determine the status.

A farmer owning 50 HP tractor from Ford, is considered a person with power and money

Lifestyle of Rural ConsumerRural consumer is very religious

Rural consumers prefer to work hard

Strong family ties and respect for family values

Likes to play cards and hangs out at choupal

Profile of Rural Consumer Traditional Outlook

Different Perception and its influence from urban

consumer

Less Exposure to Marketing Stimuli

Conscious for Value for Money

Realistic Aspirations

Different Concept of Quality

Attitude towards prestige products

Suspects hype and fear of being cheated

Rural Shopping Habits: Consumer Insights

Preference for small or medium package

Significant role of retailer

Influential role of Opinion Leaders for purchase of durables

Learning ObjectivesUnderstand the importance and necessity of

segmenting the rural market

Being aware of different parameters to segment the rural market

Know about different IT based tools that can help in segmenting the rural market by calculating the relative and actual market potential value of different segments of the rural market

Approaches for Segmenting Rural Market Based on Size of Population of Village

Distribution of Villages in India (2001)

Population No. of Villages % of total villages

Less than 200 114,267 17.9*

200-499 155,123 24.3*

500-999 159,400 25.0

1,000-1,999 125,758 19. 7

2,000-4,999 69,135 10.8**

5,000-9,999 11,618 1.8**

10,000 & above 3,064 0.5**

Total no. of villages

638,365 100.00

*Hardly any shops in these 2.7 lakh villages **13% of villages account for 50% of rural population & 60% rural wealth

ORG-MARG has classified rural market in three categoriesClass-I villages: population over 5,000

Class-II villages: population between 1,000-5,000

Class-III villages: population less than 1,000

Based on Location and Remoteness from the town

Villages - near the Urban Centers

Villages - in Developing Districts Villages:

Based on Size of FarmlandMarginal farmers holding up to 1.0 hectare

Small farmers holding 1.0-2.0 hectares

Semi-medium farmers holding 2.0-4.0 hectares

Medium farmers holding 4.0-10.0 hectares

Large farmers holding 10.0 hectares +

Based on Sociological CharacteristicsGaikward, suggested following segmentation on

sociological basis :

Proprietors of large land tracts

Rich farmers

Small peasants or marginal farmers

Tenant farmers

Agricultural labourers

Artisans and others

Based on Income Rural rich consumer

a) Concentrated rich consumers

b) Scattered rich consumers

Rural consumers around urban area

Rural consumer above poverty line

Rural consumer below poverty line

On basis of propensity of consumptionNCAER, has classified the Indian consumers into five classes:

Destitutes: Have income less than Rs.16,000 per annum (market for basic, economical and essential commodities)

Aspirants: Have annual income in the range of Rs.16,000-Rs.22,000 (market for basic durables)

Climbers: Income is between Rs.22,000-Rs.45,000 per annum (market for consumables and consumer durables)

On basis of propensity of consumptionNCAER, has classified the Indian consumers into five classes:

Consumers: Income is between Rs.45,000-Rs.2,15,000 per annum (market for consumables and consumer durables)

Very Rich: Those having income greater than Rs.2,15,000 per annum (market for international brands)

Rural Market Segmentation Tools Thompson Rural Market Index

Mica Rural Market Rating

Linquest

Indian Market Demographics

Business Intelligence Unit

Lincompass

ARCVIEW

Developing a Target Marketing strategy

Step I: Define relevant market

Step II: Analysis of characteristics and wants of

potential customers

Step III: Identify basis for segmenting the market

Step IV: Define and describe market segments

Step V: Analyse competitor’s position

Step VI: Evaluate market segments

Step VII: Select market segment(s)

Step VIII: Finalise marketing mix (es)

Factors for Identifying and Selecting Target Markets in Rural Areas

Socio-cultural, economic development and

Infrastructural Environment of different districts.

Density of population of different villages

Heterogeneity and homogeneity of population

Mobility, Media availability, cost of access to an area

System of interaction

Rural Marketing Mix Challenges4 Ps Tools 4As

(Challenges)Product Acceptability

Price Affordability

Place Availability

Promotion Awareness

Rural Marketing Mix Challenges1. Availability The first challenge is to ensure the

availability of the product or service. India`s 6,38,000 villages are spread

over 3.3 million sq. km; 742 millions Indian may live in rural India but finding them is not so easy.

Given the poor state of roads, it is an even greater challenge to send products to far-flung villages on a regular basis

Marketers must trade off the distribution cost with incremental market penetration

Rural Marketing Mix Challenges2. Affordability With low disposable income, products need

to be affordable to rural consumers, most of whom are daily wage earners.

Some companies have addressed the affordability problems by introducing small unit packs.

Cinthol, Fair Glow and Godrej in 50 gm priced at Rs 4 to 5. Lifebuoy at Rs. 2 for 50g.

Videocon`s Washer, without a dryer priced at Rs.-3000

Rural Marketing Mix Challenges3. Acceptability To gain acceptability for the product or

service, there is a need to offer products that suit to rural market.

E.g. Sampoorna from LG . Because of the lack of electricity and

absence of refrigerators in rural areas provides low-cost ice boxes,i.e. tin box for new outlets and thermocole boxes for seasonal outlet

HDFC standard life tied up with NGOs and offered reasonably priced policies in the nature of group insurance cover

Rural Marketing Mix Challenges4. Awareness With large part of rural India

inaccessible to conventional advertising media- only 41% of rural households have access to TV- building awareness is a great challenge.

HUL relies heavily on its own company-organized media. These are promotional events organized by stockist.

Godrej Consumer Products, which is trying to push its soap brands into the interior areas, uses radio to reach the local people in their own language.

Product StrategyThe rural consumer judges the offering on the

basis of product features and quality, services mix and the appropriateness of the offering`s price.

Most companies treat rural markets as a dumping ground for low-end products designed for urban customer.

Marketers can penetrate rural by innovating their products.

Product StrategyBefore launching products in the rural

segments, it is essential to understand and appreciate the cultural dynamics of rural areas, as well as the specific needs of rural people.

E.g. Cadbury launched ChocoBix, a chocolate- flavored biscuits, based on the consumer insight that rural mothers opts for more affordable biscuits rather the more expensive chocolate bars for their children

Product StrategyMoreover, the acceptance of a product in a

rural markets is not only determined by consumer needs and wants but also by physical and social environment like the status of infrastructure facilities.

The product has to satisfy rural needs and should be value for money.

The product that rural consumer intends to buy also depends on his attitude towards it as well as on the cost-benefit analysis done by him before buying it.

Product StrategyCustomized offer for rural market Philips found that rural consumer are willing

to pay higher price for large models because of their belief that a bigger item must be costlier to produce.

Company makes its rural models one and half times larger and louder than ones sold in urban market.

Smokeless chulha or a wood-burning stove in Karnataka.

Product Strategy Five levels of ProductsBased on value proposition, marketers

need to think five levels of product offering namely, core benefits, basic products, expected product, augmented product and potential product.

The core benefits and basic benefits remain the same both in rural and urban. However, differences may start appearing from the third level onwards.

Product StrategyAt the third level, marketer prepares an expected

product and defines a set of attributes and conditions that buyer normally expects when he purchases a product.

A rural TV buyer expects good picture quality, clear sound and easy to operate set, where as an urban consumer looks for a digital sound, flat screen, child lock picture in picture etc

A motorcycle buyer in rural expects good shock absorbers, fuel efficiency and low maintenance cost, where as an urban buyer expects good appearance, power and style.

Product StrategyAt fourth level, the marketers prepares

an augmented product that meets the customer`s desire beyond expectations.

E.g. TV that run on batteries and provide better picture quality in weak signal conditions and on- screen display in local language for easy operation.

Philips launched free power radio, which requires neither batteries nor electricity for operation. A one –minute winding of the spring with a lever allows the user 30 minutes if listening time.

Product StrategyAt fifth level potential product comes,

which encompasses all the augmentations and transformations that the product might ultimately undergoes in the future.

Here marketers search for new ways to satisfy their customers.

E.g. by offering bulbs that can sustain high voltage fluctuations or home appliances that can run on alternate source of power.

Learning objectivesComprehend the different objectives behind new

product development

Understand the conceptual background of new product development process

Learn the differences between the products that are meant for rural and urban markets

Understand the necessity of having exclusive product development process for the rural markets

New Product: An IntroductionA new product does not necessarily mean an

invention. It can mean anything from a path

breaking invention in a field to a minor

modification or addition to an already

existing product.

There exists a spectrum of newness about

the new product.

New Product: An Introduction

An organisation might launch:

a) a totally new product line

b) a new type of product that it was already

manufacturing

c) a new model of the existing product

d) just another variant of the same model by

making some cosmetic or technical alterations.

Objectives behind New Product Launch

To satisfy the change in consumer demand

To counter the moves of competitors

As per strategic decision of organisation to expand

product range or product line.

To remain aligned with changes in technological

environment, which enable launch of new products

To increase sales and profit of the organisation

Objectives behind New Product LaunchSingle product businesses are likely to be more

vulnerable in the globalised environment

As per the policy of planned product

obsolescence

To have different products at different stages of

product life cycle (PLC) to prevent serious

fluctuations in profit levels.

As products have to eventually enter the decline

stage of PLC it is rational to have new products

coming up timely.

New Product Development Process Exploration Stage

Screening Stage Nature of Demand

i. What will be the target market? ii. How large can the demand be?

iii. What will the consistency of demand over a period of time?

iv. What are the growth prospects?

Compatibility:

i Whether new idea matches with corporate objectives?

ii. How is it likely to impact the existing product lines?

iii. How much easy or difficult it will be to incorporate

new idea with existing strategies and work processes?

New Product Development Process Resources: :

i. What amount of money, time and

technological capability will be required to develop

new product based on suggested idea?

ii. Whether company has the resource capacity to

pursue the idea and develop the product

effectively?

iii. What will be the opportunity cost of pursuing a

particular idea or the cost of foregoing other

ideas?

New Product Development Process

Competition:

i. What are competing alternatives to product

idea?

ii. What is the nature of the industry and

competition for the proposed product?

iii. What are the strengths, weaknesses,

opportunities and threats that are associated

with the product idea in line with

competitive scenario?

Detailed Value Offering Evaluation StageTo develop detailed product specifications about the

new product as per needs of rural consumers:

Product should be need satisfying solution:

no frills and psychological benefits.

It should be simple and easy to use.

Convenient to store

Appearing to be tough and solid

Product must be affordable

As per rural product usage environment

Urban imagery (feel and comfort)

Detailed Value Offering Evaluation Stage Business Analysis Stage:

- What will be the cost?

- What will be potential demand over a period of time?

- When the costs are likely to be recovered?

- What will be the likely return on investment?

Product Development Stage

Development of Marketing Mix

NPD for Rural MarketThe product development process remains

the same for rural and urban markets excepts in the case of product specifically used in rural market.

One aspect that is often ignored in designing products for rural markets is the product fit with rural lifestyle and environment

It is easier for marketers to relate the product to themselves in the urban since they belongs to urban area.

NPD for Rural MarketSo, it is important to conceive of a product

idea and build a product concept in the rural environment by gaining a first hand understanding of consumer lifestyle and behavior

E.g. Max Gas, HPCL 5-Kg Cylinder

NPD for Rural MarketThe test marketing of any new product is the

most important factor that decides the failure or success of the product.

It becomes critical in the rural context as the chances of failure are often high.

The product needs to be tested in different geographies as consumer responses could be different in different regions due to socio-economic and physical characteristics of a place.

E.g Jalshodhak

Learning objectivesUnderstand conceptual background of Product Life Cycle

(PLC)

Comprehend the manifestation of PLC concept in the

rural market of India

Be aware of Rural Marketing strategies that need to applied in rural markets for different stages of PLC

Have a critical assessment of the actual applications of the Product Life Cycle concept

Product Life Cycle (PLC)PLC represents sequence of stages through which

a product or product category passes through over a period of time from the moment when it is introduced in the market for the first time to a stage of a decline when it is withdrawn from the market.

Conventionally, there are four stages of PLC:

Introduction

- Growth

- Maturity

- Decline

Duration of PLC

Duration of PLC is determined by following factors:

Market conditions

Growth of particular market segment

Trends in buyer spending capacity

Technological developments in the industry

Company policy of planned product obsolescence.

Characteristics of Different Stages of PLC and Marketing Mix Strategies

Introduction Stage:

Growth is slow.

Sales volume is also low.

Product awareness is limited.

High marketing cost: launch and setting distribution

network

Profits are unlikely at this stage.

Focus: The focus at this stage is to:

Build awareness about benefits of product category

Establish distribution network

Marketing Strategies for Introductory Stage in the Rural MarketProduct Strategies:

Smaller Packages, if it is possible Place Strategies:

Creation of Distribution Networks Promotion Strategies:

Edutainment Reaching the Opinion-leaders Targeting the Innovators or Early Adopters Category Growth

Pricing Strategy: Introductory Pricing Penetration Pricing Strategy

Characteristics of Growth StageRapid growth in sales and profitsEconomies of scales for the productionEven lower prices are possible on account of lower

cost of production, which lead to additional growthSeeing the growth in a product category the

competitors move in the market

Focus:To build brand preferenceTo increase market share

Marketing Strategies for Growth Stage

Product Strategies:

Brand Reinforcement

Modification or Value addition in the Product Design

Making Product more Relevant for the Customers

Launching Medium Packaging

Pricing Strategies:

Lowering the Price

Marketing Strategies for Growth Stage

Place Strategies:

Strengthening Relationship with Distributor

Deepening the Penetration

Promotion Strategies:

Increase in Promotional Budget

Highlighting Quality or Performance of the Product

Targeting the Early Majority

Characteristic of Maturity Stagea) Intense competitionb) Similarity or standardization of products and

servicesc) Weaker or non-serious players gradually start

withdrawing. d) This is the dream stage for sales and marketing

professionals, as maximum sales and maximum profits comes at this stage and most of the brands tend to stay in this stage for a longer time than in other stages.

Focus:Defending the market shareMaximising the profit

Marketing Strategies for Maturity Stage Elongate the Maturity Stage

Product Strategies:

i. Revitalise the Product

ii. Product Differentiation: To Avoid Brand Commoditisation

iii. R&D to Enhance features

Promotion Strategies

i. Modification in Promotion-mix

ii. Brand Repositioning

iii. Promote Product Differentiation

iv. Target Late Majority and Laggards

Marketing Strategies for Maturity Stage

Place Strategies:

i. Deepen the Distribution Network:

ii. Incentives to channel partners

Price Strategy:

i. Lowering Prices

Characteristics of Decline Stage:Sales starts droppingDemand diminishesMarket for product category shrinksInventories start piling up Overall profits start declining for entire industry.

Marketing Strategies for Decline StageRejuvenate the Product

Harvest the Product

Offering the Product to Loyal Niche Segments

Find New Applications for the Product

Link the Product with other Products

Brand Harvesting

Maximum Efficiency in Marketing and Production

Liquidate the Product

Product Life Cycle in Rural MarketsRural India is not single homogeneous market, which will

be in same PLC stage for a product category through.

Rural market for purpose of application of PLC is of three

types: Developed, Developing and Under-developed rural.

Each of them may be at very different stage of evolution

for the same product category.

Segmentation of rural market is pre-condition for

application of PLC.

g

Product Life Cycle in Rural Markets

In Most cases, the product is developed for urban

market and later pushed into the rural market.

Now-a days companies started customizing their

products for rural markets

E.g. LG Samporna

PLC in rural market is often longer than it is in

urban market due to multiple challenges involved

in the distributions, Communication and adoption

of the product.

Product Life Cycle in Rural MarketsThe strategies during the different stages of PLC

remain similar in both urban and rural market, but

the length of each stage depends on consumer

acceptance, innovativeness, price proposition and

trehe nature of the product.

Most companies that have introduced products in

rural markets are struggling to grow the market.

This is forcing company to re-engineer their

product(Free power radio) or introduce low priced

packs

Product Life Cycle in Rural Markets

They are also trying to change consumption

patterns through consumer

education(increasing soap usage frequency from

weekly to daily) and adopting alternate channel

to reach deeper(HLL`s Project Shakti, haats,

mandies)

The decline of product in rural is slow; it is

hastened sometimes because of technology

advancement.(from VCR to VCD players)

Internal influencesMarketers have sufficient control over

internal factors and they are in position to use them in compatibility with the external environment, in order to achieve desired results

The internal factors affecting pricing includes cost and the company`s pricing objectives

Internal influencesa) Cost Rural market required huge efforts and

resources devoted to all elements of marketing mix and in many cases companies also need to invest in market development

In order to tap rural markets, marketers have to allocate sufficient resources for packaging, no. of SKU`s and promotion strategies suitable for these markets. Credit based transaction in rural market also increase the cost.

Internal influencesb) Pricing Objectives Pricing objectives need to be compatible

with the marketing strategy, including target market selection and the desired product positioning.

There is usually trade-off between the quality on offer and price, so price is an important variable in positioning

Hence the firm`s pricing objectives must be clearly identified in order to determine optimal pricing.

Internal influences1. Profit Maximization in the long run Company should not expect short-term

profits when entering to rural market. Initially they should develop the market by

introducing the product at low price with low profit through penetration pricing of the products

Internal influences2. Keeping up with competition Company that have an objective to meet the

competition set price to beat the leader`s price.

To be able to compete effectively, marketers are forced to become lowest cost producers and manage with only a few channel intermediaries to minimize distribution costs.

E.g. fairever, Ghari, Ujala Etc.

Internal influences3. Increasing sales volume and market share In sales maximization, management sets an

acceptable level of profitability and then tries to maximize sales

To accomplish this objective, the firms need not only keep prices low but also make investments in R&D, distribution and other element of marketing mix.

External Influencea) Customer Marketers need to understand the price

sensitivity of customers who form the target segment of the products that the are trying to sell.

The price sensitivity of customers is based on various personal, social, economic, or geographical factors and this presents a major challenge for marketers while setting price.

External Influenceb) Suppliers Distribution is the most difficult task in rural

because of 6 lakh village locations compared to the 5,000 odd towns in urban.

Marketers have to consider the compatibility of the companies target customers with a particular retail format and their preferred mode of payment for a particular product category.

To extend distribution, a sub stockiest may be required in the small town in addition to existing channel. This would entails an additional margin, increasing the company`s channel cost.

External Influencec) Competitors Earlier for large company competitions

was mainly from lower priced regional brands.

But now, with arrival of multiple national and international player in rural market, these players defining competition in some product categories.

Pricing Strategies1. Optional-product pricing- It is pricing of optional or accessory products

along with the main product E.g. company selling tractors for a low price

but charging high prices for servicing and spare parts

2. Value Pricing due to increased competition forces company

provide `value’ Products to retain sells E.g. Godrej No.1 soap placed their offering

containing rose, sandal wood and neem ingredients at a very economical price

Pricing Strategies3. Coinage Pricing It is mostly used in rural markets for

FMCG brands. For the convenience of retailer and consumers, company adopt these kind of pricing in order to avoid problem caused by shortage of Change.

Coinage price is directly proportionate to the package size. These packs are small in size and are specially meant for one time, one day or one week consumption.

Pricing Strategies4. Psychological Pricing The price- quality relationship refers to

the idea that consumers tend to equate product quality with price charged.

E.g. in the colour TV Segment, LG at higher price is considered a better buy than Texla and Jolly brands particularly in R1 house hold.

Pricing Strategy Companies should not only price their products

competitively, but also offer their rural prospects maximum value for money through aggressive cost structure.

Re-designing of products for rural market should be

done to maintain a low cost for the products. Refill packs are a good example in this case.

Price decision should be influenced by income

received, when it is received and how it is allocated. As rural labourer either get daily wages or the farmers get major income during the harvest season.

Pricing Strategy

Companies must follow penetration pricing for

quality product. As two for one deal and

coupons are not very effective marketing tools,

it is better to price products as low as possible

in the first place.

FMCG companies can cut cost to maintain the

price points by reducing the net weight of the

products or doing away with freebies and

promotions.

Accessing Rural MarketsAccessing rural markets presents challenges

as these markets are geographically spread out with a large no. of retail outlets.

So the task before the marketers are a) To assure that the product reaches to rural

outlets b) To motivate the retailer in rural markets to

stock a product or a brand, because the no. of items stocked by the rural retail store is lower than the urban retail store.

Consumer purchase behaviour-Implication for distributionThere was a time when rural consumers purchased

most of their requirement nearby towns. Recently it has been observed that there has been a greater shift towards purchasing locally.

Consumer loyalty can be to the brand or to the retailer. The influence of the retailer is perceived to be high in rural market and more so for durable

The consumer loyalty pattern also suggests that promotion by the retailer is more important in rural market.

Retailer system and Channel decision

RetailerSpread

Retailerpremises

RetailShelf

RetailStockTurnover

CreditFacilitiesToConsumer

Pricing&Under-cutting

SourceOfInfor-mation

Purchasesource

AvailingCredit/discounts

PromotionByretailer

Retailer characteristics

Channel decisions

Retailer behaviour

EstablishingRetailerReach aninvestment

LongChannelForCostreduction

IntensiveEffort toOperate a Viablesystem

ReachTheBrand toretailer

Margin&ServicingAnd notReach aloneTo bettercompetition

LimitedSingleWholesalerfor a location

Motiva-tion of w/sToPromote&reachretailers

Volumediscountsto retailersfor feederbut notinteriorvillages

Developing Effective Communication1. Profiling the target audience2. Determining the communication objectives3. Designing the message 4. ensuring the effectiveness of message5. Selecting the communication channels6. Designing the promotion strategy and

integrating the communication process

Developing Effective Communication1. Profiling the target audience Who uses the brand? Who buys the brand and why? Who decides which brand is to be bought?

Developing Effective Communication2. Determining Communication objectives

To bring about awareness among a certain percentage of target audience

To improve knowledge to generate interest To strengthen the liking or preference of

product. To persuade the consumer to buy the

product

Developing Effective Communication3. Designing the Messagea) Rational Appeal They appeal to the audience self interest E.g.- Ramco asbestos, Babool, Tata Shaktee

GC sheets.

Developing Effective Communicationb) Emotional appeal These attempt to stir up negative or positive

emotions that will motivate purchase. E.g. Kayam Churna, Birla Whitec) Moral Appeals These appeal to the audience`s sense of

what is right and proper

Developing Effective Communication4. Message Effectivenessa) Languageb) Pictorial presentationc) Form of messaged) Source of messagee) Context association

Developing Effective Communication5. Selecting the communication Channela) Personal- Advocate, expert and Social

channelb) Non personal

Developing Effective Communication6. Deciding the Promotion Mix

Rural MediaConventional mass media

Non-conventional media

Personalized Media

TV Wall Painting Direct mailer

Radio Folk media Point of sale

Press Video Van Word of mouth

Cinema Haat and mela Interpersonal communication

Communicating using non conventional Media

Reach theRuralconsumer

GenerateInterest

Create productOr brandKnowledge

EducateandPersuade

•Wall Painting

•Mail to opinion leaders

•Puppetry•Drama•Message on object of interest•Giant•cutouts

•Tableaus•Audio- visual van

•Point of purchase channel;•Contests

•InteractiveCommunication at point of Contact-stalls at Haatsand Mela-DemonstrationAndSampling

Communicating using non conventional Media1. Wall painting Wall paintings are important because it

constantly remind rural people about the brand name and logos in addition to highlighting the key brand promise

They are economical as compared to the other traditional media form, as manpower and infrastructure requirements are low.

Communicating using non conventional Media They can be easily customized in

accordance with regional language variations.

Audience recall rates are high


Limitations Lack of availability of wall space at prominent

location The quality of wall space available is not

satisfactory. The base of rural wall structure is generally not smooth and this impact the final output.

No exclusive wall rights are given to the company

Wall paintings are generally an outsourced operation. Often the job on paper appears to have been completed but in reality this is not the case


Rural Marketers Rule Wall sites around public gathering like

haats, mandis and melas should be selected in order to maximize the impact and reach of the advertised message.

It should be made at eye level, so that they are easily visible; the height also ensures that villager do not spoil them by urinating against the wall.

Active monitoring is required


2. Direct Mail Direct mailing involves sending out single

pieces of mail-letters, flyers to a specific and targeted audience

Direct-mail marketers hope to sell a product or service, collect of qualify leads for the sales force, communicate interesting news, or reward loyal customers with a gift.


Advantage• Audience selectivity• Personalization• Allows early testing and measuring of

resultsLimitations• Relatively high cost• `junk mail’ image


3. Folk media Folk media consist of folk songs, folk dances and

other theatrical forms including puppetry, street theatre and magic shows, which are intrinsic part of the culture and heritage of the land

They are capable of communicating messages about contemporary issues, topics and concerns as per the needs and demands of a changing society.

They are face to face and personal form of communication

The essentials characteristics of folk media are that they are interactive, repetitive and narrative.


Disadvantages Folk media involve high costs The visible costs are due to intensive

preparations that go into the making of a successful campaign

The invisible costs of handling contingencies

Implementation costs are also high. Costs are incurred during the campaign in attempts to penetrate deep into the rural markets.

The availability of the right kind of troupe, talent and skills can dramatically affect the implementation of a campaign


Rural marketer`s Rule Folk media are a useful channel to

promote/ propagate generic issues that can be woven easily into the scripts

A campaign is not likely to be very successful if its focus is solely on brand promotion since people are clever enough to understand that it is merely a product promotion.


The timing of performance is very crucial. show should be held during the time of the year when farmers are relatively free.

The medium used should also gel with the culture of region.e.g the kalbelia dance is popular in Rajasthan, but it will not draw an audience in West Bengal.


4. Video Van- use of AV vans to reach rural audiences

Advantages The van can double up a mobile exhibition

vehicle to perform demonstrations and carry product sample to induce trial. The van promoters can do retail merchandising and carry out door-to-door campaigns

The van acts as a point of attraction of focus of attention, around which people gather in large no. This is particularly useful in those areas where it may not otherwise be possible to organize a large gathering.


Disadvantage The cost per person contact works out to

be high. A typical van campaign for 26 days cost around Rs. 85,000. The van covers 2 villages per day and targets around 100 direct contact.

The number of children who gather for film shows is generally much higher, than the number of the actual targeted segment.

Learning Objectives Comprehend the constituents and characteristics of

FMCGs

Understand the characteristics of Indian FMCG industry in pre and post liberalization scenario

Be aware of challenges for Indian FMCG industry

Understand phenomenal boom for FMCGs in rural market

Be aware of penetration level attained by different FMCG categories

FMCGs: An IntroductionFast Moving Consumer Goods, also called

consumables or consumer-packaged goods or Non-durable Goods

A tangible item that is quickly consumed, worn out or out dated and consumed in single use or few uses.

Any product that is used very frequently,

sometimes daily and move relatively faster (consumption at least once in a month) at the retailer end.

FMCGs: An Introduction

Essential, low price goods, which get repeat

sales.

Consumer products used for personal, family or

household use are further classified as:

- Convenience

- Shopping

- Specialty categories.

FMCGs: An IntroductionConsumers tend to spend minimum of effort in

comparisons and buying them.

But, much of astute marketing activities have

evolved from these products, where consumers

show low involvement, get wider choice and are

allured by a host of inducements.

Indian FMCG IndustryFMCG is 4th largest sector of Indian economy with

estimated market size of Rs.85,000 crores in 2003, a

significant direct and indirect employer.

In 2004 total of Rs.89,161 crore was spent by households

on four of non-food categories: Personal care and effects

(Rs.1, 959 crores), toilet articles (Rs.21, 603 crores),

sundry articles (Rs.17, 274 crores) and miscellaneous

consumer goods (Rs.48, 325 crores). (Sundry articles

miscellaneous goods exclude items of food, clothing,

footwear, durables, pan, tobacco and intoxicants, medical

expenses and educational expenses, entertainment and

consumer services).

Indian FMCG IndustryRs.53,000 crore of Rs.89,000 crore was attributable

to rural areas.

The proportion of non-food to total consumption

expenditure has risen steadily year after year from

36.2% in 1987-88 to 40.6% in 1999-2000 to 46% in

2003.

Characteristics of the Indian FMCG industry during post-liberalization era

The FMCG sector got a huge facelift in the post-

liberalization era.

Economic reforms led to an overall increase in

income levels in the country, pushing up the demand

for FMCG goods.

India has become one of the most tempting markets

for multinationals.

Characteristics of the Indian FMCG industry during post-liberalization eraChanges that were brought in industry structure by

changes of macro-economic regulatory environment in 1991 are:

It became relatively easier to set up business in the sector

Organisations’ increasingly reaching deeper into the mass rural market

Increased penetration of media in rural areas enabling promotional effort.

Increased activity and investments by MNCs in India

New categories within categories were created in products (feminine hygiene products, men's toiletries, processed foods, branded atta, etc.).

Characteristics of the Indian FMCG industry during post-liberalization era

Price war amongst players for greater share of the

Indian FMCG market.

Fierce competition led to consolidation in the

industry. Many companies left certain/all FMCG

businesses (which were their non-core businesses)

Increase in product offerings

Many local and regional players also got market

savvy and emerged as tough competitors for the

national players.

Emergence of customer centricity.

Some of the innovations that changed the FMCG market place in India were:

Packaging innovations - particularly sachetization

Pricing innovations - providing different price points to

choose fromProduct innovations - locally relevant products e.g.

ready-made chappatisDelivery innovations - mobile retailers, e-tailing, direct

marketingSupply chain innovations - real time delivery models

reducing erstwhile inventory

carrying costs and stock-out losses

Characteristics of Indian FMCG sector:Heavy launch costs

Presence of a large unorganized market

The pace of competition

Criticality of distribution network

Price sensitivity and capacity to consume

Importance of brand building

Rise of Regional Brands

Large number of SKUs

Challenges in the FMCG Industry Sustaining Growth in Mature Categories

Increasing Penetration for Emerging Categories

Innovation

More spending options with Consumers

Price Wars

Commoditization of Brands

Downgrading

Counterfeits

Providing Aspirational Value at an Affordable Price

Low Order Value per Rural Retailer per Visit

Rural FMCG Market BoomPost-reforms, industry's growth has been hinging

around burgeoning rural population, which has witnessed significant rise in disposable incomes.

Successive good monsoon has led to dramatic boost in crop yields. Food grain production was 20 crore tonnes during fiscal 1999 against 17.6 crores tonnes logged during fiscal 1991.

Not just improved crop yields; tax-exemption on rural income too has been responsible for this enhanced rural purchasing power.

Rural FMCG Market BoomAs the urban markets are getting saturated in most of the mature consumer non-durable goods categories, the industry players are attempting greater rural penetration as a future growth vehicle.

AC Nielsen 2004 rural report reveals that it may be marketer’s perception, and not the buyer’s pocket, that is holding the rural FMCG market back.

The average monthly per capita rural spend on FMCG is already at Rs.208, compared to Rs.1193 for urban areas.

FMCG Penetration in Rural Market

Category Penetration

Highest Penetration Brand

Toilet Soap 91% Lifebuoy

Washing Cake/ Bars 88% Wheel

Edible Oil 84% Double Hiran Mustard

Tea 77% Lipton Taaza

Washing Powder/ Liquid

70% Nirma

Salt 64% Tata Salt

Biscuits 61% Parle G

Source: ORG-MARG R Panel, Strategic Marketing, July Aug 2002 pp: 32

FMCG Penetration in Rural MarketToilet soap, washing cakes, washing powder, tea,

hair oil and cooking media products categories that contribute for over 60% of the overall FMCG market (which was over Rs.91,500 crore for basket of 22 products, in 1998-99 and was over Rs.1,10,000 crore in 2003).

Hindustan Levers has a household penetration in rural areas of 88%, Nirma has 56%, for Colgate Palmolive it is 33%, Parle Foods has 31% and for Malhotra Marketing it is 27% penetration.

Brands with highest penetration in rural markets

are Lifebuoy for toilet soaps with 91%, Wheel in

washing cake/bars with 88%, Lipton Taaza in tea

77%, Nirma for detergent powder 70%, Tata salt in

salt 64%, Parle G in biscuit category 61%. This

clearly indicates significant penetration of branded

products in the rural market.

FMCG Penetration in Rural MarketFMCG Penetration in Rural Market

Of Expenditure on FMCGs in Rural Household Approximately

44% is on food articles as tea, biscuit, salt

and coffee.

20% on toiletries

13% on washing material

10% on cosmetics

4% on OTC products

9% on other consumable

ConclusionThe rural market looks attractive for the FMCGs.

The penetration levels are increasing year after

year, because of aggressive approach of corporate

sector on one hand and the rising disposable income

in the rural areas on the other.

The new consumers are entering the market every

year and the bottom of the pyramid is shrinking.

ConclusionIt is up to corporate world and acumen of marketer,

to develop innovative model for taking his goods to

the rural heartland in a cost effective manner.

Changes in lifestyle, rising incomes and a focus on

value, are pushing up growth for different product

categories in the rural areas.

ConclusionIndications of larger disposable income and a

perceptible shift in consumption priority in the rural

sector also appear to be favoring the FMCG

marketers.

To be successful, organisations need to develop

business models and marketing mix strategies that

are as per changed scenario in the rural markets of

India.

ConclusionIt is the responsibility of the companies to supply a

right product to the right customer at right time at

the right place at the right price.

The companies shall no longer decide the marketing

mix for rural market in accordance with the urban

consumer alone; but the rural customer shall decide

it.

Learning Objectives Comprehend the characteristics of Consumer

Durables

Understand how and why the marketing of

consumer durables is different from FMCGs

Examine the issues with regard to rural marketing

of consumer durables

Consumer Durables: An IntroductionDurable goods are tangible goods that usually last

over an extended number of uses. They need more

personal selling and service, command a higher

margin and require more seller guarantee.

The consumers spend saving of few months or years

on these articles and want to be doubly sure on the

long time performance of these articles.

Consumer Durables: An IntroductionAs most of the consumers especially the rural ones

are purchasing them for first time, they require lot of

information and reassurance and guarantee.

In most of cases live demonstration of the benefits

prior to the purchase is extremely important.

Consumer Durables: An IntroductionRural market for Group–I consumer durables (priced less than

Rs.1000 in value: transistors, pressure cookers, wrist watches,

bicycles) was bigger than the urban markets in as early as 1999.

Rural market was likely to be bigger than the urban one by the

year 2001-02 itself for Group–II durables (Rs.1001-Rs.6,000 in

value : items like B&W TVs, sewing machines, mixers, cassette

recorders).

Even with the larger population base in the rural areas the

growth rate for the Group–I and Group–II durables is faster than

the urban ones.

Marketing of Consumer Durables vis-à-vis FMCGs

The amount of money that is spent, perceived

risk that is associated and the involvement of

the consumer are significantly higher for

consumer durables than for FMCGs.

Consumer durables are purchased once in few

years whereas FMCGs are purchased daily,

weekly or monthly.

Marketing of Consumer Durables vis-à-vis FMCGs Consumer behaviour in consumer durables is

either complex or dissonance reduction. The consumer behaviour for FMCGs is either habitual or variety seeking.

The effort made by the customer in searching for the information and discussion with the opinion leaders might last for many months for consumer durables. But, the purchase decision for FMCG can be made on the basis of sudden impulse or the recommendation of retailer.

Issues related to Marketing of Consumer Durables in Rural Market

Lesser penetration

Lack of Infrastructure

Purchase priorities different in rural market

Purchases in towns and semi-urban centers

Importance of segmenting the market

Importance of studying the consumer behaviour

Rural Marketing Strategies for Consumer DurablesMajority of the sales of the consumer durables

happen in the urban centers but the consumers are from the villages and even those living in the semi-urban centers have a rural mindset. Therefore, organisations need to study the need profile and the buying behaviour of the rural consumers and accordingly develop the marketing mix for them.

Rural markets are evolving and there are no frameworks to understand rural consumer behavior, marketer needs to conduct thorough research to have consumer insight.

Rural Marketing Strategies for Consumer Durables

Instead of a marketing general, a developmental

leader is needed who can involve and integrate

different stakeholder in the marketing mix.

managers need to visit rural areas quite periodically

to have the direct feel of the market in which an

organization is operating.

Rural Marketing Strategies for Consumer DurablesThe patchy once or twice a year promotional effort

can only bring results to a limited extent.

There also must be shift in the marketing mindset of

selling products made for urban areas to rural

population with urbane promotional campaigns.

Rural Marketing Strategies for Consumer Durables

The focus needs to be changed from high value to high volume sales, from “one size fits all” to creative thinking.

A strategic, committed and integrated approach to rural market can pay rich dividends. Therefore, there must be unwavering commitment from the CEO and similar sentiment in the frontline sales staff that has to actually implement the vision.

Learning Objectives

Be acquainted with Indian retail market

Grasp the realities of Indian rural retail channel

Examine strategies for managing rural retail

channel

Retail: An IntroductionRetailing is, ‘All the activities involved in selling

goods or services directly to final consumers for their personal non-business use.’ (Kotler, 1998).

Retail store, a place where the exchange of goods takes place with the customer is defined by Philip Kotler as, ‘any business enterprise whose sales volume comes primarily from retailing.’ (Kotler, 1998)

Retail mix is the mix of variables including price, location, communications, merchandise, physical attributes, services and personnel.

Retail: An IntroductionRetail is primarily classified into two sectors as:

organised and unorganised retail sector, depending on how it is undertaken.

Organised retail sector has a single organisation having large format retail stores providing wide varieties of goods in good number of locations.

Unorganised sector has large number of organisations having single, small retail outlets with limited variety at single location.

Indian Retail MarketRs.8,10,000 crore Indian retail market is most

fragmented in world, with just 2% of entire

retailing carried out by the organized sector

(CRISIL).

There are more than 60 lakh retailers in India.

India is the only country with one retailer for

every 200 people. More than 1 crore 50 lakh

people are engaged in this business. Total

turnover for retail business is likely to go up to

Rs.13,50,000 crore by the year 2010 (McKinsey-

CII study).

Indian Retail MarketRetail business in India is one of largest in world

and a joint CII–McKinsey report has estimated it

is growing at a rate of 11-12 per cent annually.

Retail is the not only the largest component of

the service sector but almost double the size of

the next largest broad economic activity in the

service sector. With contribution of 14% to GDP

and employing 7% of the total workforce that is

4.2 crores, it is only second after agriculture.

Indian Rural Retail MarketRural markets are relatively virgin markets, which

evolved on their own with very little direct contact with them by the corporate world, but their size is compelling and attractive.

Of 33 lakh retail outlets in India in 1999, 21 lakh were in rural areas.

7 Indian states account for 76% of country’s total rural retail outlets.

184 districts accounted for 69% sales in 1999.

Indian Rural Retail Market

In interior villages retailing is part time chore in a

part of house. The maintenance costs for retail

outlets in interior villages are also low with most of

cost spent on traveling and transportation.

In the 6,38,000 villages penetration into rural areas

is facilitated through the wholesaler, semi

wholesaler, arhatia and itinerant merchant network

through 3000 odd towns, 5000 wholesale assembly

markets (with lot of overlap) and about 25,000

'haats/shandies'.

Indian Rural Retail MarketOne of main reason for explosion of retail and its

fragmented nature is that it is a form of disguised

unemployment / underemployment.

Overcrowded agriculture sector, stagnating

manufacturing sector, hard nature of jobs and low

wages in both, many Indians are virtually forced

into retail sector.


Given lack of opportunities, it is almost natural

decision to open a small shop depending on the

available means and capitals. This explains the

million of kirana shops and small stores.


Number of product categories stocked by rural

retailer is almost the same for FMCG products as

an urban retailer. If, rural retailer was stocking

19 product categories then the urban retailer

stocks 27.


What varies is the number of companies they

are dealing with, 42 for rural and 92 for urban.

So when we multiply number of companies by

their brands or variants and Stock Keeping

Units (SKUs), difference come in thousands. If

there are 30 categories, each has 30 brands and

for each there are 30 SKUs. It becomes 27,000

SKU.

Strategies for Rural Retail Channel Management

Retailers are closest to point of purchase and have

access to a wealth of information on consumer

shopping behaviour.

Retailers have unique advantages for managing

brands: continuous and actionable dialogue with

consumers, control over brand presentation at point-

of-sale, control over shopping environment, display

location/ adjacencies, and signage. They use this

advantage with success.


Retailer’s recommendation carries weight for Rural

consumers.

Retailer’s relation with customer is based on the

understanding of their needs and buying habits and

is cemented by retailer credit.

Rural areas having different retail environment;

require separate marketing strategies in order to

penetrate into rural markets.


Mega Marketing: Organisations need to plan and implement integrated effort for managing rural retail channel. Stand-alone efforts are likely to provide limited success.

Understanding Retailer Behaviour: To develop ability to influence retailer to stock and promote products of an organisation requires identifying the manner in which he performs retailing.


Ensuring Availability: Availability is not a

substitute for creating purchasing power or

driving preference, but is a first step towards

it. If marketer delivered their product at

retailer doorstep, they might prefer those

products or brands because; their time and

transportation cost is reduced.


Provision of Credit: By selecting financially

strong distributors and stockists, organisations

can ensure provision of credit to the rural

retailers through these channel partners.

These channel partners can decide the

quantum of credit to be offered to which

retailer on the basis of their local knowledge.


Companies can have a tie-up with banks

and financial institution for the provision of

credit to their distributors so that they can

buy the goods from the companies in even

larger quantity and can then provide these

goods to the creditworthy rural retailers at

a credit.


Provision of Quantity Based Discount for

Distributors: By offering quantity based

discounts, organisations can motivate distributors

to lift stocks in good quantity and then to make

special efforts to take them to rural retailers.


Appointing Rural Sub-stockists: Organisations can

appoint the sub-stockists in the rural areas itself,

in the larger villages. These sub-stockists on the

basis of their in-depth knowledge of adjoining

villages can distribute the goods to retailers in

the smaller, interior and adjoining villages in a

cost effective manner and can serve retailers in

the villages on regular basis.


Provision of Van Subsidy for Rural Distribution:

Organisations can provide van subsidy to

distributors who use vans to distribute products

in rural areas. These subsidies can be linked

with sales volume or mileage depending on the

market scenario of the region.


Placement of Company Staff with the Distributors: To monitor and motivate sales effort of distributors in rural market. These staff members can be selected locally to have better knowledge of local terrain and will also be able to talk with rural retailers in local dialect. They can act as eyes and ears of company and can conduct formal and informal research at retailer and consumer end and inform company on a periodic basis competitor’s moves of the in their territory.


Exclusive Distribution Network for Rural

Sector: This focused approach has its’ own

advantages as well as challenges. If the rural

markets can get better attention and service

and enable deeper penetration and more

revenues then there can be channel conflict

because of the consequent overlaps.

Learning ObjectivesComprehend concept of brand management

Analyze the prevalence and marketing approach of regional brands especially in rural India

Understand competitive dynamics of regional and national brands

Know the process of building brands in rural areas

Examine the response of rural consumers toward the phenomenon of branding

Brand: An IntroductionA brand is a promise of seller to deliver a specific

set of benefits or attributes or services to the buyer.

Brand loyalty is “the degree of consistency in buying

particular brand(s) as a function of cognition,

emotion, satisfaction, commitment, habit and

positive attitude towards brand(s)”.

Reasons for the Success of Regional Brands

Spread of cable & Satellite Television

Understanding of the needs of Regional Consumers

Low Overheads

Legacy

Large enough Regional Markets

One-to one Relationship with Channel Partners

Entrepreneurial Spirit

Brand Building Strategies for Rural Market

Customization

Relevance

Below the line media

Slice of life message in local parlance

Enabling recognition

Word of mouth publicity

Learning ObjectivesComprehend the environment for marketing of

agricultural inputs: tractors, fertilisers and agro-chemicals industry

Understand policy environment of fertilisers and agrochemicals

Have a brief overview with respect to agricultural inputs industry: tractors, fertilisers and agro-chemicals industry

Learning ObjectivesLearn the factors that affect the sales of different

agriculture inputs

Know the penetration levels in tractor industry

Be aware of classification of tractor, fertiliser and agrochemical industries

Understand the trends with respect to consumption and purchase of agricultural inputs over a period of time

Learning ObjectivesUnderstand opportunities and challenges of

marketing of different segments of the agricultural

input industry

Understand the factors that suggest good potential

for marketing of agricultural inputs in the future

Know different marketing strategies for different

agricultural input companies to effectively tap the

rural market potential

Indian Agriculture: An IntroductionIndia is number one in the world in irrigated land area

and 2nd in arable land (17 lakh hectares), but lacks far behind in agricultural productivity.

Indian agricultural output could become uncompetitive in

the long run if it fails to improve yield and quality of output.

One way to improve productivity is to increase the level

of modernization of inputs and mechanization, which is abysmally low in the current scenario.

Agriculture remains one of the least invested sectors and

will require a concerted effort in order to give a boost to the agricultural input industry.

Agricultural input industry: An IntroductionAgricultural input industry can be broadly classified into:

Consumables agricultural inputs : seeds, fertilisers, agrochemicals, oil and lubricants.

Durable agricultural inputs include: tractors, agricultural machinery (thrasher, harvester, etc.) and agriculture implements and tools (cultivators, levelers, harrow, etc.).

Marketing ecosystem for the key agricultural inputs,

which varies from one product category to another.

Marketing of consumables like fertilisers and agrochemicals different from one another & different from marketing of durable inputs like tractors.

Marketing for Tractor IndustryIndian tractor industry was 2nd largest in world in

volume terms in 2002 up from 4th position in 1998.

Performance of tractor industry of India is closely linked with the ups and downs in the agriculture output on account of natural forces and intervention of government and corporate sector.

To overcome volatility, Indian tractor industry has started looking at the entire globe as its market by taking advantage of low manufacturing cost in India.

Leading domestic brands and international giants are tapping the global market by using India as a manufacturing base for tractors and components.

Indian Tractor Industry: A Brief Overview

From just about 50,000 units a year in early eighties the size of tractor market in the country has grown up to over 200,000 units.

In terms of number of tractors sold, average volumes are around 250,000 units per annum out of the world market of about 8 lakh.

Indian Tractor Industry: A Brief Overview

In terms of penetration per thousand hectares, the

tractor density of 10 tractors per 1000 hectares is

significantly lower when compared with the world

average of 50-60 tractors per 1,000 hectares.

There were more than 12 players in the sector, but

five players: Mahindra & Mahindra (including Gujarat

Tractors), TAFE, Escorts, Punjab Tractors, and HMT

accounted of 98% of industry sales in 2002.

Classification of Tractor Industry

Tractor industry on the basis of the horsepower of the engine is broadly classified as:

Small : less than 30 Horse Power (HP)

Medium: between 31 and 40 HP

Large : more than 40 HP

Medium segment accounts for 51-55% of the total tractor sales and has the greatest competition, with all manufacturers having a product in this segment.

Classification of Tractor Industry

About 30% of all the 2.4 lakh tractors sold

in 2004 were those above 40 HP, up from

27% in 2003 and 21% in 2002. The gain of

the high-powered tractors was at the cost

of the below 30 HP range, which saw their

share in the total tractor sales going down

from 23% in 2002 to 19% in 2004.

Classification of Tractor IndustryBecause of smaller land holding and limited

availability of finance small and medium (20-40 HP range) tractors were first to develop quickly.

Higher HP tractors have started finding favour with farmers, because of: Easier financing for the more expensive, higher

HP tractors Increased use of high power tractors for the

harder soil of west and south India.Prestige and status associated with higher

horse power tractors

Challenges for Indian Tractor Industry

Low levels of mechanization

Fragmented nature of land holdings in India

Lack of infrastructure

Lack of access to easy credit

Low productivity

Cautious and price sensitive buying behaviour

Lower literacy level

Good food stock position with government

Factors Suggesting Better Future Prospects for Tractor Industry

Increase in corporate farming

Increase in literacy level in last decade

Clearing of piled-up inventory

Low level of farm mechanization

Government’ thrust on increasing irrigation

Emphasis on agriculture financing

Emphasis on Rural Infrastructure Development

Marketing Strategies for Tractor IndustryConsolidation in domestic tractor industry

Outsourcing of tractors and components for global

markets

Manufacturing in alignment with market demand

Initiating measures to stop advance selling

Addition of new features

Setting up satellite plants

Improving capacity utilization

Improving working capital management

Fertilizer Industry: An Introduction Fertiliser sector constitutes the backbone of Indian

agriculture industry.

Government has played a very active role in the evolution, marketing and development of fertiliser industry in India.

Fertiliser is not only one of the most capital-intensive industries but its marketing ecosystem is also one of the most complex in the Indian context.

Fertiliser marketing in India is very much different from other agricultural inputs are marketed.

Fertilizer Industry: An IntroductionTo ensure equitable supply of fertilisers at a price

which most of the farmers can afford, government of

India regulates the various facets of this industry

especially for nitrogenous fertilisers.

For urea fertiliser majority of marketing mix is

determined not by organisations manufacturing and

marketing it but by policy makers in government.

Fertiliser Industry in India: An Introduction It started with setting up of first Single Super

Phosphate (SSP) manufacturing unit in Ranipet near

Chennai with a capacity of 6000 MT a year.

Fertilisers, especially nitrogenous fertiliser (Urea)

remain one of the few highly regulated industries in

India. Prices (retention pricing), subsidies,

distribution restrictions, imports and even choice of

technology, feedstock are controlled/regulated by the

government.

Fertiliser Industry in India: An Introduction

India's green revolution in late sixties gave a boost to

the sector and presently India is the third largest

fertilizer producer in the world. The total capacity of

fertiliser industry as on 30th March 2003 reached

121.10 lakh metric tonne of nitrogen and 53.60 lakh

metric tonne of phosphatic nutrient13. Presently

there are 57 large fertilizers plants in the country

producing urea, DAP, Complex fertilizer, Ammonium

Sulphate and Calcium Ammonium Nitrate.

Fertiliser Industry in India: An Introduction Application of fertilisers have helped transform

agriculture sector in India from being dependent on food grain imports before independence to a stage of self-sufficiency.

There are signs that the fertiliser pricing mechanism is being reviewed, imports liberalised, tariff rates revised and measures being debated to lower fertiliser subsidies. But, it is a very complex decision, as it will affect millions of farmers and any change that might happen be will in the gradual increment form in case of extreme compulsion.


Phosphatic and potassic fertilisers were

decontrolled in August 1992. This policy measure

has widened the ratio in which urea (relatively

cheaper fertiliser) is applied by the farmers in

comparison with phosphorous and potassic

fertiliser (which are costly because of their

deregulation and non-provision of subsidy support

for them).

Fertiliser Industry in India: An IntroductionTotal consumption of fertiliser has gone up by

38.37% in the period of about ten years from 1990-91 to 2001-02 with the state of Punjab having the largest consumption per hectare.

India is the third largest fertilizer user in the world, average rate of fertiliser consumption is 90 kg/ha (65% as N, 25% as P2O5, 10% as K2O). This figure is low even in comparison of the average for the state of Punjab where average fertiliser consumption per hectare in 2005-06 was 208 kg.

Indian fertiliser consumption per hectare is just 1/6 to 1/4 of the developed countries.

Fertiliser Industry in India: An IntroductionAverage figure for fertiliser consumption for entire

India does not present a true picture. Average fertiliser consumption in western and eastern zones of India is far below national average of 90 kg/ha; these states have potential of using more fertilisers.

UP is largest market for all fertilisers combined. AP is at 2nd position and Punjab has third position.

Fertiliser consumption in per hectare terms is highest in Punjab. Andhra Pradesh has second position, Haryana third and Tamil Nadu comes as close fourth. Uttar Pradesh, is at fifth position.

Fertiliser Industry in India: An IntroductionPunjab, Andhra Pradesh and Haryana have

consumption in the range 208 kg, 193.5 kg and 178.6 kg per hectare respectively, Madhya Pradesh, Orissa and Rajasthan have figures as 49.4 kg, 47 kg and 42.4 kg per hectare respectively. Arunachal Pradesh, Nagaland and Sikkim have been 2.5 kg, 3.4 kg and 6.7 kg per hectare respectively.

UP is largest market for nitrogenous fertilisers,

Andhra Pradesh at 2nd position and Punjab has the third position.


For phosphorous fertilisers, Andhra Pradesh is

the biggest market, Karnataka at 2nd and

Maharashtra at 3rd position. Tamil Nadu comes at

fourth position, Uttar Pradesh comes at fifth

position and Punjab at tenth position.


There is significant variation in fertiliser’s

consumption per hectare across 525 districts.

19 districts consume more than 200 kg/ha

35 districts consume between 150-200 kg/hectare

75 districts consume between 100-150 kg/hectare

132 districts between 50-100 kg/hectare

84 districts account for 50 per cent of the total

consumption of all fertilisers.

Fertiliser Industry in India: An IntroductionThe fertilizer consumption in India ranges from: 1.1-325 kg of Nitrogenous fertiliser/ha

0.8-153.8 kg of phosphorous fertiliser/ha

0.2-129 kg of phosphatic fertiliser/ha

There is disparity in average consumption ratio of N:P:K (6.8:2.8:1 in 2001-02), which is more pronounced in the northern states (29.1:10.9:1) indicating highly imbalanced use of fertilizers.

This disparity of highly skewed consumption ratio is on account of subsidy on urea fertiliser and its non-availability on the other two.

Policy Environment for Marketing of Fertilisers

Government is involved in almost all aspects of Fertilizer industry through different policy initiatives and subsidy.

This has been done to ensure wide spread use of fertiliser and attain self-sufficiency in fertilisers.

Urea is highly subsidised with estimate for the subsidy on urea in the budget of 2001 being Rs.8,456 crore.

Policy Environment for Marketing of Fertilisers

If subsidy on urea is removed its prices will shoot up.

As urea is affordable for farmers therefore, it accounts for 83% of the nitrogenous fertiliser consumption in India.

Department of Fertilisers finalises norms for capacity utilisation and feedstock/energy consumption by urea units for different pricing periods.

Retention Pricing Scheme (RPS)Pricing of urea is regulated by retention-pricing scheme

Introduced in 1997 to reconcile two conflicting objectives -

increasing cost of fertilisers and need to keep prices low.

RPS is cost-plus subsidy paid to urea manufacturers to

compensate for higher cost vis-a-vis selling price.

RPS is manufacturing unit specific measure, which is

calculated for each unit. A fair ex price is assumed for each

urea-manufacturing unit based on prescribed efficiency

norms, capacity utilisation, raw material, feed stock, energy

consumption, etc. It includes a 12% post tax return in net

worth.

Retention Pricing Scheme (RPS)Some steps are being taken to changeover from a

cost-plus system of subsidy to a flat rate of subsidy for each group of units.

Subsidy on urea can only be phased out gradually over a period of time, if it happens at all. Sudden, withdrawal of subsidy will lead to large increase in prices and can be disastrous for industry, farmers as well as society at large. This will lead to a decline in fertiliser consumption as a whole and eventually, will affect food grain production of the country.

Distribution PolicyUrea is covered by Essential Commodities Act (ECA) 1955.

The government determines allocation of urea in different

states for each manufacturing unit.

Up to 50% of a state’s allocation of urea is reserved for

farmers’ co-operatives.

If any manufacturer produced more than the state quota,

the excess quantity does not qualify for price and

transport subsidy.

Initially fertilisers were distributed through government

agencies and cooperative societies.

Private trade was allowed to sell fertiliser only in 1966.

Distribution Policy

Private trade accounts for nearly 70% of the total

fertiliser business. There are 2,72,000 fertiliser

sales points in India 25% of them are institutional

agencies, most of them cooperatives and remaining

75% comprise of private trade.

If restrictions on distribution are removed it will

certainly affect the supplies in hilly regions because

of higher landed costs of fertilisers in those regions.

Government PoliciesImport Policy: Import of Urea is on a restricted list. It is

canalised through government-accredited agencies. Price and subsidies are fixed in such a way that the prices for imported and domestic fertilisers are more or less the same at the farmers’ end.

Feedstock Policy: Manufacturers were given concession on prices of feedstock for fertiliser plants. But in post liberalised environment government of India restructured, pricing of naptha, fuel oil and LSHS. Concessions in prices of these feedstocks, which were given earlier, were withdrawn and price of feedstock was linked to import parity price.

Challenges for Marketing of Fertiliser Industry

WTO guidelines: There is a considerable

international pressure to remove controls on urea.

Lack of irrigation: Farmers are not sure of the

output of the crop produce. Taking risk on

investing in fertiliser without assured irrigation

becomes a risky proposition for poor farmers

Challenges for Marketing of Fertiliser Industry

Lack of Availability of Easy Credit: It remains

one of the major stumbling block in the way

of maximising consumption of fertilisers.

Limited Availability of Natural Gas:

Restricted availability of natural gas from

indigenous sources remains a major concern.

Marketing Strategies for Fertiliser IndustryArea-wise Constraint Analysis: Fertiliser companies

need to undertake area wise analysis to know consumption patterns in different areas and identify what are the constraints for fertiliser consumption in different areas. Once the companies are aware of different constraints they can take measures to overcome those challenges.

Tie-ups with Co-operative Agencies: Co-operative societies based in every village can be effectively used to market the fertiliser to consumers. Fertiliser companies can appoint the co-operative agencies as franchisees for warehousing, transportation and rake handling.

Marketing Strategies for Fertiliser Industry

Developmental Marketing: Liming of acid soil, reclamation of sodic soil, wasteland development, rainwater harvesting, adoption of sound water management and water shed development practices can be key factors in promoting fertiliser use.

These efforts have to be implemented in a project mode as part of area development programme with active participation of farming community and other organisations.


These programmes will bring in more land under cultivation and thus will lead to more consumption of fertilisers over a period of time. It will also build a strong brand for an organisation in a given market.

Organize Direct Contact Programs: Fertiliser companies can organise farmer’s meeting, farmers’ trainings, crop seminars, farmers’ visit to research stations/institutes. They can also provide training to sales point personnel and launch agricultural and social campaigns, etc.

Marketing Strategies for Fertiliser IndustryThese programmes will not only educate farmers to

enhance crop productivity through balanced use of

nutrients but at the same time will build the brand of

those companies amongst farmer community.

Fertiliser companies can implement these programmes

by:

Developing technical literature - crop folders,

product leaflets

Screening films on theme of improving crop

productivity

Setting up farmers’ school and service centres


Introducing Operational Efficiency Initiatives:

Fertiliser companies can implement plans to become

even more efficient. Those plants, which are using

Naphtha can switchover to Natural Gas. Companies

can have a tight control on costs in order to increase

productivity through energy and

process efficiencies. These initiatives would be of

significant value, as the fertiliser industry would

gradually undergo phased withdrawal of subsidies.


Macro Environment Management: In the fertiliser

industry it is crucial to manage the macro

environment in order to influence the decision with

regard to prices, subsidies and imports that are

fixed by the government. Organisations need to

lobby through industry associations, chambers of

commerce to get favourable decisions from the

government.

Marketing Strategies for Fertiliser IndustryDeveloping Optimum Product Mix: Fertiliser

companies need to develop an product mix that is

most productive to produce and market.

Distribution Channel Management: Fertiliser is high

volume industry and is meant to serve the needs of

highly widespread consumer base. Therefore, an

extensive and well-managed distribution network

becomes extremely vital to serve the market

effectively.

Marketing Strategies for Fertiliser IndustryDemonstration: Farmers can be demonstrated the

benefits of the application of specific fertiliser product by organising live programmes: Two plot demonstrations Block demonstrationsCluster demonstrations

Promoting Balanced and Efficient use of Fertilisers: Efforts to educate farmers on balanced fertiliser use, based on soil and plant tissue testing can promote balanced and efficient use of fertiliser leading to increase in the overall productivity of farmers.

Marketing Strategies for Fertiliser IndustryAn imbalanced application of fertiliser is not only

uneconomical but also unwarranted and is not in the interest of all stakeholders including the fertiliser companies. Fertiliser companies can organise variety of programmes to educate farmers, fertiliser dealers on various aspect of fertiliser use. The appropriate NPK consumption ratio has to be adjudged on the basis of soil test. Fertiliser companies can provide soil testing as value added service this will create an emotional bond of farmers with the brand.

Marketing Strategies for Fertiliser IndustryPromoting Fertiliser use through Education: Industry

players can educate farmers and promote their optimum use for different crops.

Farmers can be educated that low level of fertiliser application results in heavy depletion of plant nutrients from the soil after the harvest of each crop. This leads to depletion in soil fertility. Companies can change the attitude to remove the customer bias with respect to fertiliser use depending on the crops. Pulses, oilseeds and millets are usually neglected and receive lower than desired doses of fertiliser. There is a need to evenly spread the consumption all over the country.

Marketing Strategies for Fertiliser IndustryBelow the Line Promotion Activities: Different

promotional campaigns that are interactive and

involve direct contact with the farmers can be

organised:

By organising crop competitions

Arranging field days

Participating in Exhibition and fairs


Training Programmes for Dealers: It might be

difficult to train farmers in large numbers but this

objective can be achieved by training the fertiliser

dealers whose number is relatively less. They not

only have a direct contact with farmers but also

have a considerable influence on them. Display

materials like: posters, samples, models can be

developed and distributed to dealers for educating

them to eventually pass on the message to the

farming community.

Marketing Strategies for Fertiliser IndustryProvision of Value Added Service: Fertiliser sales points

can act as service centres. Provision of Value added services like: soil amendments, soil and tissue testing, and also promote precision and e-extension services can help in retaining farmer-customers with them.

Use of Information Technology Networks: IT networks

of village-based kiosks that are being established by different companies can be leveraged to take information to the customer and to sell the fertilisers. Kissan call centers can be used to develop an interactive relation with farming community.


Preparation for Decontrolled Scenario: Sooner or

later the nitrogenous fertiliser industry will be

deregulated. Fertiliser companies can start

making preparation to be ready to meet

challenges of decontrolled scenario from now

onwards. This can be done by developing market

orientation and by becoming efficient producer by

process efficiencies.


Marketing orientation and customer driven culture

would be required in the decontrolled scenario.

There will be markets with very competitive situation

and at the same time there will be markets with poor

availability. Different companies would be selling

fertilisers at different prices, so companies will have

to compete by product differentiation and brand

building.

Agrochemical’s MarketingAgrochemical industry constitutes those chemical

compounds that prevent crops from the attack of pests, weeds, fungus, insects and other related diseases.

From the physical form perspective they are classified as powder chemicals and highly concentrated liquid chemicals.

The main classification is on the basis of the purpose

for which they are used:insecticidesherbicides or pesticidesfungicides

Indian Agrochemical MarketIndia is second largest producer of agrochemicals in Asia

after Japan.

Total market size of the Indian agrochemical in 1998 was Rs.3,000 crores, a growth of about 16% over the 1997 consumption level.

Insecticides are largest product sector amongst agrochemicals in India contributing 75% of market.

Herbicides account for about 12% of the Indian agrochemical market. The use of fungicides accounted only for 10% of the total market.

Sulphur products, copper sulphate and copper oxychloride dominate the fungicide market.

Indian Agrochemical MarketInsecticides are mainly used for cotton and rice

crops, together they account for 52% and 12% of the total sales value of insecticide respectively. 8 percent of them are used for vegetables whereas 5% of insecticides were used for pulses crops.

Rice and wheat are two major crops where 63% of herbicides are used, both crops having almost an equal share. If we add tea crop to them then they constitute 75% of the market for herbicides. Oilseeds consume 8% of the herbicides whereas 6% of herbicide is used for sugarcane. Thus these five crops consume 90% of the herbicides in India.

Indian Agrochemical MarketRice crop accounts for about 58% of fungicide sales

in India and another 20% of it is used for fruits and vegetables.

Overall the highest consumption for agrochemicals in India is for cotton crop, for which nearly 40% of all agrochemicals sold in India are used. It is followed by rice crop with 31% share; fruits & vegetables comprise another 15% share. Only 6% of all the agrochemicals are used for cereals.

Marketing Environment for Agrochemicals in India depend on following factors

Cropping Patterns in India: Only 40% of the total cultivated area in India is irrigated. Much of India's irrigation is dependent on rainfall, which limits the possibility of high investment in agrochemicals, as farmers are not sure about good output even by applying this incase the rain is not there.

Cotton: Cotton constitutes biggest market for insecticides. Andhra Pradesh is the accounts for nearly 25% of the agrochemicals market.


12 to 15 sprays per season are common in central and southern India whereas 6 to 10 sprays are accepted to be normal in the state of Punjab.

Rice: Punjab and Haryana on an average consume 80% of rice herbicides Hybrid varieties that provide improved yields lead to increased pesticide use.

Marketing Environment for Agrochemicals in India depend on following factors Wheat: A thriving herbicide market has developed

in high yielding wheat areas of Punjab, Haryana and western Uttar Pradesh Future growth is likely to be in mixtures and a number of new molecules are to enter the market.

Pulses: Productivity for pulses was less as they were grown on poor soils but it has started to pick up. With increased return the use of insecticides is growing. Because of lack of minimum support price (MSP) farmers do not have assured income to commit to a large pesticide spend on pulses crops.


Vegetables: Vegetables are becoming profitable

because farmers have started selling them directly

in towns and cities. Because of higher prices

growers are prepared to spend on pesticides.

Involvement of corporate sector with vegetable

crops through contract farming is also

contributing to increased sales of agrochemicals.

Policy Envt. for Marketing of Agro-chemicals in Post- liberalization Scenario

Reduction in Import Tariffs: Import tariffs were reduced from 115% to 50% and are expected to settle at: 35% for finished product, 20–25% for intermediates and 10 – 15% for raw materials.

Delicensing of Pesticide Industry: The pesticide industry is now a delicensed category. This will enable larger companies to improve productivity and quality. But new facilities have to meet stringent new requirements on environmental contamination and pollution control administered by the Pollution Control Board.

Policy Envt. for Marketing of Agro-chemicals in Post- liberalization Scenario

Opportunity for Exports: Surplus production capacities will mean that Indian companies will have to look at export markets. With this, quality levels and compliance with internationally accepted norms will also improve significantly. This will have indirect benefit for the domestic market.

Reforms in Agricultural Marketing Act: Practices with respect to marketing of farm produce have been deregulated. With this farm income is expected to rise and he will be in better position to afford agricultural inputs in order to improve crop yield and quality.

Pesticide RegistrationAgrochemicals can cause adverse effects on human

health and environment, so they are regulated by

registration.

The Insecticide Act, 1968 govern the registration

and licensing process for agrochemicals.

Registration of agrochemicals is handled at central

government level whereas issues regarding

implementation of the Act and manufacturing

license are done at the state level.

Pesticide RegistrationIt is executed by Central Insecticide Board (CIB),

Registration Committee (RC), Central Insecticide Laboratory (CIL) under the Ministry of Agriculture (Registration & Scrutiny) along with Ministry of Health.

The Registration of Agrochemicals is of Two Types: registration of technical grade material and registration of formulations. If technical grade material refers to new molecules and chemicals then the formulations refer to the various combinations of technical grade material in different percentages to create a distinct product, which are then sold to the farmers for use.

Pesticide RegistrationThe registration process verifies the legal aspects,

chemistry, toxicology, bioefficacy and packaging, can take even up to four to five years for new molecules. But, registrations are becoming more difficult to obtain as the authorities try to tighten up the system and remove registration loopholes.

In 1994, 31 pesticides were reviewed. number of active ingredients have been banned. Others can only be used in specific circumstances. DDT has already been phased out of the pesticide industry from agricultural use and that Iindane/BHC were phased out during 1997.

Pesticide Distribution in IndiaMost of the agrochemicals have been manufactured

domestically but their importation is becoming

easier because of lowered down tariff and non-tariff

barriers.

An extensive distribution network needs to be

developed in order to tap the large, diverse and

seasonal nature of agrochemical market.

Pesticide Distribution in IndiaMajor producers serve this market with large field

forces.

The retailer remains highly powerful part of this channel because they are the main point of contact with the farmer and are also active in providing credit to them. Because of their considerable influence on farmer they are in a strong position to dictate product choice to comparatively less informed farmer who considerably depend on the retailers for product choice decision.

Agrochemicals: Factors Affecting Market Growth

Crop prices have firmed & farmer incomes are rising.

Aggressive marketing and promotional efforts is leading to increased used of agrochemicals

Backward integration by companies has lead to lower cost of product. This is expanding the market.

Agrochemical use is increasing in profitable crops such as vegetables, fruits, oil seeds (particularly sunflower and soya) and pulses. Usage of agro-

chemicals was very limited in past for these crops.

Agrochemicals: Factors Affecting Market GrowthNumber of new molecules from MNCs are reaching

the market, which is improving the effectiveness of agrochemicals against the pests and insects.

An increasingly affluent middle-class can afford quality produce at a slightly higher price. So, farmers can charge higher price for higher cost.

The growing economy is sucking labour into towns and industry. This encourages herbicide use as labour is either not available or is costly.

Total irrigated area continues to rise, assured irrigation means that farmers will be more willing to take risk with higher input costs.

Structural Challenges Faced by Indian Agrochemical Industry Low Capacity Utilization: The 12,400 crore tonnes of

installed capacity is much more than the domestic consumption of 8,500 crore tonnes. Unreliable power and intermediate supply also contribute to lower capacity utilization. Until export market is taken seriously by manufacturers cost per unit will be relatively higher because of high fixed overheads.

Seasonality of Demand: Because of smaller shelf life and shorter period of applications manufacturers have to ensure that their inventory move off the shelf of retailer during a particular season.

Structural Challenges faced by Indian Agrochemical Industry

Expensive Finance: Borrowed money is still expensive in India. Cash tied up in debts or excessive stocks can cause cash flow problems in overstretched companies. Some smaller operators have gone out of business and number of companies are in for consolidation.

High Inventory Cost: Seasonal demand and poor management leads to high inventory costs.

Price-cutting: As season nears to an end dealers’ rush to clear stocks. This leads to price-cutting and un-remunerative pricing.

Structural Challenges faced by Indian Agrochemical IndustryHuge Working Capital Requirement: Because of high

inventory and industry thriving on credit sales (range from 90-120 days), and high interest rates for manufacturing sector. Retailers do not put up their own money but buy on credit from companies. Farmers also pay retailers, at the time of harvest, resulting in extended credit period. Retailers use cash they generate from their agrochemical businesses into other operations.

Number of Companies have become Financially

Overstretched: large carryover stocks, outstanding credit and the high cost of borrowing cause liquidity problems. On account of this not only overall profitability is reducing but also lack the working capital of almost all agrochemical companies is getting seriously affected.


Lack of Indigenous Research and Development: Local companies have not developed new molecules on its own. At the same time international companies became slow with new introductions because of lack of patent protection and punitive import duties.

Low Profit Margins: Margins are getting squeezed for the manufacturers of agrochemicals because of over-capacity, large working capital, high cost of capital, extensive credit periods and high inventory costs.


Undisciplined Marketing: Many Indian manufacturers

produce a particular agrochemicals on basis of their

capacity to produce it without due consideration of its

need and potential in the market. The end result is

often high inventory, price-cutting and market

degradation. Retailers take the maximum advantage

at the cost of manufacturers and relatively less

informed farming community.


Crop Imbalance: Agrochemical consumption is concentrated in select crops: cotton, wheat, rice, vegetables, tea and some fruits. There is lesser use in crops: oil seeds & pulses, thus optimum potential for consumption of agrochemicals is not realized.

Regional Imbalance: Insecticides mainly get consumed in two states of Andhra Pradesh and Karnataka while most of herbicides are used in northern states of Punjab and Haryana. Improved irrigation in other parts of India can create wide spread use of agrochemicals.

Structural Challenges faced by Indian Agrochemical Industry:Low Selling Price of Agriculture Produce: Low selling

price of agriculture produce reduces the income to be spent on pesticides.

Natural Calamities: Cyclone and heavy rains in coastal states like Andhra Pradesh a key market can affect sales of agrochemicals. As cyclones and heavy rains reduce the pest levels considerably.

Environmental Pressures: There has been some justifiable criticism of pesticide pollution. It requires restricting or banning certain products and reducing number of small, poorly qualified formulators.

Marketing Strategies for Agrochemicalsa. Product Strategy:Backward Integration: To lower their overall costs, improve

quality and to have better margins.Cost Effective Manufacturing Processes: Instituting

manufacturing processes that are efficient and cost effective, relative to the global benchmarks.

Branding: Becoming capable of producing both technical and formulated materials and develop ability to sell a large part of their production as branded material. Then their profitability would be less affected, when farmers decides to spend less during tough times.

Novel Products: By offering novel products and being active in less crowded sectors companies will have relatively stronger position than those who are competing in highly competitive markets.

Marketing Strategies for Agrochemicalsb. Place Strategy:

Direct Dealing with Retailer: This helps to save on the distributor margin & sell at very competitive end user prices.

c. Price Strategy:

Higher MRP and Lower Selling Price: MRPs can be kept artificially high (to make the discounts look better) to the farmer. Prices are also discounted heavily for early selling and also to clear stocks at the end of the season.

Good Working Capital Management: By ensuring a limited supply of credit to the channel partners, companies can ensure that their working capital is not over leveraged. This can be made possible through generating strong pull from the customers for the particular brand.

Marketing Strategies for Agrochemicals

d. Promotion strategy: Changing Attitude: To change the attitude of

the farmers towards agrochemical consumption for the crops like oil seeds and pulses for which there is lesser use of agrochemicals.

Farmer Education: About pesticide need, use and safety. With farmers not always understanding the logic of product choice (he may mix two or three pyrethroids). This can help in brand building.

Marketing Strategies for Agrochemicals

e. Export Strategy: To safeguard against the unpredictability of Indian

agricultural, agrochemical industry should develop the export market as an option. On the basis of low cost of production, Indian agrochemical companies can have the entire world as their market. There can be good demand from Europe, South America and other countries.

Pesticides Manufacturers & Formulators Association of India (PMFAI) estimated export turnover to go up to Rs.3,200 crore during 2004 up from Rs.2,800 crore in the previous year.

ConclusionIf there are immense opportunities for

agricultural inputs industry in domestic as well as global markets than they face equally good number of challenges.

The challenges can be managed in order to exploit the opportunity through a well-coordinated marketing effort.

Marketing savvy players like Mahindra and Mahindra have demonstrated this by outperforming over the prevailing industry trend on a consistent basis.

ConclusionConsumers & investors have significantly

rewarded companies that are responsive to needs of rural market.

Overall the future appears to be bright for Agri-input industry as Indian agriculture is on the developmental path because of improved thrust of government and corporate sector.

Export market is looking attractive & India is emerging as low cost but high quality manufacturing hub for global markets.

Learning Objectives Be acquainted with development of Indian

agriculture in post-independence scenario

Understand marketing of agricultural produce in Indian context

Comprehend the role of different stakeholders: government, cooperatives, private sector in the development and marketing of Indian agriculture

Be sensitized with challenges in marketing of agricultural produce

Be aware of the strategies for promoting the marketing of agricultural produce

Development of Indian Agriculture in Post Independence ScenarioFrom a nation dependent on food imports, India today is

not only self-sufficient in grain production but also has a substantial reserve.

India’s agricultural production of $104 billion

(Rs.4,68,000 crore) is ranked 2nd in world. Increase in agricultural production has been brought

about by: bringing additional area under cultivation, extension of irrigation facilities, use of improved high-yielding variety of seeds, better techniques evolved through agricultural research, water management, plant protection, judicious use of fertilisers, pesticides and cropping practices.

Development of Indian Agriculture in Post Independence Scenario

The 1970s saw a multi-fold increase in wheat production that heralded the Green Revolution. In next decade rice production rose significantly.

In 1995-96, rice production was 7.96 crore tonnes. The total grain production crossed 21.1 crore tonnes in 2001-02, a big leap from 5.1 crore tonnes in 1950-51.

Indian Agricultural Produce Marketing: A Brief ProfileThere are primarily three types of players involved in

marketing of agricultural produce:

Government: Government has direct & indirect intervention: Indirectly: by enacting policies and regulatory

framework, facilitating infrastructure development Directly: through Boards, Commissions,

Corporations, etc.

Co-operative Societies: Intervene through procurement, processing and marketing of agriculture produce.

Private Sector: Involved as: itinerant merchants, traders, processing firms and corporate based contract farming.

Indian Agricultural Produce Marketing: A Brief Profile

Agricultural produce marketing system in

India operates primarily according to market

forces of supply and demand.

Government intervention is to protect

interests of producers and consumers and

promotion of organized marketing.

Role of GovernmentGovt. has played an active role to improve

agricultural produce marketing

These steps include: establishing regulated markets, constructing warehouses, grading and standardizing produce, standardizing weights and measures, and providing information on agricultural prices.

Agricultural Produce (Grading and Marketing) Act, 1937, requires compulsorily grading for more than 40 primary commodities for the purpose of exports and voluntarily grading for internal consumption.

Role of GovernmentThe Ministry of Agriculture's Directorate of

Marketing and Inspection is responsible for

administering federal statutes and conducting market

research about marketing of agricultural produce.

Regulation of commodity markets is a state function

as per constitution, but Directorate of Marketing and

Inspection provides marketing and inspection

services and financial aid down to village level to set

up commodity grading centers.

Role of GovernmentVarious central government organizations are

involved in agricultural marketing: Commission for Agricultural Costs and Prices (decides minimum support price (MSP) for certain crops), Food Corporation of India (FCI), Cotton Corporation of India (CCI) and Jute Corporation of India (JCI).

There are specialized marketing boards for rubber,

coffee, tea, tobacco, spices, coconut, oilseeds, vegetable oil, and horticulture, which overlook and coordinate the marketing of the produce in their respective area. State governments have also established different entities for similar purpose.

Role of GovernmentFood Corporation of India (FCI) was established in

1965 as public-sector marketing agency responsible for implementing government price policy through procurement and public distribution operations. It was intended to secure for government a commanding position in the food-grain trade.

By 1979 FCI was operating in all states as the sole agency of central government in food-grain procurement. FCI uses services of state government agencies and cooperatives in its operations.

Role of GovernmentFCI is sole repository of food grains reserved for

the Public Distribution System (PDS). Food grains, primarily wheat and rice, account for between 60 and 75 percent of the corporation's total annual purchases.

Food-grain procurement was 89 lakh tonnes in 1971, 130 lakh tonnes in 1981, and 178 lakh tonnes in 1991. FCI has functioned in providing price supports to farmers through its procurement and in keeping a check on large price increases by providing food grains through the PDS.

Role of GovernmentPDS is a network of 350,000 fair-price shops that are

monitored by state governments. Punjab, Haryana, and western Uttar Pradesh provide more than 80 percent of the supplies of grain to the PDS. Food grains supplied through the PDS amounted to 78 lakh tonnes in 1971, 130 lakh tonnes in 1981, and 170 lakh tons in 1991.

Central government’s Central Warehousing

Corporation operates warehouses at major points. By 1980s, warehouses for storing agricultural produce and farm supplies started to play an increasing role in government price control programs and in distributing farm commodities and farm supplies.

Role of GovernmentThe public warehouses issue a receipt to the owners

of stored goods on which loans can be raised,

warehouses are also becoming important in

agricultural finance. Their growth has resulted in a

decline in weather damage to produce and in loss to

rodents and other pests.

In 1991 there were 6,640 regulated markets to which

the central government provided assistance in the

establishment of infrastructure and in setting up rural

warehouses.

Role of Co-operative SocietiesA network of cooperatives at the local, state, and

national levels assist in agricultural marketing.

The major commodities handled are food grains, jute, cotton, sugar, milk, grapes and areca nuts.

Established in 1958 as the apex of the state marketing federations, the National Agricultural Cooperative Marketing Federation of India handles much of domestic and most of export marketing for its member organizations.

Role of Co-operative SocietiesLarge co-operative enterprises, such as cooperative

sugar factories, spinning mills, and solvent-extraction plants mostly handle their own marketing operations independently.

Medium- and small-sized enterprises, such as rice mills, oil mills, cotton ginning and pressing units, and jute baling units, mostly are affiliated with cooperative marketing societies.

Cooperatives also operate warehouses in towns and villages.

Role of Co-operative SocietiesIn late 1980s, there were some 2,400 agro-processing

units in the cooperative sector. Cooperative sugar factories have achieved notable success. The number of licensed or registered cooperative sugar units were 232, of which 211 had been installed by March 1988.

During the Oct 1987-Sept 1988 sugar season, 196 cooperative sugar factories were in production. They produced nearly 53 lakh tonnes of sugar, accounting for about 57.5 percent of the country's total production of 92 lakh tonnes.

Role of Co-operative SocietiesIn the early 1990s, cooperative marketing structure

comprised 6,777 primary marketing societies: 2,759

general-purpose societies at the mandi (wholesale

market) and 4,018 special commodities societies.

There were also 161 district or central societies

covering nearly all-important mandis in the country

and twenty-nine general-purpose state cooperative

marketing federations.

Role of Co-operative Societies

The total value of agricultural produce marketed by

cooperatives amounted to about Rs.5,420 crores

1988, compared with Rs.1,800 crores in 1979. The

total value of food grains handled by marketing

cooperatives increased from Rs.500 crores in 1979

to about Rs.1,13,000 crore in 1986.

Role of Private SectorFarmers sell most of the agricultural produce in the private

sector to traders who are also moneylenders (to whom the farmer may be indebted) or to itinerant merchants.

Agricultural produce is sold in many of the following ways:

At a weekly village market (haat) in the farmer's own village or in a neighboring village.

At irregularly held markets in a nearby village or townIn the mandi. To traders who come to the work site.Directly to the corporate sector for processing or exports

through Contract Farming.

Challenges in Marketing of Agricultural Produce

Numerous Intermediaries in the Distribution Channel: In absence of marketing linkages, intermediaries were in position to exploit the farmers and were making the most at the cost of farmers.

Lack of Adequate Infrastructural Support: Significant %age of fruits and vegetables rot in farms/ transportation and markets before reaching the consumers homes.


Absence of a Structured Network for Information Flow: Indian farmers suffered heavily on account of lacking information on where to buy cheap and where he could get the best price for his produce.

Dependence on Environment: Topography and climate dictate, which crop can be grown in an area and for that suitable markets may not be available. Over large areas of India farmers are forced to rely on subsistence crops.


Sharp Fluctuation in Prices: Returns to the farmer can vary as prices fluctuate. At present guaranteed minimum prices are only available for rice and wheat.

Lack of Pest Control: In India, annual losses due to pests is greater than Rs.5000 crores. Pesticide industry remains dependent on monsoon because large cultivated land does not have assured irrigation and farmers find it difficult to invest in pesticides in significantly large parts of rural India.


Fragmented Landholdings: Indian farms are small,

and getting smaller as land is divided after every

generation. Around 60% of landholdings are less than

1 hectare. Farmer is not able to make investment in

mechanization, fertiliser, agrochemicals, irrigation,

etc. Thus the overall productivity of the output goes

down. Another 20% of the holdings are between 1 and

2 hectares. If we include the land holdings up to 4

hectares they constitute for 91% of land holdings in

India.

Strategies to Promote Marketing of Agricultural Produce

Amendments in Agricultural Produce (Grading and

Marketing) Act, 1937: This allows farmer to take his

produce to markets and buyers who are ready to

give him the best price for his produce. The farmer

will not be restricted to area where he can market

his produce. This will involve relaxing physical

controls on trading of key crop such as edible oils

and cotton. Cotton is treated as a strategic crop and

is purchased by the government under the Monopoly

Procurement Scheme.


To built Distinctiveness in Specific Agricultural Product- Markets: Different countries have developed distinct image for themselves in a certain product segment.

Brazil in Poultry, New Zealand in niche markets for special, high value apples in Europe, (produces less than 1% of world apples, but has a share of 14% in world exports), Israel’s export of citrus fruits (developed in desert areas) account for 3.6% of total exports of Israel (1.1% of world exports) and 2.5% of its GDP. Mexico supplies tomatoes to US for about USD 500 million


By focusing on specific crops/products and markets,

these countries have become important global players and provided significant impetus to that industry in their countries. India can do the same in case of select crops.

Increasing Turnover for Agricultural Companies: Size is important in food and agribusiness as it enables investment in the supply chain and market development. Food processing industry in India needs significant consolidation and have international presence to successfully compete with MNCs.


Better Supply Chain Management: Effectiveness in

supply chain management leads to improved quality,

ability to be price competitive and improved market

development. The government should allow

processors to purchase directly from farmers and

bypass the mandi. Input companies should be

permitted to sell their products directly to the

farmers. This would enable the companies to interact

directly with farmers, without incurring unnecessary

non-value adding costs.

Strategies to Promote Marketing of Agricultural ProduceCrop Insurance Subsidy: Crop insurance business in India

has been loss making primarily because of poor economic viability. Experience in other countries suggests that subsidy is required for crop insurance business to be beneficial to a wide section of farmers. Central government can reconsider its decision to end crop insurance subsidy.

Enabling ‘Bulking’: By enabling ‘bulking’ in agri-commodities, government can significantly bring down costs. For example, it is estimated that about 3.5 per cent of the value of soyabean is lost due to repeated bagging. The investment required for creating bulking infrastructure could be obtained from the private sector. Government needs to remove the controls on agri-commodities to make these projects commercially viable.


Infrastructure Development: Roads, ports, railways, mandis, needs to be improved to improve productivity, transportation, storage and distributions of farm produce from fields to consumers tables. This can create better return for all the stakeholders.

Organised Retailing: Efficient linkages directly with the producer sans intermediaries can be effective in streamlining the whole supply chain. It will reduce prices by making savings by direct arrangement with producers and improvement in the quality. Food retailers bring operational expertise, technology and capital, which provide gain to all the stakeholders.

Strategies to Promote Marketing of Agricultural ProduceMaking use of agricultural waste: Agriculture generates

enormous quantity of by-products, which are usually not used economically. By making an economic use of what is treated as waste can increase the income of farmers. Paddy alone produces straw, leaves, stem, nodes, inter-nodes and husk as by-product. Scientists have opened up new possibilities for the utilisation of paddy straw. It can be used as industrial fuel, as feed for cattle and their bedding, as compost, as mushroom culture and for making paper, chipboard and panel products.

PAU has exploited maize cobs to produce citric acid. Pine needles going waste in hill areas can be used as insulation material in cold stores. Insulation With this material, a saving of about 30 per cent can be affected in constructing a cold store.

Strategies to Promote Marketing of Agricultural ProducePAU has designed a biogas plant that uses wastes such

as straw, leaves and kitchen waste instead of cattle dung to produce biogas. About 20 kg of straw waste fed to the plant daily produces about six cubic meters gas. The residue may be used as manure.

Large number of chemicals may be produced from agricultural wastes. A process to produce polymers and convert them into plastic foams also has been developed. Reinforced foam has been evaluated as a suitable material to make roofs and panels.

With these innovations a new market for what was considered waste will be developed and will lead to better income for farmers and create employment opportunities.

ConclusionEffective marketing of agricultural produce is critical not

only for the development of rural economy but it is also crucial if India aims to achieve higher then the average rate of growth.

There is need of appropriate marketing linkages to link the fields with consumer homes within and outside India.

Already there have been initiatives on the part of government and corporate sector to develop policies and business models, which can provide effective platforms to bring prosperity to the farmers by eliminating the non-value adding chain of intermediaries.

Learning ObjectivesBe acquainted with origin and development of

cooperative movement in India

Learn about the types of cooperative societies

Know about nature and objectives of cooperative movement

Understand the benefits of cooperative movement

Be sensitized with challenges faced by cooperative sector

Comprehend the strategies to strengthen the primary agricultural credit societies

IntroductionIn India with 75% of population living in villages,

out of which significant percentage comprising small or marginal or even landless farmers; cooperative movement means more than activities organized on co-operative lines.

Cooperatives perform the role of institutional agencies, which strive for achieving social cohesion by providing opportunity for sustainable development at Bottom of the Pyramid, through the cooperation amongst the members.

Introduction

Former Chairman of GCMMFL, Mr. Verghese

Kurien said, “Co-operation is first and foremost a

philosophy. It is a faith that human beings are

capable of transcending narrow self-interest to

work together to achieve common and higher goal.

However the magic of co-operation is seen when

this philosophy is translated into business and

economic success.”

Evolution of Cooperative MovementCo-operative movement began in early 1900s.

Cooperation was first introduced as a form of organisation under the Cooperative Credit Societies Act 1904.

At that time it was confined to organisation of

cooperative credit societies to relieve indebtedness and promote thrift.

It aimed at pooling meager resources of small

landholders and entrepreneurs who found hard to sustain themselves individually in free market by exorbitant interest rates.

Evolution of Cooperative MovementCooperative Societies Act 1912 permitted

formation of societies for promoting non-credit

activities & federation of primary societies into

organisations at higher level.

Co-operative movement allows the rural economy

to tackle problems relating to credit, and provide

an alternative for procurement of inputs and

marketing of the final products.

Types of Co-operative SocietiesAgriculture Credit Cooperatives: The primary agricultural

credit societies can be termed as sheet anchors of the entire co-operative structure. They provide short to medium-term and even long-term credit and also undertake marketing of agricultural produce, supply of agricultural inputs and distribution of consumer articles.

As, significant %age of farmers might be non-credit

worthy according to generally prescribed rules for advancing loans, credit societies provide the loans on the basis of production programmes and anticipated crops. A maximum credit limit is fixed for each member and within this limit he is permitted to obtain loans according to his requirements.

Types of Co-operative Societies

To ensure proper use of funds, loans are given as far as possible in kind, in form of seed, fertilizer, etc. For cash loans, members are persuaded to agree in advance to market their produce through the primary marketing society.

As early as June 1954 there were 22 State Co-operative Banks, 499 Co-operative Central Banks and 126,954 agricultural credit societies with 58 lakh members to whom they were providing short to medium term loans.

Re-organisation of Rural Credit and Marketing Societies

The proposals of Committee of Direction of the Rural Credit Survey were accepted in principle by Central Government, Reserve Bank of India and by representatives of the cooperative movement. Thus, following systemic and very important changes were introduced in rural credit and marketing societies:

State entered into partnership with cooperative institutions at various levels to provide financial assistance and guidance to the cooperatives. The State partnership was directly at the apex and the central bank level but in a more flexible manner at the primary level.

Re-organisation of Rural Credit and Marketing Societies

For facilitation of partnership of the State in

cooperatives, the Reserve Bank of India

established a National Agricultural Credit (long-

term operations) Fund with an initial contribution

of Rs.10 crores. Contributions of Rs.5 crores per

annum were made during 2nd plan so that by

1960-61 the Fund has a capital of Rs.35 crores.

From this Fund loans were advanced to States to

enable them to subscribe to the share capital of

cooperative credit institutions.

Agriculture Marketing SocietyThere were 16 State marketing societies, 2125 marketing unions

and federations and 9240 primary marketing societies with a total annual turnover of about Rs.52 crores in the field of agricultural marketing in June 1954. There were 937 irrigation societies, 65 milk supply unions, 1473 primary milk supply societies and 601 cooperative farming at that time.

Cooperatives are the main institutional agency for procurement

operations on behalf of the Government and commodity Corporations. They also undertake commercial operations in important commodities, which are not covered under the Price Support Programme. Some of them have effective links with public sector commodity corporations such as the Food Corporation of India FCI), Cotton Corporation of India (CCI) and Jute Corporation of India (JCI).

Agriculture Marketing SocietyThey undertake distribution of agricultural inputs:

chemical fertilizers, improved and hybrid varieties of seeds, pesticides and agricultural implements.

Share of the co-operatives in total fertilizers distribution was 46 per cent in 1979-80 and it increased to 47 percent in 1984-85. Presently about 25% of all fertilisers sold in India are through co-operative societies.

The value of agricultural produce marketed by co-operatives which was Rs.1,750 crores on eve of 6th Plan increased to Rs.2,700 crores by the end of 1984-85.

Non-agricultural SocietiesIn the non-agricultural field significant success has

been achieved in the formation of 5,748 handloom weavers' societies in 1953-54.

The number of looms included in these societies has increased during the first plan from 6,26,119 to about 10 lakh.

In the second five-year plan provision was made for developing cooperative processing on a substantial scale, especially for producing sugar, ginning cotton, crushing oil and balling jute.

Objectives of Cooperative MovementTo evolve a system of cooperative community

organisation which +vely impacts all facets of life with a developmental approach.

It should lead to development of land, other resources and social services in the common interest of village as a whole.

Cooperative movement should lead to re-organisation in the rural economy.

Objectives of Cooperative MovementTo expand flow of credit and ensure supply of inputs

particularly to weaker sections on reasonable and non-exploitative terms.

To enable co-operative movement to play a pivotal role in the public distribution system in the rural areas.

To promote professional management and operational efficiency of the tasks performed by rural producers and also to benefit rural consumers.

Nature of Cooperative OrganisationRural based cooperative’s organisation structure

consists of primary societies at villages level, central organisations at district level and apex federation at the State level. Primary marketing societies are federated together in an apex marketing society at the state level.

The areas, which are appropriate for the cooperative method of organisation are: agricultural credit, marketing and processing of different production in rural areas, consumers co-operative stores, cooperatives of artisans, etc.

Cooperatives are established to become principal basis for the organisation of economic activity.

Nature of Cooperative OrganisationThe development of agricultural cooperative

societies varies significantly across different States. The agricultural produce marketed through co-operatives in terms of per hectare ranged from Rs.8 in Rajasthan to Rs.509 in Maharashtra.

Six States of Gujarat, Haryana, Karnataka, Maharashtra, Punjab and Uttar Pradesh contributed 81% of the overall achievement in 1984-85.

In spite of the assistance provided to the co-operatively weaker states particularly in the North Eastern region, the co-operative movement in these states has not developed that effectively.

Benefits of Cooperative MovementCo-operatives offer certain benefits, which neither the

private enterprises nor the state owned public sector can deliver that effectively.

It provides an approach and methodology of achieving

results that are valuable to community as a whole through social and individual incentives.

If it succeeds, cooperation can bring larger and wide

spread gains to the community as a whole.

It avoids the exploitation of the interest of the lesser informed and lesser-privileged unorganized individual from the exploitative designs of the people and the organisations that are in position to make the most of this opportunity.

Challenges for Co-operative SectorUnder-utilisation of Capacity: In rice mills and fruit

and vegetable processing units, there is under-utilisation of capacity.

Human Factor: The involvement of human aspects, which are very complex, makes it much more difficult for the co-operative form of organisation to succeed than it is for a completely socialized enterprise or an individual entrepreneur.

Challenges for Co-operative Sector

Deficiencies in Technical and Financial Management:

The management of the most of co-operative units has not

been done on professional lines.

One of the reason for this could be lack of individual

incentive and also at the same time political pressure on

the entire decision-making process does negatively

influence the performance of large number of co-

operatives.

Challenges for Co-operative SectorInadequate Availability of Co-operative Credit Due to

High Over Dues:

The most serious challenge has been the continued existence of high levels of over dues of large number of co-operative societies in large number of States.

This has eroded the overall viability of primary co-operatives and has also adversely affected other fields of activity like marketing of agricultural produce, supply of agricultural inputs and distribution of consumer goods.

The high interest rate on bank credit and inadequate margins available to the co-operatives for fertilizer retailing also makes it difficult for the co-operatives to serve the needs of rural consumers.

Challenges for Co-operative SectorOver-dependence on Government: Too much

dependence on Government funds for different activities has been a major constraint in their expansion.

Evaluation of the Training Programmes: Although the trainings have been provided under the co-operative system and there exists very good training infrastructure but evaluation of trainings has not been given due attention.

Strategies to Strengthen Primary Agricultural Credit Societies

Appointment of a Competent Staff: Most of the co-operatives that are not performing successfully are the ones that are not being managed by the adequate professional talent. Through appointment of professionally qualified staff that is selected on merit, large number of co-operatives can start performing profitably.

Provision of Physical Facilities: With the provision

of state of the art and efficient infrastructure, the performance of some of the co-operatives can improve considerably.


Augmenting the Internal Resources of Cooperatives

by Way of Deposits: The members and stakeholders

can improve the performance of some of the co-

operatives with provision of additional resources in

the form of deposits.

Improving their Recovery Performance: With

implementation of effective policy measures their

recovery performance can be improved

considerably.


Co-ordination with Panchayat: if both the entities

work in tandem they can achieve the objectives for

which they are constituted.

Sound Membership Base: Every family in a village

should preferably be a member of at least one co-

operative society.


Size of Primary Cooperative Society: A primary co-operative group should be reasonably small and homogeneous, for its members to know and trust one another.

Than the number of small primary co-operatives may combine into a larger organisations, but the strength of co-operation comes from the base of relatively small and homogeneous primary groups, which function actively.

The area of jurisdiction for a cooperative should be large enough to make it an efficient unit but at the same time it should not be so large that it might become difficult to have sense of mutual obligation and concern for rehabilitation of the weaker sections of the community.

There should be intimate contact between management committee and members.

If strong primary units exist at the base, effective organisations can be built up at higher levels. The structure as a whole can then undertake activities and provide services, which require large resources and organisation.

Documents

Rural Marketing