Download MBA-Marketing (Master of Business Administration) 4th Semester Rural Marketing Notes
MBA-H4010
Rural Marketing
RURAL MARKETING
"Rural Marketing is Real Marketing"
The predominantly rural character of India's national economy is
reflected in the very high proportion of its population living in rural area's: They
were
Year
Rural Population
In 1901
89 per cent
In 1951
83 percent
In 1971
80 percent
In 1981
76 per cent
In 1991
74 per cent
In 2001
73 per cent
With more than 700 million people living in rural areas, in some
5,80,000 villages, about two--third of its workforce was engaged in agriculture
and allied activities with a contribution of 29 percent of India's Gross Domestic
Product (GDP), India's economy is predominantly rural in character.
India's economy can be thought of as comprising of two main sectors,
namely, the Rural Sector and the Urban Sector. The Rural sector is, in turn,
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composed of two main sub sectors i.e. the agricultural sub sector and the non--
agricultural sub sector.
See Fig.:
INDIAN ECONOMY
RURAL SECTOR
URBAN SECTOR
AGRICULTURAL
NON--AGRICULTURAL
Fig.: Classification of Indian Economy
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The non-agricultural sub sector comprises agricultural and allied
economic activities such as Crop Cultivation, Animal Husbandry, Dairying,
Fisheries, Poultry and Forestry (Floriculture) etc.
The non--agricultural sub sector consists of economic activities relating
to Industry, Business and Services. Industry have refers to cottage and village
industries, Khadi, handloom, handicraft, etc.
Business refers to trading of general goods, small shops, petty traders
etc., whereas services refers to Transportation, Communications, Banking,
Postal, Education etc.
The size and potential market of the rural sector could be measured in
terms of the rural population, the population of livestock, the extent of land,
forest and other natural resources.
According to the population census of 1991, India's rural population was
62.87 crore, which accounted for 74.3 percent of the country's total population.
Till recently, the focus of marketers in India was the urban consumer and
by large number specific efforts were made to reach the rural markets. But now
it is felt that with the tempo of development accelerating in rural India, coupled
with increase in purchasing power, because of scientific agriculture, the
changing life style and consumption pattern of villagers with increase in
education, social mobility, improved means of transportations and
communication and other penetrations of mass media such as television and its
various satellite channels have exposed rural India to the outside world and
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hence their outlook to life has also changed. Because of all these factors, rural
India in now attracting more and more marketers.
Increase in competition, saturated urban markets, more and move new
products demanding urban customers, made the companies to think about new
potential markets. Thus, Indian rural markets have caught the attention of many
companies, advertisers and multinational companies. According to a recent
survey conducted by the National Council for Applied Economic Research
(NCAER), the purchasing power of the rural people has increased due to
increase in productivity and better price commanded by the agricultural
products. By and large this rise in purchasing power remains unexploited and
with the growing reach of the television, it is now quite easy for the marketers to
capture these markets.
Rural marketing has become the latest mantra of most corporate.
Companies like Hindustan Lever, Colgate Palmolive, Britannia and even
Multinational Companies (MNCs) like Pepsi, Coca Cola, L.G., Philips, Cavin
Kare are all eyeing rural markets to capture the large Indian market.
Coming to the frame work of Rural Marketing, Rural Marketing broadly
involves reaching the rural customer, understanding their needs and wants,
supply of goods and services to meet their requirements, carrying out after sales
service that leads to customer satisfaction and repeat purchase/sales.
Earlier, the general impression was that the rural markets have potential
only for agricultural inputs like seed, fertilizers, pesticides, cattle feed and
agricultural machinery. There is a growing market for consumer goods as well.
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For example: According to CIRCA 1998; survey report. The rural nail
polish market was pegged at Rs 270 million against Rs. 81 million in the cities.
The rural market for lipstick was around Rs 250 million, compared to estimated
at about 1099 tonnes against 426 tonnes in the cities, while shampoos had a
potential of 2257 tonnes in the villages compared to 718 tonnes in the cities.
Even the mosquito repellent market was reckoned at Rs. 173 million to ignore
such a big segment i.e., Rural India. This has particularly been music to ears of
big corporate as well as multinational companies.
Development indicators: India
1980
1985
1990
1995
Latest
CARG CARG
1980
1990
Agriculture
Unit
Average size
Ha
1.8
1.7
1.6
-
-
-1.6
-
of holding
Gross sown
% of RA
56.6
58.5
60.2
61.2
61.7
.6
.4
area
Area under
% of GCA 23.2 23.1 23.0
22.7
23.0
.5
.4
Rice
Area under
% of GCA 13.0 13.3 13.0
13.5
13.8
.7
1.1
wheat
Gross irrigated % of GCA 28.5 30.4 33.8
36.7
38.5
2.4
2.2
area
Fertilizer
Kg/ha
30.7 45.7 63.9
68.0
78.7
7.6
3.0
consumption
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Value of
Rs/ha
1950.0 5462.0 8578.0 11691.0 -
16.0
6.4
production
Value of
Rs/capita
501.0 1305.0 1899.0 2370.0
-
14.3
4.5
agriculture
production
Value of
228.3 294.5
5.2
Rs/capita
-
-
-
mineral
production
Energy and
infrastructure
Villages
64.3
81.3
86.0
6.5
1.1
% of
43.4
electrified
villages
Road length
/100sq.km. 45.4
51.3
60.4
66.1
75.0
2.9
3.2
Railway route
1.9
1.9
1.9
1.9
.2
.1
/100sq.km. 1.9
length
Post offices
/lakh pop 20.8
19.4
17.8
16.6
148.1
-1.5
30.4
Telephone
.4
.6
1.1
2.2
6.3
16.3
/100
.3
connections
persons
Industries
Banking
Branches
7.1
7.3
6.9
6.7
4.3
-1.0
/lakh pop
4.8
Deposits
1043.0 2075.0 4117.0 6967.0 16.1
14.4
Rs/capita 466.0
Credit
671.0 1259.0 2291.0 3816.0 13.4
13.1
Rs/capita -
Credit to
408.0 11.2
8.2
Rs/capita -
118.0 201.0 271.0
agriculture
Credit to
Rs/capita
-
277.0
614.0 1045.0 1876.0 17.2
13.2
industry
Health
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Primary health /lakh pop
.8
1.0
2.3
2.3
-
10.9
.4
centers
Hospital and
/lakh pop
84.8
88.1
97.3
94.5
-
1.4
-.6
dispensary
beds
Education
Primary
/lakh pop
73.7
70.9
67.7
66.3
64.9
-.9
-.7
schools
Middle/ higher /lakh pop
17.7
18.1
18.3
20.1
19.7 .3
1.3
schools
Source: Center for management of Indian economy, 2000
Notes:
CARG: Compound Annual Rate of Growth
Ha: Hectare
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PAPER - XVI
RURAL MARKETING
COURSE CODE: 36
PAPER CODE: H4010
UNIT-II CONTENTS
CHAPTERS
Rural Marketing - Concept and Scope
II. Characteristics of Rural consumers
III. Rural Vs Urban Marketing
IV. Potential and size of the Rural Markets
V. Rural Marketing Information System
REFERENCES:
"Hind Lever to Expand Project Shakti Reach", Business Standard,
November 18, 2003.
"HLL Aims for Rural Market", www.blonnet.com, May 10, 2000.
"HLL Plans Rural Campaign to Reposition Lifebuoy ? To Pitch on
Hygiene Platform", www.blonnet.com, February 13, 2002.
"HLL Rewrites Strategy for Greater Penetration of Rural Markets",
www.domain-b.com, February 4, 2003.
"HLL Takes Pepsodent Rural with a Vengeance", www.blonnet.com,
October 12, 2002.
"Rural sales drive growth", Business Standard, April 12, 2004.
Aarati Krishnan, "Sachet Revolution ? Buy Less, Save More",
www.blonnet.com, January 21, 2001.
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Advertising in Rural India: Language, Marketing Communication, and
Consumerism; Institute for the Study of Languages and Cultures of Asia
and Africa, Tokyo University of Foreign Studies; Tokyo Press, Tokyo,
Japan. 2000
Aileen Ionesca-Somers and Ulrich Steger, "Hindustan Lever ? Leaping a
Millennium", IMD Case, 2002.
Ajita Shashidhar; Colas' countryside crusade; The Hindu Business Line;
Financial Daily from THE HINDU group of publications; Thursday, Jul
03, 2003
Anant Kulkarni, "Another look at Rural marketing" USP AGE,
September, 2004.
C.K. Prahalad and Stuart Hart, "Strategies for the Bottom of the
Pyramid", www.wri.org.
Development Informatics - Reaching the Rural India; Role of NIC; D.C.
Misra, Senior Technical Director and Head, Rural Development &
Panchayati Raj Divisions; National Informatics Centre; Dr. N.
Vijayaditya , Director General, National Informatics Centre
E M E R G I C. o r g; Rajesh Jain's Web log on Emerging Technologies,
Enterprises and Markets
G. Krishnan; Challenges in rural marketing;Strategic Marketing Forum
Harish Bijoor; A market in waiting; The Hindu Business Line; Business
Daily from THE HINDU group of publications; Thursday, Aug 17, 2006
Hetal Adesara; Making inroads into the hinterlands;
Indiantelevision.com's Perspectives; 23 October 2004
Ishita Ayan Dutt and Sambit Saha, "Hind Lever in Plans to Raise Rural
Spoils", Business Standard, July 20, 2002.
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Mohanbir Sawhney, McCormick Tribune Professor of Technology,
Kellogg School of Management, USA; ITC's E-Choupal Movement ?
Initiatives of Rural Development in India by ITC Limited
Namrata Singh, "10% of HLL's Rural Sales from Project Shakti",
www.financial express.com, November 24, 2003.
Namrata Singh, "Project Bharat to Push HLL's Rural Sales to 50% by
2004", www.expressindia.com, August 9, 1999.
P. Balakrishna; B Sidharth; Selling in Rural India; The Hindu Business
Line; Financial Daily from THE HINDU group of publications; Monday,
Feb 16, 2004
Preeti Mehra, "HLL Doing a Grameen Bank ? Leverages Microcredit to
Tap Rural Market", www.thehindubusinessline.com, May 21, 2001.
Purvita Chatterjee, "HLL Plans Rural Thrust for Toothpaste Brands",
The Hindu Business Line, February 21, 2002.
Ramkishen Y.,New Perspectives on Rural Marketing; Jaico Publishing
house
Rashmi Vasudeva, "Empowering Women", Deccan Herald, June 15,
2003.
Rekha Balu, "Strategic Innovation ? Hindustan Lever Ltd.", Fast
Company, Issue 47, June 2001.
Rustom S Davar, 1998 Modern Marketing Management, University
Book Stall, New Delhi.
Shanthi Kannan; Rural market - A world of opportunity; The Hindu;
Online edition of India's National Newspaper; Thursday, October 11,
2001
Shanti Kannan, "Rural Market ? A World of Opportunity", The Hindu,
October 11, 2001.
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Sourav Majumdar and Namrata Singh, "HLL Project Shakti to Cover All
Rural India", The Financial Express, March 2, 2004.
Sushma, "Indian Rural Marketing - Knowing the Potential", Marketing
Mastermind, July, 2005.
Swati Bharadwaj, "HLL Target 1 Cr Rural Consumers by '05",
www.economictimes. indiatimes.com, January 30, 2004.
V.S. Ramaswamy and S. Nama Kumari, Marketing Management ?
Planning Implementation and Control, Macmillan India limited 2002.
Vinay Kamath, "HLL's `Shakti' to Help Partners in Rural India",
www.thehindu businessline.com, April 26, 2004.
Vinay Kamath, "Where HLL's Shakti comes from", The Hindu Business
Line ? Catalyst, May 29, 2003.
www.domain-b.com.
www.hll.com.
Ramkishen Y., New perspectives on Rural Marketing
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CHAPTER I: RURAL MARKETING ? CONCEPT AND SCOPE
Objective:
The objective of this chapter is to understand:
The concept and scope of rural markets
The nature and attractiveness of rural markets
Roadblocks of Indian Rural Markets
Solutions to problems of rural markets
Definition of Rural Market and Rural Marketing
India is a land of diversity and about 70% of the Indian population lives
in villages. These villages contribute in the economic development of the nation
through the production of food grains, vegetables, fruits, etc. Export of these
agricultural commodities result in the generation of capital and earnings of
foreign exchange.
There are 600,000 villages in India. 25% of all villages account for 65%
of the total rural population. So we can contact 65% of 680 million or 700
million population by simply contacting 150000 villages ? which shows the
huge potential of this market.
Indian rural market has a vast size and demand base. Before going into
more aspects on rural marketing, let us understand how rural is defined.
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The Census defines urban India as - "All the places that fall within the
administrative limits of a municipal corporation, municipality, cantonment board
etc or have a population of at least 5,000 and have at least 75 per cent male
working population in outside the primary sector and have a population density
of at least 400 per square kilometer. Rural India, on the other hand, comprises all
places that are not urban!"
The government of India only defines a non-urban market. An urban
market is the one which has a population density of 400 people per sq/km. 7% of
its population has to be involved in non-agricultural activities and there is a
municipal body. If we go by statistics, roughly around 70% of the Indian
population lives in the rural areas. That's almost 12% of the world population.
To expand the market by tapping the countryside, more and more MNCs
are foraying into India's rural markets. Among those that have made some
headway are Hindustan Lever, Coca-Cola, LG Electronics, Britannia, Standard
Life, Philips, Colgate Palmolive and the foreign-invested telecom companies.
Rural Marketing
Rural marketing involves the process of developing, pricing, promoting,
distributing rural specific product and a service leading to exchange between
rural and urban market which satisfies consumer demand and also achieves
organizational objectives.
It is a two-way marketing process wherein the transactions can be:
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Urban to Rural: It involves the selling of products and services by urban
marketers in rural areas. These include: Pesticides, FMCG Products,
Consumer durables, etc.
Rural to Urban: Here, a rural producer (involved in agriculture) sells his
produce in urban market. This may not be direct. There generally are
middlemen, agencies, government co-operatives, etc who sell fruits,
vegetables, grains, pulses and others.
Rural to rural: These include selling of agricultural tools, cattle, carts and
others to another village in its proximity.
Features of Indian Rural Markets:
Large, Diverse and Scattered Market: Rural market in India is large, and
scattered into a number of regions. There may be less number of shops
available to market products.
Major Income of Rural consumers is from Agriculture: Rural Prosperity is
tied with agriculture prosperity. In the event of a crop failure, the income
of the rural masses is directly affected.
Standard of Living and rising disposable income of the rural customers: It is
known that majority of the rural population lives below poverty line and
has low literacy rate, low per capital income, societal backwardness, low
savings, etc. But the new tax structure, good monsoon, government
regulation on pricing has created disposable incomes. Today the rural
customer spends money to get value and is aware of the happening
around him.
Traditional Outlook: Villages develop slowly and have a traditional outlook.
Change is a continuous process but most rural people accept
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change gradually. This is gradually changing due to literacy especially in
the youth who have begun to change the outlook in the villages.
Rising literacy levels: It is documented that approximately 45% of rural
Indians are literate. Hence awareness has increases and the farmers are
well-informed about the world around them. They are also educating
themselves on the new technology around them and aspiring for a better
lifestyle.
Diverse Socioeconomic background: Due to dispersion of geographical
areas and uneven land fertility, rural people have disparate
socioeconomic background, which ultimately affects the rural market.
Infrastructure Facilities: The infrastructure facilities like cemented roads,
warehouses, communication system, and financial facilities are
inadequate in rural areas. Hence physical distribution is a challenge to
marketers who have found innovative ways to market their products.
As part of planned economic development, the government is making
continuous efforts towards rural development. In this age of liberalization,
privatization and globalization, rural market offers a big attraction to the
marketers to explore markets that are untapped.
Roadblocks of Indian Rural Markets:
There are several roadblocks that make it difficult to progress in the rural
market. Marketers encounter a number of problems like dealing with physical
distribution, logistics, proper and effective deployment of sales force and
effective marketing communication when they enter rural markets. The major
problems are listed below.
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Standard of living: The number of people below the poverty line is more
in rural markets. Thus the market is also underdeveloped and marketing
strategies have to be different from those used in urban marketing.
Low literacy levels: The low literacy levels in rural areas leads to a
problem of communication. Print media has less utility compared to the
other media of communication.
Low per capita income: Agriculture is the main source of income and
hence spending capacity depends upon the agriculture produce. Demand
may not be stable or regular.
Transportation and warehousing: Transportation is one of the biggest
challenges in rural markets. As far as road transportation is concerned,
about 50% of Indian villages are connected by roads. However, the rest
of the rural markets do not even have a proper road linkage which makes
physical distribution a tough task. Many villages are located in hilly
terrains that make it difficult to connect them through roads. Most
marketers use tractors or bullock carts in rural areas to distribute their
products. Warehousing is another major problem in rural areas, as there
is hardly any organized agency to look after the storage issue. The
services rendered by central warehousing corporation and state
warehousing corporations are limited only to urban and suburban areas.
Ineffective distribution channels: The distribution chain is not very well
organized and requires a large number of intermediaries, which in turn
increases the cost and creates administrative problems. Due to lack of
proper infrastructure, manufacturers are reluctant to open outlets in these
areas. They are mainly dependent on dealers, who are not easily
available for rural areas. This is a challenge to the marketers.
Many languages and diversity in culture: Factors like cultural
congruence, different behavior and language of the respective areas
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make it difficult to handle the customers. Traits among the sales force are
required to match the various requirements of these specific areas.
Lack of communication system: Quick communication is the need of the
hour for smooth conduct of business, but it continues to be a far cry in
rural areas due to lack of communication facilities like telegraph and
telecommunication systems etc. The literacy rate in the rural areas is
rather low and consumer's behavior in these areas is traditional, which
may be a problem for effective communication.
Spurious brands: Cost is an important factor that determines purchasing
decision in rural areas. A lot of spurious brands or look-alikes are
available, providing a low cost option to the rural customer. Many a time
the rural customer may not be aware of the difference due to illiteracy.
Seasonal demand: Demand may be seasonal due to dependency on
agricultural income. Harvest season might see an increase in disposable
income and hence more purchasing power.
Dispersed markets: Rural population is highly dispersed and requires a
lot of marketing efforts in terms of distribution and communication.
The entire points discussed above offer challenges to the marketer. He
tries to uncover newer ways to market his product as he cannot afford to miss
this huge opportunity existing in rural markets. He tries to identify solutions to
these marketing problems.
Solutions to problems of rural markets:
To solve the problems of rural markets in India, the following
suggestions can be used by marketers.
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Regarding the problems of physical distribution, the marketer may
have a joint network of stockist/ clearing-cum-forwarding (C&F) agents at
strategic location for facilitation of physical distribution for its products in the
rural market. The main advantage of this scheme is that the costs of physical
distribution can be shared by the companies and stockists. The combination of
different modes of transport based on availability of tracks will be beneficial to
the companies. Presently, bullock-cart plays a very vital role in rural distribution
where the roads are not available. Some of the leading companies use delivery
vans in rural areas for resolving the distribution problems in rural market. The
delivery van takes the products to the retail shops in every corner of the rural
market and it enables the company to establish direct sales contact with majority
of the rural consumers which helps in sales promotion.
The rural market is composed of a number of retail sales outlets along
with fair price shops under the public distribution system. It is suggested that the
government should encourage private shopkeepers and cooperative stores to
come forward and establish their business in rural areas instead of the weekly
market known as weekly bazaar. Fertilizer companies have opened their outlets
for proper distribution of fertilizer among the farmers. Similarly, the companies
dealing in consumer goods can apply this model. The company may also appoint
a number of retailers in and around the feeder towns and attach them to the
stockist who distributes the goods to the retailers as per the potential of the
market. This system has the benefit of penetrating into the interior areas of the
rural markets.
To solve the problems of sales force management, it is suggested that
the company takes due care in the recruitment and selection of sales people
because the traits they require are different from urban and suburban sales
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persons. For the rural markets, only those sales people should be preferred for
selection who is willing to work in rural areas. They must be aware of the local
language and must have the patience to deal with rural customers and can
discharge the duties of a bare-footed salesman. Administration of such a large
and scattered sales force, supervising and supporting them in sales calls, guiding
them, attending to their official and personal problems, and motivating them for
better results should be an exacting task for the sales manager. Thus, the people
operating in rural areas should invariably be from the rural background and
should have a missionary zeal to serve the rural masses.
With reference to marketing communication in rural areas, the
company should use organized media-mix like TV, Radio, cinema and POP
(point of purchase) advertising. Television is gaining popularity in the rural
areas but due to poor supply of electricity, radio is performing significantly
better. Since, the rural people need demonstration, short-feature films with
disguised advertisement messages, direct advertisement films and documentaries
that combine knowledge and advertisements will perform better rural marketing
communication. Here the companies may also use audiovisual publicity vans,
which may sell the products with promotion campaign. To attract the rural
consumers, companies can organize village fairs, dance and drama shows, group
meetings to convince the rural consumers about the products and services. In
most Indian villages, there are some opinion leaders. For the rural markets, only
those sales people should be preferred for selection who is willing to work in
rural areas like Sarpanch, Pradhan and other elderly persons. They can be
approached by the marketers to propagate their messages; these persons can
prove to be effective communicators within the rural masses.
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The rural market in India is quite fascinating and challenging in spite of
all the difficulties existing. The potential is enormous. Even though, these
markets have weaknesses they also have tremendous opportunities which should
be availed by the marketers. It is well known that "Markets are created and not
born". The market so created should be tapped effectively. An ideal example is
that of LIC. The Life Insurance Corporation of India generates life insurance
business by appointing the insurance agent from the village itself so that he can
easily convince his near and dear ones. LIC started a scheme called Gram Vikas
where the Sarpanch is given a target to sell a minimum of 10 policy plans and
the commission so earned is spent on the development of their respective
villages.
The marketers have to come up with innovative ideas through which the
villagers also get involved in getting business from their respective villages.
The Indian rural market is quite fascinating and challenging. It provides
tremendous opportunities which beckon a marketer to explore.
Summary
Indian rural market has a vast size and demand base. Rural marketing
involves the process of developing, pricing, promoting, distributing rural
specific product and a service leading to exchange between rural and urban
market which satisfies consumer demand and also achieves organizational
objectives.
As part of planned economic development, the government is making
continuous efforts towards rural development.
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There are several roadblocks that make it difficult to progress in the rural
market. Marketers encounter a number of problems like dealing with physical
distribution, logistics, proper and effective deployment of sales force and
effective marketing communication when they enter rural markets.
The rural market in India is quite fascinating and challenging in spite of
all the difficulties existing. The potential is enormous. Even though, these
markets have weaknesses they also have tremendous opportunities which should
be availed by the marketers. The marketers have to come up with innovative
ideas through which the villagers also get involved in getting business from their
respective villages.
Questions
What is rural marketing and how do you define rural markets?
What are the features of rural markets?
What are the drawbacks of Indian Rural markets?
How do you solve the problems of Indian rural markets?
"Rural marketing cannot be neglected". Explain.
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CHAPTER II: CHARACTERISTICS OF RURAL CONSUMERS
Objective:
The objective of this chapter is to understand:
Classification of rural consumers
Changing profile of rural consumers
Influencing the rural consumers
Classification of rural consumers
The rural consumers are classified into the following groups based on their
economic status:
The Affluent Group: They are cash rich farmers and a very few in
number. They have affordability but not form a demand base large
enough for marketing firms to depend on. Wheat farmers in Punjab and
rice merchants of Andhra Pradesh fall in this group.
The Middle Class: This is one of the largest segments for manufactured
goods and is fast expanding. Farmers cultivating sugar cane in UP and
Karnataka fall in this category.
The Poor: This constitutes a huge segment. Purchasing power is less,
but strength is more. They receive the grants from government and reap
the benefits of many such schemes and may move towards the middle
class. The farmers of Bihar and Orissa fall under this category.
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Profile of rural consumers
IMRB (Indian Market Research Bureau) and NCAER "(National Council
for Applied Economic Research) have made available a few studies based on
which rural consumers profile can be arrived at.
Literacy: 23% of rural Indian population is literate and people are getting
added to this list year after year. There are still some villages which are
underdeveloped. Maximum education is primary school or in some cases
high school. To this group the marketing promotional strategy to be
adopted is demonstration of product features and advantages. Print media
and posters do not make any impact.
Income: An average rural consumer has a much lower income than his
urban counterpart. The disposable income has increased in the recent
years to considerable extent. In spite of this, the common traits of rural
consumers are low purchasing power, low standard of living, low per
capita income and low economic and social positions.
Density: Rural population is scattered across 7 lakh villages. This implies
that rural demand is scattered and urban demand is concentrated.
Influencers: There are many reference groups in a village. These include
teacher, doctor, panchayat members, health workers, bank manager and
co-operative board workers. These influencers need to be kept in mind
when a marketer decides on rural marketing.
Occupation: The main occupation is agriculture. The size and ownership
of land determines the basis for differentiation and consumption patterns.
Culture: Rural consumers are traditional in their outlook. They associate
faster with messages that match their cultural behavior.
Language: English is not a language of rural India. Hence a marketer
should aim for communication in the local language.
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Media Habits: Television, radio, vedio and theatre are some of the
traditional media that a rural consumer identifies with.
The above are some of the factors that differentiate the rural consumer from
his urban counterpart. A marketer has to decide on all the above parameters
while designing a marketing plan.
Changing profile of rural consumers
Rural consumers as studied are dependent on agriculture and were not
very literate about products and services available. This scenario is slowly
changing due to increase in literacy and disposable income.
Not long ago, rural consumers went to a nearby city to buy``branded
products and services". Only select household consumed branded goods, be it
tea or jeans. Earlier, big companies flocked to rural markets to establish their
brands.
Rural markets today are critical for every marketer - be it for a branded
shampoo or a television. Earlier marketers thought of van campaigns, cinema
commercials and a few wall paintings to entice rural folks under their folds.
Today a customer in a rural area is quite literate about myriad products that are
on offer in the market place, thanks to television. Many companies are foraying
into the rural markets and educating them on newer products and services.
The rural youth today are playing a far more significant role in
influencing the purchase decisions. They travel frequently out in the village and
are the drivers of purchase decisions regarding radios, television (black and
white as well as color), automobiles and other goods. They may not be the end
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customers but often are the people who influence the purchase of high value
products and they decide on which brands to choose.
Penetration levels of consumer durables in the rural sector have risen
dramatically in the last decade or so. Even the rural woman is coming out of the
closet. She is exercising her choice in selecting categories - the choice of brands
may still be with the males of the household.
The prerogative of making the final purchase decisions stills rests with
the chief male. In other words, the "chief wage earner" syndrome still applies in
the rural markets.
Influencing the rural consumers
The biggest challenge today is to develop a scalable model of influencing
the rural consumers' mind over a large period of time and keep it going. This
needs to be achieved in a limited or a reasonable budget. That's where the
marketers who really understand rural markets and advertising agencies can
make a difference and develop a scalable media/communication model.
The mass media has the drawback that the time gap between the point of
exposure and the time of purchase is long. Hence it is difficult to use it in rural
communication.
The most important element in rural communications is that the marketer has
to integrate 3 things in communication.
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Exposure of a message
Trial or demonstration
Final sale.
There is minimal brand loyalty in rural consumers. This is mainly due to a
bigger problem of brand recognition. There are a lot of looks alike in the rural
market. The challenge is to create communication that would help the rural
consumer in recognizing brands, logos, visuals, colors, etc., so that he or she
actually buys the actual brand and not something else.
Summary
The rural consumers are classified into: the affluent group, the middle
class and the poor based on their economic status.
IMRB (Indian Market Research Bureau) and NCAER "(National
Council for Applied Economic Research) have made available a few studies
based on which rural consumers profile can be arrived at.
The rural youth today are playing a far more significant role in
influencing the purchase decisions. They may not be the end customers but often
are the people who influence the purchase of high value products and they
decide on which brands to choose.
The biggest challenge today is to develop a scalable model of influencing
the rural consumers' mind over a large period of time and keep it going.
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Questions
Who are the rural consumers? How are they classified?
The biggest challenge today is to develop a scalable model of influencing
the rural consumers' mind. Explain.
What are the profiles of a rural consumer?
How do you influence a rural consumer?
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CHAPTER III: RURAL VERSUS URBAN MARKETING
Objective:
The objective of this chapter is to understand:
Characteristics of rural market
Challenges of rural marketing
The 4Ps of rural marketing
The Changing Scenario
A dramatic change is in progress in the villages. Villagers who used to
crack open peanut candies, eat the nut and throw away the shell are now
demanding chocolate candies that will melt in their mouths, not in their hands.
The new advertisement of Perk featuring Rani Mukerjee speaks about the
demand created in rural markets for chocolates.
Charcoal, neem twigs and twigs of babool tree to cleaned teeth are
replaced by Paste. Today, the ultra bright shine of Colgate or some other
international brand of toothpaste holds more appeal than the traditional methods
of cleaning teeth.
The terminologies being used to describe activities are also undergoing
change with respect to marketing appeal of products. Consumerism and
globalization is invading parts of India where, as some would venture to say,
time seems to have ceased for centuries.
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These villages and small towns, which were once inconsequential dots
on maps, are now getting the attention of global marketing giants and media
planners. Thanks to globalization, economic liberalization, IT revolution, female
power, and improving infrastructure, middle class rural India today has more
disposable income than urban India. Rural marketing is gaining new heights in
addition to rural advertising.
Characteristics of rural market
The rural markets are of diverse nature. There are people from diverse
cultural, linguistic and religious background. No two markets are alike
and it is dispersed across India.
Shift towards rural markets are mainly because of saturation and
competitiveness of urban market. Marketers do not want to neglect this
huge untapped market.
The incomes of rural customers are also increasing. As seen earlier
disposable income of rural consumers have increased and they spend on
FMCG and consumer durables.
Rising literacy has generated a demand of life style products. Lot of
youth move out of the village and visit surrounding cities. They come
back and influence decision making.
Cable television has also contributed to an increase in life style. The
reach has increased and marketers are in a position to promote their
products much more easily,
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Challenges of rural marketing
The rural market may be attracting marketers but it is not without its
problems: Low per capita disposable incomes that is half the urban disposable
income; large number of daily wage earners, acute dependence on the vagaries
of the monsoon; seasonal consumption linked to harvests and festivals and
special occasions; poor roads; power problems; and inaccessibility to
conventional advertising media.
However, the rural consumer is not unlike his urban counterpart in many
ways. The more marketers are meeting the consequent challenges of availability,
affordability, acceptability and awareness in rural market.
Availability
The first challenge in rural marketing is to ensure availability of the
product or service. India's 7, 00,000 villages are spread over 3.2 million sq km;
700 million Indians may live in rural areas, finding them is not easy. They are
highly dispersed.
Given the poor infrastructure, it is a greater challenge to regularly reach
products to the far-flung villages. Marketer should plan accordingly and strive to
reach these markets n a regular basis. Marketers must trade off the distribution
cost with incremental market penetration.
India's largest MNC, Hindustan Lever, a subsidiary of Unilever, has built
a strong distribution system which helps its brands reach the interiors of the
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rural market. To service remote village, stockists use auto rickshaws, bullock-
carts and even boats in the backwaters of Kerala.
Coca-Cola, which considers rural India as a future growth driver, has
evolved a hub and spoke distribution model to reach the villages. To ensure full
loads, the company depot supplies, twice a week, large distributors which who
act as hubs. These distributors appoint and supply, once a week, smaller
distributors in adjoining areas.
LG Electronics has set up 45 area offices and 59 rural/remote area
offices to cater to these potential markets.
Affordability
The second major challenge is to ensure affordability of the product or
service. With low disposable incomes, products need to be affordable to the
rural consumer, most of who are on daily wages.
A solution to this has been introduction of unit packs by some
companies. This ensures greater affordability.
Most of the shampoos are available in smaller packs.
Fair and lovely was launched in a smaller pack.
Colgate toothpaste launched its smaller packs to cater to the traveling
segment and the rural consumers.
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Godrej recently introduced three brands of Cinthol, Fair Glow and Godrej in 50-
gm packs.
Hindustan Lever has launched a variant of its largest selling soap brand,
Lifebuoy.
Coca-Cola has addressed the affordability issue by introducing the
smaller bottle priced at Rs 5. The initiative has paid off: Eighty per cent of new
drinkers now come from the rural markets. A series of advertisement for this
was rune showing people from diverse backgrounds featuring Aamir Khan.
Acceptability
The next challenge is to gain acceptability for the product or service.
Therefore, there is a need to offer products that suit the rural market.
LG Electronics have reaped rich dividends by doing so. In 1998, it
developed a customized TV for the rural market named Sampoorna. It was a
runway hit selling 100,000 sets in the very first year.
Coca-Cola provided low-cost ice boxes in the rural areas due to the lack
of electricity and refrigerators. It also provided a tin box for new outlets and
thermocol box for seasonal outlets.
The insurance companies that have tailor-made products for the rural
market have also performed well. HDFC Standard LIFE topped private insurers
by selling policies worth Rs 3.5 crore in total premia. The company tied up with
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non-governmental organizations and offered reasonably-priced policies in the
nature of group insurance covers.
Awareness
A large part of rural India is inaccessible to conventional advertising
media. Only 41 per cent rural households have access to TV.
Building awareness is another challenge in rural marketing. A common factor
between the rural and the urban consumer is the interest for movies and music.
Family is the key unit of identity for both the urban and rural consumer.
However, the rural consumer expressions differ from his urban
counterpart. For a rural consumer, outing is confined to local fairs and festivals
and TV viewing is confined to the state-owned Doordarshan. Consumption of
branded products is treated as a special treat or indulgence.
Hindustan Lever has its own company-organized media. These are
promotional events organized by stockists. Godrej Consumer Products, which is
trying to push its soap brands into the interior areas, uses radio to reach the local
people in their language.
Coca-Cola uses a combination of TV, cinema and radio to reach the rural
households. It has also used banners, posters and tapped all the local forms of
entertainment. Since price is a key issue in the rural areas, Coca-Cola
advertising stressed its `magical' price point of Rs 5 per bottle in all media. LG
Electronics uses vans and road shows to reach rural customers. The company
uses local language advertising. Philips India uses wall writing and radio
advertising to drive its growth in rural areas.
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Also, in India, the retailers are highly fragmented, highly dispersed. At
the same time, each of these regions serves a large population. The media
penetration in rural areas is only about 57%.
It has been seen that, two out of five Indians are unreached by any media
TV, Press, Radio and Cinema put together. Haats, mandis and melas are
opportunities.
The 4Ps of Rural Marketing
Most of the companies treat rural market as a dumping ground for the lower
end products designed for an urban audience. But, this scenario is slowly
changing and importance is given to the need of the rural consumer. Hence it is
important to understand the 4Ps of rural marketing with respect to a rural
consumer.
1. Product
A product is the heart of rural marketing. It is a need satisfying entity to a rural
consumer. NCAER has classified consumer goods into 3 categories. These
categories cover most of the products from Rs. 100 to Rs. 20000 and above.
Category I
Category II
Category III
Pressure Cookers
2-in-1 (mono)
C TVs (S)
Pressure Pans
2-in-1 (stereo)
C TVs (R)
Mono Cassette Recorders
B and W TV (S)
VCRs/ VCPs
Wrist watches (mechanical)
B and W TV (R)
Scooters
Wrist watches (quartz)
Instant Geyser
Mopeds
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Radio/Transistors
Storage Geysers
Motor Cycles
Electric irons
Sewing Machines
Refrigerators
Ceiling Fans
Vacuum Cleaners
Washing Machines
Table Fans
Mixer/grinders
Bicycles
The hierarchy depends on the needs of the rural consumers. Most of the
products under category 1 are of immediate use to the family. Category 2
products reduce the strain of the households and also act as a source of
entertainment. Category 3 is a combination of means to supplement income.
Rural branding aims at creating and disseminating the brand name so that
it is easily understood and recognized by the rural consumers.
In rural markets, brands are almost non-existent. They identify FMCG by three
things:
Color,
Visuals of animals and birds and
Numbers.
So a 555, 777, hara goli, pila hathi, lal saboon, saphed dantmanjan are the
kind of terms with which they identify brands.
Hence it is very important for us to understand that a lot needs to be done
in terms of communications, media, marketing and branding. There are a
number of cases which suggest that to sell brands in the rural market, it is
necessary to simultaneously educate the consumers. If you have to create brand
communication, marketing efforts must be supported by education.
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The following have to be kept in mind while the marketer makes a decision on
the product.
The product for the rural markets has to be simple, easy to use and
provide after sales service or maintenance.
2. The product has to be packed for low price and convenient usage.
The pack has to be easily understood by the rural consumer. The
information on the pack is preferred in local language communicating
the functional benefit of the product.
2. Pricing
A rural customer is price sensitive and shops for value. This is mainly
because of his lower income levels than his urban counterparts. Hence the
marketer has to find ways of making the product affordable to the rural
consumer.
Banks offer loans for tractors, pump sets, television sets and so on to make
the product affordable to a rural consumer.
Smaller unit packs are preferred in the case of FMCG products to offer at
lower prices. The product packaging and presentation offers scope for keeping
the price low. Reusable packs or refills are also preferred and are seen as value
addition.
4. Placement or Distribution
Distribution of products is one of the biggest challenges of rural marketing.
There are CWC (Central Warehousing Corporation) and SWCS (State
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Warehousing Corporations) set up in rural areas to store and distribute products.
A three tier rural warehousing setup exists:
CWC/SWCs
Co-operatives
Rural Godowns
CWC and SWCs reach up to the district levels. The co-operatives are at the
mandi level. The Rural Godowns are at the village level wherein they are owned
by panchayat heads. All these tiers provide warehousing facilities only to their
own members. Hence it is a big problem for a company to store its goods in
rural areas.
There are some problems of rural distribution:
Transportation has not been fully developed.
Lack of proper channels of communication like telephone, postal
services, and so on pose a lot of problem to marketer to service the
retailer as it is difficult to the retailers to place order for goods.
Storage of goods in rural areas is also a problem for the marketers.
Multiple tiers push up the costs and channel management is a major
problem for marketers due to lot of middlemen in the process.
Availability of suitable dealers
Poor viability of rural outlets
Rural outlets need banking support for remittances to principals, get fast
replenishment of stocks, receive supplies through bank and facilitate
credit. This gets handicapped due to inadequate bank facilities.
There are a lot of private shops in the rural sector.
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Retailers in rural markets
There are different kinds of retailers.
Shops within the village
Shops located on the main road and not exactly within the village
Kasba market or the tahsil market.
The clientele for these markets also varies. For the shops within the village,
the stocking pattern is very much dependent on the kind of investment the
retailer can make in a one-time purchase.
Margins are very important to a rural retailer. The pushing by the retailers
depends on margins and the pushing by the wholesalers depends on retailers.
The gap is very wide because the local manufacturers do not undertake
investments either in terms of advertising or anything. Hence they are very fast
imitators. For rural retailers, it's the question of simple economics ? Am I
getting more money if I invest much less on these brands? He decides based on
this question. More the margin better choice to stock and sell.
The rural retailer stocks few brands in each category. This may have
important implications for a company and its managers because whoever
reaches the market first gets the share of the market. The rural retailer may keep
some amount of area or space for a certain product category and he won't keep
more than one or two brands. So unless the marketer reaches there first and re-
stocks at frequent intervals, he will not be able to sell more.
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The other important development has been that more number of companies
are offering smaller packs. The retailer today has far more shelf space than he
had earlier. Shampoos are available in sachets. He can simply string the
shampoo sachets and hang it.
4. Promotion
Communication to rural consumer is through organized media. More
number of rural consumer (~70%) listen to radio and many go to cinema.
Rural communication can be through Conventional media or through a non-
conventional media. The most common conventional media include: Print,
Cinema, Television and Print. The Non-conventional media include: Theatre,
Posters, Haats and Melas.
The conventional media have excellent reach, less expensive and create a
better impact. But at the same time, it is not customized to each village and also
offers unnecessary coverage at times.
Low literacy rates, culture, traditions, rural reach, attitudes and behavior
are the other problems in rural communication.
An effective promotion should plan for a proper mix of media. This is
very important to create a mind share in the rural consumers. Hence, talking to
the customer in a language known to him, advertising the functional benefits and
demonstrating the product go a long way in capturing the rural market.
The Indian rural market today accounts for only about Rs 8 billion (53
per cent - FMCG sector, 59 per cent durables sale, 100 per cent agricultural
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products) of the total ad pie of Rs 120 billion, thus claiming 6.6 per cent of the
total share. So clearly there seems to be a long way ahead.
Hindustan Lever is the first company that comes to mind while thinking
of rural marketing. Amul is another case in point of aggressive rural marketing.
Some of the other corporates that are slowly making headway in this area are
Coca Cola India, Colgate, Eveready Batteries, LG Electronics, Philips, BSNL,
Life Insurance Corporation, Cavin Kare, Britannia and Hero Honda to name a
few.
Until some years ago, the rural market was being given a step-motherly
treatment by many companies and advertising to rural consumers was usually a
hit and miss affair. More often than not, the agenda being to take a short-cut
route by pushing urban communication to the rural market by merely
transliterating the ad copy. Hence advertising that is rooted in urban sensitivities
didn't touch the hearts and minds of the rural consumer. This is definitely
changing now but is still a slow process. The greatest challenge for advertisers
and marketers is to find the right mix that will have a pan-Indian rural appeal.
Coca Cola, with their Aamir Khan Ad campaign succeeded in providing just
that.
Corporates are still apprehensive to "Go Rural." Since, the rural
consumers are scattered and it is difficult to predict the demand in the rural
market. A few agencies that are trying to create awareness about the rural
market and its importance are Anugrah Madison, Sampark Marketing and
Advertising Solutions Pvt Ltd, MART, Rural Relations, O&M Outreach,
Linterland and RC&M, to name a few. Also, the first four agencies mentioned
above have come together to form The Rural Network. The paramount objective
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of the Network is to get clients who are looking for a national strategy in rural
marketing and help them in executing it across different regions.
Summary
The rural markets are of diverse nature. There are people from diverse
cultural, linguistic and religious background. The incomes of rural customers are
also increasing. Rising literacy has generated a demand of life style products.
The reach has increased and marketers are in a position to promote their
products much more easily,
The marketers are meeting the consequent challenges of availability,
affordability, acceptability and awareness in rural market.
Most of the companies treat rural market as a dumping ground for the
lower end products designed for an urban audience. But, this scenario is slowly
changing and importance is given to the need of the rural consumer.
In rural markets, brands are almost non-existent. They identify FMCG by
three things: Color, Visuals of animals and birds and Numbers. Hence it is very
important for us to understand that a lot needs to be done in terms of
communications, media, marketing and branding. There are a number of cases
which suggest that to sell brands in the rural market, it is necessary to
simultaneously educate the consumers. If you have to create brand
communication, marketing efforts must be supported by education.
A rural customer is price sensitive and shops for value. This is mainly
because of his lower income levels than his urban counterparts. Hence the
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marketer has to find ways of making the product affordable to the rural
consumer.
Distribution of products is one of the biggest challenges of rural
marketing. There are CWC (Central Warehousing Corporation) and SWCS
(State Warehousing Corporations) set up in rural areas to store and distribute
products. All these tiers provide warehousing facilities only to their own
members. Hence it is a big problem for a company to store its goods in rural
areas.
Rural communication can be through Conventional media or through a
non-conventional media. The most common conventional media include: Print,
Cinema, Television and Print. The Non-conventional media include: Theatre,
Posters, Haats and Melas.
Questions
What are the emerging characteristics of a rural market?
"A dramatic change is in progress in the villages". Explain.
What are the challenges of rural marketing?
Ensuring availability of products in rural markets is a great challenge.
Explain.
Is affordability important to rural consumer? Why?
Why is building awareness a challenge in rural marketing?
Elaborate on the 4Ps of rural marketing.
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CHAPTER IV: POTENTIAL AND SIZE OF THE RURAL MARKETS
Objective:
The objective of this chapter is to understand:
The potential of rural markets
The size of rural markets
Opportunity and size of rural markets
The Indian rural market with its vast size and demand base offers a huge
opportunity that MNCs cannot afford to ignore. With approximately 128 million
households, the rural population is nearly three times the urban.
Due to the growing affluence, fuelled by good monsoons and the
increase in agricultural output to 200 million tonnes from 176 million tonnes in
1991, rural India has a large consuming class with 41 per cent of India's middle-
class and 58 per cent of the total disposable income.
The importance of the rural market for some FMCG and durable
marketers is underlined by the fact that the rural market accounts for close to 70
per cent of toilet-soap users and 38 per cent of all two-wheeler purchased.
The rural market accounts for almost half the total market for TV sets,
fans, pressure cookers, bicycles, washing soap, blades, tea, salt and toothpowder.
The rural market for FMCG products is growing much faster than the urban
counterpart.
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The market size has always been large. The size of this rural market is
well over 700 million. All these individuals have needs, wants, desires and
aspirations that anyone in Urban India has. The fulfillment of these needs was
by an unbranded commodity till a few years back. Today, however, there is a
rampant craving for the brand offering for a host of needs.
The main area of concern key dilemma for MNCs eager to tap the large
and fast-growing rural market is whether they can do so without hurting the
company's profit margins. As, capturing rural markets could be costly. Mr. Carlo
Donati, Chairman and Managing-Director, Nestle, while admitting that his
company's product portfolio is essentially designed for urban consumers,
cautions companies from plunging headlong into the rural market as capturing
rural consumers can be expensive. "Any generalization" says Mr. Donati, "about
rural India could be wrong and one should focus on high GDP growth areas, be
it urban, semi-urban or rural."
Trends indicate that the rural markets are coming up in a big way and
growing twice as fast as the urban, witnessing a rise in sales of typical urban
kitchen gadgets such as refrigerators, mixer-grinders and pressure cookers.
According to a National Council for Applied Economic Research (NCAER)
study, there are as many 'middle income and above' households in the rural areas
as there are in the urban areas. There are almost twice as many 'lower middle
income' households in rural areas as in the urban areas. At the highest income
level there are 2.3 million urban households as against 1.6 million households in
rural areas.
As per NCAER projections, the number of middle and high income
households in rural India is expected to grow from 80 million to 111 million by
2007. In urban India, the same is expected to grow from 46 million to 59
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million. Thus, the absolute size of rural India is expected to be double that of
urban India.
The study on ownership of goods indicates the same trend. It segments
durables under three groups:
4 5 6 7 8 9
N
ecessary products - Transistors, wristwatch and bicycle,
4 5 6 7 8 9
E
merging products ? Black and White TV and cassette recorder,
4 5 6 7 8 9
L
ifestyle products ? Colour TV and refrigerators.
Marketers have to depend on rural India for the first two categories for
growth and size. Even in lifestyle products, rural India will be significant over
next five years.
The price-sensitivity of a consumer in a village is something the
marketers should be alive to. It is very difficult to establish a demand pattern in
rural markets as the disposable income is dependent on monsoon.
Apart from increasing the geographical width of their product
distribution, the focus of marketers should be on the introduction of brands and
develop strategies specific to rural consumers. Britannia Industries launched
Tiger Biscuits especially for the rural market. It clearly paid dividend. Its share
of the glucose biscuit market has increased from 7 per cent to 15 per cent.
District Marketing
Mr. Francis Xavier, Managing Director, Francis Kanoi Marketing
Research, wants to see the urban-like village dweller as an urbanised person
from the districts. The district becomes the basic geographical entity. The village
then becomes a location or a suburb of a district. Since the urban-like
populations in the villages are taken as a part of the district, they will represent
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the dominant part of the market in most of the districts. This will compel the
kind of attention that it deserves.
This perspective removes the complexities, heterogeneity, access and
targetability that have hindered rural marketing initiatives. He feels that rural
marketing requires every element of marketing including product, pricing,
packaging, advertising, and media planning to have the rural customer as the
target. This becomes applicable if we have districts marketing as a separate
entity.
Impact of globalization
Globalization will have its impact on rural India also. It will be slow. It
will have its impact on target groups like farmers, youth and women. Farmers,
today 'keep in touch' with the latest information and also look up what is
happening globally. Price movements and products' availability in the
international market place seem to drive their local business strategies. On youth
its impact is on knowledge and information and while on women it still depends
on the socio-economic aspect.
The marketers who understand the rural consumer and fine tune their
strategy are sure to reap benefits in the coming years. The leadership in any
product or service is linked to leadership in the rural India except for few
lifestyle-based products, which depend on urban India mainly.
There has been a substantial increase in the penetration of consumer
durables in the Indian rural sector. One thirds of the premium luxury goods are
now sold in the rural market. Two thirds of the middle-income households are
now in the rural market.
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A study which compared the rural income and buying power established
that if the rural income in India goes up by 1%, there would be a corresponding
increase of about Rs. 10,000 crores in the buying power. On the other hand, the
urban sector has showed saturation in the recent years.
The fact remains that the rural market in India has great potential, which
is just waiting to be tapped. Some have progressed on this road, but there seems
to be a long way for marketers to go in order to derive and reap maximum
benefits. Rural India is not as poor as it used to be a decade or so back. Things
are looking up!
Summary
The Indian rural market has 128 million households. The rural market
accounts for almost half the total market for TV sets, fans, pressure cookers,
bicycles, washing soap, blades, tea, salt and toothpowder.
The rural market for FMCG products is growing much faster than the
urban counterpart. The market size has always been large. The size of this rural
market is well over 700 million.
The study on ownership of goods indicates the same trend. It segments
durables under three groups: Necessary products, Emerging products and
Lifestyle products. Marketers have to depend on rural India for the first two
categories for growth and size. Even in lifestyle products, rural India will be
significant over next five years.
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The price-sensitivity of a consumer in a village is something the
marketers should be alive to. It is very difficult to establish a demand pattern in
rural markets as the disposable income is dependent on monsoon.
Globalization will have its impact on rural India also. It will be slow. It
will have its impact on target groups like farmers, youth and women.
The marketers who understand the rural consumer and fine tune their
strategy are sure to reap benefits in the coming years. The leadership in any
product or service is linked to leadership in the rural India except for few
lifestyle-based products, which depend on urban India mainly.
Questions
Indian villages offer a huge potential to marketers. Explain.
What is district marketing?
How will globalization affect rural India?
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CHAPTER V: RURAL MARKETING INFORMATION SYSTEM
Objective:
The objective of this chapter is to understand rural marketing
information system and its application.
Introduction
The villages are the backbone or the soul of India. With more than two
thirds of the Indian population living in rural areas, rural India reflects the very
essence of Indian culture and tradition. A holistic development of India as a
nation rests on a sustained and holistic development of rural India.
Farmers could use the connected computers to get commodity prices
faster, or get information on new agricultural techniques. The youth would get
details on job opportunities across the state. The district administration could get
details of problems in near real-time. The eligible could search for matrimonial
matches across adjacent villages. The voters would communicate their concerns
to the politicians and bureaucrats electronically, with a trail of the
communication. The village officials could share governance best practices
faster among their counterparts elsewhere.
The National Informatics Centre is proposing a "Rural Studio" initiative
for developing reusable software components and services for the rural
development sector,
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Computers were used in the process of governance in India, way back
in the 1980's with some of the early and popular initiatives such as the
Computerized Rural Information Systems Project (CRISP, http://crisp.nic.in) by
the Department of Rural Development (Government of India), the District
Information Systems of the National Informatics Centre (DISNIC) Project, the
National Resource Data Management System (NRDMS) by Department of
Science and Technology (Govt. of India) and Surendra Nagar Experiments,
among others.
The Land Records Computerization Project (LRCP, http://dolr.nic.in)
was another key initiative taken by the Government of India in addressing issues
related to land records management and ownership. These projects were
conceptualized and executed when ICTs, particularly networking technologies,
were in a very nascent stage in India and had not gained roots in the government
segment. Most of these projects focused on exploiting the computing/processing
power of computer systems. At the district level, computers were primarily used
to process data (spatial, non-spatial or both) related to various developmental
schemes to strengthen the monitoring and planning done by the district
administration.
Now, ICT has advanced to levels where it is being used in various
sectors and helps in providing efficient services round the clock.
ICT has emerged as a new way of reaching out to the people at grass root
level. ICT applications into the domain of Indian Rural Development (RD) dates
back to 1986 when the Computerized Rural Information Systems Project
(CRISP- http://crisp.nic.in) was launched in 1986 by the Ministry of Rural
Development (MoRD). Under this project, every district in the country was
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provided with computers and a software called CRISP (now re-named as
RuralSoft ? http://ruralsoft.nic.in) to help District Rural Development Agencies
(DRDAs) to manage MoRD's Programmes more efficiently. The RD domain
has come a long way now both in terms of ICT infrastructure as well as software
solutions. The results have now started trickling down to the common people in
rural areas.
Some of the major grass root level ICT initiatives by NIC include:
Land Records Computerization
The Land Records Computerization aims at employing state-of-the-art
Information Technology (IT) to galvanize and transform the way of maintaining
land records in the country. The project is a collaborative effort with Ministry of
Rural Development providing funds to states for data collection, collation and
site preparation etc. while NIC provides technical support, training etc. Various
kinds of land records software operational in different States include Bhoomi
(Karnataka), Tamil Nilam (Tamil Nadu), e-Dharni (Goa), Bhuyan (Chhatisgarh),
Apna Khata (Rajasthan), e-Dhara (Gujarat), Bhumi (West Bengal), Himbhoomi
(Himachal Pradesh) etc.
eNRICH Community Software Solution Framework
eNRICH (http://enrich.nic.in) is another ICT solution that has been developed as
a Community Software Solution Framework addressing the needs of rural
people. eNRICH, which was initially developed for UNESCO to facilitate intra-
community communications, was subsequently enhanced to work as a
framework capable of networking communities and building collaborations
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between government and citizens, particularly mainstreaming the rural people
who are most disadvantaged and underprivileged.
AGMARKNET
AGMARKNET (http://agmarknet.nic.in) is a NICNET based Agricultural
Marketing Information System Network that links all important Agricultural
Produce Market Committees (APMCs), State Agricultural Marketing
Boards/Directorates and Directorate of Marketing & Inspection (DMI)
regional offices located through out the country for effective information
exchange on market prices related to agricultural produce. This web based
information system enables farmers to sell their produce in the nearest
market at remunerative prices.
Community Information Centres (CICs)
The North Eastern region has been traditionally less developed due to its
remoteness and difficult hilly terrain. To provide a boost to all-round
development of the region through ICT, 487 Community Information Centres
(CICs) have been set up in all the eight States of the region as part of the CIC
Project initiated by the Department of IT, Government of India. Each CIC has its
own web-site accessible through http://www.cic.nic.in and provides information
on forms, rules and procedures, government tenders, notification for
employment opportunities, information on tourism, culture, examination results,
schemes, legal issues, guidelines for bank loans, weather information etc.
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ASHA
NIC Assam in partnership with Agribusiness consortium has developed a
model
ASHA
for
facilitating
agribusiness
through
CIC
(http://www.assamagribusiness.nic.in). The site aims at building up of
information useful for farmers and establish direct link between buyers and
sellers thus promoting agribusiness.
RuralBazar
RuralBazar (http://ruralbazar.nic.in) is an e-commerce solution developed by
NIC to address the marketing needs of the rural producers. The software
provides provision for simple showcasing of the products, off-line payment
as well as on-line payment. It has been implemented in the States of Tripura,
Goa and Tamil Nadu.
Property Registration
NIC has developed Property Registration Systems that aim at setting quality
and time standards for all registration services. The features include
registration of deeds on the transactions relating to immovable properties
between citizens and include calculation of stamp duty; Revising the rates of
market values, Deed writing, providing computerized copies of Records of
Right (ROR), computerized history of transactions on property & land
record mutation etc.
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Panchayat Informatics
NIC has also initiated efforts to provide ICT solutions for streamlining the
functioning of panchayats to enable easy access to information and services
by the common man. Some of the applications in this area include National
Panchayat Portal, Priasoft - Panchayati Raj Institutions Administration
Software, e-Gram Vishwa Gram, e-Panchayat and InfoGram.
e-Governance for Rural Masses
NIC has designed applications to deliver e-Governance services to the rural
masses. Some of these include:
Rural Digital Services
Rural Digital Services provide a single window for all government
services at village level. In the first phase of the project, the services
offered include Birth/Death Registration and Certificates (Caste,
Income, Widow, Unemployment, No Tenancy etc.).
Lokvani
Lokvani provides citizens an opportunity to interact with government
without actually visiting the government offices. The services
provided through the kiosks include information about various
government schemes, forms, list of old-age pensioners, list of
scholarship beneficiaries, allotment of food grains to kotedars,
allotment of funds to gram panchayats, land records etc.
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LokMitra
Lokmitra is an initiative of Government of Himachal Pradesh that
envisages taking the benefits of IT to the door-step of general public,
especially those living in rural areas through Lokmitra Soochana
Kendras set up at 25 centrally located Panchayats. NIC provided the
Lokmitra software and necessary training to the Soochaks, who
manage the Soochana Kendras. The services offered through the
Lokmitra Kendras include Classified Complaints, Forms download,
Job Vacancies, Tenders, Schemes information, market rates etc.
Efforts are underway to expand this initiative to all the districts in the
State.
Gyandoot
Gyandoot is an intranet in Dhar District that connects rural cyber
cafes catering to everyday needs of the masses. Some of the services
provided, using the software applications developed by NIC, through
the kiosks set up in the villages of the rural district include
Commodity/Mandi Marketing Information System, Income
Certificate, Domicile Certificate, Caste Certificate, Driving License,
information regarding Rural Markets etc
Backend e-Governance Solutions
The success of how efficiently the ICT services are delivered to the
common man depends largely on the extent of backend computerization.
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Some of the back-end rural informatics solutions developed by NIC are as
Follows:
Ruralsoft
RuralSoft (http://ruralsoft.nic.in) is a solution that helps capturing
monthly progress of various poverty alleviation schemes sponsored
by the Ministry of Rural Development (MoRD) and State Rural
Development Departments (SRDs).
Monitoring Software for DDWS Schemes
The Department of Drinking Water Supply provides funds to the
states for rural drinking water supply and sanitation programmes.
ITC - eChoupals
ITC is setting up eChoupals across the agricultural belt in India to offer
the farmers of India all the information, products and services they need to
enhance farm productivity, improve farm-gate price realization and cut
transaction costs. Farmers can access latest local and global information on
weather, scientific farming practices as well as market prices at the village itself
through this web portal - all in Hindi. Choupal also facilitates supply of high
quality farm inputs as well as purchase of commodities at their doorstep. This
has been done in a phased approach:
In Phase I, the business goal was to create a physical infrastructure of eChoupals
at the village level and create local level ownerships through the identified
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Sanchalaks. At this stage the business goal was supported by creating a local
language portal, which provided the required information to farmers such as
local weather, market prices and best practices.
In Phase II, the business goal was to get the farmer registered and
transacting by selling directly to ITC Ltd. through the virtual market. This goal
was supported by creating a B2B site, which integrated the transactions directly
to the back-end ERP and ensured that there was no latency in processing any of
the procurement by the processing units.
In Phase III, the business goal was to create a full fledged meta-market.
In this phase, the market would facilitate other operators like inputs providers
and rural distributors to work effectively through the eChoupal to deliver and
procure goods from every participating village.
The technology road map to support this phase was to have a secure,
consolidated Farmers database with all information pertaining to their holdings
and credit worthiness to be available online. This database, along with
identification provided by smart cards would enable support for online
transactions through the eChoupal leading to integration with participating
financial institutions such as banks, insurance and credit agencies. A more
detailed description of the ecosystem being created by the eChoupals comes
from a note on the World Resources Institute Digital Dividend Knowledge Bank
site:
This reorganization of the role of middlemen results in lower
procurement costs for ITC, despite having to pay higher prices to the farmers.
Transaction costs are also minimized for the farmer by buying output at the
farmers' doorstep, and through transparent pricing and weighing practices. A
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substantial quantity has already been procured through this channel, resulting in
overall savings. The savings are shared between buyer (ITC) and seller (farmer).
On the marketing front, ITC is able to maintain and grow the trust of its farmers
by enhancing their productivity and wealth. ITC leverages this position of trust
among farmers, as well as its distribution capabilities, to market its own
consumer good brands and those of partner companies offering products and
services that ITC does not. Sales of consumer goods through the e-Choupals
have been particularly successful because the cost-savings associated with
dealing directly with the manufacturer allow Sanchalaks to offer goods at lower
prices than other village-level traders or retailers can afford to do.
A digital transformation
The following have been some of the initiatives of e-choupal
ITC began the silent e-volution of rural India with soya growers in the
villages of Madhya Pradesh. For the first time, the stereotype image of
the farmer on his bullock cart made way for the e-farmer, browsing the
e-Choupal website. Farmers now log on to the site through Internet
kiosks in their villages to order high quality agri-inputs, get information
on best farming practices, prevailing market prices for their crops at
home and abroad and the weather forecast ? all in the local language. In
the very first full season of e-Choupal operations in Madhya Pradesh,
soya farmers sold nearly 50,000 tons of their produce through the e-
Choupal Internet platform, which has more than doubled since then. The
result marks the beginning of a transparent and cost-effective marketing
channel. No doubt, this brought prosperity to the farmers' doorstep.
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Farmers grow wheat across several agro-climatic zones, producing grains
of varying grades. Though these grades had the potential to meet diverse
consumer preferences, the benefit never trickled down to the farmers,
because all varieties were aggregated as one average quality in the
mandis. ITC's e-Choupal intervention helped the farmers discover the
best price for their quality at the village itself. The site also provides
farmers with specialised knowledge for customising their produce to the
right consumer segments. The new storage and handling system
preserves the identity of different varieties right through the 'farm-gate to
dinner-plate' supply chain encouraging the farmers to raise their quality
standards and attract higher prices.
ITC's Aqua Care Centre in Kakinada, Andhra Pradesh, has
revolutionized the concept of shrimp seed testing. Its sophisticated
laboratory detects the deadly White Spot virus in the shrimp seed and
advises farmers on appropriate remedial action.
echoupal.com has become popular among coffee growers as an effective
platform for global trade. Coffee planters in India have for years been
tossed between the highs and lows of the international coffee market.
The information needed to manage risks in the volatile global coffee
market, price updates and prevalent trends in coffee trading were just not
available to them. Launch of e-Choupal.com has equipped India's coffee
planters with appropriate knowledge base and risk management tools.
The site arms them with the latest prices posted on commodity
exchanges like CSCE in New York and LIFFE in London. Planters have
access to technical analysis by experts to help them comprehend trends,
trading ranges and chart patterns in simple language. 'Parity Chart' and
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the 'Calculator' on the site convert the coffee prices quoted in
international auctions into raw coffee equivalent for the benefit of the
small growers in India. Tradersnet, a special link on the site, brings
together a large number of coffee planters, traders and roasters, creating
a virtual market for transparent price discovery. ITC empowers Indian
coffee growers with expert knowledge in logistics and risk management,
thereby enabling them to face global competition.
ITC has shown how the rural market can be tapped for mutual benefit of
the customer and the marketer.
Hence, a Rural Information System caters mainly to agricultural
marketing. All the above examples give us an idea of what the government and
other organizations are doing to help in agricultural marketing.
Summary
A Rural Information System caters mainly to agricultural marketing.
There have been a lot of initiatives by ICT in this regard.
Questions
What are the utilities of a rural marketing information system?
Explain some of the initiatives taken by ITC to computerize in rural
areas. What has been the benefit of such schemes?
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What are the lessons to be learnt from ITCs E-choupal initiative?
How will computers change the life of rural consumers?
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UNIT-III
LESSON 3.1
SELECTION OF MARKETS
This Lesson explains the three tasks, viz. segmenting, targeting and
positioning involved in the process of selecting markets.
Lesson Outline
Introduction
Concepts and Process
Segmentation
Degree of Segmentation
Guides to Effective Segmentation
Bases of Segmentation
Targeting
Positioning
Questions
INTRODUCTION
Companies are today developing different brands in different pack sizes
and formulations to win over the consumers. Different people want different
quantities and different mixes of benefits from the product they buy. Take
detergents for example, Hall has Surf, Rin Shakti and Wheel powder to meet the
needs of different income groups. Palmolive has three varieties of toilet soaps
offering skin care benefits to three different types of skins of consumers. In
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reality they are dividing the markets into attractive segments to reach them
efficiently, serve them effectively and achieve results economically.
CONCEPTS AND PROCESS
Selecting and attracting markets involves three key decisions, viz.,
segmenting, targeting and positioning
Segmenting is the process of dividing or categorizing market into
different groups based on one or more variables.
Targeting is selecting the market segments, which can be served
efficiently and profitability. It is, deciding on market coverage strategies.
Positioning is a market attraction strategy, which involves placing the
brand in the minds of the customers in the target market.
The various steps involved in the market coverage and attraction process are:
Decision
Actions
Segmentation
Identification of various bases for segmenting
market
Developing profiles of the market segments
Targeting
Evaluating the market segments for their
attractiveness
Deciding the market coverage strategy
Positioning
Communicating the chosen competitive
advantage to the customers
Identifying a set of possible competitive
advantages of the brand
Selecting the right competitive advantage
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SEGMENTATION
Segmentation is the process of dividing a heterogeneous market into
homogeneous sub-units. The division is based on the premises that different
people have different preferences. The following are the basic market
preferences:
Homogeneous preferences where consumers have roughly the same
preferences
Diffused preferences where consumers are scattered throughout the
market by their preferences.
Clustered preferences where consumers are found in distinct preference
groups.
DEGREES OF SEGMENTATION
If segmentation is considered as a process with two polar points from
zero to complete, four distinct segmentation approaches are identifiable.
Degree of
Zero
Complete
segmentation
Mass
Segment
Niche
Micro
Type
marketing
marketing
marketing
marketing
Serves
Identifies
Focuses on
Considers all
selectively
people as
individuals or
Approach
people as a
one or very
different
very small
bunch
few groups of
groups
groups
people
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(i) Mass Marketing
In the early period of the twentieth century, many companies practiced
mass production and mass distribution. As economies evolved and societies
became civilized, consumer choice and requirements came into focus. Until
now, the rural market was considered a homogeneous mass as was the Indian
Market till some 20 years ago. Some companies depend on mass marketing,
while many others do not.
(ii) Segment Marketing
The principal of segment marketing rests on the realization that buyers differ
in their needs, wants, demands and behaviors. The need for segment marketing
arises when:
Consumers have become more diverse, sophistical and choosy.
Competition has become tough
Benefits of segment marketing:
Company can service its customers more effectively and efficiently
Company gains the image of a creative and innovative organization
Company may gain monopoly by virtue of its unique marketing offer.
Prerequisites for segment marketing:
Understanding of consumer needs and wants
Awareness of competitors, products and services
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Innovative capabilities of marketers to fine tune products and services to
the varied customer groups.
Niche Marketing
A niche is a very small group with a distinctive set of traits, who seek a
special combination of benefits. Niche marketing identifies special sub-groups
within larger segments and offers different products and services.
(iv) Micro Marketing
Micro Marketing involves tailoring products and programs to suit the
tastes of specific locations and individuals. It includes local marketing and
individual marketing.
Local marketing: It involves and programs to suit the tastes of specific
locations and wants of local customer groups on a geographical basis.
The advantages of local marketing are:
Effective marketing in the face of difference in demographics and life
styles and communities in different regions.
Supports and stimulates retailers, who prefer offers customized to their
locality.
Disadvantages:
It may create logistical problems as companies try to meet the varied
requirements of different regions.
It may reduce economies of scale.
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It may affect the overall image of a brand as promotion programs vary
from place to place
Individual marketing: Individual marketing is customized marketing or
one-to-one marketing. Tailoring units, hotels, tourist operators and doctors
provide individualized services. Building contractors build houses or flats to the
specific requirements of customers.
GUIDES TO EFFECTIVE SEGMENTATION
Any process can be effective, if it has a sound philosophy and practical validity.
Segmentation can be effective only if it satisfies the following requirements:
(i) Measurable
Segments are formed with the help of certain variables. These variables
should be distinct, clear and measurable. Only then segments can be described in
exact terms and differences understood. Companies, so far, are not able to reach
rural markets due to lack of proper data. In the absence of information related to
size, purchasing power and profiles of rural consumers, they considered them
similar to urbanites.
(ii) Accessible
Reach is important to serve the segments. Till recently, marketers
preferred urban markets to rural ones because of the inaccessibility of the latter.
They were dependent on the mobile vans and nearby town distributors and retail
outlets to reach rural consumers. Now, research has established that effective
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means of reaching rural folk is possible by participation in haats or shandis
organized weekly. Also, there is considerable improvement in the infrastructure
Making several villages accessible.
(iii) Differentiable
Segments merit consideration of marketers only when they have
distinguishing features. Rural marketers are identified as a different segment, for
their responses are different from the urban in case of some products and
programmes. For instance, in case of buying wrist watches, rural consumers
differ with urbans. Rural buyers are more worried about the value for money and
weigh the watch in hand to know how heavy it is. On the contrary, urban
consumers prefer light ones with latest technology.
(iv) Substantial
A segment is attractive only when it is profitable. A segment should as
such possess the following characteristics:
Homogeneous--It should consist of people, who are similar in perceptions,
learning, preferences, attitudes and action. As such, covering them will be easy.
Large--It should comprise of either large number of light users or small
number of heavy users so that marketing becomes beneficial to the companies.
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It is observed that rural areas are not homogeneous. Region-wise differences are
found in language, thinking and behaviour. However, it is difficult to design
separate promotional programmes as the size of consumers is not large enough
to make the effort viable.
BASES OF SEGMENTATON
There is no one way of segmenting the market. A marketer may look for
one or more variables viz., geographic, demographic, psychographic and
behavioral, to distinguish and describe their market segments.
(1) Geographic Segmentation
Geographic segmentation is made based on variables like zones/regions,
states, districts, cities/town/ villages by size, density, climate and culture.
Zones: The country is divided into four
zones. East : West Bengal, Assam
West : Maharastra, Punjab, Haryana
North : Delhi, UP, Bihar. Himachal Pradesh
South : Tamil Nadu, Andhra Pradesh, Kerala, Karnataka.
The number of villages with a population of less than 5000 people
is: East : 1,61,982,West : 1,35,936,North : 2,00,106,South : 73,585
States, Districts and Villages: The country is divided into states on the
basis of language. For the convenience of administration each state is divided
into districts.
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Density: The density of population per square kilometer in the rural areas is
very low
Climate: The country is divided by climatic conditions as follows:
? Tropical? Rainy? Cold
Culture: Media will be effective when its messages are fine-tuned to the
culture of the people. As such, the political division is immaterial for the various
media. Ogilvy-Rural has divided the country into 56 Socio-Cultural Regions
(SCR).
(ii) Demographic Segmentation
Markets are divided into segments based on variables such as age, life-
cycle, gender, family size, income, occupation, education, religion and
nationality.
Age
:
Under 6, 6--12, 13--19, 20--40, 41--60, 60+.
Life--cycle
:
Infants, children, teens, young adults, elders,
seniors.
Gender
:
Male--Female.
Marital status
:
Married--Unmarried.
Family size
:
1--2, 3--4, 5+
Income
:
Rs.25, 000 and below, Rs.25, 001-50,000,
Rs.50,001-75,000, Rs. 75,001, Rs. 1 lakh, above
Rs. 1 lakh.
Occupation
:
Farmer, agricultural labourer, artisan, non-
agricultural labourer, Business, Professional
employee, retired, student, unemployed.
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Education
Illiterate, literate, elementary school, high
School, college, university.
Religion
Hindu, Muslim, Christian and Others.
Age and Life-cycle: The age and life--cycle classification
applicable to urbans is valid to rurals as well. The specific
products for the age segments are:
Age Segment
Products
Typical Brands
Infants
Milk,
Powder,
Glaxo, Nestle, Johnson and Johnson,
cereals,
soaps, Wipro, HLL
diapers
Children
Toothpaste,
Pepsodent, NUTRINE Britannia, Parle,
confectionery,
BSA, Atlas, Hero, Amar Chitra Katha
sports cycles, story
series, Chand Mama, Balamitra
books, magazines
Teens
Toothpaste,
Face
Close-up, Fair & Lovely, North Star,
creams,
shoes, Nike, TVS, Luna, Coke, Pepsi, Thums
mopeds, soft drinks Up
Young Adults
Magazines, shoes, Sport star, Computer Digest, Reebok,
TV, music systems, Philips, Sony, Samsung, HCL, Compaq,
computers, scooters Bajaj, LML
Elders
Briefcases,
VIP, Samsonite, Ray ban, Bosche and
spectacles, suitings, Lamb, Raymond, Park Avenue, Tata
cell phones
Cellular, Magic
Seniors
Rocking chairs,
Modfurn, Conybio, Cipla, Glaxo,
knee pads, self
Reddy Labs
diagnostic
kits,
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medicines
Gender: Gender differences are observed in terms of dress, footwear,
cosmetics and other products. The peculiarities of women like gynecological
problems and beauty consciousness offer marketers an opportunity to supply
unique products like sanitary napkins, estrogen medicines, bust creams, and face
packs.
Marital Status: The influence of marital status is obvious. Some companies
can benefit on this ground.
Unmarried:
Residence
-
Small size houses/flats, working women's hostels
Eat out
-
Fast food centres
Occasions
-
Valentine's Day
Married:
Tourism and Hotels -
Honeymoon packages
Events
-
"Best Couple" competitions
Family size: As family size increases, consumption of consumables will
increase. In rural areas, it is found that large families with low incomes are
buying consumer durables like TV. The promotion of consumables as `family
product' particularly in economy refill packs works well with large families.
Large families may buy more than one brand of a product to meet specific
individual preferences and tastes. As such, multi-brand consumption of a
product may be there. While, Colgate is family toothpaste, Close-up is more
personalized with its focus on the youth. Naturally, it makes inroads into
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families with young members and adequate buying power and co-exists with
Colgate.
Income: Rural households fall under different income categories as shown
below.
Income Range
of Rural
Households
Above Rs.1,00,000
3.8
Rs.75,001 ? 1,00,000
4.7
Rs.50,000 ? 75,000
13.0
Rs.25,001 ? 50,000
41.1
Rs.25,000 & below
37.4
The importance of income in influencing the purchase decisions relating
to quantity and quality need not be over emphasized. The rural rich buy
premium brands like the urban rich. It is interesting, that today even the low-
income groups buy some brands that the rich rurals buy. The sale of the
premium brands to low income groups is made possible through sachet
revolution. Products offered in sachets like Velvettee shampoo, Dairy top and
Colgate are highly successful in rural markets. The high-income group provides
market potential to durables like refrigerators, CTVs and washing machines.
Occupation: Occupational needs vary.
Farmer
:
Seeds, fertilizers, pesticides, tractors, harvesters,
Pump sets, etc.
Employee
:
Pens, stationery items, etc.
Doctor
:
Stethoscope, BP kit, medicines, syringes,
Animal husbandry
:
Feed, medicines, consultancy.
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The identification of specific products provides an opportunity to marketers to
develop, design and distribute products to cater to the particular markets.
Education: Education provides knowledge and skill. It improves the
thinking process and facilitates understanding of issues on a higher and wider
plane.
Religion: The influence of religion on the consumer purchase behaviour is
an important consideration for marketers. Religion provides a `code of life' and
links the visible real world, with invisible world after death. It furnishes the do's
and don'ts to be followed.
Religion
Product / Items
Occasions / Events
Christians
Church, Holy bible, cross, candles,
Good Friday, Easter,
rose, water, Christmas trees, bells,
Christmas
stars
Hindus
Temples, rivers, icons of God,
Deepavali, Vinayaka,
cotton thread for lamps, lamps,
Chaturthi, Krishna
license sticks, camphor,
Jayanthi Sravan Fridays,
coconuts, fruits, betel leaves, nut
Kartika month
Margasira month
powder sandal paste, Kumkum
Muslims
Mosque, perfumes, white caps.
Id-ul-Fitr, Bakrid,
license sticks, Holy Quran, Agar
Miladun-nabi, Muharram
(II,) Psychographic Segmentation
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While geographic and demographic segmentations provide a physical view of
the markets, the true dynamics of purchase can be assessed and marketing offer
can be designed only on the basis of psychographics of the people. An example,
to prove this point:
Market is divided into different segments based on three variables viz.
Social class
Life style, and
Personality
Social class: Society consists of a structure, which represents a hierarchy of
classes or grades of people. Caste was one of the divisions of class system in
India along with wealth. However, in recent times, social class is determined by
a combination of factors like education, occupation, income, wealth and others.
Media Research Users Council (MRUC) and Indian Readership Survey (IRS)--
95 have come out with a new rural Socio-Economic Class (SEC), which maps
the rural market on three variables.
Education of the chief wage earner
Ownership of durables
Type of the house (Pucca, Semi-pucca or Kuchha)
The social classes may be categorized into six groups as shown in Table 3.1.
Table 3.1 Social Classes: Characteristics and Preferences
S.No. Class
Characteristics
Preferences
Upper-Upper
Social elite, wealth inherited,
Jewellery,
antique,
well
known
family farm houses, vacations,
background, ascribed status, luxury, products at
aristocrats, small in number
high prices
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reference group for others.
2.
Lower-Upper Social elite, wealth earned, Status symbols ? cars,
educated and
professional homes, refrigerators,
active in social and civic
expensive
schools,
affairs, aspire, and associate exhibition products, art
with upper, upper stratum.
pieces, sculptures, etc.
3.
Upper-middle Career oriented dependent on Quality of
life,
education and hard work, products
and
dual career families
seek entertainment,
good
comfort, ambitious
interior
decoration,
vacations, travel
and
tour
regular
but
economics
entertainment.
4.
Lower-middle Average paid
employees, Better life
products,
small businessmen, college nice,
homes,
nice
background,
fashion, furniture,
decent
oriented but
traditional dual school,
occasional
career families.
vacations, travel
and
tour
regular
but
economical
5.
entertainment
Upper-lower
Above poverty line ? Depend Economy,
products,
on loans and advances, hand installment and credit
to
mouth, dual career buying, low priced
families, traditional, strong popular brands
and
family ties, school education local
unbranded
products.
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6.
Lower-Lower
Below poverty line, daily Local
unbranded
incomes, low per capital products,
daily
income poor health and purchases,
cheap
hygiene, dependence on varieties, buy seconds
petty loans and charity
or collect thrown out
clothes, food etc.
Life style: With the rural populace has the advent of satellite television and
cable networks all across the country, been exposed to the rich life style of the
urban households. The rural consumer's brand choices are not that different
from his urban counterparts. But while the brand choices tend to converge,
packing preferences don't. By and large, the rural preference is for smaller
packs. Wherever an option exists in case of durables, premium models are
preferred by the rural rich.
One way of life style classification is:
? Trend setters? Traditionalists? Chameleons
A separate classification for woman may be helpful. One such classification
is: A capable home maker, career women, and a free spirit
Personality: Personality refers to the set of psychological and physical
characteristics of a zdividua1 that determine individual behaviour. These
characteristics are unique making individuals different from one another.
Personality can be defined with the help of characteristics like self-confidence,
sociability, adaptability assertiveness, autonomy, creativity, sensitivity, and so
on.
Segmentation
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Behaviour of consumers is a better guide to segment the markets. To understand
the behaviours the following questions may be raised.
When do people buy?
Occasions
Why do people buy?
Benefits sought
Do they buy? Once? More?
User status
How much do they buy?
Usage rate
Do they repeat the buy?
Loyalty status
Where do they buy?
Place-retail outlet.
What do they buy?
Products possessed.
Occasions: Most of the durables are purchased during the month of January
when farmers incur agricultural income. Other occasions are festivals like
Diwali and Dussehra. Also, rural people prefer buying required goods when
melas and jaats are organised. As a routine, weekends are the times of purchase
by rurals at shandies and haats.
Benefits sought: The benefits sought from a product vary from consumer to
consumer. A rural consumer may buy a motor bike seeking one or more of the
following benefits.
? Status symbol
? Sense of fulfillment
? Convenience of transport
? Economy in commuting
Based on the benefits sought, consumers are grouped and positioning is
effectively done to pull them to buy.
User status: Consumers may be categorised as follows based on their user
status. The corresponding marketing actions can be given as under.
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User Status
Marketers action
Ex-user
Stopped using
Convince then about benefit
Using other brand
First time user
Trial
Assure benefits
Regular users
Repeat buy
Appreciate them and advice them
on usage. Assure service
?
Evidently, each category of users is to be treated as a separate segment and
marketing offer should be designed to suit each one of them.
Usage rate: Based upon the size of their consumption, consumers may be
categorised as:
Light users
Medium users
Heavy users
Loyalty status: A market can also be segmented on the basis of consumer
loyalty to brands, stores and companies. In rural areas, brand loyalty is higher, as
decisions are collectively made. Strong loyalty is reported only in the case of
Lifebuoy.
Company may design marketing actions based on loyalty status.
Loyalty Status
Goal
Marketing Action
Strong
To retain
Improve the features and
promotions
Weak
To attract
Support with good promotion
Non-loyal
To convert
Heavy Sales promotion campaign
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Place: Rural people may buy at the following places:
Weekly haats or shandies
Occasional Melas and Jaataras
Nearest town, the feeding centre for villages
Mobile vans
Products may be promoted by developing an understanding of the place where
the potential buyers congregate mostly and prefer to buy the products. Marketers
are today considering the traditional retail spaces viz., haats or shandies as they
realise their potential in promoting sales of several products.
Product possession categories: Targeting the buyer on the basis of products
he already possesses is appropriate. NCAER has categorised products to help
marketers of durables target the next customer.
Category I products are of immediate use to the family or things which tend to
be instrumental in supplementing the income in these households.
Category II products consists of a combination of the products that ease the
households, works train and act as a source of entertainment.
Category III products show a combination of classy products that fulfill all the
above needs.
Category Product price
Products
I
Below Rs.1000
Wrist watches, Transistor, Fan, Bicycle,
Electric irons, Mono cassette recorder, Pressure
cooker / Pan
II
Between Rs.1000
Two-in-one, TV (B&W), sewing machine,
and Rs.6000
Mixer-grinder, Geyser, Vacuum cleaner Two-
III
Above Rs.6000
wheeler, Refrigerator, TV (Colour) VCR / VCP
Washing machine
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This categorization can be used as a guideline to target the next customer.
Purchases in Category II are made after purchase of 3 or 4 items in category I.
Purchases in category III are made after purchasing 5 to 6 products in category I
and II. Some times it can be a straight jump from category I to category III.
Multi-variable segmentation
Very rarely, marketers depend on a single variable for segmentation.
Target market to be meaningful requires the use of several variables. One of the
recent developments in multi-variable segmentation is geo-demographic
segmentation.
Thompson Rural Market Index (TRMI): Hindustan Thompson Associates
Ltd. developed TRMI as a guide to segment markets in the rural areas in 1972
and improved it in 1986. They compiled a data out of 335 districts, based on 26
variables. Further, they collected the value of agricultural output data for each
district. It is considered to be the overall indicator of rural market potential as it
has strong correlation with 10 selected agriculture-related variables viz.,
Agricultural labourers
Gross cropped area
Gross irrigated area
Area under non-food crops
Pump sets
Fertilizer consumptions
Tractors
Rural credit,
Rural deposits and
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Villages electrified
Based on the index number, the districts have been classified as A, B, C, D and
E class of markets as shown in table below.
Table: Classification of Markets
Class of Markets Index Range
No. of Districts
Percentage of
Market
60.00 to 100.00
22
17.8
40.00 to 59.99
39
20.5
30.00 to 39.99
54
20.4
20.00 to 29.99
86
23.0
Below 20.00
154
18.3
Total
355
100.00
Lin: Quest: Initiative Media developed Lin: Quest, a software package that
provides marketers with data on rural India. The data can be sorted on five
parameters:
Demographic
Agricultural
Income
Literacy
Civic amenities
Depending on the product being launched, marketers will be interested in certain
parameters such as literacy levels, male-female ratios, bank deposits, income
levels, accessibility (via road, rail and water), dispensaries, schools, and distance
from the nearest town. The software allows marketers to assign a weighted
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average on each of these. The package then lists all the places that satisfy the
marketer's criteria. For the rural launch of a regional daily newspaper the
parameters could be villages (population over 10,000), income (over Rs.2000)
distance from the nearest town (not more than 45 km) and literacy levels. Lin:
Quest provides a list of districts and villages within the district.
MICA rating: MICA has developed "MICA Rural Market Rating". It is
available in a CD-ROM with digital maps and provides the relative market
potential of a particular district. The ratings have been arrived at by using six
parameters.
Total value of agricultural output
Bank advances
Cropped area
Irrigated area
Number of cultivators, and
Fertilizer consumption
It also highlights the village haats- when and where they are held and the
proximity to the centre by road and rail.
TARGETTING
Segmentation is the process of identifying and establishing alternative
market segments. As a next step, targeting involves evaluating the various
segments and selecting how many and which ones to target. The three aspects in
targeting are evaluation, selection and coverage.
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(i) Evaluation of Segments
In evaluating market segments a company has to first identify the criteria
for evaluation. The following criteria may be applied to determine the
attractiveness of segments.
Profitability: The Company has to collect information on aspects required to
conduct cost benefit analysis and ascertain profitability of the segment. Relevant
information includes:
Sales volumes
Distribution costs
Promotion costs
Sales revenues
Profit margins
Attractiveness: Marketers should know whether they should design
effective programmes to attract and serve the market skills. Smaller companies
or new companies may lack the skills, experience and resources needed to serve
the larger segments. Some segments may be less attractive when there is already
more competition.
Growth rate: A segment's attractiveness depends not only on its current
profitability but also future prospects. The growth rate of the segment in terms
of growth in population, rise in purchasing power, and increase in preferences
for the use of the products is to be considered.
Company objectives: Company should evaluate the segment opportunity
with reference to their short term and long term objectives. If a company's
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objective is to expand the sales, it has to go rural instead of pulling rural
consumers to the nearby town.
Limitations: Finally, a company should examine whether the entry into the
segment is acceptable to the society and government. If its entry provokes
unnecessary criticisms, the company may have to struggle hard to explain its
stand and safeguard its image.
(ii) Selection of Segments
Segments may be ranked based on the scores obtained and be considered for
selection. Those with high scores will be accepted and others will be kept aside
for future consideration.
(iii) Coverage of Segments
Organization has three alternative coverage strategies to suit their segmentation
approaches.
Segmentation
Type of marketing
Coverage strategy
Zero
Mass
Undifferentiated
Substantial
Segment
Differential
Selective
Niche
Concentrated
Undifferentiated strategy: Undifferentiated marketing strategy focuses on
"What is common" among the consumers and tries to employ it in the design of
its marketing offer. For instance, many toilet soap users prefer medicinal value,
cosmetic strength, economy and freshness feeling in toilet soap. Medimix offers
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all these and claims that, it is a beauty care Ayurvedic family soap. This soap
appeals to all types of consumers.
Undifferentiated marketing strategy is adopted by some firms to promote their
products in urban and rural markets. Despite certain differences between rural
life styles and urban life style, they find some convergence. "Fair & Lovely"
proves this point. In the skin cream market, Fair & Lovely fairness cream, which
has spread its tentacles in the urban market has a high penetration of 75 percent
in the rural market. Other such products are Lifebuoy, Ponds talcum powder,
and many others.
Differentiated strategy: Differentiated marketing strategy investigates and
identifies differences between segments and tries to match the market offer to
the desires and expectations of each segment.
The results of such exercise would be-Strong identification of the company in
the product category. More costs but higher sales. Hence more profits and more
loyal consumers.
Are companies using differentiated strategy within rural areas? Obviously, there
are products, which are exclusive to rural areas like fertilizers, tractors, seeds,
etc. Following examples explain the use of this strategy.
S.No.
Product
Type
Segmentation
1
Tractor
-30HP
Marginal or small farmer
HP
Large farmer
2.
Pepsodent
g
Middle and high income
g
Low income
Concentrated strategy: Concentrated strategy directs all marketing efforts
towards one selected segment. It facilitates specialization in serving the segment
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and achieving higher level of consumer satisfaction, delight and loyalty.
However, it is not without risks. In course of time,
Preferences of consumers may change, and
Large companies may become competitors seeing the success of this company.
Generally, large companies may prefer to offer specialized services as a part of
their diversification move. O& M has set up "O& M Rural Communication New
Work" to implement rural communication packages and devise distribution
strategies.
(iv) Choosing a Coverage Strategy
The following check list guides companies in making their coverage
strategy choices, with reference to the state of the four variables for example,
company resources, product variability, product life-cycle stage and market
variability. For instance, undifferentiated strategy is to be chosen, when
company resources are moderate, product variability is less, and product is in the
introduction stage in a market that has less variability.
Variable
Strategy
Undifferentiated Differentiated
Concentrated
Company resources
Moderate
Large
Limited
Product variability
Less
More
Less
Product life-cycle stage
Introduction
Growth
Introduction
Market variability
Less
High
High
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Positioning is the act of finding a place in the minds of consumers and
locating the brand therein. Companies have to plan positions that give their
products the necessary advantage in the target markets. Positioning involves
three tasks--
Identifying the differences of the offer vis-a-vis competitors' offers.
Selecting the differences that have greater competitive advantage.
Communicating such advantages effectively to the target audience.
Identify Differences
The marketing offer may be differentiated along the following lines:
Product
Services
People, or image
Product differentiation: Products can be differentiated on attributes
like shape, size, colour, quality, composition, and performance. Functional
differentiations signify ease in process and benefits of use.
Coke has 400 calories where as Diet coke has 1 calorie. Diet Coke is for
diabetics.
`Singer' sewing machine stitches, `memory craft' can even scan designs.
Usha `fighter' is low priced fan whereas `senator' delivers air to the far
corners of a room.
Cinthol Sandal promises twin benefits of flawless, blemish free
complexion and freedom from perspiration odor owing to TCC.
(Trichlora carbanalide content)
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? Products come in different sizes, shapes and colours.
Brand
Shape
Size
Colour
Mysore sandal
Round
g
Sandal
Oval
g
Sandal
Square
g
Sandal
Mysore
Sandal
Round
150g
White,
Lilac,
Special
Sandal
Mysore
sandal
Oval
75g
Sandal,
classic with
Translucent
Close Up
Sachet
g
Red, blue, Green
Tube
g
Red, Blue, Green
Tube
g
Red, Blue, Green
Tube
g
Red, Blue, Green
Services differentiation: Services may be differentiated in respect of
delivery, installation and maintenance. Long warranty periods, free service
coupons, service at phone call distance, 24 hours service, emergency care, etc.,
are some examples.
People: People, who come into contact with users, may quite often influence
the decision of consumers. In this era of relationship marketing, differentiation
by people is worth considering.
Service organisations like hospitals, schools, banks, road transport and
telecommunication, require people who serve with smile and are efficient.
Service organisations mainly emphasise on the competencies of their people.
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Image: The image of a brand or company may win the consumer, even
though the product is very much similar to a competitive one. Image is built by
advertisements, symbols, signs, colours, logos, atmosphere of organisation, and
social activities.
Selecting the Right Differences
When a company identifies several differences it can evaluate them with the
help of the following criteria.
Attractive
--
Does it provide value to the customer?
Distinctive
--
Is it different from that of its competitors?
Preemptive
--
Is it very difficult for competitors to copy it'?
Affordable
--
Can buyers pay for it?
Communicable --
Can the difference be clearly expressed?
Is it visible? Understandable?
The evaluation requires the following steps:
Identification of attributes, which can give competitive advantage. For
example, quality, service, technology and economy.
Use of a rating scale. Say, 10 point scale.
Rating the attributes on the five criteria viz., attractive, distinctive,
preemptive, affordable and communicable.
Then, developing a comparative table of competitive advantages to arrive at
an appropriate decision.
Communicating
Once the company has chosen the differences, it has to choose an
appropriate marketing strategy.
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QUESTIONS
Explain the rationale for segmentation.
"Marketing approaches vary with degree of segmentation". Explain with
examples.
What are the prerequisites for effective segmentation?
List the bases of segmentation.
How do you segment markets based on geographical variables? Explain
with examples.
Using demographical variables, segment markets for
a) TVs b) Cosmetics c) Tooth paste
What is psychographic segmentation? Is it superior to other types of
segmentation?
Identify life styles of men and women and show their influence on
product preferences with suitable examples.
Explain how Indian marketers are differentiating their products based on
personality variables.
Examine the importance and possibilities of multi-variable segmentation.
How do you evaluate and select target markets?
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UNIT-III
LESSON -3.2
PRODUCT STRATEGY-PRODUCT MIX DECISIONS
In this Lesson, the product related concepts, and classifications are
explained. The significance of product strategy for a company is outlined and
the strategic alternatives are briefly discussed. Finally, the different strategies
adopted by Indian companies for rural markets are also highlighted.
Introduction
Product Concepts and Classifications
Concept and Significance of Product Strategy
Scope
Product Mix Decisions
Product Item Decisions
Competitive Product Strategies
Questions
INTRODUCTION
How well do we know Rural India?
Rural India buys 46% of soft drinks sold
49%of motor cycles
59% of cigarettes
18 million TV sets are in rural India
Of 2 million BSNL mobile connections,
50 % are in small towns/villages
11% of rural women use lipstick and fastest growing markets of the world.
Rural Markets need to be understood thoroughly, before they can be serviced.
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A clear understanding has to be obtained of the rural environment, its limitations
and opportunities, before effective strategies can be formulated.
A sensitization to the rural environment is absolutely vital, to ensure effective
implementation of strategies, in the framework of new paradigms that are
emerging, due to the transformations taking place in Rural India. This has to be
furthered supported by an on-line monitoring mechanism that enables timely
mid-course fine tuning.
The learning cycle becomes complete, only when, the knowledge and
experience gained from every implementation, can be systematically transferred,
through effective training and dissemination
The central decision in marketing mix strategy is product decision. In the
emergent dynamic, competitive environment, multi-product firms are fighting
hard to gain commanding market through their product strategies. It is through
continuous design and redesign of product mixes a company lays its way to
success and fame.
PRODUCT CONCEPTS AND CLASSIFICATIONS
Products required in rural areas may be classified in different ways. In
the process, let us whether there are any significant differences between urban
and rural product classifications.
Based on tangibility goods are classified into two groups:
Tangible goods referred to as products
Intangible goods referred to as services
The following Table compares them.
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Characteristics
Product
Service
Tangibility
Yes
No
Separability
Yes
No
Variability
Some times, customization
Yes
Perish ability
Some products
Yes
Examples
Soft drinks, office furniture,
Repairs,
construction
houses, etc.
services, legal services,
medical services etc.
Based on the purpose of use
Purpose
Type
User
Products
Composition
Consumer
Households
Toiletries cosmetics,
beverages, home
appliances, etc.
Production
Industrial /
Industries frame / Raw materials,
Agricultural goods
poultries etc
components,
agricultural inputs
and machinery,
animal feeds, etc.
(iii) Based on the functional life of the products
Type
Nature of use Functional
Example
Life period
Consumables One time
Short
Food & beverages, soft drinks
Durables
Life time
Long
Furniture, computers, cars,
cameras
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Cheaper goods are those, which are characterized by, low quality and low price.
They perform the core function but they lack certain attributes, which make their
use less comfortable, less pleasant and less desirable. Shopping goods (clothing.
furniture, home appliances, etc.)
Moderate Occasional Complex.
For example: Jewellery. silk sarees, cars, bungalows, high priced cosmetics,
toiletries and perfumes
(vi) Based on product development:
Innovations
Imitations (Novelties, Me-too goods, Copy Cats)
Innovations: Innovation is the key for survival in a highly competitive
environment. A company which innovates always has an edge over others.
Every organization will have to learn to innovate and this can now
be organized in a systematic process.
Product mix of the companies is heavily skewed towards "me too" types of
products and their success largely depends upon the company's expertise in
developing and using marketing innovations thereby enabling them to get
differential advantages for their "me too" products against those of their
competitors.
Implementation of marketing innovations on a national scale involves a lot of
risk and therefore it is desirable that the companies experiment these
innovations in controlled areas and verify their results before they are finally
adopted on a national scale.
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Imitations: Imitations may result in two types of goods depending upon the
purpose commitment, and competence of imitator. A poor imitator will end up
in producing deceptive spurious, fake, copy cat products. He dupes the gullible
customer by offering products having close resemblance with the original. In
quality, it is a poor cousin to the original. On the other hand, the competent
imitator may even produce an improved version of the original product.
Original Product
Limitations
Novelties
Copy cat
Lifebuoy
Nirma buoy
New Lime Buoy, Nimba buoy
Colgate
Pepsodent
College
Nirma
Wheel
Neerbha, Nima, Narima
Fair & lovely
Fairever
Friends & Lovely
CONCEPT AND SIGNIFICANCE OF PRODUCT STRATEGY
Concept
Product strategy refers to the long-range competitive plan involving
decisions on products, product line and product mix to make proper utilisation of
resources and achieve marketing goals.
Significance
An effective product strategy offers the following benefits.
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Achieves product--market fit: A well thought out product strategy will be
able to offer products based on market needs. Thus, it achieves product market,
fit and avoids the pitfalls of marketing myopia. Consequently, it provides
insurance for survival.
Encourages innovativeness: The key of product strategy is innovation with
a view to fine tune the market offer to the current and future needs of customers.
Product strategy relies on creativity processes, methods and techniques.
Innovation is an in-built feature of product strategy.
Provides competitive edge: In this competitive era, marketers need good
intelligence on how to anticipate competitive moves and launch their new
product. Companies will have to use product strategy to attack and to flank their
competition, to defend their positions, and to wage guerilla warfare.
(iv)Makes better use of resources: The product additions and deletions, based
on rational appraisal of marketing and production strengths and weaknesses
allow for better utilization of physical, financial and human resources. It thus
helps achieve high productivity levels. Consequently, there will be no idle
capacities and no demoralized work force.
SCOPE:
Product strategy embraces decisions at three levels.
Product mix
Product line, and
Product item
Various strategies adopted at these levels are given in Table
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Table: Product Strategies--An Overview
Level
Strategy
Product Mix
Width extension ? New Product lines
Length extension ? New product items
Depth extension ? new product variants
Product Line
Stretching ? Upward, downward, both ways line pruning ?
line modernization
Product item
Quality, Features, Design, Brand and Package
Augmentation
PRODUCT MIX DECISIONS
Product mix is a set of all product lines and items offered by the company.
Horizon one
Horizon two
Horizon three
Soaps and Detergents
Popular foods
Direct-to-home products
Beverages
Culinary products
Value-added foods
Oil and Dairy fats
Personal products
Bread and biscuits
Specialty chemicals
Ice-creams
Animal feeds
Home care products
New Beverages
Profitable growth
Top line growth
Development and learning
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Product line is a group of closely related products priced within a range and
distributed the - some channels to the same customer groups. It has two
dimensions: Length and Depth.
Length -
It refers to the total number of items in the line.
Depth -
It is the total number of variants to product items.
Length of Product line: How long the product line should be? It is like asking,
`how long re legs should be? The reply to this question is: `long enough to reach
the ground.' Similarly, product- line length should be evaluated in the light of
company profitability. If profitability can be increased by dropping items, the
existing length is more than necessary. If profitability can be increase: `adding
items, the existing length is short.
There is a need to work out optimal length. It should be neither too short nor too.
Arguments in favour of short and long lines are summarised below.
Short line
Long line
1. When focus is on specialization
If companies want to be positioned as
full line companies
As a result of flanking strategy
2. As a consequence of
contraction defense strategy
3. If profitability is the objective
If market growth and market-share are the
objective
When line pruning is done, Product line proliferation. Zealously Loss
making products are new products are added. A sort of
dropped
undisciplined growth.
Life Stretching: Line stretching is lengthening the product line beyond its
current range. The stretch can be in three directions:
Down ward -
adding lower end items
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Upward
-
adding high end items
Both ways
-
adding items at both higher and lower ends
Reasons: The line stretching decision is made for the following reasons:
Reaction-As a reaction to competition, innovative product items are
added.
Opportunity- To utilise the existing market gap, new items are
introduced.
Image-To have a full line company image, rolling upward or downward
or both ways is done.
Pressure-Yielding to pressure of sales force and dealers, new
product items is introduced.
Strength-To use the available excess capacity, line stretching is done.
? Desire-
To fulfill the desire of a top executive or product
manager, to introduce a new product item, line stretching
is done.
Line Pruning: Product lines tend to lengthen over time. Some times they are
stretched on rational rounds. At other times, they are lengthened because of
emotional reasons. In either case, some dead wood will accumulate. It is weeded
out based on periodical review of the contribution of product items. The product
items can be classified as:
Traffic builders--which attract customers but generate marginal incomes
Bread winners--which generate major share of incomes
Parasites--which incur losses and depend on bread winners.
Product line pruning may be done when:
It is identified that dead wood is depressing profits,
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It is found that the production capacity is limited and cannot handle all
the existing products.
Line Modernisation: When technological developments change the products, a
decision to amp the old line and design a modem line becomes inevitable. The
modemisation decision is to - taken with great care. The aspects to be considered
are:
Timing--It should not be too early or too late. Remember, `Strike the
iron while it is hot'. Proper timing of modernisation decision is
important. The timing decision requires information about
Conversion readiness of consumers from old to new products
Competitors moves
Profitability levels of existing product line.
Approach- Whether the change is total or piece-meal? The merits (+) and
demerits (-) of these two approaches are given below.
3.
Total
Piece-meal
- Requires heavy cash flow
Less draining on company's cash
flow
Surprises, competitors no chance to
- Allow competitors to see changes
imitate
and start designing their own time.
- Implementation of change involving
People affected by change easily
dealers and customers is difficult
understand and adopt.
The example of HLL provides a clear understanding of contemporary
line modernizations attempts.
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HLL's soaps, detergents and `household care business continued to grow
ahead of market despite the recessionary trends and growing competition Rapid
innovations in Products and the supply chain, backed by aggress, marketing and
distribution achieved this performance, Rural market accounts for about 50-60
per cent HLL's Sales of detergents soaps and household care products division
which in turn contributes 40 per cent of HLL's total sales.
Personal wash category: The top-end (premium toilet soaps) segment
witnessed the launch of Savfon and Lint Rain Fresh Lux International was re-
launched Intensive sampling activities were initiated on Dove, Liril Lux and
Rexona continued to gain sales. In the? discount segment, a new herbal variant
of Breeie was put on test market, Breez and Jai continued as before. Lifebuoy
Gold and Lifebuny plus were relaunchad,
Fabric wash category: In concentrates segment at the top end of the market
international, Surf Excel was re-launched with properties to remove even dried
stains. In the mid-price segment, fin Shakti powder and bar were re-launched,
With superior formulations Sunlight powder and Super 501 bar be are re-
launched.
In the mass-market segment, Blue Wheel powder was re-launched with new
active system. Wheel powder was also made available in sachets priced at Rs1
to further increase penetration among low-income rural consumers, The
franchise was extended with the test market Of international Wheel Active
offering stain removal at an affordable price and the entry of Wheel laundry
soap.
Household category: Vim Dish wash Bar was re-launched with a superior
formulation, Vim Bar, the first such product fuelled the growth of dish wash bar
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segment by Over 200 per cent in the last five years. It is converting consumers
from unbranded proxy products like ash and mud to branded products The
Domex range of surface cleaners also sustained growth,
PRODUCT ITEM DECISIONS
Product or service is an offer made by marketer that has the ability to satisfy the
needs and wants of customer. Products are physical and tangible. Examples are
fertilizers, mosquito repellants, analgesics and footwear Services are intangible
and people-based or equipment Examples is soil testing, retailer advice, training
and health care.
The key consideration in individual product/service offer is developing of the
product at three levels.
Core product development
Tangible product development
Augmented product development
(1) Core Product
Core product refers to the benefits, which are specified by consumer
needs. What is the consumer really buying? Core product developer has to focus
on the needs of consumer. Product is to be seen not from manufacturing point of
view but from marketing point of view. Business is to be viewed as a customer
satisfying process, not a goods-producing process. Products are transient, but
basic needs of customer groups remain. The below Table illustrates this point.
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Table Need--Product relationships
Needs
Old products
New products
Brushing
Neem sticks, Charcoal, Ash
Tooth paste, tooth powder and
Teeth
Rock salt, Husk, Powder
liquids
mixtures
Washing
Coconut fiber, Earthy
Washing soaps, powders, and
vessels
materials, brick powder, Ash liquids
Transport
Bullock cart, Horse,
Tractors, LCVs Mopeds, Scooters,
Donkeys Chariots,
Motor Cycles, Trains, buses
Palanquins
Irrigation
Wells, Canals, Water lifters
Bore-wells, Motors, Powers
Wind mills
generators, Pump sets
Hair wash
Shikakai powder, Aricanut
Shampoos And Hair Care Soaps
(soap nut), Besan
A product that provides the important form utility and ensures performance of
the basic function is the core product. The testing question therefore is: Is the
product capable of fulfilling the needs of customers?
Taking the above examples, the relevant questions are:
Can the toothpowder brush the teeth clean?
Can the tractor run, even when, the soil is muddy, and roads are rough?
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(ii) Tangible Product
When psychological needs are specified in physical terms, product
concept becomes visible and operational. Any product or service has five
characteristics.
Quality
Features
Style/design
Packaging
Branding
It is in these terms that a consumer expresses and expects benefits from a
product to satisfy his needs. Accordingly, marketers have to design and
communicate `product' with the above five Characteristics. The task involves
answering two questions:
What is each characteristic to the consumer?
How much of each is to be incorporated in product design?
Quality: It is the first characteristic of a product and service. What quality
signifies the ability of product to meet the following expectations?
Durability-It should last for a certain period
Capacity-It should possess the requisite ability to function
Efficiency-It should function better to give desired outcomes with less
inputs
Economy-Its operational cost, time and energy are less
Reliability-It is dependable in providing the desired function and results.
Product designers should necessarily interact with marketers to know how
consumers evaluate quality of a product. Is the consumer dependent on technical
specifications? Or has he any other parameters to decide quality levels?
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Experience tells that consumers develop their norms, notions and beliefs to
sense quality. By knowing them, product designer has to provide physical signs
and cues, which represent them. These are termed as emotional specifications.
For instance, a rural consumer views heavy watches as quality watches; he
judges quality of cement by its bitter taste. Table provides technical
specifications and emotional specifications of a few products.
Technical (Rational)
Sensory (emotional)
Product
specifications
Specifications
Watches
Mechanical or Winding type
Weight
Moped
Fuel efficiency, power
Style and colour
Capacity in liters
Noiseless
Coffee
Coffee, Chicories content
Smell
How much? Success in marketing depends on offering the desired quality
products to market segments which will be profitable. We find successful
products on a quality spectrum in the market. The following figure shows
examples of products on the quality continuum
Quality
High
Low
Product
Surf Excel
Rin
Nirma
Detergent
Wheel
Toilet Soaps Lux
Santoor
Lifebuoy
Supreme
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Fig. Quality Spectrum
Features: Humans are progressive in thinking and behaviour. They are
never happy with what they have. They continually seek improvements, for
more comfort and convenience. In a lighter vein, someone remarked, "when
hunger is satisfied, people demand music. Evidently, bare-bone models of
product do not satisfy consumers. They look for features.
What? Features are extras to a product, which are of value to the buyers.
Features are of two types.
Rational, problem-solving
Emotional, fancy
The consumer of a product seeks solutions to the problems he has in using the
product. Also, he is willing to pay for the solutions. It is the willingness to buy
solutions that leads marketers to add features to the `stripped-down' model.
The second type of features is those which capture the attention of the buyers.
They are less functional and more fanciful. The below table presents the features
of some products.
Table Features of Products
Product
Rational
Emotional
35 mm Camera
Focusing
Auto-focus
Color
Lighting
Flash
Size
Carrying Flash
`Bare-bones' models do not completely satisfy people. Consumers look for
features which are of value to them.
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How many? Based on market research studies, one can identify numerous
feature ideas. They require screening and evaluation on the prime considerations
outlined here below.
Consumer point of view--desirability and affordability of consumer. What is
the perceived value of the feature? What price is he willing to pay?
Competition point of view--Is it necessary, in view of competition? What are
the features of the products of competitors? What features they propose to add?
What features we have to add to become even with competitors? To excel them?
Company point of view--Js the feature profitable? If cost-benefit analysis
reveals that feature costs are lower than the price, the feature is viable. It can be
added.
Design and Style: Design means the arrangement of parts, form, colour, etc.,
so as to produce an artistic unit with functional structure and attractive shape.
Style represents the characteristic manner of appearance and function.
A designer has to give consideration to the functionality, aesthetics,
ergonomics, and convenience of operation, ease of repair and service and costs.
Good design contributes to product usefulness and attractiveness. Design
descriptors include words like compact, sleek, elegant, sensational, unusual etc.
Table illustrates the designs and styles of some products.
Table: Design and Style of Products
Product
Design
Style
Gold Flake Filter Kings
Elegant
Gracious
Annadatha Magzine
Trim and Plain
Smart and wise
Garden Sarees
Geometric
Modern
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It is through design that a product acquires structure, shape and style, the three
components of personality. Brand personality considerations occupy central
place of marketer's decision making in respect of positioning and target
marketing.
Packaging: Every product requires a package and label. Packaging is providing
a container or wrapper for a product. Packaging is done at three levels.
Primary Package--It holds the product for example, bottle
Secondary package--It holds the primary package for example, Cardboard
box
Shipping Package --It helps carry the packed products from one place to
another for example, corrugated box
All products need shipping packaging as they are to be transported to
different places. It mainly protection and handling convenience. Some products
need secondary packaging for example, after-shave lotion, hair dyes,
toothpastes, fairness creams, toilet soaps, etc. Some products are sold with
primary packaging for example, talcum powder hair oils, edible oils, beverages,
etc. Therefore, marketer has to make primary packaging appealing in case of all
products. The secondary package should be made attractive, wherever
necessary.
Today, we see a variety of packages in use. They appeal consumers at
three different levels: sensory, emotional and rational. Various considerations
are necessary for creating appealing packages at the three levels as given in
Table below
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Table Three Levels of Appeal by Packages
No. Level
Purpose
Package
Determinations
Package
characteristics
1.
Sensory
Attention
Attractive
Easy to identify
Distinctive
Visibility
2.
Emotional
Interest
Adoptability
Easy to carry
Desire
Compatibility
Easy to use
Communicability
Easy to store
Attractive to reuse
Easy to dispense
3.
Rational
Evaluation
Informative
Easy to know
Interactive
Easy to store
Preservative
Good to reuse
Economical
Fair price
Now we consider the examples of different packages that offer different
benefits.
Easy to identify and easy to recognize:
Different shapes
Different sizes
Different colours
Easy to carry, easy to use and easy to dispense:
Tetra packs--Soft drink, Milk
Polythene covers--Sanitary napkins, Dairy milk
Metal, Plastic tubes--Toothpaste, Medicines (ointments), Fairness
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Creams Cardboard/paper packs--Toilet soaps, Hair dyes, Shaving
creams, Mosquito coils Small bottles--Honey, Sauce, Jam, Tonics and
Synips (kids)
Spray bottles--Air fresheners
Tear sheets--Medicines (tablets), mosquito mats
Tins-Threptin biscuits, Protex, Ovaltine, Lamitubes,Cherry blossom
Good to store: Food grade plastic/glass bottles-Beverages like
Bournvita, Boost and Horlicks, Edible oils like Saffola and Sakola.
Attractive to reuse: Good to store bottles are often reusable.
Easy to evaluate: Purchase decisions are based on evaluation of the
following.
Product quality
Product use information
Life period of the product.
Through labeling or by presenting information on the package, evaluation
process is made easy. Packages are becoming interactive to permit easy
evaluation by sight and smell.
Branding: Contemporary marketing relies on branding to give products an
identity, personality, image, equity, and attractiveness
Brand Concept: Brand is a name, term, sign, symbol, design or colouring or a
combination of them, which help identify seller's products and differentiate
them from those of competitors.
Examples:
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Brand Name
Marks
Lion Honey
Lion
Dabur Chyawanprash
Rishi
Asian Paints
Gattu
Goodlass Nerolac
Tiger
Kelvinator
Penguin
Kingfisher
Kingfisher
Brand Name
Marks
Nivean
Bright Blue
Eveready, Coke, Lifebuoy
Red
Maggi noodles
Red and yellow
Liril
Lemon green
Tata Tea
Green
Max Tea
Green
Maxtouch cellular
Orange and black
Tide
Orange
Branding Policy: Branding decisions are not easy ones. Branding dilemmas
include:
To brand or not to brand?
Sponsorship--company or middlemen?
Name--Individual or family?
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Branding- The need: The arguments for and against branding are briefed here.
Arguments for
Identity helps processing: Brand name gives identity to a company's
product. It helps recognition and processing easy for the company,
distributors and consumers. It thus saves costs and time in
manufacturing, warehousing, transporting and order processing for the
company in selling. Distributors can reap similar benefits in handling the
products and selling them. Consumers find it easy to spot and select the
product.
Image gives competitive advantage: Brands earn recognition and
reputation by their performance. The image helps the existing products in
the line as well as new products. It gives commanding position to the
marketer to charge higher prices than competitors and to convince
distributors to carry the products.
Personality convinces consumers: Brands in course of their association
with consumers develop personality. Advertisers take this opportunity to
match personality of brands with that of prospects. It helps build brand
loyalty-a lasting companionship, a strong bondage between a brand and
consumer.
Equity enhances value: Brands by their popularity not only enhance
their value-in-use but also value-in-exchange. A company that has built
brand image over a period of time by its incessant innovative effort gets
a reward for example, premium price offer for its brand from a
competitor or interested entrepreneur willing to own it.
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Arguments against
Investment-returns doubtful: Brand building is not an easy task. It requires
a great deal of long range investment. It is to be supported by R & D investment,
advertising budget and dealer discounts. However, there is no assurance of
returns. Many brands have failed. Many are struggling hard despite the good
images they have built over a time.
Image and personality an emotional nonsense: All the talk about brand
personality and image are psychological fantasies created by self-seeking
marketers. No product sells on brand name. Only when it fulfills a need, it stays
and succeeds in the market. The image of a product or brand cannot help other
brands. Instances of such failures are many. Brand personality issues are more
academic rhetoric. It is an overstretched concept with little practical value.
When a person buys the product, the overriding, considerations are cost (price
and operational economics) and functional benefits. It is true with a vast
majority of consumers.
Brand equity--sensible but not new: Brand equity concept replaces the old
term good will'. It is not, something new to be argued in favour of a `brand'. It
is outcome of business built over a period. Why marketers glorify branding in
this context? It is only an identification factor that helps marketers promote
distinctiveness.
Brand Sponsoring
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The marketer has to decide "who has to sponsor the brand"? Alternative
ways are:
Manufacturer brand (National brand)
Distributor brand (Private brand)
The development of super markets and retail chains provides the
opportunity to leave branding to distributors. The go and no go reasons for
manufacturer brands are stated below.
Manufacturer brand
Go
No Go
Consumer prefer certain
National brands are high priced, Local
national brands
brands are relatively cheap. Due to
price advantage, sales will be low.
Many product categories are National brands are quality products.
not feasible or attractive on a But consumers accept product in a
private brand basis.
quality range. If there is a low priced
local product in the same quality
range, they prefer it.
Branding reduces marketing
costs and improves sales
opportunities by its
Only when consumer's affordability and quality consciousness are
reasonably fair, national brands will be successful. Today, companies are
seriously considering supply chain management to make distribution more
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active, creative, competitive, productive and profitable. The change in this
direction favours branding by manufacturers.
Brand Identity: The primary purpose of branding is creating an identity of the
product. However, there are two important considerations.
Name what?
Name how?
Name What? The key questions are:
Should each product be given a brand name?
Should each group of products be named with a family brand name?
Or all products?
Should company trade name be associated with the brand name?
The branch naming options are related to product levels, as indicated below:
(1) Product 1evel-1ndividua brand names
Product line level-Product group family names
Product-mix level-Blanket or umbrella family name.
Individual names: The policy envisages a separate brand name for each
individual product. This can be done with or without associating the
company trade name.
Individual names without company
name. The examples are:
Godrej
:
Cinthol, Marvel, Ganga
HLL
:
Lifebuoy, Liril, Lux, Pears
P & G
:
Peposdent, Ariel
Merits
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The image of the company is not affected by failure of the individual
brands.
The company is free to introduce low quality products without any adverse
impact on the image of high quality products in the line. Also, it can
introduce high end products without being bogged down by low end
products.
The strategy allows searching for brand names that evoke desired
associations and positive response from target consumers.
Demerits
Too many brand names result in confusion. Also identification of
products with their company is difficult.
Development costs (name, identification, research, expenditure and
name recognition advertising expenditure) are to be incurred for each
brand. When added up they make development costs high.
The `spill--over benefits' of successful brands are marginal.
Over zealous product managers may launch new brands without
proper analysis and caution.
Individual names with company name.
Some companies prefer to tag individual brand names with the company
trade name.
Examples:
Ponds
:
Ponds Dream Flower Talc, Ponds Magic
TVS
:
TVS5OXL
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Wipro
:
Wipro-Shikakai
Merits
Company name legitimizes, whereas an individual name
individualizes the product.
The image and benefits of successful products help other products of
the company.
Demerits
Product failures tarnish the image of the company.
Product group family name: Multi-product group companies may choose to
name different groups with different family brand names.
Examples:
Merits
Helps promote a group of products. Hence development costs are less.
Failure of a product will have limited negative impact on its group only.
Different groups need different psychological associations. Different brand
names help evoke different and appropriate responses.
Demerits
Individual items will not have sufficient brand power and recognition.
Blanket family name: This policy advocates naming all the products of a
company with one name family brand name.
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Examples are:
Usha-
fans, sewing machines, industrial pumps
Nirma-
detergent. toothpaste, soap
Colgate- dental cream, toothbrushes
Merits
Development costs are very less. Under the umbrella brand name all
products get easy recognition.
The fear of failure makes management cautious in launching new
products.
Marginal products also do better aided by the success of other
products.
New products get instant recognition. It saves time and money during
product launch.
Demerits
Unsuccessful products may dilute the company image.
Brand name alone cannot help sell products. A variety of cues,
stimuli and associations for different products are to be created to
make the `brand' desirable.
Name How? Names generate some distinct thoughts in the minds of the
people. The name Sita is associated with `Virtuousness', Bhima with
`strength' and Arjuna with `Chivafry'. Brand names in similar way, reflect
particular characteristics and accomplishments.
Following guidelines help name brands effectively.
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Easy to use
Easy to understand
Easy to distinguish
The Table below shows examples of effective brand names.
Table Effective brand names
Guideline
Description
Example
Easy to use (Learning Short, simple and easy to Tide, Surf, Rin, Colgate
and memory)
pronounce,
read and
remember
Easy
to
understand Meaningful and suggest Ever
youth
Coltage,
(Associate)
characteristics,
and Super Shakthi, Medimix,
functions of product
Kleenex, Amrutanjan
Easy
to
distinguish Unique,
peculiar and Clinic
plus,
Pepsi,
(Preference)
distinctive, Not a close Oraagnics,
Vicco
imitation
to
another Vajradanti,
Parachute,
product
like the ones Kit kat
given as examples
The association of brand grows larger beyond the product with which it is
first associated. Brand identity starts slowly with the product to which the
name is given. It grows next to become a symbol, a person and finally an
organisation. Take Philips. Philips brings to our mind electrical products; it
stands as a symbol for quality, it presents an energetic, capable, illustrious
person, and an innovative great company. Thus, a brand is a product, a
person and finally on organisation.
(iii) Augmented Product
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Marketers should have vision to look at the specific needs (core
products) of consumers, and also their related requirements. He needs a
broader view to have the whole picture of the consumption c the consumer to
woo him or her with the right offer. It also helps differentiate his offer with
that of the competitors. The holistic approach helps to systematically
differentiate the offer. The Table given below shows components.
Table : Components of an Offer
Product related
Services ? related
Channel
Quality
Ordering
Design / Style
Delivery and
Expertize
Features
credit Installation
Performance
Packaging
Customer tracking
Courtesy
Augmentation requires fortifying the product strategy with additional force
drawn from other Products as a result, the product offers make buying and
using a pleasant and exciting experience. As Karl Van Clause with advised:
The greatest possible number of troops should be brought into action at the
decisive point This is the principle of force
Following it, to win brand battles, a marketer has to assemble a wide range
of benefits to make the offer complete, different and strategically superior.
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UNIT-III
LESSON-3.3
COMPETITIVE PRODUCT STRATEGIES FOR RURAL MARKETS
The basic product strategies of different companies in the market arena
are as follows:
(i) Leader
Product innovation strategy
Quality improvement strategy
Multi-brand strategy
Brand extension strategy
Superior service strategy
Image building strategy
ii) Challenger
Cheaper goods strategy
Prestige goods strategy
Economy goods strategy, and
Reacting or Pro-acting in the above strategies of a leader on a high or
moderate level
iii) Follower
Innovative imitation strategy, and
Other strategies of leader and challenger maintaining low profile
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iv) Nicher
High quality strategy
Narrow product line
Superior service, and
Indifference to other companies as none of them is a competitor.
From the above list, we can take the following strategies for the
consideration of marketers.
Identity Strategies
Commodity strategy
Branding strategy
Customer Value Strategies
Mass product strategy
Premium product strategy
Innovation Strategies
Rural common
Special for rural
Quality Strategies
Quality improvement strategy
Spurious goods strategy
Packaging Strategies
Brand Strategies
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Brand extension strategy
Multi brand strategy
Co-branding strategy
Brand image/Equity management
Identity Strategies
Commodity strategy: Commodity describes products and services that are
highly standardized perceived to be homogen05 They are unbranded
products Examples are food grains, vegetables, fruits, edible oil, sugar, steel,
and edibles It is reported that as many as 75 per cent of oil consumed in rural
households is unbranded and locally branded.
When sold as commodities, the marketer can differentiate them in the
following ways:
Grading
Delivery
Services
Relationships
Branding strategy: According to a famous marketing researcher
"Branded goods comprise 65 per cent of sales in villages today. The share of
non-branded goods is shrinking dramatically". Realising this, Castrol
branded lubricants successfully in a product category where consumers
bought the product as a commodity: They aggressively targeted non-
conventional outlets like automobile and mechanical shops and built
awareness and loyalty for their lubricant brands through powerful
advertising
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Brand names make products familiar and evoke possessiveness.
This has become true in case of LG Electronics of India. It named the
customised TV developed for the rural market, Sampoorna The word is a
part of Bengali, Hindi Marathi and Tamil language The strategy worked
About Rs 114 crores worth TV sets were sold in the villages in a year.
Strategy becomes effective when other elements are in consonance with it.
The case for branding is gaining strength. It is reported that in 18 categories,
branded consumption accounts for 80 per cent of sales in rural India.
(ii) Customer Value Strategies
Mass product strategies: While urban consumers are brand conscious, rural
consumers are price sensitive. They are more concerned about functional
benefits of the products and the value for money they pay. Accordingly,
several companies have launched `no frills', economy products to attract
rural consumers and low-end urban markets.
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Bonus
Maharaja Appliances Limited (MAL) has launched a range of "no frills"
home appliances, Bonus, specially for the rural and semi-urban markets.
MAL realises that the demand for home appliances is mushrooming. It has
already a share of about 40 per cent in the rural market Since branded and
quality products -are unavailable, rural -folk have to make do with
substandard or--illegal, products More over, the difference between the price
of grey products and legal branded products is also a major detergent.
Maharaja counters this by sliding a sturdy Bonus Washing Machine without
a driver, priced at Rs.2990. Thus, it filled the gap between the cheaper
unbranded goods and the more expensive, branded ones. Maharaja will have
something of edge, as it is an entrant.
Rajdoot 223
Escorts launched: Rajdoot 223 priced at Rs. 33300 to meet the needs and
expectations of the rural market. It is cheaper than most motorbikes and is
preferred over mopeds and scooters because of its sturdiness and its weight
carrying capability Moreover rural folks know that it is easy to maintain
(spares are easily available). Today Escorts has about 2000 authorised
service points
To tackle the young village .yuppie demand for something more fancy
Escorts launched: `Ace" with 175 cc engine. It is much sleeker and priced
just marginally high at As. 37560. Though not many models are seen in the
urban areas, it has done quits well in the rural market demanding 15 per cent
of the production capacity of Rajdoot.
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Agni Tea
`Rural households consume more than half of all the tea sold in India.
Tata Tea is a major player with brands like Tata Tea, Kannan Devan, Chakra
Gold (Premium tea in the dust grade) Gemini and Tata Tetley (tea bags).
Each of these brands is positioned for a particular region and with a distinct
blend to satisfy the customer's choice in the targeted market.
Videocon is launching the lowest priced TV in a tie-up with a Chinese
manufacturer.
Premium product strategy: Rural consumers exhibit preferences similar to
those of urban consumers at least in case of some products. Historically,
most companies, especially those that hawk consumer durables, have always
believed that cheap products do well in the villages. That is necessarily true.
Premium brands are gaining wide acceptance in the rural bastions.
Innovation Strategies
Rural-urban common: The products that are common to rural and
urban markets are also many. Example: toiletries, comotics,washing
powders, communication services, postal services, etc.
Special for rural: Some companies choose to develop products
especially to meet rural needs. Others experiment with packaging.
Rural Transporter: Mahindra & Mahindra is busy developing the prototype
of what it calls a `Rural Transporter'--basically a hybrid between
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a tractor and a rural transport vehicle. The product at 20-25HP will be
targeted at those who cannot afford a normal tractor and would also fulfill
the need of a family transporter that could take in the rural roughs but would
be much more comfortable and safer than the conventional tractor-trolley.
TVS--50 XL: TVS--50 XL India's first indigenously developed moped by
Sundaram Clayton, hit the roads in 1980. It was the first entry of a two-
seater moped. At that time there were other models in the market such as
Luna and Suvega, but these were single seater mopeds. TVS--50 were
powered by a 48 cc engine and had enough strength to carry a load of over
120 kg. It was, therefore the most powerful in its class. .
Sampoorna TV: LG Electronics, the Japanese firm has re-jigged the TV to
appeal to local needs. It spent $50,000 (Rs. 21 lakhs) to develop a set that
would have on-screen displays in the vernacular languages of Hindi, Tamil
and Bengali. The logic, rural consumers unfamiliar with English would still
be able to use the TV without being intimidated.
Nyle Shampoo: Nyle Herbal Shampoo has identified the problem in brand
identification. Who reads? Who can read brand names in rural areas? Among
shampoos, it is known by its green colour. The health freshness of green is
symbolised by a lady wearing similar looking green colour.
Hero Cycles: It is modifying its cycles to meet different needs in different
regions. It has. as such, a special orientation towards rural needs.
Titan Watches: A recent NCAER study revealed that there is a great
potential for watches in rural areas. In fact, it is considered to be a high
priority item. Impressed by this the
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company is launching a pilot project for low--priced models.
Green Cards: Andhra Bank and Allahabad Bank issued credit cards
known as `Green
Cards' to the farmers. The cards issued by Allahabad banks are:
Damond Card (for farmers having more than 9 acre land)
Gold Card (for farmers having 7-9 acre land)
Silver Card (for farmers having 5-7 acre land)
(b) Market
(iv) Quality Strategies
Quality is one of the major differentiators. Many companies utilise the
quality aspect to win the customers. In the organized sector, competition
requires quality improvements.
Quality improvement strategy: TVS--50: In 1980, TVS--50 XL was
introduced by Sundaram Clayton. It was powered by 48 cc engine and a load
carrying capacity of 120 kg. In 1983, the company researched the uses that
the vehicle was being put to. Its utility varied from a farmer in the village
taking his family of four to the nearby town or carrying sacks of paddy to be
sold in the local market, to a dhobi carrying a massive bundle of clothes for
washing. The company decided to give TVS--50 XL a 53.3 cc engine,
which was, at that time, the highest powered in its class. The Luna was a 49
cc moped.
After some time, the engine capacity of TVS--50 XL was reduced to
49.9 cc, as the company it this size had the right combination of power and
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mileage. However, in 1991, to again give the vehicle more power as it was
primarily being used as LCV on two wheels, a multi-port engine and a full
chain cover for safety were introduced.
Spurious goods strategy: Corporate marketer, often finds the
competition from copy cats as a big menace and debates on the ways of
mitigating it. Spurious products, generally marketed by the unorganized,
low--end entrepreneurs, somehow, make their way into the market and eat
away the large chunk of corporate marketer's profits. The imitations will
have resemblances that dupe the gullible consumer. Look at these examples:
Lifebuoy : Loveboy
Tata: Teta
They use similar pack designs and pack sizes. In case of bottled products, the
company logo is embossed.
We will now discuss the spurious product marketer's strategies as well as the
encounter strategies. Loosely defined, spurious products are look-alike
products with similarity in packaging and minor alterations in the name.
The primary motive is to capitalize on the trust built by established brands.
The marketer of spurious products has less experience and limited resources.
As such, he seeks to benefit from the images of the popular brands and low
prices of his brands.
Facilitators: Ambient conditions in the operating environment would be:
Acceptance of substitutes with dubious antecedents.
Best sale point having substantial influence on the consumer buying
decision.
Price consciousness outreaching quality consciousness.
High costs to trace and pin down multiple sources of look a like
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products.
Lack of clearly defined or effective legal remedies.
Poor literacy levels make brand recall primarily a mix of phonetics,
colour and symbols.
Users in villagers are largely first generation and long term
brand associations are rare.
Timing: The ideal time to launch a spurious brand is just after the entry and
initial consolidation of the original.
Marketing strategy: The four Ps of the marketers are:
Product resemblances: The copy cats resemble the original in many
Ways.
Brand: Phonetics: To woo the largely illiterate customer, the names
usually have a close phonetic resemblance to the original--Loveboy for
Lifebuoy, Nirbha for Nirma, Teta for Tata.
Package: Visuals: Similar pack designs and pack sizes are adopted.
Colours bear close resemblance to the original. Bottled products have the
company logo embossed. Generally empties of the original are collected and
retailed by these entrepreneurs.
Quality. Intangible: Generally inferior in quality. However, consumer
can not gauge it before using it. As such, consumer relies on retailer opinion
largely to decide the buy.
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Low prices: Lower end consumer prices are fixed attracting price
sensitive, value-for-money al consumers.
Silent Promotion: As higher margins are given to retailers, they advocate
consumers to buy these products. Retailer push goes a long way to induce
fist time trials.
Limited and anonymous distribution: The copycat seller keeps his
identity unknown. He prefers distribution in the local areas where he can
establish secret links with retailers. This is necessary to avoid future
litigations.
Consequences: As a consequence of operations of the spurious product
marketers, corporates loose in two ways.
Loss in sales, and
Spoiled image of the brand as well as the company
The most affected products are personal care products. A rural marketer
believes in value--for- money and would not compromise on quality say, in
the case of a tractor or a torch.
The Encounter Strategy: Corporate marketers may analyse the situation
and embark on an offensive strategy to push out the imitators.
Encounter Problems
Limited rural reach of media makes educating the consumer
cumbersome.
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Spurious brands have highly localized presence. A successful brand may
face a different set of fakes every 200 km, which makes tracing each
duplicate source both difficult and costly.
Litigation is cumbersome.
Strategy Components: The formulation of encounter strategy requires an
intelligent understanding of consumer needs and wants, their perceptions of
products and weak points. The strategy components are:
Complicated packaging: Packaging could be made more difficult to
replicate. Liquid soaps in tetra packs with design patterns as complicated
as currency notes with a hologram thrown in for a measure--expensive
but unique--could settle for a test for differentiation.
Products at low end: A range of products targeted for the rural
consumer could be launched with low price and low quality to counter
the spurious products. This can be done by developing franchisee units to
manufacture low-end products with a highly localized
Rural pull promotion: Rural sales schemes to reach consumers and
enlist support of retailers should be envisaged.
Promoting quality consciousness: Local promotion in individual village
markets could be an effective route to educate them. Area specific
examples, of the harm spurious products can have, could be
communicated.
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Example: Bindis, which have an adhesive coating, are hawked by many tiny
units in the north. On sustained usage, the spurious ones discolour skin, at
times triggering allergies.
Boosting ego needs: In the highly status conscious village society with
rigidly defined community structures, the spurious brands be depicted as the
ideal fit for the down and out.
Syndicated: National players could join hands to promote their products
in rural areas as well as counter spurious products.
(v) Packaging Strategies
Packaging is defining new paradigms in rural marketing, making it perhaps
the most vital component in the marketing mix. According to the survey of
National Council for Applied Economics and Research (NCAER) in 1998, it
is the low-income group which now comprises an overwhelming majority of
consumers for mass consumption products. The study indicated that almost
90 per cent of goods surveyed were purchased by people earning less than
Rs. 18,000 per annum. Marketers have realised, "To enter the rural market, it
is necessary to offer products at the lowest unit price". At the same time,
innovative packages are necessary to add value to the premium products.
Particularly, innovations, which help lower the price, are desirable. Small
packs and combi-packs have become a major attraction in rural India.
Small packs: The reasons for high preference to small pack low--unit
prices are:
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Affordability: The income of rural consumers is unsteady. The sources
of income as well as the size of income earned per day vary. They cannot
hence make planned purchases and large purchases. Small pack sizes help
the rural consumer pick the product at a price that he can afford.
Usage: Certain products like detergent and paste are bought in larger
quantities, whereas shampoos, toilet soaps, eatables are bought in small pack
sizes. The reason for this is: `The products that are common to family
members are bought in large pack sizes whereas individual--use products
are preferred in small packs'.
Storability: The storage life of a product also has a bearing on this
decision. Edibles, for example, cannot last long unless preserved and kept
under ideal conditions. Further, the shelf space of rural consumers is also
limited as they live in small huts or semi-pucca houses.
Benefits to Retailer: The small pack sizes are convenient to the retailer
to do his business and promote the national brands. The shelf space of rural
retailers is less. He cannot afford big premises. Small pack sizes do not
demand shelf space.
Display: Smaller sizes are easy to display. They increase the visual
appeal they carry compared to large ones, the colours on the smaller packs
are looked at with more interest.
Implications to Marketers: Manufacturers prefer producing large pack
sizes. The economies of scale indicate that small pack sizes are less feasible.
However, on the marketing side, benefits are revealing.
They induce strongly the rural consumers to buy.
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Trial sales of national brands are on the rise.
Regular sales are growing up for many products. The regional/local players
are finding it difficult to face competition from the big players on their home
turf.
Examples: Many companies have become participants in the package
revolution that is sweeping the rural side and the economy strata in the urban
area.
JK Dairy came up with a 50 gm sachet of Dairy Whitener at Rs.6.50.
P & C introduced Vicks VapoRub in a tiny 5 gm tin and Tide
detergent in 30 gm sachets priced at Rs.3.
Godrej sells its Velvette shampoo in sachets priced at Rs.1.25.
Marico Industries launched low prices sachets of hair oil.
Kothari Products offers Faan Parag in sachets.
Combi-packs: Another packaging innovation is `combi-packs'. When
related products are racked together and sold at economy prices, the
consumer finds it a better option to buy. The Combi-Pack may become an
`assortment' when more than two products are packed together. Johnson &
Johnson's baby care assortment package priced around Rs. 175 consists of a
powder, soap, shampoo, hair oil and cream.
See-through packs: Many companies are coming up with new packages
that are attractive as all as economical.
The transparent packing of new Palmolive Naturals is not lust a matter of
aesthetics The see through wrappers, which are a first of its kind in India
enable Colgate Palmolive to offer a :premium product at a competitive price
of Rs.17 for a 100 gm pack.
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vi) Brand Strategies
Brand Extension: Product innovations are a regular feature for a
competitive organisation. Should they be launched as separate brands or as
extensions of the existing strong brand? The decision in favour of brand
extensions is made for one or more of the following reasons.
? To make a brand more visible
? To reduce development costs of a brand
? To reduce risk, by banking on the image of a reputed brand.
? To meet competition or to complete the line of offer.
Types of Extensions: In pursuance of the two types of product--related
growth strategies, three types of brand extensions are observed. The three
types of extensions are elaborated and illustrated with suitable examples as
given below:
expansion--new products but related
Unrelated
Diversification growth
Horizontal diversification
Product--mix width
expansion--new products, unrelated
Category related: The parent brand name is given to product variants, which
have the same use but slightly different benefits. Here, the common point
is--same customer needs. Only tastes differ. It satisfies variety seekers. It is
part of the flanking strategy of a company.
Image related: The parent brand name is given to the product items in a
different product--line. Here, the common factor is customer group. The
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related needs of the customer groups will be satisfied by these product items.
The image of the parent product and its emotional benefits can be transferred
to the brand extensions.
Unrelated: There is not even one common factor between the parent brand
and the extension. It is entirely a different product line requiring a different
marketing strategy catering to different customer groups.
The three brand extensions are illustrated in the following table:
S.No.
Product
Category
Image related Unrelated
related
1.
Godrej Shaving
Godrej
Godrej hair
Godrej
cream
shaving cake
dye
refrigerator
2
T-Series folk music
T-series film T-series video T-series
audio cassettes
music audio cassettes
washing
cassettes
power
3.
Usha ceiling fan
Usha
table Usha sewing
Usha
fan
machine
industrial
pumps
Evaluating brand extensions: Whether brand extension is beneficial? Or
would it harm company's prospects? Marketers have to make follow-up
study of the impact of brand extensions. The brand extension decision is
considered sound when the following outcomes are observed:
When the new brand is successful.
When the new brand does not cannibalize the parent brand.
When there is no brand dilution due to the failure of the brand extension.
When there is no brand dilution by brand proliferation.
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Category brand extensions (variant brands) generally cannibalize or eat away
the shares of parent brands partly. But they may open up a new segment and
boost sale. But on the whole, there are more sales. In some cases, the brand
extension may surprise the company by increasing the sales of the Parent
brand or shock it by hurting the brand image.
When Godrej introduced `New Cinthol', the sales of old Cinthol had
gone up, P & 0 introduced low paced detergent powder under the brand
name Mel super soaker It was a mistake as it hurt the image of the
mother brand Ariel' which s a premium detergent Later it was re-
launched as Garn' detergent
Brand extension of HLL
Hindustan Lever Limited (HLL) Plans to lead the development of
the branded food market by upgrading consumers from unbranded
commodities to superior branded products. By doing this, the company
hopes that the popular food division would emerge as the largest division
of the company.
`Relentless creativity leading to innovation' will be the
company's strategy for its growth. The company currently markets the
Kissan Annapurna iodized salt and wheat atta in the Indian market. The
company also plans to extend the Kissan brand into a whole range of
food products..
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Multi--Branding: A company may introduce several brands in a
product--line with different features to appeal to different categories in the
same customer group. Many FMCG companies follow this strategy.
Benefits include:
Flanking of the major brand
Occupying more shelf space of retailers
Gaining more profits
Disadvantages include:
Each brand may have a small market share
Cannibalization of some brands of the company
High development costs as many brands are to be developed.
Company
Product Group
Multi-brands
HLL
Soaps
Lifebuoy, Liril, Lux
Godrej
Soaps
Cinthol, Ganga, Marvel, Fair flow
Co--Branding: Today, we find offers with two or more brands of the same
company or different companies. When a marketer offers one brand with
another brand of the same company or another company it is called co-branding.
Such offers may take two different forms
Ingredient co-branding
Product co-branding
Ingredient co-branding takes place when
The maker of the parts. to he visible to the market and to gain image for the
brand, insists on publicizing it.
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The part is important and the maker has an image that enhances the
consumer acceptance of the ultimate product, and when
Competitors are following such practices
Brand Image/Equity Management: When brands are effectively
managed they acquire `value' and become `assets' with `good-will'.
Effective brand image management involves
Enhancing brand personality Protecting brand identity
Brand personality: Like a person then, brand is a psychosocial being
having an appearance, emotional feelings and rational behaviors. Brand
personality can therefore be described at three levels.
Sensory--How would the brand see, smell, taste, touch, and hear if it is a
person? What are its `demographics'? Is it having an attractive and socially
acceptable personality? Emotional--If a brand were to become an emotion
what would it be? What are the underlying subjective, non-functional,
emotions of the brand? Is it trustworthy? Is it a desirable companion'?
Rational--What would the brand, as a person, do? Achieve? What are the
functional benefits? Is it a person with expertise?
Brand
Sensory
Emotional
Rational
Image
Onida
Ugly Male
Greed,
Quality
Hi-tech
devil
Irritation
Lux
Beautiful,
Aspiration and
Soft, high
Star with
Feminine
Achievement
quality
charisma
TAFE
Sturdy,
Macho, tough
Fuel efficient Reliable hard
Rugged male
comfort
working
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Interaction
Attractiveness Trustworthiness Expertise
out come
The interaction of a consumer with the brand at the three levels produces
an image, which may reflect attractiveness, trustworthiness and expertise.
Generally, these evoked feelings as strengthened by the testimony or
assurance of popular and credible celebrities. Following Table illustrates
this.
Level
Feature
Image
Celebrity
Product
Sensory
Attractiveness
Beautiful
Madhuri Dixit
Lux
Emotional
Trustworthiness
Reliable
Kapil Dev
Boost
Rational
Expertise
Knowledge
Sachin Tendulkar
Rocker Shoes
Brand personality creates impressions in the minds of people. The
impressions left by a brand in the minds of people are summarily explained
by the word--brand image. Brand image as perceived by both users as well
as non--users is important to marketers because purchase behaviour is
influenced by it. Three behavioural patterns are predicted:
Consumer buys products consistent with self-image.
Avoids buying products inconsistent with self-image.
Upgrades to brands that enhance self-image.
Protecting Brand Identity: To protect brand identity, a marketer has to
depend on semiotics and mnemonics. The dictionary meaning of semiotics is the
study of signs, symbols and their interpretation. In the rural context, the
interpretation of these signs and symbols becomes the deciding factor to build
the brand value and image. Semiotics primarily works best for products that
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have low-involvement at the time of purchase and have very frequent usage.
FMCGs such as soaps, shampoo, tyres and tea are the ones that fit the bill best.
Though the signs and symbols help identify products, they may not always
succeed in making the consumer remember the product. Mnemonics also
become crucial to nurture and retain products in mind space.
Brand names depicting numbers or animals or symbols like 555 soap, Monkey
brand toothpowder Gemini tea (with elephant), Cheetah light matches, Sheru
beed) Tiger Msik cigarettes, 3 Roses tea, Tortoise mosquito coil etc.
ITC sells its Gold Flake brand with yellow colour in the South, where it is
associated with prosperity and purity, compared to a golden one in the North,
where yellow is often associated with jaundice and ill--health Many companies
have changed their logos to make them contemporary Brooke Bond is one These
boo enshrines better the pioneering attitude, dynamism and charitable the brand
About 60 per cent of the brand equity of Asian Paints.
Selling in Rural India
The Indian rural market with its vast size and demand base offers a
huge opportunity that MNCs cannot afford to ignore.
To expand the market by tapping the countryside, more and more MNCs
are foraying into India's rural markets. Among those that have made some headway
are Hindustan Lever, Coca-Cola, LG Electronics, Britannia, Standard Life, Philips,
Colgate Palmolive and the foreign-invested telecom companies.
Opportunity
The Indian rural market with its vast size and demand base offers a
huge opportunity that MNCs cannot afford to ignore. With 128 million
households, the rural population is nearly three times the urban.
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As a result of the growing affluence, fuelled by good monsoons and the
increase in agricultural output to 200 million tonnes from 176 million tonnes in
1991, rural India has a large consuming class with 41 per cent of India's
middle-class and 58 per cent of the total disposable income.
The importance of the rural market for some FMCG and durable
marketers is underlined by the fact that the rural market accounts for close to 70
per cent of toilet-soap users and 38 per cent of all two-wheeler purchased.
The rural market accounts for half the total market for TV sets, fans,
pressure cookers, bicycles, washing soap, blades, tea, salt and toothpowder,
What is more, the rural market for FMCG products is growing much faster than
the urban counterpart.
The 4A approach
The rural market may be alluring but it is not without its problems:
Low per capita disposable incomes that is half the urban disposable income;
large number of daily wage earners, acute dependence on the vagaries of the
monsoon; seasonal consumption linked to harvests and festivals and special
occasions; poor roads; power problems; and inaccessibility to conventional
advertising media.
However, the rural consumer is not unlike his urban counterpart in many
ways.
The more daring MNCs are meeting the consequent challenges of
availability, affordability, acceptability and awareness (the so-called 4 As)
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Availability
The first challenge is to ensure availability of the product or service.
India's 627,000 villages are spread over 3.2 million sq km; 700 million Indians
may live in rural areas, finding them is not easy. Over the years, India's largest
MNC, Hindustan Lever, a subsidiary of Unilever, has built a strong distribution
system which helps its brands reach the interiors of the rural market. To service
remote village, stockists use auto rickshaws, bullock-carts and even boats in the
backwaters of Kerala. LG Electronics defines all cities and towns other than the
seven metros cities as rural and semi-urban market. To tap these unexplored
country markets, LG has set up 45 area offices and 59 rural/remote area offices.
Affordability
The second challenge is to ensure affordability of the product or service.
With low disposable incomes, products need to be affordable to the rural
consumer, most of whom are on daily wages. Some companies have addressed
the affordability problem by introducing small unit packs. Godrej recently
introduced three brands of Cinthol, Fair Glow and Godrej in 50-gm packs,
priced at Rs 4-5 meant specifically for Madhya Pradesh, Bihar and Uttar
Pradesh -- the so-called `Bimaru' States.
Hindustan Lever, among the first MNCs to realise the potential of India's
rural market, has launched a variant of its largest selling soap brand, Lifebuoy at
Rs 2 for 50 gm. The move is mainly targeted at the rural market. Coca-Cola has
addressed the affordability issue by introducing the returnable 200-ml glass
bottle priced at Rs 5. The initiative has paid off: Eighty per cent of new drinkers
now come from the rural markets. Coca-Cola has also introduced Sunfill, a
powdered soft-drink concentrate. The instant and ready-to-mix Sunfill is
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available in a single-serve sachet of 25 gm priced at Rs 2 and mutiserve
sachet of 200 gm priced at Rs 15.
Acceptability
The third challenge is to gain acceptability for the product or service.
Therefore, there is a need to offer products that suit the rural market. One
company which has reaped rich dividends by doing so is LG Electronics. In
1998, it developed a customised TV for the rural market and christened it
Sampoorna. It was a runway hit selling 100,000 sets in the very first year.
Because of the lack of electricity and refrigerators in the rural areas, Coca-Cola
provides low-cost ice boxes -- a tin box for new outlets and thermocool box for
seasonal outlets.
The key dilemma for MNCs eager to tap the large and fast-growing rural
market is whether they can do so without hurting the company's profit margins.
Mr. Carlo Donati, Chairman and Managing-Director, Nestle, while admitting
that his company's product portfolio is essentially designed for urban consumers,
cautions companies from plunging headlong into the rural market as capturing
rural consumers can be expensive. "Any generalisation" says . Donati, "about
rural India could be wrong and one should focus on high GDP growth areas, be
it urban, semi-urban or rural."
THE Rs 1,425-crore shampoos market bubbled over in 2005, riding on
the back of a surge in rural demand. According to industry sources, the overall
shampoo market, which sees annual volume sales of approximately 63,000
tonnes, saw rural off take grow by 40 per cent last year, while urban demand
grew half that, at 21 per cent.
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Industry players say that the fierce price cuts and volume rejigs have
been good for the shampoo industry, a product which has an all-India
penetration of only 46 per cent. "Small packs have been driving penetration and
growth. There has also been a drive towards pricing shampoos in a way to drive
penetration," says the CEO of an FMCG company.
QUESTIONS
Attempt a classification of product.
What is the significance of product strategy in the current marketing
environment?
Identify the three levels of product decisions with suitable examples.
Stating a company of your choice, explain its product--mix decisions. How
do you evaluate the effectiveness of product--mix?
Do you prefer short or long product--line? Give arguments to support your
answer.
State the reasons for line stretching. Provide examples of line stretching.
Explain when and how line pruning or line modernizations are done. Give
examples.
What are the considerations in developing a tangible product?
How do you design products for rurals and urbans?
Discuss the customer value strategies used in rural markets with suitable
examples.
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UNIT-IV
4.1 Pricing Strategy
Pricing decisions have strategic importance in any enterprise Pricing
governs the very feasibility of any marketing programme because it is the only
element in a marketing mix accounting for demand and sales revenue. Other
elements are cost factors. Price is the only variable factor determining the revenues
or income. A variety of economic and social objectives came into prominence in
many pricing decisions. We now come to the most absorbing question of pricing.
What is Price?
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Economist defines price as the exchange value of a product or service always
expressed in money. To the consumer the price is an agreement between seller and
buyer concerning what each is to receive. Price is the mechanism or device for
translating into quantitative terms (Rupees and Paise) the perceived value of the product
to the customer at a point of time. We shall define the price as the amount charged for
the product or service including any warranties or guarantees, delivery, discounts,
services or other items that are part of the conditions of sale and are not paid for
separately. To the buyer price is a package of expectations and satisfactions. Thus, price
must be equal to the total amount of benefits (physical, economic, sociological and
psychological benefits). Any change in the price will also bring about alterations in the
satisfaction side of the equation. To the ultimate consumer, the price he pays for a
product or service represents a sacrifice of purchasing power. Prices paid by resellers
are also sacrifices. Price is the only objective criteria (although an imperfect measuring
rod) for the consumer for comparing alternative items and making the final choice. To
the consumer price is a product disfeature, i.e., a feature of which he disapproves.
However, to the seller price is a source of revenue and a main determinant of profit. To
the seller it is a product feature most welcome.
Pricing is equivalent to the total product offering. This offering includes
a brand name, a package, product benefits, service after sale, delivery, credit and
so on. From the marketer's point of view, the price also covers the total market
offering, i.e., the consumer is also purchasing the information through
advertising, sales promotion and personal selling and distribution method that
has been adopted. The consumer gets these values and also covers their costs.
We can now define price as the money value of a product or service agreed upon
in a market transaction. We have a kind of price equation, where :
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Money (Price) = Bundle of Expectations or Satisfactions.
Included in the bundle of expectations may be physical product plus other attributes
such as delivery, installation, credit, return privileges, after-sales servicing and so on.
Importance of Pricing
Price is a matter of vital importance to both the seller and the buyer in the
market place. In money economy, without prices there cannot be marketing.
Price denotes the value of a product or service expressed in money. Only when a
buyer and a seller agree on price, we can have exchange of goods and services
leading to transfer of ownership.
In a competitive market economy, price is determined by free play of demand
and supply. The price will move forward or backward with changing supply and
demand conditions. The going market price acts as basis for fixing the sale price. Rarely
an individual seller can dishonour the current market price. In a free market economy,
we have freedom of contract, freedom of enterprise, free competition and right to
private property. Price regulates business profits, allocates the economic resources for
optimum production and distribution. Thus, price is the prime regulator of production,
distribution and consumption of goods. Economics revolves around pricing of
resources. Price influences consumer purchase decisions. It reflects purchasing power of
currency. It can determine the general living standards. In essence, by and large, every
facet of our economic life is directly or indirectly governed by pricing. This is literally
true in our money and credit economy.
Pricing decisions interconnect marketing actions with the financial objectives of
the enterprise. Among the most important marketing variables influenced by pricing
decisions are: 1. sales volume, 2. profit margins, 3. rate of return on investment, 4.
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trade margins, 5. advertising and sales promotion, 6. product image, 7. new
product development. Therefore, pricing decisions play a very important role in
the design of the marketing mix. Pricing strategy determines the firm's position
in the market vis-a-vis its rivals. Marketing effectiveness of pricing policy and
strategy should not suffer merely on account of cost and financial criteria.
Price is a powerful marketing instrument. As a marketing weapon,
pricing is the big-gun. However, it must be used with great caution. It is a
dangerous and explosive marketing force. It may doom a good product to
failure. Low pricing strategies are irreversible decisions. They must be used
correctly from the outset. Every marketing plan involves a pricing decision.
Therefore, all marketing planners must make accurate and planned pricing
decisions.
The Significance of the Price Factor
The selling price plays a unique role in business because the price level:
controls the sales volume and the firm's market share, 2. determines the total
sajes revenue (sales revenue=sales volume X unit price), 3. regulates the rate of
return on investment (ROI) and through ROI price influences sales profitability,
creates an impact on unit cost in mass production. Low price increases total
production and sales turnover, and ultimately mass production (through
economies of scale) leads to the lower unit cost of production. Law price
induces also efficiency in production and marketing. Henry Ford stated: "Our
policy is to reduce the price, extend operations and improve the product.
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OTHER BANKING
STRATEGIES
PRICE STRATEGY
PRODUCT
(a)
DISTRIBUTION
ADVERTSING
PRICE
REVENUE
PERSONAL SELLING
SALES PROMOTION
COST PRICE
RELATIONSHIP
REVENUES=UNIT PRICE
MULTIPLIED BY VOLUME OF
SALES
(b)
PRICE
PRICE, REVENUES
RELATIONSHIP
1. Place of Prince in the Marketing Strategy
Comments
All other elements (except price) in the marketing mix are called non-price
factors. They influence price and are also influenced by price. All elements
are interdependent interacting factors.
2.We have two relationships: (a) Cost/Price relationship, and (b) Price/ Revenue
relationship.
3.Price and other marketing mix variables are complementary factors. They may
be partial substitutes for each other.
4.Together all elements in the marketing mix collaborate to accomplish a
common objective, viz., to produce sales and sales revenues.
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5.All non-price factors of the marketing mix are cost factors involving
expenditure -- outflow of funds.
6.Price is the only marketing variable to determine revenues or income --inflow
of funds. Revenues must be high and must exceed production costs as well as
marketing costs. Thus, price has a unique role extending beyond the area of
marketing policy.
7.A firm is an organisation producing economic utilities. Within the firm, price
factor tries to achieve an equilibrium between revenues and costs. It aims at
profitability. Hence, revenues must exceed total costs. Price also acts as a
balancing force to maintain the balance between firms' own marketing mix and
those of rivals.
Typical Pricing Objectives
A variety of objectives may guide pricing decision:
1.Growth in Sales: A low price can achieve the objective of increase in sales
volume. A low price is not always necessary. A right price can stimulate the
desired sales increase. In practice, price and non-price objectives are co-
ordinated to produce the desired increase in sales. Competitive price, if used
wisely, can secure faster increase in sales than any other marketing weapon.
2.Market Share: Price is typically one of those factors that carries the heaviest
responsibility for improving or maintaining market share -- a sensitive indicator
of customer and trade acceptance.
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Predetermined Profit Level: Return on Investment, say 20 to 25 per cent is a
common decision in marketing. Pricing for profit is the most logical of all
pricing objectives.
4.Meet or Follow Competition: Many firms desire the stabilisation of price
levels and operating margins as more important than the maintenance of a
certain level of short-run profits. The price leader maintains stable prices in the
industry. Follow the leader.
Control Cash-flow: A principal pricing objective is to return cash as much
as possible (the funds invested) within a given period. Investment in research
and development, market development, promotion, etc., should pay back
within a specified period. Capita] expenditure on any project must be
recovered within 5 to 10 years. Pay-back or cash-flow objectives fits in
easily with other corporate objectives.
Note: 1. While determining objectives of a pricing policy, marketers must take
into account reactions of a number parties such as customers, competition,
resellers or dealers, government, public opinion, and so on.
The objectives may not be mutually exclusive. Marketers have to resolve
their conflicts. For instance, there may be a conflict between sales
maximisation objective and a return on investment or profit objective.
However, it should be noted that maxmium market penetration in the short-
run (in the early phase of the product life cycle) is the key to maximum ROI.
in the long run.
Probable Pricing Objectives
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Sales - oriented
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Market Price
The market price is the price determined by the free play of demand and
supply. The market price of a product affects the price paid to the factors of
production -- rent for land, wages for labour, interest for capital and profit for
enterprise. In this way, price becomes a prime or basic regulator of the entire
economic system because it influences the allocation (distribution) of these
resources (factors of production). For example, when the price of a commodity
has a rising tendency, we shall have higher wages attracting more labour, higher
interest attracting more capital, and so on, in the industry in which prices are
rising. Conversely, under falling prices, low wages, low rent, low interest, and
low profits will reduce the availability of labour, land, capital and risk-takers in
a free market economy. Prices direct and control production and consumption.
Since market price is determined in an impersonal way through the
general relations of demand and supply, the individual seller has no control over
the market price and the actual market price at any given time may be above or
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below the costs of individual sellers. Market price is indicated by published
prices, market reports, etc. A seller will have to change his output to adjust with
the current market price in order to secure maximum gains or minimise his
losses. He can also minimise operating costs.
Price as a Measure of Value
Economic theory of price has a few simple assumptions regarding
products and buyer behaviour. Buyer's tastes and preferences are considered as
given (constant). Buyer is considered essentially a rational human being. The
marketing concepts like brand image, brand loyalty and benefit segmentation
'emotional motivation' are outside the scope of price theory. Hence, in practice,
the classical price theory, saying price determines value of the product, is not
true.
Marketers have recognised the importance of perception, learning, and
attitudes creating psychological reactions to price, at least in consumer goods.
The social and psychological factors must be recognised in the evaluation of
pricing strategies. The social and psychological influences are responsible to
support the consumer's inclination to use price as an indicator of quality for
certain products e.g., cosmetics, jewellery, and clothing. Such products have
concealed values and benefits which the consumer cannot evaluate rationally or
on objective basis. Consumer does not have physical cues or guides suggesting
product quality in many cases and social psychological dimensions may
dominate in the consumer behaviour. Under such situations, price is the most
handy (but rough) available indicator of product quality and value for many
customers. Buyers believe in the implicit subjective process viz., "You get what
you pay for", "If it costs more, it must be better". Marketers are bound to exploit
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buyer's emotions, preferences and habits. Price-quality relationship applies to
products whose quality is difficult to judge and whose brands vary widely in
quality, e.g., cosmetics jewellery, clothing, wine, floor wax, etc.
Charm pricing is another psychological dimension of pricing. Accepted
pricing conventions have a charm for the consumer, e.g., price like Rs. 99. The
quotation of Rs. 19.90 sounds better value than Rs. 20.
Price lining is another psychological dimension of pricing accounting for a
common marketing practice. For example, a reasonable price range for a new
Television set is between Rs. 8,000/- and Rs. 14,000/- for most people. Only
handful of buyers would seriously consider purchasing TV set costing Rs.
20,000/- or more, and new TV set costing less than Rs. 4,000/- would generate
doubts and suspicion.
The consumers answer the question (Is it worth it?) in terms of the
familiar equation:
Satisfaction = Benefit -- Cost
The price is the cost part of the equation. It indicates sacrifice of purchasing
power.
The reasons for the inability of price to determine the perceived value . of the
product are:
There are considerable differences in the market information available to
consumers. 2. We have significant differences in the bargaining power of
consumers. 3. In large parts of the retail market we have non-price competition
replacing price competition. The purpose of non-price competition is also to
make sales or demand curve less sensitive to price and the price of an article
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might be raised without adverse effect on sale (demand has become less price
elastic due to promotion). The higher price compensates for promotion costs
incurred in stimulating demand.
Multistage Price Determination Process
The marketing manager knows that the 'cost-plus a reasonable profit'
doctrine is self-defeating. Pricing strategy must be based on the consumer (on
the demand side), just as strategies on product distribution and promotion are
based on the consumer. Of course, costs (the supply side) are not forgotten but
they are given proper place in the pricing process. Pricing process must start in
the market, in the circle of exchange.
Decisions on pricing are taken in the light of marketing opportunities,
competition and many other variables influencing pricing. The price decisions
must take into account all factors affecting both demand price and supply price.
The price determination process involves the following steps: 1. Market
segmentation, 2. Estimate of total demand, 3. Market share, 4. Designing the
marketing mix, 5. Estimate of total costs, 6. Selecting pricing policies, 7.
Determining pricing strategies, 8. Developing the price structure!
1.Market Segmentation: On the basis of market opportunity analysis and
assessment of firms' strengths and weaknesses marketers will find out specific
marketing targets in the form of appropriate market segments. There should be a
perfect match or a kind of marriage between the firm and its market. Marketers
will have firm decisions on: (a) the type of products to be produced or sold, (b)
the kind of service to be rendered, (c) the costs of operations to be estimated,
and (d) the types of customers or market segments sought.
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Estimate of Demand: Marketers will estimate total demand for the products.
It will be based on sales forecast, channel opinions and degree of competition in
the market. Prices of comparable rival products can guide us in pricing our
products. We can determine market potential by trying different prices in
different test markets. Once we know the expected prices, we can compute sales
volume at several prices.
The Market Share: Marketers will choose a brand image and" the
desired market share on the basis of competitive reaction. Market planners must
know exactly what his rivals are charging. Level of competitive pricing enables
the firm to price above, below, or at par and such a decision is easier in many
cases. Higher initial price may be preferred if you anticipate a smaller market
share, whereas if you expect a much larger market share for your brand, you will
have to prefer relatively lower price. Proper pricing strategy is evolved to reach
the expected market share either through skimming price or through penetration
price or through a compromise, i.e., fair trading, or fair price -- to cover cost of
goods, operating expenses and normal profit margin.
The Marketing Mix: The overall marketing strategy is based on an
integrated approach to all the elements of marketing mix. It covers: l. Product-
market strategy, 2. promotion strategy, 3. pricing strategy, and 4. distribution
strategy. All elements of the marketing mix are essential to the overall success of
the firm. Marketers will have to assign an appropriate role to price as an element
of the marketing mix. Price plays an important role in relation to and in support
of other elements of the marketing mix. Promotional strategy will affect pricing
decisions. The design of the marketing mix can indicate the role to be played by
pricing in relation to promotion and distribution policies. Price is critical
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strategic element of the marketing mix as it influences the quality perception and
enables product or brand positioning. It is also a good tactical variable. Changes
in price can be made much faster than in any other variable of marketing mix.
Hence, price has a good tactical value.
Estimate of Costs: Straight cost-plus pricing is not desirable always as it is
not sensitive to demand. Marketing must take into account all relevant costs as
well as price elasticity of demand, if necessary, through market tests.
Pricing Policies: Price policies provide the general framework within which
managerial decisions are made on pricing. Pricing policies are guidelines to
carry out pricing strategy. Pricing policy may desire to meet competition or we
may have pricing above or below the competition. We may have fixed or
flexible pricing policies. Pricing policies must change and adapt themselves
with the changing objectives and changing environment.
Pricing Strategies: Pricing policies are general guidelines for recurrent and
routine issues in marketing. Strategy is a plan of action (a movement or counter
movement) to adjust with changing conditions of the market place. New and
unanticipated developments may occur, e.g., price-cut by rivals, government
regulations e.g., (mandatory Environment Audit) economic recession,
fluctuations in purchasing power of consumers, changes in consumer demand,
and so on. Situations like these demand special attention and relevant
adjustments in our pricing policies and procedures.
The Price Structure: developing the price structure on the basis of pricing
policies and strategies is the final step in price determination process. The price
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structure will now define selling prices for all products and permissible discounts
and allowances to be given to middlemen as well as various types of buyers.
Note: The ultimate goal is to set a price that is in tune with the rest of the
marketing mix ingredients and that will enable the firm to achieve its
objectives, (bottom line profit through consumer citizen satisfaction)
Price is a vital managerial function. Price determination function
involves consideration of many relevant internal and external variables or
factors.
Internal variables are involved under the multi-stage process of price
determination, e.g., pricing objectives, roleofprice in marketingprogramme,
costs of production and marketing, image of the firm and its products, and so on.
The internal forces are controllable pricing variables. But there are also
external variables mostly uncontrollable by an enterprise and these include such
factors as government regulation, competition, buyer behaviour, economic
conditions, social and ethical considerations, characteristics of demand and so
on.
Every marketer involved in price decision must take into consideration
the impact of both the controllable and uncontrollable variable when he is called
upon to develop pricing policies and procedures. The price decision as it is
affected by all variables is shown in the model of pricing forces.
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Note: 1. Reactions to pricing policy can be expected from: 1. Resellers, i.e., the
wholesale and retail trade, 2. ultimate users i.e., individuals, organisations, 3.
competitors, 4. the government, suppliers, trade unions and public opinion. 5.
compulsory pollution control. 2. Inner circle indicates internal variables and
outer circle indicates external variables -- affecting price decisions (core circle).
Base Price
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After pinpointing the market, estimating demand, and discovering rival's
prices, marketer can identify basic price alternatives. Basic price is a realistic
market price. It resembles an ideal price. However, it is only a starting point in
the determination of actual pricing structure.
Pricing decisions are guided by overall organisation objectives. A base
price is usually established, and adjustments from that base price is made to
ensure closer correlation between the product of the firm and consumer wants
and desires, i.e., matching the product offering with the expected bundle of
satisfactions (perceived value by consumer). The figure given below indicates
number of choices in setting the base price. A base price acts as a reference
price. It is a price from which actual prices can be determined by adding extras
and deducting discounts. The actual prices reflect differentials from the base
price because of market structure, geographical location, competitive conditions,
and the terms of individual transactions
Comments
At one extreme (at the top) there is a price (too high) at which there is no
demand at all. At the other extreme (the bottom) there is aprice (too low)
at which no amount of demand will yield enough revenues to cover
costs.
Skimming price (skim the cream) is rather high in the range of possible
prices. A new product enters the market with a high price to generate the
most profitable sales. At the introduction stage demand is more inelastic.
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Rich buyers are not price conscious. Too high price can be lowered more
easily subsequently.
A low price may be deliberately fixed to penetrate the market easily. It
provides maximum product exposure. Sales growth potential is very
high.
Under usual circumstances, marketer selects base price somewhere
between skimming price and penetration price for each product line.
Factors influencing the choice of base price are shown in the figure.
Unique product features, rising costs or a company reputation for quality
and services are me factors influencing the base price in an upward
direction. A unique product offered by reputed and respected company
can have a high price and buyers may be prepared to buy it.
Sophisticated Vimal fabrics of Reliance Industries adopted high
premium price to the fashion conscious upper middle class of urban India
and buyers welcomed the premium quality fabrics.
On the other hand, objective of a large market share, government price
controls, intensive competition from rivals would compel the marketer to
fix the base price lower and lower.
4.2 Pricing Policies
Price is an important element in the marketing mix. Arrival at the right
selling price is essential in a sound marketing mix. Right price can be
determined through pricing research and by adopting the test market techniques.
A price policy is the standing answer of the firm to recurring problem of pricing.
It provides guidelines to the marketing manager to evolve appropriate pricing
decisions. If competition is mainly on a price basis, then each company
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generally prices its products at the same level as its competitors. If there is non-
price competition, each marketer chooses from among the three alternatives:
Price in Line (Pricing at the mark et): The sale at c urren t market price
is desirable under free competition and when a traditional or customary price
level exists. It is preferable when product differentiation through branding is
minimum, buyers and sellers are well-informed, and we have a free market
economy. Under such conditions price loses its importance as a weapon
ofcompetition and sellers have to adopt other means of non-price
competition, e.g., branding, packaging, advertising, sales promotion, credit,
etc., to capture the market.
2.Market-Plus (Pricing above the market): The sale above the market prices
under free competition is profitable only when your product is distinctive,
unique and it has prestige or status in the market. Customer is inclined to put a
greater value on the product if the package is very good or he brand is well-
known. Otherwise, it will be akillingpricepolicy, specially if the customer is
price-conscious. Reputed brands have higher prices. Price of a product is
associated with value, quality, durability, performance, service after sale, credit,
and many other attributes. Product-differentiation through branding introduces
monopoly element in pricing and established brands can afford higher prices
without reducing volume of sales. In foreign countries, such as the U.S.A. and
the U.K., almost all consumer goods are branded and large national concerns
have used branding as an instrument of monopoly.
3.Market-Minus (Pricing below the market): The sale below the market price,
particularly at the retail level, is profitable only to large chain stores, self-service
stores and discount houses. These large retailers can sell
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well-known nationally advertised brands 10 to 30 per cent below the suggested
retail prices, list prices or fixed resale prices by the manufacturers. If you have
lower costs because your product is of inferior quality, you may have to fix
lower price. Similarly, you may prefer a lower price without promotion expenses
(which your rivals are undertaking on a large scale). A lower price is a substitute
for sales promotion and advertising. Prices of national brands are higher as there
is heavy expenditure on advertising and sales promotion to maintain the brand
loyalty.
Right Pricing: In the long run, the best pricing policy in a competitive market is
the market based metliod of pricing. It is safer to follow the prices of important
competitors who dominate the market. Such a price policy will prevent price
war, and assure normal profits.
Non-Price Competition: The seller should rely more on non-price factors to
capture the consumer demand. At present in many countries business firms
avoid price reduction as a means of competition. With or without price
competition, increasing emphasis is being given on the various weapons of non-
price competition. Non-price competition devices are: 1. Branding, 2. Attractive
packaging, 3. Service after sale, 4. Liberal credit, 5. Free home delivery, 6.
Money-back guarantee (return of goods), 7. Sales promotion, 8. Advertising, 9.
Personal salesmanship, 10. Product improvements and innovations. We can also
consider indirect price competition when a seller offers certain benefits in the
form of indirect price concession e.g., advertising allowance, free merchandising
services, dealer training programme and so on.
Price is not the sole determinant of purchasing. Besides fair price,
consumers demand better services, better quality and reliability, fair trade
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practices, personalised relation with sellers, quality guarantee, credit, etc. Non-
price factors are important selling points, in addition to price. Non-price
competition tends to increase as buyers put more stress upon quality, fashion,
variety, style, finish and service than on price.
Conditions Favouring Premium or (Higher) Prices: 1. Higher sales
promotion expenditure is needed, 2. Production is as per order, 3. Initially small
market share is preferred, 4. Sales turnover is slow, 5. Good many ancillary
services are needed, 6. Goods are durable, 7. Package is unique. 8. Product itself
is unique. 9. Customers are rich.
Conditions Favouring Lower Prices: 1. Little sales promotion is necessary, 2.
We have mass-production, 3. We are ready for mass-distribution and we want
larger market share, 4. Sales turnover is quick i.e., fast selling is anticipated, 5.
Very few or no additional services are needed, 6. There is no special package,
and 7. We have perishable goods demanding quick clearance. 8. Buyers are not
rich.
Skim-the-cream Price (high Pricing): A manufacturer introducing a new
product may adopt this pricing strategy deliberately to build up the image of
quality and prestige for his new product.
In the earlier stages of product life cycle, a strategy of high price
associates with heavy expenditure on promotion, and at the later stage of the
product life cycle, a strategy of lower prices with normal promotional
expenditure pays a rich dividend.
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Reasons for Skimming Price Policy: There are a few reasons supporting skim-
the-cream pricing for a new unique product in its introduction stage: I. In the
initial stage, we have less elastic demand. Price is less important in purchase
decisions. There are buyers who are not sensitive to price and they do not mind
higher price. As the product is new and distinctive, there is little competition. 2.
When entry of rivals is difficult, costs are uncertain, life-cycle is short, we
should prefer skimming price. 3. Skimming price enables the firm to take the
cream of the market, at a higher price and then it may attempt to appeal price-
sensitive sections of the market by adopting penetration, i.e., lower price. 4.
High initial price can provide a large margin which generates cash flow easily,
and if the price is too high, it can be easily lowered. Reverse is not practical. 5.
High initial price can keep demand within limit of your productive capacity.
There are two disadvantages of skimming price: 1. It attracts competition. 2. If
entry of rivals is easy, this policy is risky.
Penetration Pricing (Low Pricing): The approach is favourable under the
following conditions:
1. Product has greater elasticity of demand.
2.Mass-production provides substantial reduction in unit cost of production.
3.Very strong competition is expected soon after the product enters the market.
High-income section of the population is not adequate. We have bulk of the
population in the middle and lower income group.
Reasons for Low Pricing: When product has long life cycle, it has a mass
market, entry of rivals into the market is easier and demand is elastic,
penetration price is always preferable as rivals are discouraged to enter the
market and you can establish a strong hold on the market share, incidentally
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making future entry of rivals difficult. The only disadvantage of this pricing is
you may have excess demand within a short period.
One-Price vs. Variable Price Policy
Under one-price policy, a seller will charge all similar types of buyers
exactly the same price and there will be no discrimination or difference among
the buyers of the same commodity. There is no question of negotiation,
bargaining or higgling. No favouritism is shown to any buyers. Terms of sale are
the same for similar quantities of the product. Discounts and allowances are
granted on equal terms to all buyers. It is a fair trade practice. It gains customer
confidence. A fair and fixed policy in line with the normal market price and
providing for normal margin of profit is the best pricing policy. Through
efficient management and best marketing mix, the manufacturers and dealerr,
should bringdown marketing costs and improvequality of services to the
ultimate consumers. The consumers should be offered lower price and better
quality under any normal pricing policy.
In the U.S.A. and other developed countries, particularly at the retail
level, they have adopted one-price policy. In India and many other developing
countries, sellers have usually variable-price policy, i.e., prices are subject to
negotiation and higgling.
Under variable-price or negotiated price policy, the seller will sell same
quantities to different buyers at different prices. Certain favoured customers are
offered lower prices. The terms of sale, e.g., discounts and allowances, are
granted on unequal terms to buyers. Especially in developing countries, sellers
commonly use variable pricing for most consumer items. In retail trade the price
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discrimination is usual. A foam leather handbag was quoted by a well-known
retailer at Rs. 300/- in the first instance. The price was reduced to Rs. 250/- and
then to Rs. 225/-. On sensing that the customer was aware of its real price, the
price was scaled down ultimately to Rs. 200/- only. Street sellers use this
pricing.
Advantages of One Price Policy
Uniform return from each sale -- assured and certain profits.
Lower selling costs, saving of time in sale as no question of price bargaining.
Many a time, higgling drags on the sales talk and it is a time killer.
Customer confidence is secured. In the absence of a preferential price, there is
no risk of losing of a customer. Timid or weak bargainers are not at a
disadvantage. The seller can maintain his goodwill. 4. It is eminently suitable for
self-service retailing, mail order selling and automatic vending or selling. Large
retailers follow this policy.
Advantage of Variable Price Policy
Seller can have flexibility in his dealings with different customers. 2. Certain
valuable customers can be offered lower price, e.g., a promising large-scale
buyer in the near future. 3. Flexible price policy enables to attract customers of
other competitors and thus new business can be secured.
When the size of the transaction is large, price should be negotiable, i.e.,
subject to bargaining e.g., sale of a motor car. 5. The sellers of consumer
durables often adopt variable price policy. 6. Some buyers have greater
bargaining power or they are able to pay cash. They will always insist on
negotiated price.
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On the whole, one-price policy is the best policy. Variable price policy
creates ill-will and spoils the seller's reputation. It can lead to a price war and
unhealthy competition. Managerial control is also less on selling cost and on
profits. It reduces confidence. It is not equitable.
Cost-plus or Mark-up Pricing
This method is considered the best approach to pricing. It is based on the
seller's per-unit cost of the product plus 'an additional margin of profit. There are
four items in determining the sale price: I. Cost of producing/ acquiring goods.
Cost of operating/selling expenses. 3. Interest, depreciation, etc. 4. Expected
profit margin-mark-up. The mark-up is indicated as a percentage of the cost of
goods. The mark-up as a percentage of selling price is a very common practice
particularly in retail trade.
Cost-plus pricing is very popular in retail trade and wholesale trade. Some form
of customary mark-up pricing or cost-plus pricing is most practical in trade, as
items for sale are innumerable.
Discounts and Allowances
Discounts and allowances are price concessions offered to traders or
buyers in the form of deductions from the list price or from the amount of a bill
or invoice. They are forms of indirect price competition. The common forms of
discounts and allowance are:
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Trade discount, 2. Cash discount, 3. Quantity discount, 4. Seasonal discount,
Promotional discount, 6. Advertising and display allowances, 7. Freight
allowances.
We will now describe some of the important discounts and allowances.
Trade Discount
Trade discount is a kind of functional discount. It is given to the buyers
buying for resale, e.g., wholesaler or retailer, in payment for marketing functions
which these traders are expected to perform. Sellers quote price less discount
rather than net price.
Illustration: A manufacturer feels that Rs. 10 per unit of his product can be a fair
retail price. The manufacturer's list price is Rs. 120 per dozen. He quotes trade
discount at 33.33% and 15% from the list price. This indicates that the
wholesaler pays Rs. 120 less 33.33% (Rs. 40) less 15% of Rs. 80 (Rs. 12), or Rs.
68 for one dozen items. In selling to the retailer, the wholesaler retains 15%
which is his margin to cover his expenses and profit. The wholesaler will quote
Rs. 120 less 33.33% or Rs. 80 per dozen to the retailer. Thus, the retailer also
has a margin of 33.33% to cover his expenses and profit and he can sell the
product at the list price or suggested retail price, viz., Rs. 120 per dozen or Rs.
10 per unit. Please not that 33.33% and Rs. 15% do not constitute a total of
48.33% off the list price. Each trade discount percentage in the chain is
calculated on the remaining amount after the preceding percentage has been
deducted.
Purposes of Trade Discount
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Trade discount provides the cover for expenses and profit of each middleman
in the chain of distribution, when the manufacturer fixes the retail price and it is
advertised and printed on the packages. It is a remuneration for marketing
services rendered by the traders. It is paid only to the resellers.
The catalogue or price list has printed prices. Actual market price may be
fluctuating. If the actual price changes, the seller will merely change the rate of
discount for adjustment of the two prices -- list price and current market price.
He need not print a new price list or catalogue. These are revised periodically,
e.g., once in three months. Trade discount is altered inversely to change in
prices, i.e., falling prices will invite rising discounts, and vice versa.
The trade discount can also act as a weapon of price competition. It makes price
structure flexible. The seller can offer a larger trade discount to attract business
from the rivals. The dealer is enabled to sell to consumers at the price even
lower than the list price as he is given a higher discount. The dealer can show
the price list to the consumer and point out that he is getting a good bargain.
Limitations of Trade Discount
1.The manufacturer may offer a larger trade discount to the wholesaler and
retailer so that they do a better selling job and take greater interest in his
products. But the traders may pass on the additional margin to their customers in
the form of price reductions rather than using it for additional sales promotion
efforts.
2.The increased discounts given to the traders may lead to unhealthy
competition and competitors may follow the initiator by raising their trade
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discount. So ultimately there may not be any real gain. In fact, it may result in
cut-throat competition.
Cash Discount
It is merely a rebate or a concession given to the trader or consumer to
encourage him to pay in full by cash or cheque within a short period of the date
of the bill or invoice. It is a deduction from the amount of the bill or invoice
amount to be paid. The period to avail the cash discount is usually 10 days.
Illustration: The wholesaler quotes to the retailer as a term of payment, "2% 10
days, net 30". This indicates that if the invoice amount is paid with 10 days he
will get rebate of 2% but if he pays after 10 days and of course, within 30 days,
he has to pay the net invoice amount without any rebate. It means if the retailer
forgoes the cash discount, he has to pay 2% price for 20 days accommodation,
or in effect he has to pay 36% interest per year. The retailer would prefer to
borrow from his bank at 15% and pay the wholesaler cash within 10 days of the
invoice. In the absence of bank credit, trade credit may be inevitable.
Purpose of Cash Discount: 1. The wholesaler need not have a larger working
capital as he need not sell on credit to the retailer. 2. There is relief in the
recovery of debts and no danger of bad debts. To the seller cash sales are always
welcome. In practice, trade credit becomes necessary, as a lesser evil.
Cash discount is calculated on the net amount due after first deducting trade and
quantity discounts from the initial list or catalogue price. It is a percentage
reduction on the net amount due.
Quantity Discount
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In order to encourage a customer to make bulk or large purchases at a
time or to concentrate his purchases with the seller, quantity discount may be
offered to large buyers.
Quantity discount can reduce the prices for bulk purchase order. These
may be even cumulative, i.e., on the total volume of purchases made during a
certain period. They are really patronage discounts.
Purposes of Quantity Discount: 1. Sales of slow moving items can be
stimulated. 2. Manufacturer can have real economies in production as well as in
selling. This will reduce his total costs. 3. The manufacturer will have no
problem of accumulated stocks or inventories.
Seasonal Discount
The manufacturer may offer additional seasonal discount of say 5, 10 or
15% to a dealer or a customer who places an order during the slack season. This
will ensure better use of his plant and production facilities.
Allowances
The manufacturer may offer promotional allowances, Eg.., advertising
allowance, window display allowance, free samples, free display materials, free
training in sales demonstration and sales talk, etc. It amounts to a price reduction
of an equal amount of service expected.
Comments
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Discounts and allowances are rarely given in selling to the ultimate
consumers. They are offered to resellers only. 2. They are common in wholesale
and retail trade--in the sale of manufactured goods. 3. Such price concessions
are good weapons of healthy competition and sales promotion. 4. If these price
concessions are given to all dealers and merchants without discrimination there
is no problem of ill-will in trade. But in practice, many a time, they are not
offered to all competing customers on Proportionally equal terms, in which case
they are considered as unfair and unwise trade practices. In many countries,
promotional allowances are controlled by law to ensure fair trading. 5. We also
come across secret or confidential discounts given by manufacturers to preferred
customers. These are given in highly competitive lines or especially during a
trade depression. These are also undesirable and unfair trade practices. It is
difficult to control these malpractices by legislation alone. Business itself must
evolve a code of conduct to prevent such malpractices. Self-regulation and self-
discipline are always superior than compulsory rule or forced discipline. Fair
trading is now recognised as a social responsibility of the business.
Price Leadership
In every industry, we do have a few big and dominant business
enterprises who act as leaders for setting the price by others. When the leader
raises or lowers the price, all others usually follow the leader. The non-leading
firms have no other practical alternative but to follow the leader in their price-
fixing. In many consumer goods industries we do come across one or a few price
leaders and the market price is dictated by them.
Psychological Pricing
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It is used to create an illusion of a bargain. It is a popular practice of
setting the prices at odd points, e.g., Rs. 17.95, Rs. 49 00, Rs. 995, etc. This
policy is followed usually in consumer goods industry, e.g., Bata Shoe Company
has psychological pricing in shoe prices. Prices of consumer durables such as
cars, refrigerators, etc., are usually fixed in odd amounts. Such a pricing strategy
is based on the belief that a buyer is mentally prepared to pay a little less than
the rounded figure, e.g., Rs. 10.85 instead of Rs. 11 for a product. Even prices
create an impression that the product is of high quality. Thus, pricing can create
expected motivation.
Charging What the Traffic will Bear
There are two principles, in pricing. One is called cost of service
principle and another is called value of service principle. The second one is also
termed as charging what the traffic will bear. It points out demand price. It is
usually adopted by railways in our country. Professionals like doctors, lawyers,
chartered accountants, consultants, etc., adopt this principle of charging what the
customer will bear. They charge their fees on the basis of ability to pay and the
cost factor is secondary in their charges. In business, particularly in commodity
markets, we do not have such a price discrimination based on the customer's
ability to pay. A monopolist, of course, can afford to adopt this principle to
maximise his profits. In a sense, such pricing renders justice to customers. Dual
pricing of sugar in India is based on this principle of ability to pay. Electricity
company also has different rates for domestic and industrial customers.
Premium Pricing
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Premium pricing is a mix of What the traffic will bear' idea and the value
for money'. Marketer has a premium product, i.e., superior quality / good
variety. He uses best technology. He employs premium promotion programme.
He has at his disposal premium distribution process. Hence, he opts out for non-
price competition. Thus, he is ready to adopt premium pricing strategy. Of
course, under this pricing approach, we need aggressive and proactive (not
reactive) pricing. Again, premium pricing can give rich dividend when buyers
are not price conscious and they are willing to pay higher price if they get a
better product and wider choice.
Reliance adopted this pricing strategy for vimal fabrics: Price is nothing
but perceived value -- what the customer perceives as value. Reliance assured
that its buyers perceived the prices of Vimal textiles as really good value for
money. Premium pricing is an aggressive pricing strategy. Upper middle-class
buyers constitute the target market for premium pricing. In India, this approach
is now adopted by renowned marketers. It assures growth and higher profits
through higher customer satisfaction and service. Going premium is the latest
trend in respose to the consumer's desire for high quality products on par with
foreign goods.
The Indian cosmetics and toiletries market is now adopting premium
pricing. Indian marketers are hurrying into the premium segment in order to
prempt foreign competition. That it is going to be a tough fight for a niche
consumer segment is undoubted. Exposure to western lifestyles on television,
and an increasing trend towards perfect gfooming has opened up ample scope
for selling beauty at a premium price. Similar trend in favour of premium
pricing is noticeable in the sale of fashion clothing, wrist watches (Titan), Ray
Ban goggles and clolured TV sets.
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4.3 DESIGNING RIGHT PROMOTION MIX
(A) PROMOTION
Promotion is a fornrftf communication with an additional element of
pursuasion to accept ideas, products, services and hence pursuasive commu-
nication becomes the heart of promotion, the third element of marketing mix. In
essence, promotion is the spark plug of our marketing mix and an important
marketing strategy. People must know that the right product at the right price is
available at the right place. It is said that in a competitive market without
promotion nothing can be sold.
In marketing, effective communication is absolutely necessary even
though you have a supurb product, best package and also you offer a fair price.
People will not buy your product, if they have never heard of it and they are
simply unaware of its existence.
What is Promotion?
Promotion is the process of marketing communication to inform,
persuade, remind and influence consumers or users in favour of your product or
service. Promotion has three specific purposes. It communicates marketing
information to consumers, users and resellers. It is not enough to communicate
ideas. Promotion persuades and convinces the buyer and influences his/her
behaviour to take the desired action. Promotional efforts act as powerful tools of
competition providing the cutting edge of its entire marketing programme.
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Promotion has been defined as "the co-ordinated self-initiated efforts to establish
channels of information and persuasion to facilitate or foster the sale of goods or
services, or the acceptance of ideas or points of view," It is a form of non-price
competition.
Essentially promotion is persuasive communication to inform potential
customers of the existence of products, to persuade and convince them that those
products have want satisfying capabilities. Consumers really speaking buy a
bundle of expectations (a package of utilities) to satisfy their economic, psycho-
social wants and desires. The promotion offers the message, viz., the
communication of these benefits to consumers. Hence, promotion message has
two basic purposes: 1. persuative communication, 2. tool of competition.
Promotion is responsible for awakening and stimulating consumer demand for
your product. It can create and stimulate demand, capture demand from rivals
and maintain demand for your products even against keen competition. Of
course, it is taken for granted that your product has the capacity to satisfy
consumer expectations and can fill their wants and desires. It is a truism that
nothing can be sold and nothing can make money (except mint) without some
means of promotion.
Marketers have adopted a communication view of their firms' promo-
tional activities. Receiver is now regarded as an active participant in the process
of communication. All marketing communications must be planned as part of a
total system, not as independent pieces. The promotion mix includes four
ingredients, viz., 1. advertising, 2. publicity, 3. personal selling, and 4. all forms
of sales promotion. All forms of promotion try to influence consumer's attitudes,
beliefs, ways of living or life style, values and preferences towards a company
and its products, and thereby influence his/ her behaviour.
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Advertising: It is defined as any paid form of non-personal presentation and
promotion of ideas, goods and services by an identified sponsor. It is impersonal
salesmanship for mass selling, a means of mass communication.
Publicity: It is non-personal stimulation of demand for a product, service or a
business unit by placing commercially significant news about it in a publication
or obtaining favourable presentation of it upon radio, television, or stage that is
not paid for by the sponsor.
Personal Selling: It is the best means of oral and face-to-face communication
and presentation with the prospect for the purpose of making sales. There may
be one prospect or a number of prospects in the personal conversation.
Sales Promotion: It covers those marketing activities other than advertising,
publicity and personal selling that stimulate consumer purchasing and dealer
effectiveness. .Such activities are displays, shows, exhibitions, demonstrations,
and many other non-routine selling efforts at the point of
purchase. Sales promotion tries to complement the other means of promotion
given above.
All kinds of promotion play the role of communication channels between
the marketer (the source and the sender of message) and the consumer (the
receiver of the message). Promotion as an element of marketing mix has three
broad objectives: (a) information, (b) persuasion, (c) reminding. The overall
objective of promotion is, of course, influencing the buyer behaviour and his
predispositions (needs, attitudes, goals, beliefs, values and preferences).
Four promotion mix elements have a definite role in all stages of the selling
process. Publicity is more effective in the awareness stage. Advertising
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gradually becomes less and less effective over a time span. Hence, reminder
advertisement is necessary. Personal selling becomes more and more effective as
interpersonal interaction assumes increasing importance. Closing of sales needs
not only personal selling but also sales promotion tools at the point of purchase
in order to provide additional incentives for buyer's action.
Today, promotion is not regarded as the sole tool of marketing communications.
We have now the wider concept of the term 'marketing communications.' In the
communication mix of the firm we now include all the four components of
marketing mix (the four Ps): 1. The total product personality covering product
quality and other features, brand name, company name, package and label. 2.
Price conveying quality, status, fair charge, and unique technological features. 3.
Promotion-mix covering personal salesmanship, advertising, publicity, and sales
promotion. 4. Place or point of sale indicating store choice, store image, store
display and store services.
Thus, all 4 ps. (product, price, promotion and place of distribution)
communicate and act as senders of marketing messages. Of course, promotion
proper is the most substantial and most eminent component of marketing
communication mix. Without it marketing is impossible in a competitive and
changing marketing environment.
The Process of Communication in Marketing
There are three essential parts of communication, viz., the source,
message and receiver. True communication takes place only when the message
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means the same thing (in common) to both the parties i.e., the sender of message
and its receiver.
Marketing communication involves sharing of meaning, information, and
concepts by the source and the receiver about products and services and about
the firm selling them. Marketing communication is undertaken by marketers
through the devices of promotion viz., advertising, publicity salesmanship and
sales promotion. We have also word-of-mouth communication to accelerate the
spreading over of marketing communication.
The effective communication occurs when a sender (source) sends a
message and a receiver responds to the message in a manner which satisfies the
sender. Both must have identical meaning of the message.
Effective communication is equal to: receipt of the message plus
understanding plus acceptance plus action. In marketing action means decision
to purchase.
In marketing management, the source or communicator is the marketer
who desires to promote his product. He attempts to deliver a message to a
receiver. He can deliver the message in many ways. All forms of promotion are
media or channels of communicating or sending the message. The receiver or
audience is the target market segment, i.e., the group of consumers for whom the
message is sent. Message is received and interpreted by consumers and if their
predispositions become favourable, they decide to purchase. Feedback is the
reverse How of communication from the consumer to the marketer.
When the message is transmitted through personal salesmanship, the
seller may have prompt feedback from the receiver. The sender can find out how
the message is being received as we have face-lo-face direct communication
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through sales talk and conversation. The salesman can balance the message on
the basis of feedback from the buyer. This is the real advantage of personal
selling. Personal interaction is the most efficient form of communication. Under
mass communication or advertising, mass sellers must rely for information
feedback (returned message from buyer) on dealers, consumerism, complaints
from consumers, marketing research or total sales results given through sales
analysis. Mass communication is essentially one-way communication. Feedback
is difficult and usually delayed. Consumer surveys, electronic devices, and other
types of marketing research are used to get the feedback. However, this
feedback is delayed and it is of no use in altering the future advertising message.
Distortion and Noise in the Promotion Channel
Marketing communications may be distorted particularly when a
message passes through a number of channels. Noise is a more serious problem.
It can arise due to faulty transmission, faulty reception, or interference.
Competitive communications constitute the most serious noise. A consumer may
be tuned to many communication flows (advertisements) at the same time.
Promotion Messages
The message transmitted through all forms of promotion must describe
the product features in terms of customer wants and desires. The problemsolving
or need-satisfaction approach is better while transmitting the message. It
develops better understanding of customer needs and problems. Remember that
customers are buying a bundle of benefits services. The promotion message
must communicate effectively these benefits and services to consumers. Hence,
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promotion message must achieve two basic objects: Communication and
persuasion. For effective communication, sender and receiver must have a
common background of experience, e.g., a common culture, common language
so that they will be able to symbolise certain ideas, concepts and events in a
manner easily understandable to each other.
Promotion by definition is persuasive communication. The message is
arranged to facilitate the consumer decision-making process (awareness,
knowledge, liking, preference, conviction and action). Promotion message is one
source of information (though very important) at the disposal of a buyer. The
buyer behaviour is influenced by many other sources of information available
from many sources. If promotion message is useful, relevant and credible, the
buyer will be influenced and persuaded to take action as desired by the marketer
or communicator.
Unfortunately, we come across fraudulent, deceitful and misleading
promotion message. The innocent consumer, relying on the promotion message,
purchases the product but very soon he discovers the dissonance and frustration
in his post-purchase experience. Without satisfaction, repurchase and consumer
loyalty will be impossible, on the other hand, word of mouth communication
will act as anti-advertisement.
The Message Form: We have spoken and written words, picture and music.
Communication involves transmission of ideas, not merely words. Message need
not always be translated into the language. There are other ways for transmission
of ideas. A picture communicates a message very effectively. Any visual, non-
verbal media can attract attention. Visual contact is stronger and longer than a
word contact. Picture permits easier association for the viewer.
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Spoken word is also an effective communication tool. Music contributes to
effective communication. Hence, television is perfect advertising medium.
Main Purpose of Promotion
The overall purpose of promotion is to influence buyer behaviour and
alter the location and shape of the consumer demand curve in favour of the
products. All promotional efforts, i.e., marketing communications are directed to
alter the demand curve or buyer behaviour. The following figure demonstrates
the effect of promotion on the demand curve.
Large quantity OQ2 sold at the same price OP,
Same quantity OQ1 sold at the higher price OP,
Promotion tries to alter demand curve to the right (from D l to D2). Thus,
promotion is employed to retain the price and secure increasing sales at the same
price. Promotion can also raise the price but retain the sales level by making the
demand relatively inelastic e.g., through creating brand loyalty and patronage by
intensive advertising and sales promotion. Either through shifting the demand to
the right or making the demand more inelastic, the object of higher sales revenue
can be accomplished with the help of persuasive marketing communications. In
short, all forms of promotion can act as the best means of non-price competition,
and without any change in the price, marketers can succeed in influencing to a
certain extent the buyer behaviour and partially exercise control over demand
and market without using the weapon of price to meet competition.
The favourable change in the pattern of consumer demand is secured
through commercial information, persuasion and influence with the help of
personal selling, advertising, publicity and sales promotion devices.
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Note: 1. Each tool of promotion is a vehicle or medium of communication in the
field of marketing management.
The marketer as an artist creates the most favourable blend of all promotion
elements to influence buyer behaviour and the process of decision-making in
purchases. Thus, sales can be promoted through a promotion campaign.
Is there a Promotion Opportunity? There are five conditions indicating
favourable opportunity to promote: 1. favourable trend in demand, 2. strong
product differentiation, 3. hidden product qualities, 4. emotional buying motives,
5. adequate finance to promote.
4.4 Innovating Pricing Methods for Rural Markets
Present Marketing Environment
By the middle of 1994, India's population has reached 920 million. With
the advent of 21 st century, we may almost touch 1000 million. World
population stands at 5.63 billion. China's population is around 1.2 billion.
U.S.A., 261 million, Indonesia 195 million. Per day 236,000 persons enter the
world.
The middle class explosion accounts for 300 million consumers. The
upper middle class accounts for 60 million, with annual income over Rs. 10 lacs
(like a fabulous 16 lacs annually in U.S.A.). There are around 10 million rural
families (around 50 million consumers) with annual income over Rs. 40,000.
India is considered the 5th largest market in the world. By the year 2001 A.D.
we would have around 500 million middle class buyers.
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India's new prosperity and market potential is attributable to the
government's ongoing commitment to economic reforms introduced in 1991.
These reforms -- deregulation, liberalisation, privatisation -- have allowed
India to rebuilt its economy and foreign exchange reserves, reduce inflation and
most importantly improve competition and efficiency in the market place by
relaxing substantially economic, trade and investment controls.
The result has been a sharp rise in incomes and private consumption,
especially among the India's growing middle class (not only in urban but also in
the rural areas) and similar growth in the affluent class. Private consumption in
1991 was around Rs. 4000 billion ($125 billion), 15percentincrease over the
previous year and fourfold increase over 1981. By the year 2001 the total private
consumption may exceed Rs. 8,000 billion.
However, though our consumer market is estimated to be the 6th largest
in the world, the total private consumption at present is quite low by any
measure. The present consumption levels are: toothpaste at just 50 gms; per head
annually against Brazil's 300 gms; four bottles of soft drinks per head annually
as against the U.S.A.'s almost 30 bottles; 70-TV sets per 100 households against
145 per hundred households in Japan. Of course, this state of low consumption
indicates that potential of the Indian market is quite remarkable and marketers in
India have ample opportunity to exploit this potential with the help of modern
tools of advertising and sales promotion. For marketers the ever-growing urban
and rural markets, in India, represent an unprecedented opportunity. As the
poverty reduces, and as the middle classes continuously migrate up the
economic ladder, and as the professionals representing the elite class also grows
with further industrialisation, so their consumption patterns change almost
radically. For food they move out of the
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wet market and enter into the super or hyper market; they trade commodities for
reputed branded goods and even premium price brands and become home
builders rather than members of an extended family. So they buy the latest white
and brown goods to fill their new homes. The large urban middle class and
growing richer rural class (due to green/white revolution in India) is wealthy,
entrepreneurial and happy to spend money lavishly.
India's growing rural market is also experiencing increasing demand for
fair-priced, fast moving consumer goods as well as for some consumer durable
goods such as cycles, scooters, cookers, mixers, radios, televisions and so on.
Lacs of upper class rural households do have an income level high enough to
allow for discretionary spending.
A distinct change in rural India is also quite visible. In the countryside
poverty may be widespread; nevertheless there are regions where tractors and
agricultural machines have replaced bullock carts and old traditional methods of
farming. Silent green and white revolutions are responsible for agricultural
prosperity in many regions,e.g., Punjab, Gujarat, and Maharashtra. Television
aerials are common place and satellite dishes are booming, particularly in
Punjab, India's richest agricultural state, where farmers come in from the wheat
and rice fields at midday to watch the BBC news broadcasts on Star TV in their
homes.
Suddenly, India's burgeoning population (slated to outrun China's 1.2
billion in the next 25 years), for long was in its dark spot, now has worked out to
its advantage. The return of multinationals to India such as Coca-Cola and IBM
and entry of many other MNCs such as General Electrics, Pepsi, Motorola,
Proctor & Gamble, and Japan's electronic gaints clearly proves that India has a
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vast market....rising incomes .... a booming middle class, rising rural elites with
adequate purchasing power offering long-term opportunities for Indian as well
as foreign industries forprofitable marketing and distribution even in the buyers
markets.
India Vs. China
1993 was China's year. It suddenly became the key issue on every
nation's agenda. China became acceptable as a stable market and every country
wanted to be there. In 1990, advertising budget of $ 1 million was considered as
huge. In 1993-94, $ 10 million was regarded usual and normal in China.
Almost all important press reports compared India with China and announced
that 1994 onwards it would be India's years. They recommended investing in
India over China from 1994 onwards.
There is twice as much American direct investment going into India as in China
since 1994. Unlike China, India, they say, operates within a rule of law. India
has also a much larger and far more capable infrastructure of local companies
which serve as good partners (e.g., Ambani, Godrej, Tata, Birla, Modi, Bajaj,
and so on) and tough competitors. Unlike China, India has much more cheap
labour to offer. India has the enormous pool of skilled and professional labour.
More engineer graduate each year are there in India than in China and South
Koria combined. For instance, motorola wants to make India a " Brain Centre"
for engineering and design work. Even Japan chose Indian software engineers
over its own Japanese employees.
In short, in the International world, India is today recognised as one of
the best emerging markets. Till J 990, business planning was the monopoly of
the bureaucrats. Since 1991 onwards business/marketing planning is being done
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by businessmen and marketers in India, and business management has adopted
customer-oriented approach in marketing and distribution.
The Consumer Market
The consumer market has changed radically during the last ten years. We
are witnessing a complete transformation of the consumer markets in India.
There is a definite shift from seller's market to buyers' market, from Caveat
Emptor (Buyer Beware) to Caveat Vendor (Seller Beware). The Indian
Consumer has really begun to consume and that too with a revenge. The reasons
are many: 1. rapid growth in the market supply of goods and services, 2.
increasing effective demand due to rising purchasing power of middle class
population, 3. remarkable prosperity both in the vast rural areas and in the highly
concentrated population in the urban regions, 4. overflowing unaccounted
money every where, 5. inflationary conditions compelling everybody to enter
the market and maximise their purchases from time to time, 6. Aggressive
advertising on TV, radio and in the press inspiring the children, the youth and
the women to go all out and buy either from current income, or/rgrn savings or
on creditThe cyclonic changes in the Indian marketing environment preceding
the advent of 21st century ought to be intelligently forecast through marketing
research so that enlightened marketer can prepare himself for the Big Leap in the
21st century.
Intense competition in the market is really proving a big boon or a
windfall for Indian consumers who is emerging as the king/queen after over two
generations (more than five decades) labouring under shortages of even essential
consumer goods. It is really surprising that though inflation has become a
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permanent guest in our life, it is not creating any obstacle to the new market
boom even in the midst of poverty and unemployment still persisting in India. A
real boom in consumer products market clearly points out its growth in size,
range and sophistication.
Year Size of Consumer Market
1960-61
Rs. 2,400 Cr.
1986-87
Rs. 30,000 Cr.
1995-96
Over Rs. 50,000 Cr. (Estimate)
The Middle Class Explosion
The emergence of large middle class as the dominant consumption
community of the country can be regarded as one of the most noteworthy
developments in India. It has grown in size, and prosperity. Its disposable and
discretionary income has gone up considerably. The upper middle class is now
regarded by marketers as a distinct profitable target market. Its consumption of
non-food items is continuously growing. The upper middle class has money to
invest on the stock exchange. They constitute a lucrative market for consumer
durable goods, for electronic entertainment goods for status symbol goods, and
for all the modern amenities of life. They are now reaching out to satisfy their
higher level psychological wants after satisfying their economic needs. Its new
and growing pattern of consumption is determined not merely by its econoomic
profile but also by its new social and life style profile. The potential of this
market segment in India is now almost on par with the total potential of major
European countries like U.K. France or West Germany. Middle Class Life-style
The current life-style of the middle class and the upper-income class consumers
acting as the consumption community of modern, India is depicted below:
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Modern Kitchen appliances, 2. entry of white goods such as T.V., V.C.R.,
Freeze, Washing Machines, Sophisticated music system, microwave ovens, etc.,
interior home decoration, furniture and fixture, 4. personal means of transport,
fashionable readymade garments for both sexes eg. Levi Jeans, Lotto Shoes,
Double Bull, Arrow Shirts, 6. lots of jewellery, and countless varieties of
cosmetics and personal items, craving for new status symbols. The new-man-
about city is not going to scrimp where it comes to showing off his status. All
the mega cities in India faithfully reflect the new life-style of Indian urban
population.
Comments
Middle class explosion in reality reflects faithfully urban and suburban
markets as this class is the backbone of urban target market.
Any marketer in India is deeply interested in this class as it offers the
maximum demand potential and wide scope.
Though one has to consider cultural, linguistic and to some extent regional
differences, in general middle class life-style, buying behaviour and also
consumption pattern are similar throughout India.
Urban consumer is receptive to new ideas, welcomes innovation. However, by
temperament, a middle class consumer is usually price-conscious, cautious and
he wants economic/emotional security. Comforts and a few luxuries are
regarded by him as status symbols and marketers selling consumer durables
ignite his sense of prestige or status.
The middle class housewife is educated, employed and plays an active role in
home management. She is cost-conscious, quality-conscious, cautious but not
against change, fashion-loving but not crazy for fashionable goods. Please note
that she is the main decision-maker in all family purchases.
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6.The intense competition among the marketers in India should assure cost-
effectiveness and quality of goods to consumers. Consumer Protection Act
would also induce good business response to growing consumerism and to fair
trading.
The glamour of Western life and culture is responsible for the
revolutionary changes in the life-style and culture of urban and semi-urban
Indian population, particularly in the teenager Indian youth.
Rural Markets
India has now achieved self-sufficiency in its food grain needs and can even
export food and fruit products. White revolutions are considered as economic
marketing miracles.
65 per cent population is rural. Rural market, however, accounts for
hardly 40 per cent of total expenditure on consumption. Rural market is vast but
partially tapped. The top 15 per cent of farmers account for about 40 per cent of
expenditure on consumer goods in the rural markets. It should be noted that rural
market's untapped potential is throwing a big challenge/' opportunity to
marketers in India and now as rural market is duly exposed to radio. TV. and
satellite communications and a? literacy is also growing in rural India, marketers
can have integrated marketing plans and programmes and meet the challenge by
capitalising immense marketing opportunity. If they succeed in exploiting rural
market potential, we will witness a new era of economic prosperity in the Indian
villages in the near future.
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The communications revolution is also now influencing rural India.
Around 66 per cent of our population is intensely exposed to the electronic
media power, specially TV. Seeing is believing. Union of sound, sight and
movement in television makes it the most powerful sales medium to influence
the consumers. Rural consumers are also increasingly exposed to this media.
The marketers are exploiting fully this media to convert millions of rural
prospects into actual customers for their brands. The rural folk are also
responding though with some resistance to the attractions of materially good
life.
Typical Problems Encountered in Rural Marketing
Large Market: The rural market of India consists of about 60 crores
consumers. It is a big market having considerable potential as it is still partially
tapped. Even then it is offering a market worth Rs. 20,000 crore of non-foods
per year at present.
Scattered Market: The rural markets are very widely scattered covering
about 5.6 lacs of villages spread over the entire length and breadth of India.
Seasonal and Irregular Demand: Not only the rural market is very large and
very widely scattered (fragmented) but the demand is also seasonal (not regular
or constant) because the rural demand is closely associated with farming and
farming in India depends on the vagaries of monsoon even today. Hence, rural
demand is tied down to agricultural harvesting seasons and also to fairs/festivals
which many a time coincide with harvests.
Economic and Social Backwardness: Average per capita income and
purchasing power in rural India is low though gradually growing. Literacy is
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also low. The village life is still governed by custom and tradition though it is
slowly being exposed to modernism. We have also to face diversities relating to
language, customs, and culture.
Special Problems in Marketing: We have already noted that the
marketing of goods in rural India is a big challenge to marketers. There are
special problems in rural marketing: 1. problems in physical distribution.
problems of distribution channels, 3. problems of promotion and market ing
communication, and 4. problems of salesforce management.
Rural marketer is not called upon just to find the market and tap it with the help
of promotion and distribution. In a sense, the marketer must adopt creativity and
create the market and develop it through innovative marketing management.
'Markets are made and not merely found' is literally true in the case of the rural
market of India.
Marketing Communication in Rural India
In the evolution of a proper mix of marketing communications, there are
two major problem areas: 1. Appropriate media mix, 2. Nature of rural
consumer. Let us deal with these problems.
Communication media: It is a fact that a high degree of illiteracy is still
existing in rural India. We have hardly 40 per cent male literates and 25 per cent
female literates in rural India. Hence, press and other print media is playing a
very minor role in our rural markets. TV and radio are ideal media with the rural
consumers. But they are only partially available for use in the rural regions.
Hardly 20 percent of the rural consumers can be tapped by the print media of
advertisement. Cinema is relatively acting as a better medium of communication
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in rural markets. 35 per cent of total cinema income in India is emanating from
rural viewers.
Nature of Rural Consumer: Marketer cannot use printed word or message as a
means of communication. In addition to low literacy, we have diverse cultural
backgrounds, different languages changing from region to region, varied
customs, and traditions, economic backwardness. As we cannot use Hindi and
English languages for marketing communication, the problem of rural
communications becomes quite formidable.
About 200 million of the rural population have the purchasing power but
hardly 100 million adults in the rural areas are the target consumers. There are
less than 15 newspapers for every 1000 people. 50 per cent of the total
circulation of newspapers is confined only to thefour metros and hardly 2 per
cent of the copies of newspapers circulate in rural India.
Thus, marketer encounters a great difficulty in the formulation of
appropriate media mix to establish effective rural communication to a target
rural market.
4.5 Appropriate Media
Media Selection
In making media decision, we have to consider the following factors: 1.
The financial allocation for advertising. 2. The nature of the product and the
demand for it. 3. The type of prospects, their location and other characteristics.
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The nature of competition and the extent of coverage required. 5. Cost of
media, co-operation and promotional aids offered by media, media circulation.
Right media of advertisement will enable the advertiser to deliver the message
effectively to the intended markets or prospects.
Note: 1. Displays, Shows, Exhibitions, Showrooms, Arcades, Trade Fairs, Point-
of-Purchase Materials are normally included in sales promotion devices. 2.
Advertising Specialities such as Calendars, Diaries, Blotters, Pen Stands, Ball
Pens, Pencils, Key Rings, and many other novelties are partly for advertising
and partly for sales promotion. These are business gifts and means of publicity
and patronage.
Characteristics of Important Media
Mural Advertising: Mural or outdoor advertising has long life. It has a
general and wide appeal. It can attract attention of numerous people It is good to
remind prospects. An advertiser has ample scope to use his skill and art in
advertising.
However, outdoor advertising has certain limitations. Ii cannot have a
long message. It is not useful in selective advertising or for specialised products.
It has a low retention value. Its effectiveness cannot be accurately measured and
it may lead to considerable wastage also hill boards and hoardings are not
welcome today on Ifce highways due to adverse public opinion.(They spoil the
natural beauty and environment).
Press Advertising: Newspapers have a general and wide appeal. It is
very common method of publicity. Newspapers are flexible and timely.
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Repeat advertising is possible. Periodical change in size and contents is also
easy. Selective advertising to some extent is available. Effectiveness of
advertising can be estimated by having keyed advertisements. Newspapers offer
promotional assistance. Coloured and attractive advertisements are now
available even in newspapers. They are the best source of market information.
Newspapers are truly a way of life to most of the literate people. They have
short closing times. Closing times refer to the period before publication when
the copy must be submitted. For newspapers, this period is only 24 hours. The
adage 'seeing is believing is applicable to press advertisements. It offers greater
prestige and believability.
However, newspapers have short span of life. Waste in advertising is
considerable. Illiteracy affects its utility. Magazines and trade journals are other
means of press publicity. They are best for coloured and attractive
advertisements. They have longer life, greater retentive value as well as
reference value. Selective appeal is possible. We can approach particular market
segment only. Waste can be reduced. However, they need advance planning, do
not facilitate repetitive advertisements. They have limited circulation. They have
higher unit cost per contact.
Film Advertising: It has a wide appeal. It can overcome language barriers.
Audio-visual (sound and sight) technique has maximum impact on audiences.
Sound and sight both are employed for communicating our message. Repeat
advertising is possible. However, both cost of production as well as cost of
distribution of slides and films are quite high. Selective advertising is not
possible. Effectiveness cannot be measured. Waste in film publicity can be
considerable.
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Radio Advertisement: Of all the media, radio has the shortest closing times:
Radio uses only an audio (sound) signal. The copy can be submitted ip to air
time. Announcements can be made very quickly. It can secure dealer support. It
has a very wide appeal. It is suitable even for illiterate people. Repeat message is
quite common. Spoken word has greater impact than written word. With the
entry of FM radio programme ranging from all-talk to Indian and Western
Music, certain target markets can be easily approached. However, radio cannot
permit selective advertising. It cannot give detailed information. It has low
memory value. People remember far more of what they see than of what they
hear. It may not be very effective as listeners may not like it. Many a time, they
are bored by repeat messages. The length of time media is momentary. The
message may be lost, if the radio is not tuned. Radio has low listening level as it
is often used as background for working, studying or some other activity.
Television Advertisement: Television uses both video (sight) and audio
(sound) signals. It is a unique combination of vision, motion and sound.
Products can be demonstrated and also described. We have best sales
presentation. Television has all the advantages of radio, namely, sound and
explanation, plus the additional advantage of sight. It can appeal through ear as
well as eye. Product can be demonstrated with explanation. Television reaches
the audience almost like personal face-to-face contact. To that extent it is just
like personal salesmanship. Full opportunity exists for product demonstration
and the amplification of selling points with audio presentation. It is really a
wonderful means of mass communication for creating market. Television
combines all of the elements of communication: 1. Illustration, 2. Music, 3.
Spoken words, 4. Written words. We can have short commercials as well as
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sponsored programmes combining entertainment with advertisement. It
represents typical combination of salesmanship and advertising.
TV Advertisements in India: The total number of TV sets in India by 1994 had
gone up to 16m. Exceeding 100 million Indian's have now access to TV. By the
year 2001, India should have appreciable nation-wide TV audience. More than
70 per cent TV advertisements represent all types of consumer (softs/durable)
goods.
Please note that TV is expensive medium. It lacks permanence. TV
message must be seen and understood immediately. Hence, TV does not allow
complicated messages. The remote control device for changing channels and for
fast-forwarding to skip over the commercials -- this reduces audience size. TV
advertisers, therefore, must have shorter and more entertaining commercial
spots.
In India, within a few years we would have round the clock coloured TV.
Programmes with multi-channel facilities. TV programmes can be tailor-made
for each age-group or each market segment. TV has penetrated even in rural
India.
Transit Advertising: Transit advertising consists of card advertising, which
is located within buses, subways, railways and outside displays, which appear on
the fronts, sides, and backs of buses or other public transport and at
transportation terminals. Transit advertising is the lowest-cost media. It gives
geographic selectivity and seasonal selectivity. It has high readership. It can
reach pedestrains and travelling public. However, non-riders are not exposed to
car-cards located inside the vehicle. Car-cards have small size and they can
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carry only short copy. Transit advertising is limited in quantity by the number of
public vehicles in operation.
Direct Mail: Direct mail is any advertising sent by mail (postal transmission)
including sales letters, folders, pamphlets, booklets, catalogues and the like. Direct
mail is the most personal and selective media. It reaches only the desired prospects.
It has minimum waste in circulation. The advertising copy can be very flexible. It
has maximum possible personal features even without personal contact. It can
provide detailed information about the product or service, creating lasting
impression. Its effectiveness is measurable. It can be timed as per advertiser's will. It
has maximum personal appeal. It can take any size, shape or form permitted by the
post office. It is not in direct competition with the rival's matter. Extensive testing
can be done on the product, price, appeal or other factors before the entire mailing is
sent out. The results of direct mail advertising can be checked by means of an offer
incorporated in the mailing. However, direct mail is costly. We may not have proper
mailing list. Receiver may consider it as junk mail as it may not have entertainment
value. It is not a good means of mass communication.
Advertising Specialities: These include a wide variety of items, such as
calendars, books, matches, pens, pencils, knives, key rings, diaries,
memopadvertisements, cigarette lighters, blotters, paper weights, electronic
clocks, purses, rainhats and so on. They are given to advertising targets
without cost or obligation. Advertiser's name, address, phone number, and a
short sales message are imprinted on the item. The advertiser can choose from
among 5,000 specialities in the market. Advertising specialities are reminder
type of promotion. It is hoped that they will lead to customer's orders and re-
orders. However, they have limited space available for sales message. They are
also costly.
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Point-of-Purchase Advertising: It really represents sales promotion
devices. It covers the display material used in advertising programme. Such
point-of-purchase material may include advertising on the package, window
banners, shelf-talkers, merchandise tags, package stuffers, information folders
and booklets and such other displaying materials.
Advertising Spends/Estimates 1990-1993
(Rs. in
1990
1991
1992
1993
Press
1050
1200
1400
1600
Doordarshan/Satelli
280
350
406
500
Outdoor
60
75
87
100
Radio
40
50
60
70
Video/Cable
10
15
20
25
Cinema
8
5
5
5
Total
1452
1695
1978
2300
4.6 PROMOTIONAL COMPAIGNS
Sales promotion is an important instrument in marketing to lubricate the
marketing efforts. Today, sales promotion is a necessity and not merely a luxury
or a fashion. It is not an expenditure; it is an investment which can pay rich
dividends. It is an integral part of the marketing effort.
What is Sales Promotion?
Sales promotion is referred to the promotional activities other than
personal salesmanship, advertising and publicity, which stimulate consumer
purchasing and dealer effectiveness, e.g., displays, exhibitions and showrooms,
demonstrations, free samples, coupons, premiums, contests and various other
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non-recurrent selling efforts not in the ordinary routine. It is a plus ingredient in
the marketing mix, whereas advertising and personal salesmanship are essential
and basic ingredients in the marketing mix.
In short, sales promotion is a bridge or a connecting link covering the
gap between advertising and personal salesmanship, the two wings of
promotion.
The manufacturer or wholesaler may have a good product, reasonable
price, attractive package, etc. He may have a good sales force. He may have
spent a lot on advertising. Even then he knows that the product may not sell by
itself. He can get orders from dealers or retailers. But many more things than
orders are required to he arhip.ved The sale of the product has to be promoted
through a number of influences at the place where retailers and prospective
buyers meet face to face, i.e., at the point of purchase. In short, all prospective
buyers must be attracted, urged and even persuaded to buy your product. Sales
promotion is a vital link between advertising and fieldselling. It aims at
stimulating consumer purchasing at the point of sale and dealers effectiveness at
the retail channel of distribution, particularly because retailing is a highly
competitive field.
Why Use Sales Promotion?
Sales promotion and publicity, when combined with advertising and
personal selling programmes, really add up to more than the sum of the parts.
Sales promotion is that "something extra" (2 + 2 = 5). It can arouse enthusiasm,
create a buying mood or spark an immediate reaction from consumers, dealers
and the firm's salesperson. Many sales promotion campaigns involve the use of
incentives. Incentives are something of financial value added to an offer to
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encourage some obvious behavioural response. Sales promotion is often thought
as special selling effort to accelerate sales. Point-of-purchase displays give a real
pay off, sales rising by 25 to 50 per cent or even more.
Sales Promotion Objectives
Sales promotion has dual objectives: 1. to increase buying response by
ultimate consumers, and 2. to increase selling efforts and intensity by dealers as
well as by sales personnel. 3 to supplement and co-ordinate efforts of
Advertising/Personal Selling. The result of an effective total marketing
programme is sales success, which entirely depends on positive customer
reaction and an intense, well organised selling effort by resellers and
salespersons.
One study suggested the following reasons for undertaking actively all
forms of sales promotion: 1. calling attention to new products and product
improvements, 2. informing buyers of new brand and new package, 3.
Improving market share, 4. increasing usage rate by present customers, 5.
maintaining customer patronage and brand loyalty, 6. obtaining dealer outlets, 7.
securing additional shelf-space and added display, 8. creating talking points for
salepersons, 7. meeting competition.
Sales Promotion/Advertising: 1. Sales promotion is a direct and open
persuasion to the consumer to try the product immediately. Advertising is
indirect and subtle approach persuading consumers to buy a product. 2. Sales
promotion performs an immediate job of boosting sales. Advertising has usually
longer-term goal, e.g., to build brand awareness, image or loyally, or
repositioning of a brand. 3. Sales promotion only alters price-value relationship
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of the product. Advertising adds some value to the product. Sales promotion
supplements both personal selling and advertising and co-ordinates them and
helps to make them effective.
Strengths of Sales Promotion
1.It stimulates positive attitudes toward the product. 2. It gives extra
incentive to the customer to make a purchase. 3. It gives direct inducement to
take immediate action now rather than later. 4. It has flexibility and it can he
used at any stage of a new product introduction. Sales promotions are very
effective: (a) when a new brand is introduced, (b) when we have to
communicate a major improvement in our product, (c) when we want to amplify
the results of the advertising, (d) when we want to increase the number of retail
stores to sell our products.
Limitations of Sales Promotion
1, Sales promotions have temporary and short life not exceeding three
months. Sales promotion alone cannot build up brand loyalty. 2. Sales
promotions are only supplementary devices to supplement selling efforts of
other promotion tools. 3. They are non-recurring in their use. They have seldom
reuse values. 4. Too many sales promotions may affect adversely the brand
image, suggesting its lack of popularity or overstocking by a company. 5.
Advertising agencies accord low status to sales promotions and usually employ
junior staff for sales promotion so that they may be trained for more creative
jobs. Sales promotions are ineffective: (a) when established brands have a
declining market, (b) there are no product improvements, (c) when there is
intensive competition on consumer sales promotion.
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Kinds of Sales Promotion
There are two kinds of Sales Promotion:
(a)Activities intended to educate or inform the consumers and those
intended to stimulate the consumers. These are called consumer sales
promotion.
(b)Activities to increase the interest and enthusiasm of dealers and
distributors. These are called dealer/distributor sales promotion devices.
Consumer Sales Promotion: These devices are: 1. Sampling, usually called
consumer sampling. Free samples are given to consumers to introduce a new
product or to expand the market. The consumers can try the product. 2.
Demonstrations or instructions educating the consumers in the manner of using
the product. 3. A coupon is a certificate that reduces price. When a buyer gives a
coupon to the dealer, he gets the product at a lower price (Regular price is Rs.
20; with a coupon it is Rs. 18). Coupons (same as money) are accepted as cash
by retailers. 4. Money-refund orders, i.e., full purchase price is refunded, helping
the introduction of a new product. Refund offer creates additional interest and
increases sales considerably. It is a good device for creating new user and to
strengthen the brand loyalty. 5. Premium (gift) offers are temporary price
reductions, which appeal to bargain instinct, e.g., instant coffee sold in carafes
by one company was very successful. Towels, dinnerware, hair-brushes, key
chains, artificial flowers, ball pens, toilet soaps, blades, were given as inpack
premiums. Attractive reusable jars costing separately Rs. 8 may be given at an
extra charge ofRs. 4 only. Liril gave a soap box almost free with two toilet
soaps. 6. Price-off, e.g., Rs. 2 off on a Brooke Bond pack of 500 grams; the
price-off label is printed on the package. It gives a temporary discount to the
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consumers. 7. Fashion shows and parades are good promotion aids or helps in
men's and women's sophisticated clothings. 8. Contests or quizzes for consumers
help to stimulate consumer interest in the product. In these contests, and quizzes,
participants compete for prizes on the basis of their skill or creative ideas. In
sweepstakes, they submit their names to be included in a drawing of prize
winners. This type of sales promotion is not a lottery because there is chance or
luck, prizes are offered and a payment to participate is there. 9. Trading stamps
are given for purchasing in a particular shop
The Quiz/Contest Craze
The advent of Star, Zee and Metro (Satellite TV) Channels has thrown
open to business concerns the possibilities of brand promotion via the countless
quizzes and contests now being telecast at a small percentage of norma!
promotional cost. With quizzes and contests on television gaining increasing
popularity, many companies are gifting their own products in an attempt at
gaining mileage for their brands.
Sponsor companies on the television are adopting the quiz and contest
route as a profitable means of establishing brand equity over a period of time. In
programmes like Philips Top Ten. Boumvita, Close-up Antakshari, Bajaj Ke
Tarane and Lux Kya Scene Hai, brand equity has been used as a format. These
programmes have gained considerable popularity and they will be remembered
for a long time. T. V. has gained substantial audience in India.
The basic strategy in contests is to provide an extra-incentive to the
consumer for buying a product. Full exploitation of contests at retail level must
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be planned. Retailers must be briefed about the contest and enough merchandise
should be available to satisfy all customer demand. A well planned quiz contest
has to be unique, interesting to the buyer, related to the product being sold, and
tied in with sales in some way.
Contests are used to reach short-term sales goals. If properly designed,
they can achieve other objectives as well. In fact, they are even used as versatile
ways to hit non-sales related targets. As markets evolve, contests will be used
for winning the upper hand, by emphasising a particular aspect of a product,
coping with competitive pressures or increasing recall. But competitions, like
any form of sales promotion, have their limitations--they cannot, for instance,
sell an inadequate product or one with a poor distribution network overnight or
work miracles.
Currently the companies are caught up in the contest/quiz fever. Viewers
are not complaining either. Marketers should make the most of the quiz and
contest opportunity before the magic fades. And then they may latch on to some
new fever, for there is never an end to new opportunities.
Dealer's Sales Promotion: These devices or helps are: 1. There is a provision
of free display material either at the point of purchase (POP) or point of sale
(POS), depending on one's viewpoint. Display reaches consumers when they are
buying and actually spending their money. 2. Retail demonstrators are supplied
by manufacturers for preparing and distributing the product as a retail sample,
e.g., Nescafe instant coffee to consumers for trying the sample on the spot or
demonstration regarding the method of using the product. 3. Trade deals are
offered to encourage retailers to give additional selling support to the product,
e.g., toothpaste sold with 30% to 40% margin. 4. Seller gives buying allowance
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of a certain amount of money for a product bought. 5. Buy-back allowance is
given to encourage repurchase of a product immediately after another trade deal.
A buy-back is a resale opportunity. 6. Seller gives free goods e.g., one free with
11, or 2 free with 10 are common free deals. 7. Advertising and display
allowance may be given. 8. Sales contests for salesmen are held. 9. Dealer
loader (a gift for an order) is a premium given to the retailer for buying certain
quantities of goods or premium for special display done by a retailer. 10. Dealer
and distributor training for salesmen, which may be provided to give them a
better knowledge of a product and how to use it.
Dealer sales promotion provides the selling devices. Sales promotion
devices at the point of purchase inform, remind, and stimulate buyers to
purchase products. People who see these devices are in a buying mood and thus
they can be easily persuaded to buy those products. Tell tags are informative
labels affixed on the product, describing in detail the features of the product and
its unique selling points. Shelf talkers are similar labels attached to the shelves
close to product displays. Counter top racks, posters, mechanised signs are other
point-of-purchase displays.
Each form of sales promotion is used to encourage quick movement of
products along the channel of distribution and enhancing the tempo of sales
campaign. It also creates extra incentive or gives extra value to the channel of
distribution itself, e.g., retailer's. Hence, sales promotion offers a direct
inducement which gives an extra value or incentive to the distributors, their sales
force and the ultimate consumer.
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Surging Popularity of Sales Promotion
Since 1990, sales promotion has become very popular and is now
integrated into the total marketing strategy. Factors accounting for importance
given to sales promotion are: 1. Sales promotion offers quick results which are
also measurable. 2. Competitive pressure compels many firms to retaliate with
their own sales promotions, e.g., contests, price off, gifts, etc. 3. Continuous
rising prices oblige consumers to become more price conscious. Sales
promotions become more attractive to them. 4. Tools are needed at the point of
purchase (POP) to boost sales in retail stores.
Reasons for Sales Promotion (Merchandising Aids)
Introduction of a new product. 2. Stimulus for a new use of a product.
Encouragement for increasing frequency of purchase. 4. Appeal to a special
area of the market. 5. Combination offer to encourage the use of other product.
Creation of dealer interest and inducing them to stock the articles. 7. Securing
shelf space in the retail window. 8. Counter-balancing price competition. 9.
Special training of salesmen. 10. Seasonal and grand reduction sales. 11.
Capturing bargain hunting and non-brand conscious buyers through bargain
sales. 12. Acceleration to slow selling lines.
Thus, sales promotion is used at the time of introducing a new consumer
product, to secure maximum dealer stocking, display space and attention of
customers. Sales promotion involves a lot of expenditure. It also has difficulties.
But because it pays rich dividends, sellers have accepted it as an important item
in the marketing mix. Not only does it give profit but it also serves other
purposes such as provision of information, creation of demand, repeat buyers,
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sales stabilisation and quick inventory turnover. The successful promotional
effort has many ingredients such as personal selling, sales promotion devices,
advertising, public relations, and publicity.
Industrial sales need higher personal salesmanship. In the sale of
consumer goods, we need a good combination of personal sales with advertising
and a lot of point-of-purchase help. Numerous final customers in mass
distribution cannot be approached through personal salesmanship. Hence, we
need devices to promote sales, such as contests, sweepstakes, premiums,
coupons, product demonstration, exhibits, point-of-purchase display, trading
stamps, samples, free trips to Kashmir and so on. The marketing manager must
co-ordinate the promotional effort of the sales manager, advertising manager,
and sales promotion manager. At present, Advertising Agencies help in both --
advertising and sales promotion devices.
Joint Promotion (through advertising or through promotional events)
Two years ago, in an unusual print ad, Mafatla! Fabrics endorsed Procter
Gamble's new detergent product. Ariel. Not that it was only Ariel: that stood
to gain from this approach. Mafatlal too, gained mileage through: the ad. This
was, perhaps, the first noticeable instance ofjoint promotion on the part of two
brands that hoped to gain in visibility.
Joint promotions as a marketing device has finally come into its own.
The. reasons for this are manifold. Rising advertising rates in the various media
makes brand visibility an expensive affair. Also, with the clutter of parallel
products in the market and messaging on the media, attempts at establishing
brand equity has become a more complex exercise. The days of distinct USPs
are by now in the past
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If two brands that already have an established equity, endorse each other,
the likelihood of success even beyond regular advertising stands a good chance.
The Godrej-Titan promotional tie-up that was carried out in November 1993, is
a case in point. The sales of the Godrej refrigerators trebled. However, in a
similar exercise, when an alarm clock made by a small scale manufacturer was
offered free with the Godrej refrigerator, the increase in sales was just 20 per
cent.
Joint promotions between two brands that pose no threat to each other,
yet aim at the same target audience and belong to the same usage category (a
detergent and washing machine for example), stand to gain in terms of
competitive edge by endorsing each other. The most notable examples here are
the Surf Ultra Videocon washing machine tie up, and car dealer Autoriders India
Limited's cooperative marketing venture with financial institutions, spare parts
dealers and insurance companies. Moreover, even though the target segment is
the same, the participants are not in direct competition with each other.
Cost sharing on joint promotions is an attractive benefit for advertisers
and promoters, specially in the face of escalating advertising costs. Marketers in
the joint-promotions game claim that such strategies can reduce media spend by
as much as 70 per cent.
Proponents of Joint-promotions claim that this is the second most
important marketing platform after advertising, and is one method of achieving a
direct face-off with the consumer. Fears that such cooperative marketing efforts
might dilute the brand's identity are discounted on the grounds that in fact, they
serve to provide incremental enhancement for the brand.
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Among the most recent and unique joint-promotion platforms has been a
promotional tool itself: the Snuggy Club of Diapers India Limited. With a
strength of 3,000 members who are mothers of children up to three-year-olds,
the Club was recently used for the launch of a number of children's product by
Wipro, Johnson & Johnson, Milton (the Funny Bunny range) and Leo Mattel.
Joint-promotions may yet be at a nascent stage. Fast becoming an
important marketing tool, it is bound to see a lot more innovations and
sophistication in the near future, as the need for closer interaction with the
consumer increases. Joint promotion, i.e., joining hands for visibility offers also
mutual increase in brand loyalty.
Exhibitions and Trade Fairs
An exhibition stand or stall is a form of showroom, but it is a very
distinctive form of showroom. It provides a temporary market place at which
buyers and sellers meet. There are various types of exhibitions, international
trade fairs, national and local fairs and exhibitions (usually sponsored by a
chamber of commerce or trade association). We may have indoor or outdoor
public exhibitions and fairs and shows, e.g., agricultural and industrial
machinery and equipment, cottage industries and handicrafts, fashion shows and
parades, domestic electric appliances, office machines and appliances, etc.
An article shown at an exhibition at least makes a good impression without
creating actual demand. A man is greatly impressed with a typewriter, time-
clock or simple appliance. He makes up his mind to buy one sooner or later.
Usually, people are in a buying mood when they visit an exhibition.
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A successful stand in an exhibition or a trade fair gives three services to the
owner:
It provides entirely new business which cannot be secured by any other
method.
Buyers unwilling to meet salesmen or visit the shop or show-room will, on
their own account, do a lot of purchases at these fairs or exhibitions. These
buyers are usually resellers.
Competitors compete with each other for getting maximum business. The
conservative buyer can compare the competitive lines displayed in close
distance to one another. They need not disclose their identity. They welcome
criticism of their regular suppliers only at such exhibitions. Thus, at exhibitions
constructive and conservative buyers (resellers) can be easily handled and
captured by rival sellers.
In many trades, exhibitions are held annually at the same period of the year,
These exhibitions attract a large number of buyers every day. These annual
exhibitions become the basis of many sales campaigns. Buyers purchase all their
requirements, e.g., utensils, furnishings, appliances, clothing, fittings, at these
exhibitions.
The Fashion Shows
The fashion show idea can be exploited intelligently in the overall
promotional strategy. A series of glamorous fashion shows are held in the metro
cities like Bombay, Delhi, Calcutta, on a massive scale. Currently they are also
organised on the television, the best medium of advertisement to reach the target
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audience. TV now commands a viewership over 12 crores for a prime time flash
in the national hook-up.
Indian Fashion Scene
The fashion market in the national and the international scenario is increasing at
a maddening pace. With the export boom coming through in a very big way, the
fashion scenario has received a further boost. Looking at the number of
boutiques and studios springing up in the country, one can sense the potential of
the fashion business. A number of multinationals have entered and continue to
enter into the Indian fashion business.
Fashion
The industry has Rs. 12,000 crore internal market and Rs. 1600 crore
export market. About 25,000 jobs are generated each year in the fashion field.
Stagnation in this field seems a distant fear as the fashion market is growing at a
tremendous rate. Hence, fashion shows and exhibitions are becoming very
popular as means of promotion, it is said that if the world is 'sound' then fashion
is the 'melody.' If the world is 'sky', then the fashion is the 'rainbow.' Fashion
usually means the 'current style.' Life would be drab without fashion.
Exclusive Showrooms
Generally the showroom idea is used as a tool of distribution. Currently
in the face of growing competition and unfair undercutting by dealers, a number
of consumer durable companies are opening plush, exclusive showrooms,
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arcades, gallaries as powerful means of sales promotion to boost their sales.
Exclusivity plays the role of Unique Selling Proposition (USP) to increase the
sales.
Onida has set up around 20 Arcades in big cities. Bush has exclusive
galiaries. Sumeet has established gallary-cum-service centres Ceat has (Ccat
Shoppes). Vimal textiles have a large network of ultra-modern showrooms all
over India.
A very great advantage the exclusive showrooms offer to a company, is
the ability (o impress the consumer with the whole range of its products at a time
when all companies are going in for diversifications and range expansions.
Of course, the showrooms are only additional means of sales promo-
tion/distribution. The distributor/dealer network systems have not been done
away with completely. One cannot deny the importance of dealers. A prospect
about to invest more than Rs. 15,000 will obviously want to look at other brands
in the market before making up his mind. The showroom idea is also to
encourage customers to go back to dealers stocking the brands.
The exclusive showroom idea as a promising marketing device has
proved a draw is undoubted. The future of such showrooms, particularly for
T.V., V.C.R., Washing Machines, costly textiles seems to be bright at the
moment. Some companies have franchise-owned showrooms with identical
colour schemes, furnishings, flooring and identical services.
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Publicity/Public Relations
Publicity is also called marketing public relations. Publicity is not paid
for by the organization. Publicity comes from news reporters, columnists and
journalist people. It comes to the receiver as the truth rather than as a
commercial. Public relations and publicity taken together become the fourth
major ingredient of promotion mix. These activities are, however, not
controllable by the firm. Every firm tries to create a good public relations so as
to give good publicity.
Defective products, unfair trade practices, anti-social activities often
result in unfavourable publicity, consumer ill-will, bad product image, increased
consumer protests, government regulations and so on. The firm having a poor
public image will have lower sales and lower profits. Reducing the impact of
bad news is as important as creating good publicity.
Under the social marketing concept, publicity and public relations are
assuming unique importance in the firm's promotion mix. Consumerism is
altering consumer attitudes not only towards products, but also towards the firm
and dealers selling the products of the firm.
Public Relations: Public relations have now become an important marketing
function. The total processof building goodwill toward abusiness enterprise and
securing a bright public image of the company is called public relations. It
creates a favourable atmosphere for conducting business. There are four groups
of public: 1. customers, 2. shareholders, 3. employees, 4. the community. The
marketers should have the best possible relations with these groups. Public
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relations complement advertising by creating product and service credibility.
Effective marketing communication is not possible without establishing and
maintaining mutual understanding between the company and its customers. The
lubricant making the wheel of marketing run smoothly is public relations. Bright
image is created and maintained only by public relations. Liberal aid in all social
welfare projects enhances the public image of the marketer.
4.7 Promotion Strategy
Strategy lays down the broad principles by which a company hopes to
secure an advantage over competitors, exhibit attractiveness to buyers, and lead
to full exploitation of company resources.
When marketers resort to promotion or persuasive communication in
marketing, we have a kind of the promotion square. It has four sides of equal
importance, viz.: 1. The product described in the marketing communication. 2.
The prospect to be converted into a customer through persuasion and influence
by promotion. 3. The seller or the sponsor who undertakes promotion, and 4.
The channel or the route along which the product will move from marketer to
buyer. The promotion strategy will depend upon these four sides. The promotion
strategy deals with the following decisions: 1. the blend of promotional activities
(advertising, publicity, personal selling and sales promotion), 2. the amount
allocated for the various forms of promotion particularly to the advertising
media such as press, radio, television, and so on, 3. the kind of promotion to be
used. Each kind of promotion has strengths and weaknesses as a communication
medium. Each mode of promotion depends on the nature of the products,
characteristics of the market, stage of market development and stage of the
buyer's decision-making. These unique strengths and weaknesses must be duly
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recognized while designing the promotion (communication) mix. Then again we
have also interactions among the various forms of promotion. These interactions
determine the total promotion effectiveness. The interdependencies of all kinds
of promotion demand an integrated approach to promotion mix.
1.The Product: The product is one of the factors determining the form of
promotion. Toys, Toilet Soups and Cosmetics are effectively shown on
television. Press advertisements are unsuitable for children. Mass selling
consumer goods can be easily promoted through radio and television
advertising. Industrial and specialty goods should be promoted through technical
journals and through sales engineers.
2.The Buyer: If the marketers are to provide realistic solutions to the problem
of buyers, they must know their customers, their needs and desires, their
attitudes, values, aspirations and expectations. Hence, marketers must have up-
to-date information about consumer demand and consumer behaviour.
3.The Company: The firm has a unique public image in the market. The firm's
image must be closely associated with promotional strategy so that its goodwill
can be exploited. Corporate advertisements usually emphasize more on the
character, reputation, reliability and responsibility of the marketing firm. Source
credibility in promotion plays a very important role in making promotion
believable to the receiver. Effectiveness of communication depends upon the
firm's image in the market. When the perceived risk in buying a product is
higher, the source credibility is an important factor in purchase decisions. A
credible or trustworthy source produces much greater change in buyer's
predisposition than one that is not credible.
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4.The Channel Choice: The promotional strategy also depends on the channel
or route through which products of the firm flow to consumers. There are pull
and push strategies in promotion. Pull strategies depend upon mass
communication. Products are literally pulled by buyers through the channels on
the basis of mass promotional efforts. In a pull strategy the product is pulled
through the channel by creating end-user demand. Customers force retail shops
to stock those mass-promoted products. In turn, retailers demand the highly
advertised product from wholesalers. The firms having well-known brands can
exercise control over channels through pull promotion strategies. Personal
salesmanship plays a secondary role in pull promotion. Marketer rely on
intensive distribution. Dealer margins are also lower in pull promotion.
A PUSH STRATEGY
MANUFACTURER'S
WHOLESALER'S
RETAILERS
SALESMAN
SALESMAN
SALESMAN
MANUFACTURER
WHOLESALER
RETAILER
CONSUMER
B PULL STRATEGY
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ADVERTISING
AND
SALES
MANUFACTURER
WHOLESALER
RETAILER
CONSUMER
Note: 1. Under push strategy, producer directs all promotion efforts mainly on
the middlemen i.e., wholesalers and retailers. Product is pushed through
the channel. So flow of promotion and flow of goods move from the
producer to the wholesaler and from the wholesaler to the retailer and
from the retailer to the consumer.
Under pull strategy, all efforts of promotion now flow directly to the target
market, i.e., consumers and then consumers literally pull the wanted
products from the retailer and the retailers in turn pulling the products
from the wholesalers who are forced to stock those products by
approaching the producer. So we have the request for*the product
starting from consumers V up to producers.
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A pull strategy is also called a suction strategy. Extensive and heavy use
of advertising and sales promotion would be necessary to generate consumer
demand. There is less emphasis on personal selling at all stages of the marketing
channel. Small firms are unable to depend entirely on advertising and sales
promotion, because large investment is involved due to emphasis of advertising
and sales promotion. A push strategy is called a pressure strategy. It places
heavy emphasis on personal selling.
Industrial marketing strategies are mostly the push type strategies relying
primarily on personal selling. In the sale of medical products and in life
insurance, marketers have to use large number of sales-people to call on
physicians and prospects for life insurance. In push type promotion, personal
selling expenses are considerable and dealer margin is also higher. In push type
promotion, after-sale service is also important. In push type promotion
marketers rely on selective distribution. Push strategy can be successfully used
when: 1. we have a high quality product with unique selling points, 2. we have a
high-priced product, and 3. we can offer adequate incentives (financial) to
middlemen and their salesmen.
Most consumer goods manufacturers generally employ a pushpull
(combination) strategy to sell their products. The ratio of pull to push may differ
according to the requirements of market situation. Salesmen are used to push the
goods through the marketing channel, while advertising and sales promotion will
support personal selling to accelerate sales. Thus, all tools of promotion work
together.
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Promotion Decisions
Once the marketing plan is ready we can develop a total promotion
programme to approach the target audiences. Budget for each element of
promotion is prepared.
Promotion objectives must be set before we decide on message contents,
layout and delivery of message. Contents and layout decisions are based on
strengths and weaknesses of the various media vehicles. Delivery decisions are
based on the needs of carrying particular types of messages. Promotion
objectives, message design, message delivery and promotion budget are the
constituents of promotion programme. All these are highly inter-related decision
areas.
When the promotion budget is fixed by the top management all decisions
on promotion programme must be within that budget. If the promotion budget is
not so fixed, promotion programme will be designed to support the marketing
plan. The promotion budget to implement marketing plan will be approved by
top management.
OVERALL CORPORATE OBJECTIVE
INCREASE OF R.O.I BY 3 P.C.
MARKETTING OBJECTIVE
INCREASE IN MARKET SHARE
BY 5 P.C
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PERSONAL
SALES
PUBLICITY
SELLING
PROMOTION
ADVERTISING
OBJECTIVE
OBJECTIVE
OBJECTIVE
OBJECTIVE
INCREASE IN
INCREASE IN
SUPPLY
INCREASE IN
FIRM'S IMAGE-
SALESMAN'S
DEALERS AIDS
BRAND
SOCIAL
CALLS ON NEW
AND GET 5000
PREFERENCE
AWARENESS IN
ACCOUNTS BY
NEW
BY 10 P.C
ITS PROMOTION
50 P.C
RETAILERS TO
PLANS
DISPLAY NEW
PRODUCTS
Fig.5 Hierarchy of Objectives for the Promotion Mix of the Marketing
Programme of a firm
Note: 1. There are three specific purposes of promotion: (a) to communicate, (b)
to convince, and (c) to compete. Ideas (communicated) must convince enough
the consumer to take the desired action. Promotion is the vital tool of giving
competition.
2.A good product, an efficient channel, and an appropriate price will not be
enough. A strong promotional element in the marketing strategy alone can carve
out a market niche and create a differential advantage for your products. The
competitive character of promotion defines its vital role in marketing
programme (for increasing the market share).
Note: 1. There are three specific purposes of promotion: (a) to communicate, (b)
to convince, and (c) to compete. Ideas (communicated) must convince enough
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the consumer to take the desired action. Promotion is the vital tool of giving
competition.
A good product, an efficient channel, and an appropriate price will not be
enough. A strong promotional element in the marketing strategy alone can carve
out a market niche and create a differential advantage for your products. The
competitive character of promotion defines its vital role in marketing
programme (for increasing the market share).
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UNIT V
Lesson -1
DISTRIBUTION
Learning objectives
After you have studied this chapter, you will be able to ...
Explain the concept of distribution
Understand the significance of channel management
Describe the key players in the channel structure
Contents
Introduction
Concept and nature of distribution
Channel functions
Channel Structures
Channel types
Distribution practices of select firms
Summary
Short questions
Discussion questions
References
Introduction
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A key decision among the four Ps of marketing managers is distribution.
Distribution decides the manner in which product and services are made
available to the target customers. It involves the bridging of place utility gaps
between manufacturer and customers. The design of physical distribution,
referred to logistics and supply chain management and trade channels of
distribution are the major components in distribution. .
CONCEPT AND NATURE OF DISTRIBUTION
The link between manufacturers and customers is the channel of
distribution. It consists of producer, consumer, and any intermediary
organizations that are aligned to provide a means of transferring ownership
(title) or possession of a product from producer to consumer. The characteristic
features of distribution are:
Distribution is an ancient function.
It was found in a primitive economy in which people realized the need
for specialization and exchange. They understood that efficiency can be gained
if one person specializes in a certain activity, such as hunting, and another
person specializes in a different activity, such as fishing or farming. They
exchanged one good for another to satisfy their needs. In a primitive economy,
distribution is straightforward; in today's global economy, it is far more
complex. It is because of the distances, variety of supporting trade services, and
variety of needs of buyers.
Key external resource:
While manufacturing, research, engineering and field sales personnel
represent internal resources, distribution represents a key external resource. It is
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outcome of a significant corporate commitment to a large numbers of
independent organizations whose business is distribution.
Complex with flows
Channels represent a set of interdependent relationships among
intermediaries and producer. The channel facilitates forward flows (physical
goods, title of goods, and promotion offers) and back ward flows (ordering and
payment). Some of these flows are forward flows (physical transportation, title,
and promotion); others are backward flows (ordering and payment); and still
others move in both directions (information, finance, and risk taking).
Channel functions
Distribution channel performs various tasks necessary to promote sales
of products and services to the ultimate customers. They may include some or
all of the following:
Buying--every middleman must purchase products for resale or contract as an
agent to receive a supply of product.
Selling--every middleman must contact potential customers, promote the
product, and solicit orders.
Assorting--the typical middleman brings together an assortment of
merchandize, usually of related items, from several sources to better serve his
potential customers.
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Financing--by investing in inventory and by extending credit to customers, the
middleman helps to finance the exchange process.
Storage--products must be assembled in a convenient location to assure
availability and must be protected to prevent deterioration and loss.
Sorting--in some situations, the middleman provides the important function of
buying in large quantities and breaking the bulk purchase into smaller quantities
for resale.
Grading--it may be necessary for the middleman to inspect, test, or judge the
products he receives for quality and to assign distinct quality grades to them.
Transportation--this is the logistics function, managing the physical flow of the
product.
Market Information--the middleman typically has some responsibility for
providing market information both to his customers and to his suppliers,
including information about availability, product quality, competitive
conditions, customer needs, and so on.
Risk-taking--risk is inherent in the ownership of an inventory of product that
can deteriorate or become obsolete.
The design of a marketing channel is an attempt to get each of these
functions performed as efficiently and effectively as possible.
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Channel Structures
Channel structures are evolved based on the type of company products,
target market segments and competition. Three different channel structures are
briefly explained here. Table ?1 shows the different systems.
Table 1 Marketing systems
System
Description
Benefits
Vertical marketing system
Comprise producer, wholesaler
and retailer (s) acting as
Achieve economies through
their size, bargaining power,
a unified system.
and elimination of duplicated
services and channel conflicts.
Horizontal marketing
Readiness or willingness of two Economy of effort. A channel
system
or more non-related companies
may become viable and
to put together resources to
attractive. Eg: Shakti groups
exploit an emerging market
opportunity.
Multi- channel marketing
Simultaneous use of
Efficient reach. Wider coverage.
system
different channels.
Telemarketing and indirect
distribution as in the case of
marketing of mobile phones.
Channel types
One key question in channel decisions is- whether to go for indirect or
direct marketing.
Direct to customers
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Producer ?> Customer through (i) own sales force without own branch net work
(ii) own sales force with own branch net work (iii) Telemarketing (iv) E-
Channels
Indirect to customers
Because of the wide variety of channel arrangements that exist, it is
difficult to generalize the structure of channels across all industries. However,
distribution channels are usually of two types:
Direct Marketing Channel (or Zero level). This type of channel
has no intermediaries. In this distribution system, the goods go from
the producer direct to the consumer, e.g., Eureka-Forbes.
0 level
Producer
Consumer
Indirect marketing Channel. This may further be classified in the
following categories
One-Level Channel. In this type of channel there is only one
intermediary between producer and consumer. This intermediary may be
a retailer or a distributor.
1 Level
Producer --------- Retailer ----------- Consumer
If the intermediary is a distributor, this type of channel is used for
specialty products like washing machines, refrigerators or industrial
products.
Producer -------- Distributor --------- Consumer
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Two-Level Channel. The type of channel has two intermediaries, namely
wholesaler/distributor and retailer.
2 Level
Producer ----- Distributor --- Retailer -- Consumer
Three ? Level Channel. This type of channel has three intermediaries
namely distributor, wholesaler and retailer. This pattern is also used for
convenience products
Producer ----- Distributor ---- Wholesaler --- Retailer -- Consumer
Four ? Level Channel. This type of channel has four intermediaries
namely Agent, Distributor, wholesaler and Retailer. This channel is
somehow similar to the previous two. This type of channel is used for
consumer durable products also.
Producer ----- Agent ---- Distributor ---- Wholesaler --- Retailer --
Consumer
Let us now draw distinctions between direct and indirect marketing
efforts. Table-.2 presents them
Table 2 Direct vs Indirect marketing
S. No
Aspect
Direct
Indirect
1.
Type of market
Vertical-few buyers
Horizontal-Many buyers,
fragmented and widely
distributed
2.
Market potential
High volume
Less volume
3.
Market density
High
Thin
4.
Buying habits
Large volumes per order, Small volume per order,
less frequent buying,
frequent buying, not particular
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preference to direct contact
about contact with supplier
5.
Buying process
Involves extensive
Less negotiation
negotiation and bargaining
6
Product
Customized solutions,
Standardized
7
Pricing
Volatile,
need
many Less volatile, few adjustments
adjustments
8
Promotion
Strong need for information Less need for information
/communications
service
service
9
Distribution
Less emphasis on logistics Strong emphasis on logistics
services, need for deep services (like lot size, delivery
product
knowledge
and time, assortment and so on),
personal attention
need for availability of products
and not brand specific.
5.
Services
of Complex
Less complex
installation
operation
maintenance
6.
Quality
Important concern for buyer Normal considerations
7.
Own
financial Strong.
Can
support Weak. Requires quick returns
position
branches
Marketing objective Long range ? Better relations
Short range ? profit orientation.
with customers
Source: Krishnamacharyulu and Lalitha, (2006) Industrial Marketing, Jaico Publishing House,
Mumbai,
The internet is expected to cause disinter mediation (destruction of
intermediary function) as manufacturers bypass middlemen and deal directly
with customers. However, channel members continue to thrive in many
industries. Surprisingly, internet is now being used to collaborate and support
the middlemen and to build customer loyalty.
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Distribution Practices of select firms
Shakti model of HLL
HLL's new distribution model, named project Shakti, was piloted in
Nalgonda district in 2001.It has been scaled up and extended to over 5,000
villages in 52 districts in AP, Karnataka, Gujarat and Madhya Pradesh with
around 1,000 women entrepreneurs in its fold. The vision is ambitious: to create
by 2010 about 11,000 Shakti entrepreneurs covering one-lakh villages and
touching the lives of 100 million rural consumers.
HLL has operated Project Shakti through the self-help groups. AP was
chosen for the pilot project as its has the most number and better established
SHGs ? there are about 4.36 lakh SHGs in AP covering nearly 58.29 lakh rural
women. The objectives of Project Shakti, are to create "income-generating
capabilities for underprivileged rural women by providing a sustainable micro
enterprise opportunity" and to improve rural living standards through "health
and hygiene awareness". For HLL. it is "enlightened self-interest". Creating
opportunities to increase rural family incomes puts more money in their hands to
purchase the range of daily consumption products ? from soaps to toothpastes ?
that HLL makes. It also enables HLL access hitherto unexplored rural
hinterlands.
For HLL greater penetration in rural areas is also an imperative ?
presently over 50 percent of its incomes for several of its product categories like
soaps and detergents come from rural India. The challenge for HLL now is to
take its products to towns with a smaller population ? under 2,000 people.
HLL's conventional hub-and-spoke distribution model which it uses to great
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effect in both urban and semi-urban markets, wouldn't be cost-effective in
penetrating the smaller villages. Now, with this new distribution model, the
smaller markets are now being referred to as `Shakti markets'.
Typically, a women from a SHG selected as a Shakti entrepreneur
receives stocks at her doorstep from the HLL rural distributor and sells direct to
consumers as well as to retailers in the village. Each Shakti entrepreneur
services 6-10 villages in the population strata of 1,000 ? 2,000 people.
Typically, a Shakti entrepreneur sets off with 4-5 chief brands from the HLL
portfolio ? Lifebuoy, Wheel, Pepsodent, Annapurna salt and Clinic Plus. These
brands apart, other brands, which find favour with a rural audience, are: Lux,
Ponds, Nihar and 3 Roses tea. Typically, unit packs are small. All the brands are
national and HLL is cool to the idea of creating a rural-specific brand as it will
only dissipate the advertising media effort for the brands.
Having perfected the model in Nalgonda, in 2003 HLL plans to extend
Shakti to a 100 districts in Madhya Pradesh, Gujarat and UP. There are other
plans brewing. One is to allow other companies which do not compete with HLL
to get onto the Shakti network to sell their products. Talks are on with battery
companies like NIPPO, TVS Motor for mopeds, insurance companies for LIC
policies. "We wanted to first stabilize the project before we can look at other
companies. It requires somebody with scale and size to build a platform and then
invite other companies onto this platform", elaborates Sehgal. HLL is now in the
process of piloting `I-Shakti', an IT-based rural information service that will
provide solutions to key rural needs in the areas of agriculture, education,
vocational training, health and hygiene. The project will be plotted in Nalgonda
district again, Based on a palm pilot, HLL is looking at sourcing
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appropriate low-cost hardware from Hewlett-Packard while Unilever Research
out of London is developing the consumer interactivity software.
The Usha International Ltd. (UIL), the company which is known for the
sewing machines, also has the marketing arm of Rs. 1300 crore Siel Group
selling the industrial and farm equipments as well as appliances. The company
has a wide distribution network which includes:
Divisional Officers (15)
Warehouses (26)
Company Owned retail outlets (50)
Exclusive sales and service centers and multi-brand outlets (5000).
And
Centralized spare parts facility centers for small appliances (8)
The UIL has a strong network of distribution channels and the products
are made available to the customer at the low cost with higher extent of
satisfaction as compared to the other companies. The distribution of 5000 sales
and services centers of the company provides better access to the retailers and
customers.
Summary
Distribution is important from firm as well as economy point of view. A
channel of distribution links marketer and customers directly or through
intermediaries. Distribution is an ancient function, a key external resource, a
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link between seller and customer, a channel with flows and complex in nature.
Channel structures present vertical, horizontal and multi-channel marketing
systems. Vertical marketing system is of three types ? corporate, administered
and contractual. One key question in channel decision is whether to go for direct
or indirect marketing. Direct marketing is appropriate when buyers are few and
buy large volumes per order, product is customized ,buying requires negotiation,
information needs are many and long range relationships are important.
Indirect channels include wholesalers, retailers, dealers, cooperative
agencies, self-help groups etc. Direct marketing channels include branch houses,
sales force, telemarketing service bureau and internet info mediaries.
Short questions
Channel flows
Channel functions
Types of middlemen
Vertical marketing system
Horizontal marketing system
Multi-cannel marketing system
Indirect vs direct marketing
Wholesalers
Retailers
Self help groups as middlemen
Info mediaries
Telemarketing service bureaus
(m)International channels
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Discussion questions
Explain the concept and significance of marketing channels
Discuss the merits and demerits of direct and indirect marketing
Explain the role of technology in direct marketing.
Identify the different players in indirect marketing.
Mini Projects
Visit a nearby village and observe how retailing is taking place.
Examine how poultry marketing is taking place in villages.
Know from the poultry firms
References
Philip Kotler(2002), Marketing Management, Prentice ? Hall of India
Pvt. Ltd., New Delhi,
William G. Zikmund and Michael d' Amico,(2002) Marketing,
Thomson Asia Pvt. Ltd., Singapore,
Rajan Sexena, ( 2002), Marketing Management, Tata McGraw Hill
Publishing Company, New Delhi, 2002.
R. S. Davar(2000), Modern Marketing Management, Progressive
Corporation Pvt. Ltd, Bombay,
Rajagopal, Marketing Management, Vikas Publishing House Pvt. Ltd.,
New Delhi.
Lesson ?2
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LOGISTICS MANAGEMENT
Learning objectives
After you have studied this lesson, you will be able to....
Appreciate the concept and role of logistics in marketing
Explain the concept and characteristics of supply chain management
Relate value chain to supply chain
Contents
Introduction
Concepts
Significance of logistics
Objectives
Key decisions
Supply chain defined
Goals and significance
Value chain
Supply Chain in Practice
Summary
Short questions
Discussion questions
References
Introduction
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Logistics management is one of the time and cost saving strategies of
business organizations. It is now being related to supply chain management.
Supply chain has become important to companies to gain competitive advantage
in terms of speed and cost of delivery of products and services to customers.
Marketers therefore should have a good understanding of the goals of logistics
and value chains.
Concepts
Distribution can be analyzed into two aspects: physical distribution and
channels of distribution. Physical distribution refers to the process of moving
goods from factory to points of purchase by customers. It includes location of
plants and warehousing, transportation mode, inventory and packing. The
systems concept of physical distribution establishes firm linkages among these
component activities. It is called as a integrated market logistics that recognizes
interdependence of costs of each activity. It involves activities that begin when
the customer places the order and that end with the delivery of the product to the
customer. The main elements are:
Order processing
Ware housing
Inventory
Transportation
Recently, the concept of integrated market logistics system is referred to
as supply chain management, which is broader in it s scope. It is concerned with
all the flows starting from supplier to manufacturer to customer. As such
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integrated market logistics system is a subset of supply chain management of a
firm.
Significance of logistics
Responsive logistical service is very important from the point of view of
customer sas well as competition. It enhances customer satisfaction and creates
the opportunity for closer and more profitable buyer-seller relationships. It is
often ranked by buyers next to "quality" as a criterion for selecting a vendor.
(1) Place factor
Logistics creates place utilities to consumers. Companies lose their
customers when they fail to supply goods at the right place. Many products fail
in the competitive market when they are not available at the points of purchase
at the right time.
(2) Time factor
An important utility required by customers is time utility. If products or
services are not available at the right time, the customers look for substitutes. If
the failure to supply is frequent, customers shift their preferences to the timely
available product though it is less satisfying.
(3) Cost factor
Experts believe that substantial savings can be obtained in physical
distribution area. For this reason it has been described as `the lost frontier for
cost economies'. Physical distribution decisions when uncoordinated, result in
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high cost. There is a need to make use of modern operations research tools and
computer programming for coordinating inventory levels, transportation modes,
and plant, warehouse and store locations.
(4) Promotion factor
It is a potent promotool in competitive marketing. Companies can attract
additional customers by offering better service or lower price through
improvements in physical distribution.
Objectives
The objective of physical distribution is getting the right goods to the
right places at the right time for the least cost. Evidently, this involves a trade--
off between customer service and cost. The conflict in goals can be expressed as
follows.
Maximum customer service implies large inventories,
premium transportation and multiple warehouses all of which
raise distribution cost.
Minimum distribution cost implies cheap transportation,
low stocks and few warehouses.
Optimization of each of the components(subsystems) ?order processing,
warehousing, inventory and transportation, may appear to be the right answer.
But it is not correct. Physical distribution decisions must aim at optimization of
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total system and not the sub optimization at the subsystem levels i.e., order
processing, warehousing, inventory and transportation.
Customer service:
Marketers have to decide their service standards based on key
information about customers and competitors.
What the customers are looking for?
What the competitors are offering?
Table -1 describes the various elements of service. Typical service standards
are:
Put the product within an arms length of customers
To deliver at least 95 per cent of the dealer's orders within
seven days of the receipt
To ensure that damage to merchandise in transit does not exceed 5
percent
However, not all products or all customers require the same level of
logistical service.
Many business products that are made to order--such as heavy
machinery--have relatively low logistical service requirements. Others, such as
replacement parts, components, and subassemblies, require extremely
demanding logistical performance. Similarly, customers may be more or les
responsive to varying levels of logistical service. Table -1 Elements of Logistics
Service
Elements
Description
Delivery time
The time from the creation of an order to the fulfillment
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and delivery of that order encompasses both order-
processing time and delivery or transportation time.
Delivery reliability The most frequently used measure of logistics service,
delivery reliability focuses on the capability of having
products available to meet customer demand.
Order accuracy
The degree to which items received conform to the
specification of the order. The key dimension is the
incidence of orders shipped complete and without error.
Information access The firm's ability to respond to inquires about order status
and product availability
Damage
A measure of the physical conditions of the product when
received by the buyer.
Ease
of
doing A range of factors including the ease with which orders,
business
returns, credits, billing, and adjustments are handled
Value-added
Such features as packaging, which facilitates customer
services
handling, or other services such as pre pricing and drop
shipments.
Source: Jonathon L. S. Byrnes, William C. Copacino, and Peter Metz, "Forge
Service into a Weapon with Logistics," Transportation & Distribution,
Presidential Issue 28 (September 1987): p.46.
Cost:
The next step is developing a cost function for a service level as shown
below.
D = T + FW + VW + S-------------------- (15.1)
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Where
D = total distribution cost of proposed system
T = total freight cost
FW = total fixed warehouse costs
VW = total variable warehouse costs
S = Total cost of sales lost due to average delivery delay under proposed
system.
The company should aim at minimizing the distribution cost of
reaching a target level of customer service.
Key Decisions
We will now examine the four major decision issues
How should orders be handled? (order processing)
Where should stocks be located? (warehousing)
How much stock should be held? (inventory), and
How should goods be shipped? (transportation).
(a) Order Processing:
The first phase in physical distribution is order ? shipping ? billing cycle.
A customer order initiates several steps
Order department prepares multi copy invoices and dispatches them to
various departments.
Order is checked with available stock. Items out of stock are back
ordered
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Items are shipped. Shipped items are accompanied by shipping and
billing documents with copies going to various departments.
The whole process is now expedited with the help of computers by warehousing
(b) Ware housing
A storage function is necessary because the production will be more than
customer orders in general. Striking a balance between customer service
standards and distribution costs, marketers has to
Decide on a desirable number of stocking locations depending
upon the markets the firm intends to serve
Choose the type of warehouses. Today a variety of warehouses,
with advanced material handling systems and storage facilities
are available.
Inventory
Inventory management requires decisions relating to
Level of stock ? Determining optimum order quantity
Time of ordering ? Reorder point
Minimum stock level to meet emergencies ? safety stock
Today, just ? in ? time production practices and product customization
are changing the inventory planning practices
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(d) Transportation
Marketers have to make careful choice of transportation mode and
organizations. In choosing a transportation mode for a particular product,
shippers consider such criteria as
Speed
Frequency
Dependability
Capability
Availability
Cost
Supply Chain Defined
It is a network of facilities including material flow from suppliers and
their "upstream" suppliers at all levels, Transformation of materials into semi-
finished and finished products, and distribution of products to customers and
their "downstream" customers at all levels. Briefly then, L&SCM is enshrined in
the 5Rs -- making the Right product available at the Right place, at the Right
time, at the Right cost and in the Right quality.
According to Cooper, Lambert, and Pagh, the following is a formal
definition of supply chain management:
Supply chain management (SCM) is the integration of business processes from
end user through suppliers that provides products, services and information that
add values for customers.
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A supply chain consists of all parties involved, directly or indirectly, in fulfilling
a customer request. A typical supply chain may involve a variety of stages.
These supply chain stages include:
Customers
Retailers
Wholesalers /Distributors
Manufacturers
Component/Raw material suppliers
The appropriate design of the supply chain and the number of stages will
depend on both the customer's needs and the roles of the stages involved.
Table ?2 Supply Chain Stages
Interface
Cycle
Activities
Manufacturer-Supplier
Procurement cycle
Order based
manufacturer's
production schedule
Supplier production
scheduling
Component
manufacturing and
shipping
Receiving at
manufacturer
Distributor
- Manufacturing cycle
Order arrival
Manufacturer
Production
scheduling
Manufacturing and
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shipping
Receiving
Retailer -Distributor
Replenishment cycle
Retail order trigger
Retail order entry
Retail order
fulfillment
Retail order receiving
Customer ?Retailer
Customer order cycle
Customer arrival
Customer order entry
Customer order
fulfillment
Customer order
receiving
Goals and Significance
The objective of every supply chain is to maximize the overall value
generated. Today companies are giving L&SCM due importance because of two
reasons: cost control and retaining markets. And, both these factors are crucial to
defending bottom lines.
Value chain concept
Supply chain strategies sub serve competitive strategies of a company. A
company's competitive strategy defines the set of customer needs that it
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seeks to satisfy through its products and services. Competitive strategy targets
one or more customer segments and aims to provide products and services that
satisfy these customers' needs. To see the relationship between competitive and
supply chain strategies, consider value chain for a typical organization, as shown
in Figure 1
The value chain begins with new product development linked to
Marketing and Sales, Operations, Distribution and Service. These are core
functions that must be performed for a successful sale. Finance, accounting,
information technology, and human resources support and facilitate the
functioning of the value chain. To execute a company's competitive strategy, all
these functions play a role and each must develop its own strategy.
A Product development strategy specifies the portfolio of new products that
a company will try to develop. It also dictates whether the development
effort will be made internally or outsourced.
A Marketing and sales strategy specifies how the market will be segmented
and how the product will be positioned, priced, and promoted.
A supply chain strategy determines the nature of procurement of raw
materials, transportation of materials to and from the company, manufacture
of the product or operation to provide the service, and distribution of the
product to the customer, along with any follow-up service.
From a value chain perspective, supply chain strategy specifies what
operations, distribution, and service will try to do particularly well. Additionally,
in each company, strategies will also be devised for finance, accounting,
information technology, and human resources. The value chain
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emphasizes the close relationship between all the functional strategies within a
company.
.
Finance, Accounting Information Technology, human Resources
New Product
Marketing
Operations
Distribution
Service
Development
and
Sales
Figure -1 Value chain
The strategic fit requires that a company achieve the balance
between responsiveness and efficiency in its supply chain that best meets the
needs of the company's competitive strategy. Table -3 makes a comparison of
efficient and responsive supply chains.
Table 19-3 Comparison of Efficient and Responsive Supply chains
Aspect
Responsive
supply Efficient supply chain
chain
Primary goal
Supply demand at
the Respond quickly
to
lowest cost
demand
Product design Strategy
Maximize performance at Createa modularity
to
minimum
product
costallow postponement of
product differentiation
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Pricing strategy
Lower margins becauseHigher margins because
price
price is not a prime
is a prime
customer customer driver
driver
Manufacturing Strategy
Lower costs
through Maintain capacity flexibility
high utilization
to buffer against demand/
supply uncertainty
Inventory strategy
Minimize inventory to
Maintain buffer
lower cost
inventory
to deal with
demand/supply
uncertainty
Lead time strategy
Reduce but not at the
Aggressively
reduce
expense of costs
even if the costs are
significant
Supplier strategy
Select based on cost and Select based on speed ,
quality
flexibility, reliability and
quality.
Source: Marshall L. Fisher "What is the Right Supply Chain for your Product?",
Harvard Business Review (March ? April 1997), 83-93.
To understand how a company can improve supply chain performance in
terms of responsiveness and efficiency, one has to examine the four drivers of
supply chain performance: facilities (warehouses), inventory, transportation, and
information. These drivers not only determine the supply chains performance in
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term of responsiveness and efficiency, they also determine whether strategic fit
is achieved across the supply chain.
For each of the individual drivers, supply chain managers must make a
trade-off between efficiency and responsiveness. The combined impact of these
drivers then determines the responsiveness and efficiency of the entire supply
chain. Table -4 shows the logistics-mix for responsiveness and efficiency.
Table 4
Logistics-Mix of a firm for Different Responses
Elements
Responsiveness
Efficiency
Warehouses
More and distributed
Fewer
and
concentrated
Inventory
High level
Low level
Transportation
Faster mode, high
Slow mode, low
cost.
cost
Information
Information needs
Information needs
and costs are high
and costs are less.
Supply chain in practice
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With limited scope for passing on hikes in raw material costs and with
increasing pressures to improve growth, companies have been aiming at both
organic and inorganic growth. While companies abroad have been looking
seriously at M&A to expand markets and products, Indian companies are relying
more on cost reduction. So much inefficiency is built into the system that there
is surely a considerable scope for cost reduction. Many Indian organizations
have adopted supply chain concepts and improved their competitiveness.
Asian Paints (India) Ltd (APIL)
Asian Paints set up three plants located at Ankleshwar (1981),
Patancheru (1985) and Kasna (1990). All the plants have captive resin
manufacturing facilities and are capable of producing the entire range of paints.
Asian Paints believes that technology is a critical aspect that can help it continue
to move forward. Manish Choksi, Vice-President, Strategic Planning and
Information Technology, says:
"Our philosophy is to adopt best-of-breed technologies and business
practices to maintain our position as the largest paint company in India".
Asian Paints is the first Indian paint company to implement the SCM
solution of i2 Technologies and ERP in 1990. The implementation of the SCM
solution of i2 Technologies and ERP made production process flexible. The
flexibility in the production process helped the customer to choose their own
color/shade of paint, unlike the earlier mass-produced shelf products. SCM
includes the span of the materials function, manufacturing and quality
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management. Asian Paints has one of the best distribution networks in India.
The customer service network consists of over 15,500 dealers, serviced by 70
Sales offices from 4 plants and 6 Regional Distribution Centers. The network
covers the entire country and goes well into the rural India, and posses and
exciting challenge for the distribution team.
Asian Paints has plans to strengthen its backbone by integrating systems
using EAI and enable advanced analysis by setting up a data warehouse. An
employee portal along with a Knowledge Management (KM), that would
enhance employee productivity and create a common forum for employees, is
being rolled out. Also on the anvil are several initiatives on the SRM and CRM
front that would harness the Internet to provide business benefit by integrating
and collaborating with suppliers and customers.
Summary
Physical distribution includes warehouses, inventory, transportation,
information and packing. The systems concept of distribution led to integrated
logistics system and now to supply chain management. Logistics can contribute
to savings in both time and cost and enhance promotional value of products.
Supply chain management is the integration of business processes from end user
through suppliers that provides products, services and information that add
values for customers. Supply chain components include customers, retailers,
whole sales, manufacturers and suppliers. Supply chain strategy represents a
value chain and forms a subset of competitive strategy. Supply chains can be
responsive or efficient by design.
Short questions
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Physical distribution
Logistics
Supply chain
Value chain
Integrated logistics system
Discussion questions
Explain the concept and importance of integrated logistics
system.
Discuss the concept and process of supply chain management.
Discuss the application of supply chain in a firm known to you.
Mini projects
1.
Visit Websites of Godrej and HL and
prepare a report an
`Logistics in select consumer goods companies".
Conduct a study on logistics system of local enterprises and make
a class room presentation.
References
Sunil Chopra and Peter Meindl (2004) Supply Chain Management,
Pearson Education Asia, New Delhi.
Michael D. Hutt and Thomas W. Spech (2004) Business Marketing
Management, Thomson Asia Pte Ltd, Singapore
Philip Kotler (2002), Marketing Management, Person Education Asia,
New Delhi.
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David A. Taylor (2004), Supply Chain: A manager's Guide, Pearson
Education Asia, Singapore.
Lesson ?3
CHANNEL SELECTION
Learning objectives
After you have studied this chapter, you will be able to.
Know the members in the of channel
Understand basic issues in channel selection
Appreciate the importance of channel management relationships
Contents
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Introduction
Concept
Types of middle men
Channel components
Channel selection
Summary
Short questions
Discussion questions
References
Introduction
Marketing activity starts with the customer and ends with the customer.
So customer is the ultimate target for the marketer. Availability and affordability
are the two important considerations for buying. Availability depends upon the
efficiency of the distribution channel. Channels of distribution keep changing
from one product to another. There is a need for marketers to emphasize more
on easy availability at acceptable price.
Concept
According to Kotler:
Every producer seeks to link together the set of marketing
intermediaries that best fulfill the firm's objective. This set of
marketing intermediaries is called marketing channel"
Its purpose is transfer of ownership of the product through intermediaries
or directly to the buyer.
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Types of middlemen
There are three types of middlemen that facilitate the flow of goods and
services from the manufacturer to the customer.
Merchant middlemen: These are the intermediaries who take title to the
goods and services and resell them. They are known as distributors, dealers,
wholesalers and retailers. These middlemen get margins and bonuses as
compensation. They share the risk with manufacturers when they take title and
physical possession of the goods.
Agents: These are intermediaries who do not take title to the goods and services
but help in identifying potential customers and even help in negotiations. The
typical example is that of sales agents and manufacturers' agents or
manufacturers' representatives, C&F agents, brokers, jobbers, and so on who act
on behalf of the producer only to the limited extent of prospecting, warehousing
and redistributing the products. They do not share risk with the manufacturers,
as they do not take the title to goods and services. Agents earn a commission and
are reimbursed for all expenses by the manufacturers.
Facilitators: These are independent business units that facilitate the flow of
goods and services from the producer to the customer, without taking a title to
them or negotiating for them on behalf of the producer. Transport companies,
banks and independent warehouses are examples of these institutions. These
institutions are paid their service charges, as in the case of a transporter who
charges freight or a banker who is paid service charges or warehouses, cold
storages and go downs which earn rent.
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Channel components
The historically available people and places for distribution include:
wholesaler, retailer, vans, weekly haats, Bazaars and shandies.
(i) Wholesalers
The Indian wholesaler is principally a galla-kirana (food-grain) merchant
who sustains the belief that business is speculative rather than distributive in
character. He is a trader/commodity merchant rather than a distributor and
therefore, tends to support a brand during boom and withdraws support during
slump.
The current need is to activate and develop wholesaler of the adjoining
market as a distributor of products to rural retail outlets and build his loyalties to
the company.
(ii) Retailers
Retailers are the front-end characteristics players with direct access to
customers. They have the following.
Credibility: he enjoys the confidence of the villagers. His views are
accepted and followed by the rural people whose awareness and media
exposure levels are low.
Influence leader: His role as influence leader is indisputable. From
tender twig of neem to washing powder, retailer testimony has been vital
part of the product adoption process.
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Brand promoter: With the increasing number of brands in the place of
commodities concept selling has come to a close. Brand choices are easy
as the brand characteristics and benefits are communicated through
different promotion media. Despite the direct one-to-one communication,
the retailer remains the deciding factor to sell a particular brand.
Relationship marketer: village retailer practices relationship marketing.
He caters to a set of buyers who have incomes derivative from
immovable land resources and would be static over a much longer time
span. The relationship could extend beyond three generations, backed by
historical credibility of the retailer as a product referral.
Harbinger of change: Village shopkeeper has not been merely a seller of
wares in an environment relatively isolated from external developments,
he has been harbinger o change. He is one of the main sources of
information and opinion as well as supplier of product and services. As
against this, we find urban retailer, wielding limited influence in
changing the product choices and quality of life of consumers.
The retail outlets are now in for a change with the corporate marketers
finding them as right places for promoting their products.
(iii) Vans
Mobile vans long since, have an important place in distribution and
promotion of the products in villages.
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(iv) Weekly Haats, Bazaars, Shandies
The haats are the oldest outlets to purchase household goods and for
trade. These markets are very well organized with shopkeepers having pre-
assigned spaces for them to sell their wares. A typical market is in an open field
with ample space for displaying all sorts of goods. Its location changes every
week. These markets have different names in different regions. But they are
strikingly similar every week. These markets have different names in different
regions. But they are strikingly similar in what they sell. It is reported that there
are, in all. About 47,000 haats held through out the country.
Melas and Fairs
These are low cost distribution opportunities in rural area. They are like
the urban events India International Trade Fair (IITF), Sajavat or Cnsumex in
which audience participation varies form a few thousands to a few lakh people.
Most of them are associated with either a religious event or a festival.
Some of the well known melas are: kumbh mela at Allahabad (triveni
sangam), pushkar mela in Rajasthan, Kullu Dusshera mela in Himachala
pradesh, Sonepur mela in Bihar and Makar Vilakku in Kerala. People from
allover the country gather there. According to the Indian Market Research
Bureau (IMRB) around 8000 melas are held in rural India every year. According
to rural scan (Quarterly News letter by MICA (Mudra Institute of
Comunications, Ahmedabad), there are on an average, 1000 melas held in a state
annually. The average duration of a mela is anywhere from one to 45 days.
Manufacturer ? is one who recognizes a consumer need and produces a product
from raw materials, component parts or labor to satisfy that need.
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Channel design
At conceptual design level, deciding on the best channels or ideal ones might
not be a problem. But at operational level, there will be many problems that
require modifications to the ideal one. Examples include the following
To modify with latest technology to create a new channel ,or
To convince one or few available middlemen to handle the line.
Therefore, keeping in mind the operational aspects, manufacturer has to
make decisions.
Designing a channel system involves the following steps.
Assess customer needs
Establish channel objectives
Identify channel design constraints
Identify channel alternatives and networks
Evaluate channel networks
Build a channel network model
Implement the model
Assess customer needs
Firms should adopt marketing concept and view channel management as
the process of creating value-added networks. Therefore, managers should begin
the channel design process with a thorough customer value assessment.
What is the core marketing offer?
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What are the customer expectations about augmented product and
services?
What is the service output level desired by the customers?
How much are they worth to them?
What is the aggregate demand function for each of the service outputs?
Establish Channel objectives
Channel objectives must be consistent with over all corporate and
marketing objectives. Some of the objectives used by the marketing managers
are:
Delivery of superior value to customers
Low cost of operation
Control
Sales maximization
Image
Identify channel alternatives
Products and services flow from a supplier firm either directly or indirectly
through reseller to a market segment. When diagrammed, conventional channels
resemble linear pipelines. Various channel member firms appear as nodes in
pipelines as shown below.
Level
Channel
Place
Level
Company depot
National/State
A
Redistribution stockiest, C&F agents,
District
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Level
Semi-wholesalers and retailers
Headquarters
B
Tehsil Headquarters
Level
Semi-wholesalers and retailers
Mofussil towns
C
Industrial townships.
Itinerant traders, Vans, Petrol bunks semi Haats
Level
wholesalers,
retailers,
Co
operative Large villages
D
societies
Retailers, Vans, sales people, NGOs,
Villages
Level
Government agencies
E
Most companies have direct representation in the form of redistribution
stockist at level B and C. Level C in a district would comprise at best 7-10
towns. High outlet density and large customer population permit economies in
developing these markets through regular working of sales ?cum ?distribution
van. On consolidating market penetration, direct representation could be
extended to the towns by way of sub-dealers or stockists.
To achieve a winning edge in rural sales the object is to maximize
directed flow and control of stocks at levels C to E. Approaching level D
requires prior selection of haat markets and villages located in contiguous
clusters. Sorting of easily accessible census data enable listing of villages above
a predetermined population bracket and of occurrence schedule of haat markets.
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Various schedules with level C stockist at nodal points could be operated
towards self-sustaining distribution rates for level D markets.
The next level is E. the villages are too small too allow economies in
van distribution. But these villages form the bulk of the consumption in rural
areas.
Identify channel design constraints
Now, operationally the objectives are to be considered in the light of
constraints stemming from the company and environment.
Product characteristics. The nature of the product affects channel
design.
Company characteristics. The size of the company, its goals,
financial resources, product mix and marketing strategy influence
channel design.
Larger the size of a company, larger the market it services
Long run growth goals specify the channel development
requirements.
Financial resources impose investment and cost constraints
Competitor Characteristics. What the competitors are doing and
through which channels they are delivering goods? Should we follow
them or set up a different channel? These are the relevant questions.
Middlemen characteristics. Marketing intermediaries differ in their
aptitude for handling promotion, negotiation, storage, contact and
credit. They differ in their strengths and weaknesses. An evaluation
of these aspects is primary in choosing the middlemen.
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Environmental characteristics. Legal regulations and restrictions state
of the economy; infrastructure developments and technology affect
channel decisions. For instance, inflation may require cost
minimization and modifying channels to achieve that.
Channel member selection
Channel member selection involves several issues.
(i) Carefully Select Channel Partners:
First, marketers prepare list of reseller firms using one or more of the sources.
internally generate a comprehensive list of candidates for each reseller
type targeted
acquire them from governments-local, state and central.,
obtain from database marketing firms,
secure from trade associations
Next, they select the existing or potential channel partner firms that can best
perform some or all the required channel functions. The factors considered in the
selection generally include the following:
technical competence,
sales force deployment,
warehouse and delivery capabilities,
financial stability, and
Leadership.
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Managers eliminate those resellers that do not meet screening requirements.
Managers then conduct a market research survey to assess customer
preferences for, and satisfaction with, specific reseller firms. Then, they
reconcile this list with the one developed already to create a list of prospective
resellers. Selection depends not only on judgment of marketer but also the
willingness of resellers to be a channel member. Reputed companies like
TISCO, BHEL, and WIPRO can attract any number of intermediaries. A new
company has to work hard to line up the desired number of qualified middlemen
(ii) Specify the terms and responsibilities
Business market managers now enter into partnership negotiations with
preferred resellers. Following, productive negotiations, the supplier and its
resellers summarize the terms of their relationship in the sales agreement. The
agreement will identify the responsibilities of all parties for completing business
processes and the rewards that each will receive. The terms and responsibilities,
when stated clearly pave the way for successful performance and durable
business relationships. The main elements in the `trade ? relations mix' are:
Price Policies
Conditions of sale
Territorial rights
Specific services expected
Price policy establishes list price and discount structure. The discounts
should be attractive and equitable to middlemen.
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Conditions of sales refer to the payment terms and to guarantees. Generally,
the payment terms induce early payment by offering discounts. For instance net
2/10, 30 payment terms offers 2% discount for paying on or before 10th day.
Guarantees are offered to replace defective merchandise or compensation in case
of price decline. Territorial rights grant right to operate in the specific market
area. Full credit for sales in that area is given to that particular middleman.
Specific services expected of the middleman, if any, are to be specified.
Generally, exclusive dealers or franchisees are provided with infrastructure and
marketing support. In turn, they are expected to operate their outlets and perform
services as stipulated by the company. Problems in channel
Summary
Channel design objectives may include delivery of superior value to
customer, low cost operation, control, sales maximization and image. Various
constraints to channel design comprise characteristics of product, company,
competitor, middlemen and environment.
Short questions
Channel design process
Channel objectives
Direct vs indirect channels
Selection of channels
Selection of channel members
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Discussion questions
Examine the factors influencing channel design decisions
How do you select channel members.?
Mini projects
Meet intermediaries and develop a profile of them. Gather data
on sales, stock, number of invoices per year, average collection
period, outstanding debts, number of employees, number of
inside and outside sales persons, space available, computerization
of operations, and problems encountered from the company and
customers.
References
Risley, George, Modern Industrial Marketing, Mc Grew Hill, New York,
1970,
James A. Anderson and James A. Narus and (2004),Business Market
Management, Pearson Education Asia Pte Ltd, Singapore,2004.
Philip Kotler, A frame work for Marketing Management, pp 235 -
239,2004
RL Varshney and SL Gupta, Marketing Management and Indian
perspective, pp 363 - 385.
Krishnamacharyulu and Lalitha, Rural Marketing , Persaon Education,
New Delhi,2000.
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Economic Reforms
Since 1991, India has been going through a process of economic reforms
and liberalization. The reforms have embraced almost all aspects of the
countries economy. Policies relating to industrial licensing trade and foreign
investment have undergone major changes. In addition significant macro
economic adjustments have also taken place. Economic institutions too have
undergone significant change the banking sector and capital markets in
particular have been major targets of the change. And finally structural
adjustments covering areas like subsidies the price environment and the public
sector have also taken place. Collectively these reforms aim at modernization of
the countries industrial system removal of unproductive controls strengthening
of private investment including foreign investment and integration of India's
economy with the global economy In one word it can be said that all round
opening up of the countries economy has been the essence of the reforms (
Ramaswamy and Namakumari 2002 p 37). The programme of macro economic
adjustment and structural reforms has stabilized the economy and integrated it
with world economy the board content of the structural reforms programme are
not new they are an elaboration and intensification of changes were aimed at
increasing productive efficiency of the economy by creating a ore open and
competitive environment for both the public and private sector (Ahluwalia 1993
p 80) there seems to be a general consensus on the desirability of reforms to
dismantle the bureaucratic regulatory apparatus evolved over the years that may
have out lived its utility ( Kumar 2000 p 803).
Corporate Response to the Change
How did the Indian corporate sector respond to these economic liberalization
measures ? Basant (2000) suggested that;
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The Indian corporate sector is vigorously restructuring itself to retain
competitiveness. Restructuring is mainly geared towers consolidation in
a few chosen areas to correct the inefficiencies created by over
diversification in the pre reform era.
MNC's have actively participated in the mergers and acquisitions process
to get market entry or to strengthen their presence.
MNC's are better poached vis-?-vis domestic firms in the acquisition
game because of their deep pockets and relatively cheaper access to
capital.
the reliance of the Indian corporate sector on foreign technology
purchase has in creased. More and more technology flows are now tied
with equity.
Firms are making efforts to improve manufacturing capability. This is
being done through building alliances as will as through initiatives
within the firms. quality up gradation seems to be their key priority. the
effort at Improving manufacturing capability may still prove to be
inadequate to meet the competitive challenges.
Product differentiation strategy seems to be dominating over strategies of
building distributed and market related complementary assists.
Export based growth strategies are being adopted by some of the
corporate sector firms but such strategies are not widespread export
orientation increased appreciably in he early years of reforms but has
been a major collapse since 1997- 98.
The performance of the Indian corporate escrow in the 1990s has shown
mixed tendencies. Profitability rates export performance as well as
export to import ratios have shown varied trends across industry groups.
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Tougher the competition in the business environment increased efficiency
became a must for a corporate enterprise to survive. This implied business
reengineering process to be adopted in an enterprise. This involves a
fundamental change that effects multiple business functions. This required the
company to look back and rethink the way it did business and reshape and re
align it's strategies business processes technology people and infrastructure with
what the customer needed fundamentals of business changed and flexibility
team work customer focus speed to market quality management became vey
important for an enterprise and the realization that being complacent with the
status quo is certainly the fastest way to lose one' leadership position.
According to Khanna (1993 p 144) following emerged to be important in
he changed business environment:
Customers perspective is the only perspective
management commitment and involvement
Far reaching goals combined with continuous measurement of
performance
End to end view of processes across all functional and organizational
boundaries
Cooperationist focus around customer driven business results.
The elimination of non value added activities
Ownership at all levels of the organization and people empowered with
knowledge tools and authority.
Timely dissemination of information and
Continuous improvements.
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Marketing in Pre Reforms Era
Despite the fact that the Industrial Policy Resolution (6th April 1948)
emphasized a very important role of cottage and small scale industries in
national economy and despite having realized marketing as a key economic
activity marketing in India had faced a stepchild treatment. This way clearly a
fall out of the over regulated economic development molded pursued.
Neelmeghan (2000 p. 4) summarized he main ingredients of these models
pursued in the past.
Within the overall framework of mixed economy public sector was
given the role and responsibility of occupying commanding heights
of the economy.
there was active government intervention in fields such s
investment and imports mainly through regulatory and promotional
measures such as subsidies concessions reservations controls
licensing permits and tariffs
Heavy emphasis on self reliance and high priority to building up
heavy and capital goods industry and.
Pursuing import substitution strategy with a view to redacting
dependence on foreign supplies and achieveing self sufficiency
stage over as wide an areas as possible.
It was often perceived that since rural consumes largely comprised of
poor , there was inadequate motivation for (rural) marketing to take shape and
for corporate sector to tap rural markets. Let's see this situtation. Gaikwad
(1972) provided a comprehensive classification of rural consumers, as following
six categories :
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Category 1 : A class of proprietors of land (comprising of old zamindars,
malguzars, money-lenders and traders with hold over land and plantations or
mine owners)
Category 2 : A small group of rich farmers (generally belonging to the
dominant caste of the region).
Category 3 : A class of small peasants with tiny uneconomic holdings;
Category 4 : A class of tenant farmers;
Category 5 : A growing class of agricultural labour; and
Category 6 : A class of ruined artisans and others (Gaikwad, 1972, pp. 160-161,
as quoted by Jha, 1988, p. M-12).
The rural consumers as per category-1 (The landlords) and Category-2
(Rich Farmers) were few, and were largely inaccessible and less-severed due to
several problems of rural marketing, such as scattered ness of village, poor
communication and infrastructure in rural areas. The remaining others
(Category-3 to Category-6) wer large chunk out of rural population, with very
les per capita monthly expenditures, were "extremely poor and live most often
below subsistence level. Their needs for consumer products are the bare
essentials-food and clothing (Balakrishnan, 1978). Low agro-producton, lack of
basic amenities, facilities and infrastructure, poor communication as well as
movement links. Very low purchasing power resulting in low standards of
living, and blinkered attitudes of marketers were the major highlights of the rural
markets four decades ago (Vyas, 1997, p. 54). Since the mid-eighties, a silent
revolution has occured in rural India. With successive years of bumber crops, an
indicator of increased purchasing power and accessibility the most owerful and
cost-effective communication media in the form of television, the rural
consumer has begun to play a vital role. Acceptance and adoption of new
agronomic practices selective mechanisation, multiple cropping to include non-
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food crops, and growth of dairying have resulted in a substantial increase in the
disposable incomes of rural consumers (Vyas, 1997 p. 54) ".
Rural Marketing in Changed Scenario
The rural scene is now undergoing a sea-change, resulting from the
multi-pronged activities undertaken for the overall development of rural areas.
There have been significant improvements in the rural sector in respect of
agricultural production, spread of education, banking facilities, electrification,
transportation, communication, etc. All these changes have led to the creation of
general awareness for achieving a new and better style of living. With the
increased purchasing power accessed purchasing Power access to
communication and awareness about modern life styles he rural sector needs a
better marketing thrust. The recent economic policy initiatives. of the
government have resulted in increased investments in the corporate sector by
domestic as well as overseas investors. The growth of the corporate sector
means increased production and this in turn requires identification and
penetration into high growth potential markets. In this contest rural markets have
good prospects for most of the goods and services of this liberalized economy. It
also indicates that the twenty first centuray is going to see the full blossoming of
the Indian rural market (Chahal and Pal 1997 p 223).
As change came in 1991 when government took a series of bold
initiatives to take the economy away from controls. The programme included for
reaching trade fiscal marketing and industrial policy measures with a major
thrust on improvement of competitive efficiency of Indian industries by utilizing
foreign investment and technology to a much greater degree than in the past.
Moreover the new reform measures ended the regime of licensing and controls
and made the industry virtually independent Significantly the new policy
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permitted the free import and export of virtually all products with some
exceptions.
Plan
Programmes
Years of
Period
Induction
1.
Community Development Programme
1952
National Extension Scheme
1955
2.
Khadi and Village Industries
1957
multi purpose Tribal Development Block
1959
Package Programme and Intensive Agriculture Distric
1960
Development Programme
1962
3.
Applied Nutrition Programme
1964
Intensive Agricultural Area Development Programme
1966
HYV Seeds Programme
1966
Farmers Training Education
1966
Well Construction Programme
1967
Rural Works Programme
1968
Tribal Development Block
1969
Rural Manpower Programme
1969
Composite Programme for women and Pre school
1968
Going Children
4.
Drought Prone Area Programme (DPAP)
1969
Crash Scheme for Rural Employment
1970
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Marginal farmers and Agricultural Labourer Scheme
1971
(MFAL)
1971
Small farmers Development Agency (SFDA)
1971
Tribal Are Developmnt Agency (TADA)
1972
Intensive Rural Employent Programme (Pilot) (IREP)
1972
Minimum Needs Programme (MNP)
Hill Area Development Programme Special livestock
1974
Production Programme (SLPP)
1975
ood for work Programme (FWD)
1975
Desert Development Programme (DDP)
1977
Whole village Development programme (WWDP)
1977
Training of Rural youth for self Employment (TRYSEM) 1979
Integrated Rural Development Programme (IRDP)
1979
Rural landless Employment Gurarantee Programme 1981
(RLEGP) National Rural Employment Programme 1981
(NREP)
Developmnt of Wormnet and Children in Rural Areas
1985
(DWCRA) Jawahar Rojgar Yojana (JRY)
1988
Scheme for Rural Artisans (all traditional artisans living
1992
below rashtriya mahila Kosh Credit Fund for women)
1992
Mahila Samridhi Yojana
1992
Revamped Public Distribution Scheme (PRDS)
1993
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Imports of capital goods and raw materials were made more liberal.
Introduction of automatic approvals of foreign technology agreements and
foreign investment restructuring of public sector. Under takings and the thrust
on export were other measures announced by the government with a view to
improve the competitiveness of Indian industries and promotion of exports In
short determining the countries future growth and development for the first time
the government came out in favor of outward oriented trade and industrial
policies where export marketing was given prime importance. Under the new
policy industries could expand modernize diversify and internationalize their
operations with greater freedom (Neelmegham 2000 p 5) This changed
economic scenario gave future stretch out to tap the so far largely untapped rural
sector markets.
Economic reforms have enabled GDP to grow at an average annual rate
of about 6.4 per cent between 1992 -93k and 1999 - 2000. Consumption too has
gone up especially the consumption of manufactured FMCGs (Fast moving
Consumer Goods). for 1997-98 market size of a basket of 20 consumer
expendable goods in the household sector is estimated at Rs. 801 billion (at
current prices). consumption of the same commodities was estimated to be Rs.
371 billion in 1992 - 93 showing an average annual growth of 16.7 per cent
These figures also indicate that per houshold consumption expenditure on the
goods considered has doubled from Rs. 2387k in 1992- 93 to Rs 4736 in 1997-
98 Rural India in particular with a share of over 55 [per cent in total
consumption of FMCGs has also witnessed a growth of about 14 percent per
annum during the same period. This seems to be a fairly good growth by any
standard (Brahmankar nd Gupta 2000.)
Indian market is undergoing a significant metamorphosis because of
economic liberalization and globalization. Many players (Both national and
global) are trying to capture the urban market of our country. but this market has
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already reached a saturation level and it is extremely difficult to tap the urban
market with high profit margin. It is also not easy to penetrate profitably into the
export market because of fierce competition. in export market a firm has to face
challenges from MN Cs (Multinational Companies) other foreign companies and
domestic firms of the concerned export market in this cut throat competition
everybody's market share will shrink as everyone in chasing the same market
(Dey Adhikari 1998 p 1) this realization is forcing companies to go rural.
The 1990s have ushered in far reaching changes that influence the
customers profile and therefore the market Literacy levels have risen (especially
female literacy). The average size of the household is reducing; nuclear families
are increasing. This development has particular significance fro durable goods
marketers; for instance, instead of a large refrigerator for a joint family, a
household may now need two or three smaller refrigerators. Also, sizeable youth
segment is emerging, with it's own income or pocket money, which marketers
need to recognized (Godrej, 1993,. p. 155). Rural India is also in the way of
change, perhaps in an even more significant manner. There has been a boom in
those markets, fuelled by the penetration of media; vast improvement in
infrastructure facilities, like roads, and shops; telecom connectivity, successive
good monsoons, and high government spending. As a result, the rural component
is now bigger than the urban in many product categories (Godrej, 1993). Gone
are the days when a rural consumer went to a nearby city to buy "branded
products and services". Time was when only a select household consumed
branded goods, be it tea or jeans. There were days when big companies flocked
to rural markets to establish their brands. Today, rural markets are critical for
every marketer - be it for a branded shampoo or an automobile (Kannan, 2001).
Lifestyles and habits of rural people are changing. Yesterday's luxuries are
becoming today's necessities. There is a boom of (both domestic and foreign)
brands of products.
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The Government Exercies in the last few decades:
The Government of India has designed and implemented several issue-
based programmes aimed at rural development. The developmental activities
under the Ministry of Rural Development cover infrastructure development and
reforms in the agricultural sector, the non-farm sector and the social sector.,
Within these sectors, issues related to production., productivity, skills, access to
institutional credit, marketing of produce or services, education, health, social
restructuring, empowerment of women and other socially deprived section, etc.
have been the areas of focus for the policies.
1. Changing Rural Infrastructure :
Under the Pradhan Mantri Gramodaya Yojana (Prime Minsiter's Village
Development Programme) (PGGY), announced in the 2001-02 budget, at fund
of Rs 5,000 crore was earmarked for infrastructural development in village,
primarily village roads for which 50 per cent of the fund was reserved. The
remainder was planned for rural housing, drinking water and sanitation. The
Central Government has achieved considerable success in meeting the drinking
water needs of 91 per cent of rural habitations, with an investment of more than
Rs 40,000 crore on the rural drinking water supply
Road Connectivity
The Pradhan Mantri Gramin Sadak Yojna (PMGSY) is a 100 per cent
Centraly-sponsored scheme launched in 2000 to privde connectivity to all
uconnected habitations (around 1.60 lakh) with all-weather roads by the end of
the Tenth Plan Period (2007). Expenditure has been estimated to be Rs 60,000
crore. The programme will connect 70 per cent of our villages by 2007
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compared with only 40 per cent villages having road connectivity till the Ninth
Five-Year Plan.
2. Employment Opportunities:
With the objective of promoting self-employment among the educated
unemployed ruralyouth, government programmes such as the Pradhan Mantri
Rojgar Yojna (PMRY) and the Intergrated Rural Development Project, were
devloped. Thee programmes, implemented at the grass-roots level under the
system of Panchayati Raj Institution, aim to provide skill-based training and link
access to bank credit (subsidized).
Sampoorna Grameen Rojgar Yojana :
The Employment Assurance Scheme and the Jawahar Gram Samridhi
Yojana (JGSY) are two schemes under the programme. The EAS is meant to
creat additional employment opportunities during periods of acute shortage of
wage employment through manual world for the rural poor living below the
poverty line. The JGSY aims at the creation of need-based rural infrastructure at
the village level. Under these programmes, about 3,100 lakh man days of work
were provdied in 2002-03 and Rs 2,200 crore were disbursed as wages. The
programmes have contributed to alleviating rural poverty.
Salient Features of Sapoorna Grameen Rozgar Yojana (SGRY)
The objective of the Sampoorna Grameen Rozgar Yojana (SGRY) is to
ensure food security and gainful employment and in the process strengthen rural
infrastructure. The salient features of SGRY are :
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The SGRY is a Centrally sponsored Scheme (CSS), with a
total outlay of Rs. 10,000 crore.
Under the scheme, 50 lakh tonnes of food grains amounting to about Rs.
5,000 crore (at economic cost) is being provided every year, free of cost,
to the State Governments and Union Territory Administrtions.
Rs. 5,000 crore in csh is allocated for wages and material costs.
About 100 crore man days of employment are envisaged to
be generated every year in the rural areas under the SGRY.
Every worker seeking employment under the SGRY is provided
a minimum 5 kg. of food grain (in kind) per man day as part of
the wages.
The balance of the wags is paid in cash so that the workers
are assured of the notified minimum wags.
Panchayati Raj Institutions (PRIs) undertake this scheme as per the
felt need of the area.
Rural Housing :
The 1991 Census revealed the presence of 1.4 crore household without
shelter or residing in unserviceable kuccha house. The Central Government
announced a National Housing and Habitat Policy in 1998 aiming to provide
'Housing for All' by facilitating the construction of 20 lakh additional housing
units (13 lakh in rural areas and 7 lakh in urban areas) annually. With an
emphasis on extending benefits to the poor and the deprived, the Government is
committed to ending all shelterlessness by the end of the Tenth Plan period.
By the year 2002-03, a total of 93 lakh houses at an expense of Rs.
16,000 croer had bn built under the Indira Awaas Yojana (IAY). The ceiling on
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construction assistance under the IAY is currently Rs., 20,000 per unit for plain
area and Rs. 22,000 for hilly/difficult areas. The ceiling on the upgradation of a
kuccha house to a semi-pucca/pucca is Rs. 10,000. Under the IAY, the Gram
Sabha is empowered to select the beneficiaries. Further, the allotment of
dwelling units should be in the name of the female member of the beneficiary
household. Alternatively, it can be allotted in the name of both husband and
wife.
Swaranjayanti Gram Swarozgar Yojana:
Swarnjayanti Gram Swarozgar Yojana (SGSY), an ongoing programme
for the sle-employment of the rural poor, has been in effect since 1999 after the
restructuring of the erstwhile Intergrated Rural Development Programme
(IRDP) and allied programmes like Training of Rural Youth for Self
Employment (TRYSEM) Development of Women and Children in Rural Areas
(DWCRA), Supply of Toolkits in Rural Areas (SITRA) and ganga Kalyan
Yojana (GKY), besides the Million Wells Scheme (MWS) With the launching
of the SGSY the earlier programmes are no longer in operation.
Swaranjayanti Gram Swarojgar Yojana (SGSY) - a holistic programme for
promoting self-employment among the rural poor
Covers all aspects of the self-employment of the rural poor-organization
of the rural poor into Self Help Groups (SHGs), capacity building of the
group through financial assistance, training, selection of key activities,
infrastructure build-up, technology and marketing support.
Self Help Groups (SHGs) to be a national movement-11.47 lakh Self
Help Groups have already been formed.
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Involvement of NGOsCBOsAnimators for social mobilization,
training, and capacity building of Self Help Groups.
15 per cent of the Central allocation earmarked for the development of
infrastructure and activity clusters.
The programme has been able to provide access to institutional finance
to about 1.7 crore women, i.e. 1.7 crore households, across the country. It has
enhanced opportunities for initiating small-scale income-generating activities,
thereby increasing household income and has also contributed to the
empowerment of women.
6. District Rural Development Agency
DRDA has been the principal organ over the years at the district level for
overseeing the implementation of various anti-poverty programmes.
The DRDA must emerge as a spcecialized agency capable of managing the anti-
poverty programmes of the Ministry, on the one hand and effectively relating
these to the overall efforts of poverty eradication in the district.
Each DRDA should have the following wings :
Self-employment wing
Women's wing
Wage Employment wing
Engineering wing
Accounts wing
Monitoring and Evaluation wing
General Administration wing
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Providing Institutional Finance in Rural India
NABARD has beenthe primarygovernment institution dedicated to
developing systems and delivering institutional finance in rural for both the farm
sector and the non-farm sector. It refinances the loans extended by grameen
banks and cooperative banks under various government schemes.
Farm Sector :
NABARD refinances assistance for financing farm mechanization, i.e.
purchase of tractors, power tillers and also the accessories.
It also provides agricultural credit through the Kisan Credit Card. As a
pioneering credit delivery innovation, the Kisan Credit Card Scheme aims at the
provision of adequate and timely support from the banking system to the farmers
for their cultivation needs, including the purchase of inputs in a flexible and
cost-effective manner.
At the end of the 2003-04 financial yeas, about 4 crore credit cards had
been issued to farmers with cultivable land and a total of Rs. 84, 000 crore had
been disbursed.
Swarnajayanti Gram Swarozgar Yojana (SGSY) :
SGSY, formed by restructuring ongoing self-employment programmes,
viz. IRDP, TRYSEM, DWCRA, etc., is under implementation from 1 April
1999. The programme envisages the formation of SGSY Groups and their
linkage with the banks. Individuals as well as SGSY groups members below the
poverty line are assisted under the programme.
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Scheme for setting up of Agriclinic and Agribusiness centres:
A scheme for financing agriculture graduates to set up agriclinics and
agribusiness centres was launched in 2001-02 aimed at supplementing the
existing Extension Network. The objective of the scheme is to accelerate the
process of technology transfer to agriculture and supplement the efforts of State
agencies in providing inputs and other services to farmers.
The salient features of scheme are as under :
The scheme is open to agriculture graduates in subjects allied to
agriculture.
The outer ceiling of the project cost will be Rs. 10 lakh for individuals
and Rs. 50 lackh for groups.
Margin money assistance from NABARD's Soft Loan Assistance Fund
up to 50 per cent of the margin prescribed by banks to meet any shortfall
in the borrower's contribution.
The National Bank has prepared Model Project Profiles in respect of a
few activities indicating the estimated cost and income streams. The banks have
the freedom to select the borrowers entrepreneurs and theactivity depending on
the potential of the area subject to technical feasibility and the financial viability
of the proposals.
Refinance Scheme for financeing Farmers Service Centre (FSC) :
NABARD has decided to extend 100 per cent refinance facility to banks for
financing Farmers Service Centres (FSC) set up in collaboration with Mahindra
Shubhlabh Services Ltd. (MSSL) for providing various extension services to
farmers, including supply of agri-inputs. FSC is internded to benefit 288
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farmers by way of higher yields and productivity through private-sector
participation in technology transfer and extension services.
8.Land Reforms :
Land reforms aim at redistributing ownership holding from the viewpoint
of social justice and reorganizing operational holdings as a method to optimize
land utilization.
The reforms measures were as follows :
Distribute land among the landless by taking procession of surplus land
from large landholders.
Provide security to sharecroppers or tenants on tenure and ownership
rights by regulating rent payable by them to landlords.
Protect the interests of tribals in landownership against encroachment by
non-tribals.
Induce improvement in productivity through the consolidation of
landholdings.
Development of public land for the rural poor to give them access to
fuelwood and fodder.
Make land and other productive assets accessible to women.
Protect the homestead rights of the rural poor on lands owned by them
and provide them with house sites to enable them to construct their own
houses.
Land Ceiling
The land was described as an economic unit and an economic holding
was defined as one that could provide a reasonable standard of living to the
cultivator and give full employment for a family. The land ceiling stated that no
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individual farmer should own more than three times the economic holding.
Factors like soil fertility, irrigation, methods of cultivation and the nature of
crops were considered when fixing the ceiling. Under this, 4 ha. or 10 acres of
the best land and 7.5 acres or 18 acres of average land were fixed as the ceiling,
considering that an annual net income of Rs. 15,000 would accrue to a family at
1970 prices.
Budget 2004-05 : The Government's Rural Initiatives and the Indicators for
Corporates
The 2004-05 budget is a definite attempt to redress the neglect of the
agriculture and rural sectors in recent years. Though 58 per cent of India's
workforce is engaged in agriculture, this sector toay contributes only 22 per cent
of GDP because of the inadequate availability of gagriculture credit, lack of crop
diversification from staple wheat and rice to more profitabe cash crops and
restrictions on agri marketing. The Finance Minister hopes to correct this
situation by announcing a series of measures, such as the doubling of agriculture
credit in the next three years (RRBs./cooperative banks will be revamped),
increasing the expenditure for rural infrastructure development to Rs. 8,000
crore in the current years, leveraging the SHG micro finance programme to
ensure that 5.7 lakh of the 10.79 bank-linked groups take up micro enterprises
and thereby enhance their incomes (read purchasing power) and increasing
budget allocation on accelerated irrigation programmes to Rs. 2,800 crore (last
year Rs. 2,00 crore). Simultaneously, the Rural Infrastructure Development
Fund, set up under NABARD in 1994-95 and discontinued last years, is being
revied to give a fillip to infrastructure development in our rural areas.
Although the per capita income in rural is less than half of urban, the
rural sector already accounts for 53 per cent of FMCGs and 59 per cent of 290
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durables bought in India. However, rural penetration and consumption levels for
most product categories are much lower than urban because of limited
purchasing power with villagers. Improved irrigation facilities, infrastructure,
better roads, free trading in agri produce, removal of excise duty on tractors, agri
implements; and the insurance scheme for farmers announced in the Budget
should all give a boost to the rural economy and generate a greater demand for
corporate products. However, to benefit from this new opportunity, urban
marketers will have to gain a better understanding of rural lifestyles, needs and
aspirations and design appropriate products. Corporates will need to extend their
distribution reach to service this new segment living in six lakh old villages,
offer smaller packs at lower price points, and communicate in the local idiom to
connect with rural audiences. A rural India marketing strategy will not work.
Corporate will have to not only think local, but also act local.
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Lesson ?5
NEW APPROACHES IN DISTRIBUTION
Learning objectives
After you have studied this lesson, you will be able to ...
Identify the problems in distribution
Explore the emerging approaches of distribution
Contents
Introduction
Problems in rural distribution
Need of an intelligent approach
The new players
Coverage strategy
Summary
Short questions
Discussion questions
References
Introduction
The burgeoning rural markets have become a great opportunity for many
companies to expand sales. However, many of them back out as they find
distribution as a major problem. Used to the developed distribution network in
the urban markets, they try the same tricks in rural markets, namely, extensive
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retailing and sustained pull generation through mass media advertising. As a
result they fail and place the blame on the less developed infrastructure of the
rural markets. Creative companies like HLL, have been experimenting to find
innovative ways of reaching the rural consumers.
Problems in rural distribution
(i) Difficulty in reaching rural consumers
The major problems are:
Lack of adequate transport facilities,
Large distances between villages,
Lack of pucca roads connecting villages to nearest townships,
Lack of proper retail out lets, and
There are about 576,000 villages in India, 79 per cent of them with a
population less than 1,000. Almost 80 per cent of the villages do not have all-
weather roads. Rural consumers are also far less homogenous than their urban
counterparts and differ from region to region. Therefore, it is not possible to
merely extend urban production to rural markets.
The low density of population and inaccessibility makes the problem
of servicing these villages individually difficult and often uneconomical. Direct
delivery of goods to even the top one per cent of villages costs twice as much as
servicing urban markets. Therefore, in the initial stage, it may be better to
concentrate only on the larger villages, and towns with large agricultural
hinterlands that act as foci for distribution. The semi-wholesalers and retailers
servicing smaller villages can obtain stocks from these places or the villagers
themselves can buy the necessary items.
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Studies conducted by the Marketing Research Department of Hindustan
Level showed that about 20 per cent of the farmers visit the nearest town at least
once a month to sell their produce and purchase their requirements. In other
words, the towns with large agricultural hinterlands can became the gateways
for entry into the rural market.
(ii) Multiple Tiers, Higher Costs and Administrative Problems
In the first place, the rural distribution chain requires a larger number of
tiers, compared to the urban one. The long distances to be covered from the
product points and the scattered locations of the consuming households cause
this situation. At the minimum, the rural distribution chain needs the village-
level shopkeeper, the mandi-level distributor and the wholesaler/stockiest in the
town. And on top of them are the manufacturers' own warehouses/branch office
operations at selected centers in the marketing territory. Such multiple tiers and
scattered outfits push up costs and make channel management a major problem.
The scope for manufacturers' direct outlets such as show rooms or depots is
quite limited in the rural market unlike in urban areas. Lit become expensive as
well as unmanageable. The dependence of the firm on intermediaries is much
greater in rural areas as direct outlets are ruled out. But controlling such a vast
network of intermediaries is a difficult task. Control is mostly indirect. And
because of these factors the firm has to be more careful while selecting channel
members in rural areas.
(iii) Non-availability of Dealers
Another problem is the availability of dealers. Many firms find that there
are a limited number of suitable dealers. Even if the firm is willing to start from
scratch and try out rank newcomers, the choice of candidates is really limited.
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(iv) Poor Viability of Retail Outlets
Retail sales outlets in the rural market suffer from poor viability. A
familiar paradox in rural distribution is that the manufacturer incurs additional
expenses on distribution; still the retail outlets find that the business is un
remunerative. The scattered nature of the market and the multiplicity of tiers in
the chain use up the additional funds the manufacturer is prepared to part with.
And no additional money comes to any of the groups. Moreover, the business
volume is not enough to sustain the profitability of all the groups and the retail
outlet suffers the most.
(v) Inadequate Bank Facilities
Distribution in rural markets is also handicapped due to lack of
adequate banking and credit facilities. Rural outlets need banking support for
three important purposes:
To facilitate remittances to principals and to get fast replenishment of stocks.
To receive supplies `through bank' (retiring documents with the bank).
To facilitate credit from banks.
As banking facilities are inadequate in rural areas, rural dealers are handicapped
in all these aspects. It is estimated that there is only one bank branch for every
fifth village.
(vi) Inadequate Credit Facilities
Inadequacy of institutional/bank credit is another constraint. Rural
outlets are unable to carry adequate stocks due to lack of credit facilities. They
are unable to extend credit to their customers. Thus there is a vicious circle of
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lack of credit facilities leading to inadequate stocking and loss of business,
finally resulting in poor viability of outlets.
Need for an Intelligent Approach
There are wide regional variations in the prosperity levels of the districts
and hence in their market potential. These need to be analyzed and understood
sectorally in order to determine the methods for approaching them. A socio-
economic survey undertaken in four pr0ogressive districts, one from each part of
the country--Tanjore, Ludhiana, Burdwan and Kolhapur--revealed a healthy
per capita income growth of 5 per cent per annum among big and small farmer
against a nation average of 1.5 per cent. This has come about through improved
use of land coupled with a reduction in family size.
Further if one takes a closer look at the characteristic features of rural
market, it will be clear that distribution in fact, is no problem at all. The
perceived problem is only a misconception of the old timers who are not aware
of the changing scenario in rural areas and the potential of the existing selling
outlets. Under the rural road construction programme, the Government plans to
link villages with a population of 1,5000 or above withal-weather roads.
Progress in this has been somewhat tardy. The end of 1985 would link at least
20,000 such villages. If this project succeeds the entire complexion of the rural
market could change.
The New Players
Selling in rural India followed a pattern, till recently. But with the entry of
new players, and the surge in rural demand, the structure and dynamics are
altering.
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Unofficial Channels
Consider Hero Honda Motors. Its 360 dealers allover the country has reported
the emergence of an unofficial channel of distribution ?village mechanics, local
real estate agents, shopkeepers who sell non-durables and so on. These people
are taking motorcycles from the official dealers-usually in twos and threes--
displaying them outside their premises and closing a sale. The paper work,
though, is left to the dealer to complete.
Such instances are facilitating as well as forcing companies to review their
distribution set-ups to ensure that they are present even in the smallest villages.
Cooperative Society
In terms of their coverage of population and their share in total supply of
agricultural inputs, including credit, Cooperatives occupy an important place in
India's rural economy. India has largest network of cooperatives in the world.
Rural scan reports that there are 4398 primary marketing societies and 2933
large agricultural multipurpose primary marketing services(LAMPS) in the
country. Other members are:
District level cooperative marketing societies: 191
State Level cooperative marketing federations: 29
Commodity cooperative marketing federations: 22
? Regional cooperative marketing societies:
11
Generally, a cooperative exists for 2 or 3 villages. Farmer's service
cooperatives (FSCs) is a mini super market. Such an arrangement can be tried
with others.
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(iii) Public Distribution System (PDS)
The fair price shops run by government can be utilized to sell
consumables and low value durables.
(iv)Petrol Bunks
Petrol bunks have become multi-purpose distribution centers at some
places. Such a concept can be effectively promoted.
(v) Agricultural Input Dealers
Fertilizer companies have retail outlets within a range of 5 km to any
village. They offer a scope for marketers.
(vi) NGOs
Non government organizations (NGOs), can reach interiors of villages.
Most NGOs have progrms focusing on sustainable development through
providing avenue for income generation. They command substantial influence in
the villages covered by them. Companies may join hands with them to mutual
benefit. With NGOs undertaking distribution, companies realize benefits
accruing from infrastructure and grass roots level networking. Also organization
security would provide a buffer against delayed retail collections. From the
NGOs standpoint, such association with companies could yield employment
opportunities for local residents.
(vii) Barefoot Salesmen
One useful option is to train sons ?of-the soil to operate as barefoot
salesmen. The important requirements like fluency in the local dialect and
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familiarity with persons and terrain will be the advantage in hire the persons
form villages.
barefoot salesman, operating on a retailer-cum-commission basis,
could book orders from retailers in villages with in a limited radius of his
village. When orders are aggregated and served there will be economies in
distribution.
Syndicated distribution
new alternative approach is syndicated distribution. Under this
approach, marketers of household products could group together and consider
the formation of a syndicated trading organization, which could jointly distribute
collective group of household products in the rural market and enjoy shared
economies. Distribution Trends
The changes in distribution are not only baffling but also challenging.
Table.1 identifies the changes in various elements of a distribution.
Table.1 Changes in distribution
Element of
From
To
sales
Time
Restricted, limited timings
Unrestricted, any time
Place
Own retail outlet, occasionally Any where
public place for example, exhibitions
Choice
Limited to brands
Any product-to-any
specification, unlimited
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Sales
Products
Products
Experiences
Relationships
Achievement
Result
Customer satisfaction
Customer
Participation and
satisfaction.
(Direct-to-Home selling: Companies are embarking on 'Direct-to-Home selling'
(DTH) even in rural area. It provides one-to-one communication as well as sales
without reliance on retailers.
The two forms of DTH are: Network marketing and internet marketing.
Network Marketing: Network marketing is a form of direct selling. It can take
place at two levels.
Single level--distributor appoints sales persons. He earns profits on
sales, made by him.
Multi-level-distributor introduces another distributor (a friend or relative,
in general), who in turns introduces another distributor. Like that the
network is created. The network markets products. Each distributor gets
profits on his sales and also a percentage on sales made by his `network'.
Thus one earns by `retailing and recruiting'.
In India direct selling is still very nascent, with very few players. Some of them
are:
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Product Group
Organization
Cosmetics
Aviance, Avon, Biotique, Oriflamme
Kitchen ware
Tupper ware
Home care personal
Aviance, Quantum, Modicare products,
Books
Time-life Books, LB publishers and Distributors,
Jewellery
Dianet
Health care
Conybio-Far-Infra Red products
Amway is the pioneer of direct selling and the largest selling
organization in India and the world. It has a network encompassing 30 lakh
independent business owners, worldwide.
The introduction of network marketing in rural side will be beneficial not
only to the companies but also to the villagers. Already innovative companies
like HLL have their schemes in the pipeline.
Internet Marketing: Also referred to as cyber marketing, it is the latest in the
series of innovations in retailing-catalogue marketing, special ?interest mail
order, telemarketing and television shopping. Though it started off in 1960s, it
was only in 1993 its potential as a commerce medium was realized. By 1998,
individual sites among the hundreds of thousands, already in existence, were
measuring `hits' in the hundreds of millions and marketers were leading in to the
medium because "every body else is there". Today we have success stores of e-
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tailers like FAB MART, SUBHIKSHA which have motivated many companies
to set up their websites.
Several corporate enterprises have facilitated rural consumers transacting
through internet facility. Prominent among them are EID parry, ITC and
Nagarjuna Fertilizers.
ITC has launched 3 web based in initiatives (e-choupals in company-
speak) as a part of its strategy to vertically integrate its sourcing
operations aquachoupal.com in AP. Soya choupal. Com in MP and
planters net. Com in Karnataka. The choupals act as facilitators for
inputs to farmers--in the aqua, soya and coffee domains.
Currently in three states ITC has set up 235 internet
kiosks which cater to 10,000 farmers and cover over
2,50,000 hectares of land. The idea is to use this network
as a distribution channels for other products. In fact, a
pilot project to sell LPG cylinders using the network is
already on.
Coverage strategy
The following issues might confront a marketer aiming to extend
distribution to rural areas,
Which villages merit direct coverage at all?
What would mode of coverage be?
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Direct distribution to village settlements less than specific population or
number of retail outlets would not be viable. Yet for future payoffs,
systematized distribution efforts are imperative to consolidate brand shares and
monitor product movement in a high growth market segment. Marketer has to
evaluate plans to cover the villages by vans and participation in that market.
Differential development of infrastructure, divergent geo-climatic
conditions and variations in location density of village settlements preclude the
application of uniform approach across rural markets. Pockets of similarity need
to be identified and strategies by determined in consonance with individual
pockets. Further refinements would be necessitated by local conditions and
unique improvisions.
An example of unique solution to unique condition is the case of brook
bond. Broke bond used mules for distribution of Tata chaap packaged
tea to rural consumers in Gashwal-kumaon.
Summary
A wide array of problems hinders marketers in approaching rural areas with
confidence. The lack of fair weather roads, widely dispersed villages, low
density of population, lack of bank and credit facilities, multiple tiers, higher
costs and administrative problems, and lack of retailers are the problems in rural
distribution. Intelligent way of approaching rural areas is required. The
emerging distribution approaches include: Cooperative societies, petrol bunks,
agricultural input dealers, NGOs, etc. Latest approaches include the direct to
home selling methods: network marketing and internet marketing.
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Short questions
Problems in rural distribution
Cooperative society
NGOs
Internet marketing
Network marketing
Discussion questions
Rural distribution is not without problems. Highlight some of the
problems in rural distribution.
What are the recent approaches to rural distribution ?
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This post was last modified on 14 March 2022