Dissertation: Marketing Practices by FMCG Companies For Rural Market

MARKETING PRACTICES BY FMCG COMPANIES FOR RURAL MARKET
DISSERTATION
MARKETING PRACTICES BY FMCG COMPANIES

FOR RURAL MARKET
SUBMITTED TO:-MS RUCHI KHANDELWAL

SUBMITTED BY:- TANUJ BHATLA
ROLL NO:- 200605304
SECTION:- C
Amity Business School, Noida 1

ACKNOWLEDGEMENT
First and foremost I would want to thank my Institute Amity Business School, for giving
each and every student a platform of such nature where even before the completion of
two’s course, interaction with the industry and exposure to the same is made possible.
I express my immense pleasure and solemn gratitude to Ms Ruchi Khandelwal the

Faculty of BBA for giving me this opportunity to study an entire sector very closely.
I greatly appreciated several opportunities to meet and interview concerned personnel at

PHD Chamber Of Commerce And Industry. I learnt a great deal from relevant people of
such stature where I was able to obtain valuable feedback on my evolving thoughts about
the changes that have been taking place in the rural India.
Last but not the least I am grateful to all those persons who were involved with me in the
project for their co-operation and support.
TANUJ BHATLA

CERTIFICATE
This is to certify that Project Title MARKETING PRACTICES BY

FMCG COMPANIES FOR RURAL MARKET is the original work of
Tanuj Bhatla, Roll No. 200605304 BBA (Marketing) Class of 2006,
Amity Business School, Noida
This dissertation is done under the guidance and supervision of

Ms Ruchi Khandelwal during the period of march 2006.This
dissertation report has not been submitted to any other institute or
organization for any kind of assessment or consideration, to the best
of my knowledge.
MS. RUCHI KHANDELWAL

Amity Business School
Amity University
Uttar Pradesh

CONTENTS
Background Of Fmcg Sector
Rural Marketing - Indian Prespective
Evolution Of Indian Rural Marketing

Rural Clasification
Attractiveness Of Rural Market
Difference Between Rural And Urban Marketing
Analysis Of The Rural Market In India
Problems Of Rural Marketing
Challenges
Myths About Rural Market
Strategies For Selling In Rural India
The 4a Approach
Recommended Strategies For Rural Marketing

Advertising In Rural India
Fast Moving Consumer Goods Sector

{Background}
Fast Moving Consumer Goods Sector

{ Summary }
Fast Moving Consumer Goods Sector {Structure}
Characteristics Of The Indian FMCG Market
KEY ISSUES Faced By Fmcg Companies In Rural

Market
Future Outlook
Pricing By FMCG Companies
Pillars Of Fast Moving Consumer Goods
Marketing
G MARKET RESEARCH
Market Segmentation And Positioning
Advertising And Promotion
Fmcg Consumtion In Rural India
Focus On Urban Categories

RURAL MARKETING – THE “HINDUSTAN

LEVER LIMITED PRESPECTIVE
ITC E-Choupal
Chaupal Sagar, By Cigarette Giant ITC

Coca-Cola & Pepsi
Hll’s Strategies For The Rural Market Big Pie
Consumer Demogrphics
Executive Summary

BACKGROUND OF FMCG SECTOR

The FMCG sector has been the cornerstone of the Indian economy. Though, the
sector has been in existence for quite a long time, it began to take shape only during
the last fifty-odd years. To date, the Indian FMCG industry continues to suffer from a
definitional dilemma. In fact, the industry is yet to crystallize in terms of definition
and market size, among others. Generally, FMCG refers to consumer non-durable
goods required for daily or frequent use. The sector touches every aspect of human
life, from looks to hygiene to palate. Perhaps, defining an industry whose scope is so
vast is not easy.
Post-reforms, the industry's growth has been hinging around a burgeoning rural
population which has witnessed significant rise in disposable incomes. Consequently,
the rural markets have been witnessing intense competition in almost all the
consumer product classes. Another reason which has led to rise in this trend is the
saturation in urban markets in most of the consumer non-durable goods categories.
This has led to the industry players scrambling for greater rural penetration as a
future growth vehicle, the area which accounts for 70% of the total Indian
households
The FMCG sector consists mainly of subsegments viz. personal care, oral care and
household products. This can be further sub-divided into oral care, soaps and
detergents, Health and Hygiene products, beauty cosmetics, hair care products, food
and dairy-based products, cigarettes, and tea and beverages. Of late, there seems to
be a liberal approach towards branding of the companies/products as FMCG;
companies in businesses like liquors (United Breweries), paints (Asian Paints),
adhesives (Fevicol) too are being labeled as FMCG stocks in the stock market
parlance. Quite interestingly media stock Zee Telefilms was labelled as FMCG stock
by a mutual fund, which had Zee as its top holdings in its FMCG sector scheme at
one point of time!
So far, it has been a chequered graph for the MNCs operating in the Indian FMCG
industry. Domestic companies are only beginning to make their presence felt in the
industry. It has taken tremendous consumer insight and market savviness for the
FMCG players to reach where they are today. But, the journey seems to have just
now begun for the players as the majority of the rural populace are yet to get access
to the items of daily usage like toothpastes, soaps and shampoos.
Things however began to change post-reforms during the nineties. The floodgates were
opened. And MNCs with saturating home-markets who were hungrily looking for
markets elsewhere rushed in. Categories within categories were created in products such
as hair-oil and skincare, and many new product categories were also created. Untouched
facets of the Indian consumer were explored. The FMCG players had in front of them not
only a vast untapped market but also a market that was fast growing. Income-levels were
rising. A new class of upwardly mobile was emerging. Television and, satellite and cable
television were helping the market to grow further in rural areas by changing aspirations
and lifestyles.

The canvas did widen for the FMCG players, but so did the challenges. Rules of the game
changed. Strategies, in their true sense, came to the fore. Quite unlike in the past,
companies began looking for ways to expand their product-portfolios and distribution
reach. Acquisition of brands became the order of the day as it gave the players easy
options of attaining growth in the FMCG sector. That is true of the MNCs who are
known for their deep pockets .
With domestic consumption close to Rs 80,000 crore, the FMCG sector today is one of
the largest in the country. In terms of size and importance, it is only going to grow.
Notwithstanding experts' pronouncements that there would be enough room for
everybody to co-exist, the name of the game is going to be competition and more
competition. One of the biggest challenges facing the Indian FMCG industry is this: get
to the next level of innovation. "You need strong local product ranges," says McKinsey's
Fernandes.
So, the key to success in the Indian FMCG industry lies in: cutting costs, investing in
brand building in the form of marketing, advertisements and promos, providing good
price points and aggressive pricing, offering products such as packaged atta and milk that
add value and convenience and protecting their human talents from poachers.
Alongside, FMCG players need to go in for new initiatives. Consider HLL for instance.
The company has made it clear that Internet is going be its key delivery vehicle which
would expedite its distribution and sales efforts. Sure, Internet is going to change the way
FMCG companies strategise and do business. With reasons. Internet presents vast
opportunities to FMCG companies in the areas of logistics, interface with consumers and
value chain.
Consider Internet's role in logistics. FMCG players can leverage Internet to extend their
logistics network beyond the traditional expensive EDI-based solutions. Says Fernandes:
"It is a huge value-driver for an industry with such a wide reach and a huge SKU
complexity." This would start from connections between the factory and C&F and then
move on to more complex networks reaching out to key urban distributors and
wholesalers. And over time, even to rural wholesalers and retailers.
As far as interface with consumers is concerned, Internet can work wonders here. Over
time, successful e-marketeers can leverage the Internet to develop user-communities,
which are invaluable in creating loyalty and in testing products. What more, FMCG
companies can come together to form e-purchasing portals and increase their purchasing
power and ability to find smaller suppliers.
Fine. All these call for a productive partnership between the FMCG industry and the
government. Experts see this as an emerging opportunity. A partnership between the
government, which wants to drive Internet penetration into smaller towns, and FMCG
companies who want to ride off a shared infrastructural network to enable superior
logistics and drive product communications. Such a partnership can jointly drive the
Internet network deeper into the Indian heartland.

It seems the excitement is just beginning in the Indian FMCG industry.
RURAL MARKETING - INDIAN PRESPECTIVE
What’s different about rural marketing?
Price plays a very important role . Companies have, in fact, launched lower-priced
products targeted at the rural market. Some time back, Escorts Yamaha had priced its
model YD 125 at Rs 30,000 to clear the stock and the scheme was a runaway hit. Besides
pricing, the second most important thing is repetition of communication to increase recall
value.
The repetition should not be too soon as it then tends to get monotonous, nor should it be
too long. The ideal time is after one month and before three months. This helps establish
the image of the companies and allows the target audience to differentiate products. This
is important because of the widespread prevalence of spurious products in the rural
market.
Innovative tools should focus on providing entertainment along with delivering the
message. In this regard, our concepts like rural mobile fairs, caravans, screens at the
Kumbh Mela etc have been well received by the consumers.
The Indian rural market with its vast size and demand base offers great opportunities to
marketers. Two-thirds of countries consumers live in rural areas and almost half of the
national income is generated here. It is only natural that rural markets form an important
part of the total market of India. Our nation is classified in around 450 districts, and
approximately 630000 villages which can be sorted in different parameters such as
literacy levels, accessibility, income levels, penetration, distances from nearest towns,
etc.
The success of a brand in the Indian rural market is as unpredictable as rain. It has always
been difficult to gauge the rural market. Many brands, which should have been
successful, have failed miserably. More often than not, people attribute rural market
success to luck. Therefore, marketers need to understand the social dynamics and attitude
variations within each village though nationally it follows a consistent pattern.
While the rural market certainly offers a big attraction to marketers, it would be naive to
think that any company can easily enter the market and walk away with sizable share.
Actually the market bristles with variety of problems. The main problems in rural
marketing are:
• Physical Distribution
• Channel Management
• Promotion and Marketing Communication
The problems of physical distribution and channel management adversely affect the
service as well as the cost aspect. The existent market structure consists of primary rural

market and retail sales outlet. The structure involves stock points in feeder towns to
service these retail outlets at the village levels. But it becomes difficult maintaining the
required service level in the delivery of the product at retail level.
One of the way could be using company delivery vans which can serve two purposes- it
can take the products to the customers in every nook and corner of the market and it also
enables the firm to establish direct contact with them and thereby facilitate sales
promotion. However, only the bigwigs can adopt this channel. The companies with
relatively fewer resources can go in for syndicated distribution where a tie-up between
non-competitive marketers can be established to facilitate distribution.
As a general rule, rural marketing involves more intensive personal selling efforts
compared to urban marketing. Marketers need to understand the psyche of the rural
consumers and then act accordingly. To effectively tap the rural market a brand must
associate itself with the same things the rural folks do. This can be done by utilizing the
various rural folk media to reach them in their own language and in large numbers so that
the brand can be associated with the myriad rituals, celebrations, festivals, melas and
other activities where they assemble.
One very fine example can be quoted of Escorts where they focused on deeper
penetration .In September-98 they established rural marketing sales. They did not rely on
T.V or press advertisements rather concentrated on focused approach depending on
geographical and market parameters like fares, melas etc. Looking at the ‘kachha’ roads
of village they positioned their mobike as tough vehicle. Their advertisements showed
Dharmendra riding Escort with the punch line ‘Jandar Sawari, Shandar Sawari’. Thus,
they achieved whopping sales of 95000 vehicles annually.
One more example, which can be quoted in this regard, is of HLL. A year back HLL
started ‘Operation Bharat’ to tap the rural markets. Under this operation it passed out
low–priced sample packets of its toothpaste, fairness cream, Clinic plus shampoo, and
Ponds cream to twenty million households.
Thus looking at the challenges and the opportunities which rural markets offer to the
marketers it can be said that the future is very promising for those who can understand
the dynamics of rural markets and exploit them to their best advantage.

EVOLUTION OF INDIAN RURAL MARKETING
EVOLUTION STAGES:
STAGE I : AGRICULTURAL MARKETING
STAGE II : RURAL INPUTS MARKETING
STAGE III : RURAL MARKETING
FLOW OF GOODS
RURAL TO URBAN
URBAN TO RURAL
URBAN /RURAL TO RURAL
TYPE OF PRODUCTS:
AGRICULTURAL PRODUCE
AGRI. INPUTS LIKE SEEDS,MACHINES,

FERTILISERS ETC
CONSUMER DURABLES, FMCG,CONSUMABLES FOR

CONSUMPTION AND PRODUCTION ETC

TRANSACTIONAL V/S DEVELOPMENTAL MARKETING
ASPECT TRANSACTIONAL DEVELOPMENTAL
CONCEPT CONSUMER ORIENTATION, SOCIETY, SOCIETAL

MARKETING CONCEPT
ROLE STIMULATING AND CATALYTIC AND

CONVERSIONAL TRANSFORMATIONAL
FOCUS PRODUCT-MARKET FIT SOCIAL CHANGE
KEY TASK PRODUCT INNOVATIONS SOCIAL INNOVATIONS

AND COMMUNICATIONS AND COMMUNICATIONS
NATURE OF COMMERCIAL SOCIAL-CULTURAL,

ACTIVITY ECONOMIC
PARTICIPANTS CORPORATE ENTERPRISES GOVT,VOL AGENCIES

SELLERS CORPORATE ENT,
BENEFACTORS
OFFER PRODUCTS AND SERVICES DEVELOPMENT

PROJECTS/
SCHEMES/PROGRAMMES
TARGET GROUP BUYERS BENEFICIARIES AND

BUYERS
COMMUNICATION FUNCTIONAL DEVELOPMENTAL
GOAL PROFITS, CUST.SATIS MARKET

BRAND IMAGE DEVELOPMENT
CORPORATE IMAGE
TIME FRAME SHORT-MEDIUM MEDIUM –LONG
MOTIVATION PROFIT MOT/ BUSINESS SERVICE MOT.

POLICY /IDEOLOGICAL
PUBLIC POLICY

RURAL CLASIFICATION
CONSUMER MARKET: ALL KINDS OIF CONSUMMABLES, FOOD
PRODUCTS, TOILETRIES, COSMETICS, TEXTILES,
FOOT WEAR ETC WATCHES, BICYCLES,
RADIO, TV, KITCHEN APPLIANCES, FURNITURE,
SEWING MACHINE, TWO WHEELER ETC.
INDUSTRIAL MARKET: AGRICULTURAL AND ALLIED ACTIVITIES,
FARMING, COTTAGE INDUSTRIES, HEALTH
CENTRE, SCHOOL, COOPERATIVE, PANCHAYAT,
OFFICE ETC. SEEDS, FERTILISERS, PESTICIDES,
TRACTORS ANIMAL FEED, ETC
SERVICES MARKETS: REPAIRS, TRANSPORT, BANKING, CREDIT,
INSURANCE HEALTHCARE, EDUCATION,
COMMUNICATION , POWER ETC.

ATTRACTIVENESS OF RURAL MARKET
- LARGE POPULATION
- RAISING PROSPERITY
- GROWTH IN CONSUMPTION
- LIFE-STYLE CHANGES
- LIFE CYCLE ADVANTAGES
- MARKET GROWTH RATES HIGHER THAN URBAN
- RURAL MARKETING IS NOT EXPENSIVE
- REMOTENESS IS NO LONGER A PROBLEM.

DIFFERENCE BETWEEN RURAL AND URBAN MARKETING
ASPECT URBAN RURAL
PHILOSOPHY MARKETING MARKETING AND

SOCIETAL
AND SOCIETAL, DEVELOPMENT,
GREEN,RELATIONSHIP RELATIONSHIP
MARKET
DEMAND HIGH LOW

COMPETITION ORG SECTOR UNORG.SECTOR
CONSUMERS
LOCATION CONCENTRATED WIDELY SPREAD

LITERACY HIGH LOW
INCOME HIGH LOW
EXPENDITURE PLANNED,EVEN SEASONAL
NEEDS HIGH LEVEL LOW LEVEL
INNOVATION ADOPTION FASTER SLOW
PRODUCTS
AWARENESS HIGH LOW

CONCEPT KNOWN LESS KNOWN
POSITIONING EASY DIFFICULT
USAGE METHOD EASILY GRASPED DIFFICULT TO GRASP
QUALITY PREFERENCE GOOD MODERATE
FEATURES IMPORTANT LESS IMPORTANT
PRICE
SENSITIVE YES VERY MUCH

LEVEL DESIRED MEDIUM-HIGH LOW-MEDIUM
DISTRIBUTION
CHANNELS MULTI VILL SHOPS, SHANDIES,

HAATS, YATRAS
TRANSPORT FACILITIES GOOD AVERAGE
PRODUCT AVAILABILITY HIGH LIMITED

PROMOTION
ADVERTISING ALL TV,RADIO, MULTI
LINGUAL
PERSONAL SELLING DOOR 2 DOOR OCCASSIONALLY
FREQUENTLY
SALES PROMOTION ALL GIFTS,DISCOUNTS,DEMO
PUBLICITY GOOD OPPORTUNITIES LOW

ANALYSIS OF THE RURAL MARKET IN INDIA
Rural market of India consists of about 80% of the population of the country. Apparently
in terms of the number of people, the Indian rural market is almost twice as large as the
entire market of USA or Russia. This market is not only large, but very much scattered
geographically. It is also as diverse as it is scattered. It exhibits linguistic, regional and
cultural diversities and economic disparities, and hence, it can easily be considered as
more complex than the market of a continent as a whole.
The rural market scene has undergone a steady and encouraging change over the last
three decades. Inspite of several barriers to faster growth, the growth has not only been
quantitative, but also qualitative. This change has been possible because of new
employment opportunities and new sources of income made available through rural
development programmes which have resulted in green and white revolutions and a
revolution in rising expectations of rural masses.
The rural buyers in India provide a tremendous range of .contradictions and paradoxes
which baffles the urban-based marketing people and, even more so, the foreign observers.
Rural consumers are far less homogeneous than their urban counterparts and differ from
region to region.
The rural market is made up of two broad components i.e., the market for consumption
goods and the market for agricultural inputs. The rural markets are by and large less
exploited. Another important features of the rural market is that at least in the present
context, it is largely agriculture oriented. Green revolution and the resultant prosperity is
confined to a few select areas in the country. As a result, the effective demand for
consumer items has not spread all over rural India. Income generated from the money
sent by the members of their families employed in towns and abroad also helped the rural
people to spend more on consumer goods.
In spite of the increasing rate of growth in urban population through mirgration and other
channels and the consequent increase in their purchasing power, the rural market still
offers opportunities which are vast and yet relatively untapped.
It has been noted that the rural consumer is discerning and the rural market vibrant. At
the current rate of growth it will soon outstrip urban market. Surveys and audits for a
number of consumer products and services have, over the years, clearly highlighted the
emerging importance of this sector.
The rural market is not sleeping any longer. 'Go Rural' seems to be the latest slogan.
Rural consumption of all products is growing by leaps and bounds, since the urban
market has reached near saturation levels in a number of categories.

In short, the sheer size of the rural population will serve as a large potential demand base
for a variety of products:
The new agricultural strategy of applying science and technology to farming will
increasingly trigger off a chain reaction of increased generation of wealth, productivity
income and consumption, which provide the key for the emerging rural demand.
FACTORS CONTRIBUTING TO RURAL BOOM
The marketing boom in the rural areas is caused by such factors as increased
discretionary income, marketable surplus of product, like vegetables and eggs, rural
development schmes, unproved infrastructure, increased retailing and retailers, increased
awareness with information explosion, expanding TV networks, liberalised Government
policies for rural development, emphasis on rural markets by companies, new cadre of
entrepreneurship, competitive and creative sales promotion, packaging revolution and,
changing life styles in the rural areas. .

PROBLEMS OF RURAL MARKETING
In the Indian context, rural marketing is 4 complex subject. For a business organisation,
rural marketing is beset with a number of problems. The prices of rural marketing poses
many problems due to the vastness of the country and a high potentiality for providing an
effective marketing system.
Besides, a few other problems stem from the under developed markets and illiterate and
gullible people constitute the major segment of the markets. More purchasing power is
not enough. It is not enough to have some consumption pioneers. The activation of
buying on a wide scale is an essential precondition for the exploitation of the rural
market.
It is now unanimously accepted that the rural salesmanship in India has been insufficient
and inadequate and out of proportion to the agriculture revolution. This calls for strong
bias in favour of raising the rural demand as against the urban demand. The traditional
marketing activities of promotion, distribution, sales and servicing, undertaken so far in
the urban and semi-urban contexts are to be extended to cover a much wider area in a
rural environment by introducing appropriate innovation, selection and adoption. There
are about 5,76,000 villages in India, 79 percent of them with a population of less then
1,000 each.
MAJOR PROBLEMS IN TAPPING THE RURAL MARKET
1. High distribution costs
2. High initial market development expenditure
3. Inability of the small retailer to carry stock without adequate credit facility
4. Generating effective demand for manufactured foods
5. Wholesale and dealer network problems
6. Mass communication and promotion problems
7. Banking and credit problems
8. Management and sales managing problems

9. Market research problems
10. Inadequate infrastructure facilities (lack of physical distribution, roads warehouses
and media availability)
11. Highly dispersed and thinly populated markets
12. Low per capita and poor standards of living, social, economic and cultural back-
wardness of the rural masses
13. Low level of exposure to different product categories and product brands
14. Cultural gap between urban based marketers and rural consumers.
The development of the rural market will involve additional cost both in terms of
promotion and distribution. In rural marketing, often it is not promotion of a brand that is
crucial, but creating an awareness concerning a particular product field, for instance,
fertilizers and pesticides.
Urban and semi-urban based salesmen are not able to tap the full potential in the villages.
Here, it may be suggested that the marketers may select and employ the educated
unemployed from villages.

CHALLENGES
Rural market in India is very large and fast growing consumer market with over
75% of the population residing in rural and semi-urban areas. With the increase in
competition and saturation of urban market, corporates are now working hard to tap
the potential of rural market to increase their market shares. Business Managers are
devising aggressive marketing and promotional strategies to create brand
consciousness and loyalty among the rural consumers. On the other hand, with the
increase in disposable income the rural consumers are more brands sensitive and
willing to pay for quality. To tap this market potential and increasing brand
consciousness among rural consumers, major corporates are today organising
campaigns and participating in rural hats, melas and exhibitions for market
promotions, visibility and brand building.
Though rural market promises huge returns but as the cost of marketing is high in
rural areas, most consumer companies are looking for a cost-effective platform to
increase the accessibility and visibility of their products. On the contrary, despite
increase in rural disposable incomes and penetration of mass media, the rural
consumers are still not much aware about quality products and services.

MYTHS ABOUT RURAL MARKET
HERE are some myths on the rural market to mull over: The rural market is a
homogeneous mass, urban ads are equally suitable for rural audiences, Western
market research methodologies are suitable for rural markets too.
Mr Pradeep Kashyap, Managing Director, MART and member, The Rural Network,
demolished these rural myths and several others while outlining his theme
presentation at a conference on rural marketing and communications organised by
FICCI here today.
Mr Kashyap said that it was a myth that the rural market could be treated as a single
entity. Instead it has a vast cultural diversity and vastly varying rural demographics.
The second myth is that purchasing power is low. He said that at 15.6 million
`middle class' households, the rural areas compared well with 16.4 million urban
households. For the same income level, disposable surplus in the rural area is much
higher than urban, he said. Another myth he said is that ad agencies and marketers
bank on TV to reach rural areas. However, he said that television reach is only 36
per cent of households. Urban ads, Mr Kashyap explained, was not always suitable
for rural audiences - another myth.
The mother of all myths, Mr Kashyap said, was that the rural boom was over.
However, he said that rural market size has grown rapidly and while it was true that
growth has tapered off, it already presented a huge market. Mr Kashyap dwelt on
the key challenges in the future for rural marketers. One of them was market
penetration. Marketers also had to look at increasing occasions for use of FMCGs in
rural households.
Rural incomes needed to be increased through rural market growth. One other
challenge lay in making effective use of the large available infrastructure of post
offices and public distribution shops and haats and melas. Companies would have to
meet the challenge by creating an independent rural marketing team with its sales
targets and budgets, said Mr Kashyap. They would also have to design appropriate
products keeping rural usage and environment in mind and be innovative with their
distribution channels.
The future, he said, would see technology play a key role in transforming markets.
There will also be a proliferation of large format rural retail stores, he said.
agency team to help focus on rural markets
"RURAL marketing is often confused with below-the-line communication such as
promotions and contests," says Mr R.V. Rajan, Managing Director, Anugrah Madison
Advertising, a rural communications outfit, referring to the lack of understanding of
the rural markets by many companies.
He says that though clients are aware of the potential of the rural market, they lack
the long-term perspective in planning. "Instead of investing in research, they go
ahead and implement activities for short-term gains," he adds.
To change this situation, The Rural Network, an alliance formed by four rural
communication agencies (Rural Relations, Marketing & Research Team (MART),
Sampark Marketing & Advertising Solutions and Anugrah Madison), is planning to
conduct seminars to help clients understand the realities of the rural market.

"We also plan to conduct specific workshops to train middle-level managers tackle
issues related to rural communications," he says. The first seminar is scheduled to be
on September 6 in Mumbai.
Mr Rajan explains that the objective of creating this network is to exploit the
inherent strength of each partner and benefit from the synergies as a group. "There
is no institution which can offer strategic planning for rural markets and
implementation on an all-India level under one roof," points out Mr Rajan.
Therefore, this network, reportedly the first of its kind, is drawing on the regional
expertise of each of its partners to offer a national perspective to develop rural
marketing strategies. Its primary objective is to offer customised research, strategic
planning services, implementation and evaluation of rural marketing initiatives. A
client may also have access to the huge of database of rural markets that the
network has aggregated.
At an operational level, the four partners of the Rural Network work on a revenue-
sharing arrangement.

STRATEGIES FOR SELLING IN RURAL INDIA
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.
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)
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. However, given the poor state of roads, it is an even greater
challenge to regularly reach products to the far-flung villages. Any serious marketer must
strive to reach at least 13,113 villages with a population of more than 5,000. Marketers
must trade off the distribution cost with incremental market penetration. 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 autorickshaws, 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 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 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 thermocol box for
seasonal outlets.
The insurance companies that have tailor-made products for the rural market have
performed well. HDFC Standard LIFE topped private insurers by selling policies worth
Rs 3.5 crore in total premia. The company tied up with non-governmental organisations
and offered reasonably-priced policies in the nature of group insurance covers.

AWARENESS
With large parts of rural India inaccessible to conventional advertising media — only 41
per cent rural households have access to TV — building awareness is another challenge.
Fortunately, however, the rural consumer has the same likes as the urban consumer —
movies and music — and for both the urban and rural consumer, the family is the key
unit of identity. However, the rural consumer expressions differ from his urban
counterpart. Outing for the former 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 relies heavily on its own company-organised media. These are
promotional events organised 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 53.6 per cent of rural
households. It doubled its spend on advertising on Doordarshan, which alone reached 41
per cent of 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.
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 Mr Donati, "about rural India could be wrong and one should focus
on high GDP growth areas, be it urban, semi-urban or rural."

RECOMMENDED STRATEGIES FOR RURAL MARKETING
The past practices of treating rural markets as appendages of the urban market is not
correct, since rural markets have their own independent existence, and if cultivated well
could turn into a generator of profit for the marketers. But the rural markets can be
exploited by ruralising them, rather than treating them as convenient extensions of the
urban market. 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.
The focus should be on infecting marketing culture into the villages. The educated
unemployed youth in the villages could be trained to carry out this mission.
Overcoming the income variability

Savvy firms create innovative opportunities for the rural segments that are
lagging behind in purchasing power. The local distribution for Akai in India, Baron
International, realized that the market for new television sets are primarily urban.
However, there was a considerable inertia when it came to replacing a working
TV set of a previous generation.But Baron also knew that there existed a market,
primarily rural, for used televisions. Rural retailers purchased traded-in sets from
urban dealers. Urban consumers got something for their old TV sets, urban
retailers made their margins from selling the traded-in sets, rural retailers made a
profit on used TVs and rural consumers were offered TV sets they could afford.
Resultantly, Baron’s sales increased by 1500%
Wider competition for a product

Many of the rural buyers tend to have little stock of money, only a flow.
Consequently, they tend to make purchases only to meet their daily needs and
have little capacity to build inventory. The marketing implications of this are far-
reaching. Not only are pack sizes and price points affected, but in turns out that
consumers have to make a selection from a much wider array of product
categories. Thus the nature of competition for any given product is much
broader. For instance, in a village haat, Coca Cola competes not just with Pepsi,
but with a broad set of purchases that the rural consumers consider as “treats”.
Preference for Low Unit Packs (LUP)

Trial is often encouraged by Low Unit Packs (LUP) or sachets. The sachet

packaging strategy caught the popular FMCG imagination in the early 1990s and
it
Basic strategies as per the above mentioned :-
1. DECENTRALISING RURAL MARKETS
Decentralizing the Rural Market by detaching them from the urban bases. A give-and-
take two-way approach should replace the present one-way exploitation
2. SELECTION OF THE SALESMAN
The salesman in rural markets should be selected from the educated unemployed
villagers, trained well and appointed as salesmen. The town-to-villages shuttling
salesmen are to be replaced by stationary salesman in villages "
3. EDUCATE THE VILLAGERS
Companies should also adequately concentrate on educating the villagers to save them
from spurious goods and services .
4. NEW PRODUCTS MARKET
Rural markets are laggards in picking up new products. This will help the companies to
phase their marketing efforts. This will also help to sell inventories of products out dated
in urban markets.

ADVERTISING IN RURAL INDIA
LANGUAGE, MARKETING COMMUNICATION, AND CONSUMERISM.
A dramatic change is in progress. Villagers who used to crack open peanut M & M
candies, eat the nut and throw away the shell are now demanding chocolate candies that
will melt in their mouths, not in their hands. Charcoal-cleaned teeth are a rare sight; so is
the case with twigs of niim (neem) and babul (babool) tree. Today, the ultra bright shine
of Colgate or some other international brand of toothpaste holds more appeal than the
traditional methods of cleaning teeth. Even the native expressions of cleaning teeth, such
as daatun karnaa and musaag lagaanaa, are endangered to being replaced by new
expressions such as paste karnaa, 'to brush teeth with paste'. Even a simple query such
as: Where are you from? is not free from the overtones of marketization and globalization
in rural discourse. Consumerism and globalization is invading parts of India where, as
some would venture to say, time seems to have ceased for centuries.
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, Indian diaspora, 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.
Rural India represents the heart of India. Approximately 80% of India lives in over half a
million villages (627,000), generating more than half of the national income. Based on
the interviews with consumers, media giants, and analysis of case studies, following
insights can be derived:
Various facets of rural media (conventional and non-conventional) and integrated

marketing communication. In addition to rural market discourse, media forms such as
wall paintings, calendar advertising, outdoor advertising, print, radio and television
advertising.
• Art of crafting messages to meet rural tastes and sensibilities. In particular,

uniquely Indian media forms such as video van technology, which has changed
the face of not only marketing but also political campaigning. Rural markets
(haat) which are the mobile McDonald's or Walmarts of India.
• Targeting women and religious groups in addition to rural population.
• Marketing taboo products such as 'bidi', cigarettes, sanitary supplies, and other
such products.
• Globalization and its effects on product naming, product monitoring, rural
discourse and media forms.
• Creativity and deception, together with guidelines for advertisers and marketers.
• Information structures and logic of rural ads.
• Ads as a social barometer of changing relationships and value systems.

FAST MOVING CONSUMER GOODS SECTOR
BACKGROUND
The FMCG sector has been the cornerstone of the Indian economy. Though, the sector
has been in existence for quite a long time, it began to take shape only during the last
fifty-odd years. To date, the Indian FMCG industry continues to suffer from a
definitional dilemma. In fact, the industry is yet to crystallize in terms of definition and
market size, among others. Generally, FMCG refers to consumer non-durable goods
required for daily or frequent use. The sector touches every aspect of human life, from
looks to hygiene to palate. Perhaps, defining an industry whose scope is so vast is not
easy.
Post-reforms, the industry's growth has been hinging around a burgeoning rural
population which has witnessed significant rise in disposable incomes. Consequently, the
rural markets have been witnessing intense competition in almost all the consumer
product classes. Another reason which has led to rise in this trend is the saturation in
urban markets in most of the consumer non-durable goods categories. This has led to the
industry players scrambling for greater rural penetration as a future growth vehicle, the
area which accounts for 70% of the total Indian households
The FMCG sector consists mainly of subsegments viz. personal care, oral care and
household products. This can be further sub-divided into oral care, soaps and detergents,
Health and Hygiene products, beauty cosmetics, hair care products, food and dairy-based
products, cigarettes, and tea and beverages. Of late, there seems to be a liberal approach
towards branding of the companies/products as FMCG; companies in businesses like
liquors (United Breweries), paints (Asian Paints), adhesives (Fevicol) too are being
labeled as FMCG stocks in the stock market parlance. Quite interestingly media stock
Zee Telefilms was labelled as FMCG stock by a mutual fund, which had Zee as its top
holdings in its FMCG sector scheme at one point of time!
So far, it has been a chequered graph for the MNCs operating in the Indian FMCG
industry. Domestic companies are only beginning to make their presence felt in the
industry. It has taken tremendous consumer insight and market savviness for the FMCG
players to reach where they are today. But, the journey seems to have just now begun for
the players as the majority of the rural populace are yet to get access to the items of daily
usage like toothpastes, soaps and shampoos.

SUMMARY
The FMCG industry is a low-margin business. Volumes hold the key to success in this
industry. That is why the industry players puts so much emphasis on marketing and
distribution. Brands are the key determinants of success in the market place. However,
the unorganized segment has continued to play spoilsport and has benefitted mainly due
to their strategy of "low price, high volumes". To add to the woes of the organized
players, the unorganized players have benefitted without spending even single penny on
advertising and brand building.
In the organized segment, FMCG players fight out in the marketplace to reach out to the
masses and compete with brands in similar product categories. Brand perception
influences purchase decisions here and so building that perception is critical. Little
surprising then that FMCG majors opt for high-decibel advertising in a bid to build and
reinforce the notion of perceived superiority, and convert that notion finally into sales
volumes. For new brands, spending more on advertising is all the more crucial. Product
launches entail large initial investments in advertising and sales promotion. Launch costs
are known to climb as high as 100 percent of sales revenue during the first year of the
launch.
A successful brand commands premium over non-branded products. According to a

recent A&M-ORG-MARG study, the share of branded goods is high for a number of
daily used products. Branded goods comprise of 65% of sales in villages. Of late, there
has been a decline in the share of non-branded products, according to the said study. This
all indicates that the coming days will witness more fierce battles for a pie in the lucrative
rural market segment.

STRUCTURE
With domestic consumption close to Rs 80,000 crore, the FMCG sector today is one of
the largest in the country. One of the biggest challenges facing the Indian FMCG industry
is to get to the next level of innovation, besides presence of a huge unorganized market.

CHARACTERISTICS OF THE INDIAN FMCG MARKET
Heavy launch costs
Companies incur huge costs on the launch of new products. The entire launch process
goes through a series of processes such as product development, market research, test
marketing. All this require huge cash outflow. Further, in order to build brand awareness
and develop franchise for a new brand initial expenditure is incurred on launch
advertisements, free samples and product promotions. Launch costs are as high as 50-
100% of revenue in the first year and these costs progressively reduce as the brand
matures, gains consumer acceptance and turnover rises. For established brands,
advertisement expenditure varies from 5 - 12% depending on the categories. It is
common to give occasional push by re-launches, which involves repositioning of brands
with sizable marketing support.
Less capital intensive
The sector is not so capital intensive as majority of the product classes require very low
investment in fixed assets. The sector is also characterised by high turnover to investment
ratio; turnover is typically five to eight times the investment made in a greenfield plant at
full capacity. Another reason for the sector being less capital intensive is that bulk of
sales from manufacturers takes place on a cash basis.
Contract Manufacturing
Manufacturing of products by third party vendors is quite common. In order to keep a

check on costs and hence increase affordability of their products, companies in many
cases prefer to go for contract manufacturing by third party.
Marketing Drive
Marketing assumes a significant place in the brand building process of the industry
players. This helps in reaching out to a large consumer base and fight with the existing
brands. Even for an existing brand it requires constant marketing efforts to keep the
demand alive and kicking.
Market Research
Before the launch of any new product, conducting market research to gauge the
consumers' reaction is very important. This is because consumers' purchase decisions are
based on perceptions about brands and which keep on changing with fashion, income and
changes in lifestyle. Also in case of consumer goods it is difficult to differentiate
products on technical or functional grounds, unlike in the case of industrial products.

Now with increasing competition, there is tremendous pressure on the companies to do

extensive market research, test market it before coming out with any new product.
Presence of a large unorganized market
The FMCG sector is characterized by a huge unorganized market. Factors like low entry
barriers in terms of low capital investment, fiscal incentives from government, low brand
awareness, especially in rural areas led to the mushrooming of the unorganized sector.
Other features
In urban areas, the consumption dispersion is logically and practically broken up by the
population strata i.e. the Town Class. The urban elite, or the people living in metros,
consume a proportionately higher value of FMCGs. This has an effect on the retailing
structure also, as the retailer varies his stocking pattern and his basket of services,
according to the needs and the purchasing habits of the consumer on the one hand and his
own desire to differentiate from other such service providers on the other.
The key to success in the Indian FMCG industry lies in: cutting costs, investing in brand
building in the form of marketing, advertisements and promos, providing good price
points and aggressive pricing, offering products such as packaged atta and milk that add
value and convenience and protecting their human talents from poachers. Alongside,
FMCG players need to go in for new initiatives. Consider HLL for instance. The
company has made it clear that Internet is going be its key delivery vehicle, which would
expedite its distribution and sales efforts. Sure, Internet is going to change the way
FMCG companies strategize and do business. With reasons. Internet presents vast
opportunities to FMCG companies in the areas of logistics interface with consumers and
value chain.
Building a solid distribution network calls for massive investments. Indian FMCG
players, unlike their foreign counterparts, could not take chances with new brands, just in
case they failed. But more than their financial handicaps, it was a mindset that was
responsible for the laid back attitude: they were complacent, anti-change and anti-growth.
This mindset clouded their vision and strategy. Dabur has been a slow-changer to date.
Some of the McKinsey recommendations such as exiting from non-core businesses met
with strong objections from some members of the promoter family. Family feuds, so
typical of Indian corporates, left domestic FMCG majors with little time for marketplace
battles and strategizing.
Major Indian consumer product companies (like Britannia, P&G, HLL, etc.) have a very
strong presence through their strong brands. These companies make considerable
investment in R&D to sharpen and maintain their edge in the business. Diversified
portfolios, wide distribution networks and scale economies of these companies deter new
players from entering. Brand equity, therefore, is an extremely important factor in FMCG
industry. One of the other most critical factors is the ability to build, develop, and
maintain a robust distribution network.

The major issues that new MNC entrants face are low income levels, non-existence of
super markets in India, an incredible 5 million retail outlets, and a typically slow moving
low consumer demand resulting in dealers/retailers being reluctant to allocate their
resources and time.
The pace of competition
MNCs had both good product propositions and deep pockets to back them. Their parents'
wide product portfolios ensured that new products kept hitting the Indian market. Players
such as Cadbury redefined the basic tenets of the chocolate confectionery industry. It not
only launched new varieties and flavors, but in fact helped to change the consumption
patterns.
Consider the case of Cadbury's exercise in positioning its chocolate as a snack food.
Others such as Procter & Gamble (P&G) and SmithKline Beecham chose to be different.
They decided to introduce new products through their 100 per cent subsidiaries instead of
their already existing Indian subsidiaries. In P&G's case, though the move was aimed at
shielding it from high costs of product launches and brand building, it might deprive the
Indian arm the opportunities of leveraging P&G's global brands and high growth areas.
For long, Indian FMCG players have remained low-decibel advertisers. It was only
Nirma, which was a deliberate low-decibel advertiser. It still is. Such has been its
corporate philosophy. It does not even figure in the 1999 top-ten list of advertisers, which
had Dabur at number two, and Marico at four. When practically everybody else have
hiked their ad-budgets, Nirma continues to gain volumes by passing on the cost-benefits
to consumers. Nirma has proved that ultimately what matters is understanding the
consumer. Which is more a positioning than a marketing ploy. Another Indian major to
have reaped hefty benefits from its innovative positioning is Dabur.
Value for money
Ever since the global recession of 1991-94, which hit consumer spending hard, value-for-
money has become the buzzword for FMCG companies globally. These FMCG
companies embarked upon major restructuring and cost rationalization exercises as
business continued to become fiercely competitive. Several packaging innovations were
also resorted to. India was no different. There was a paradigm shift towards value-for-
money products and, to some extent, towards the rural market.
What Nirma did all these years suddenly became the buzzword for many FMCG players.
Price cuts became inevitable to keep the marketshare from shrinking. Sometimes, the cuts
touched ridiculous levels. Economic recession hit the urban pockets badly and forced
companies to train their guns on rural India, which was witnessing a major change in its
aspiration and lifestyles and even had an income that translated into increasing volumes.
Companies such as HLL, Colgate and Britannia who already had a strong rural focus,
stepped up the gas further. HLL unleashed its "Operation Bharat". Britannia pushed its
Tiger biscuits to every nook and corner of the country, while Colgate went about wooing
the rural masses by offering low-priced products in convenient packaging. Those who

could not do it on their own went piggyback on somebody else. P&G, whose distribution
is largely urban, chose to leverage Marico's retail reach.
P&G and SmithKline Beecham, nonetheless, are interesting cases. With small product
portfolios like theirs, they have been able to achieve what others could not and proved
that what you need is a good product, marketed effectively and sold at the right price.
Acquisitions all the way
Of late, an interesting trend in the Indian FMCG sector has been brand acquisitions. This
represents a growing awareness among the FMCG players are talking today more and
more of product "fits" while discussing brand acquisitions. It is not just acquiring
anything and everything as it was in the past.
Forget brands, protect those who make them. Yes, though there will be some amount of
brand acquisition, the real worry of the domestic FMCG players is to protect the makers
of their brands from poachers. The real challenge for all FMCG players, however, is in
holding on to the human talent that makes brands rather than the brands themselves.
FMCG marketers are known to be the best marketers globally and have takers in industry
as distinct as telecom and cellular, even insurance. HLL has learnt it the hard way.
Consider Internet's role in logistics. FMCG players can leverage Internet to extend their
logistics network beyond the traditional expensive EDI-based solutions. This would start
from connections between the factory and C&F and then move on to more complex
networks reaching out to key urban distributors and wholesalers. And over time, even to
rural wholesalers and retailers. As far as interface with consumers is concerned, Internet
can work wonders here. Over time, successful e-marketers can leverage the Internet to
develop user-communities, which are invaluable in creating loyalty and in testing
products. What more, FMCG companies can come together to form e-purchasing portals
and increase their purchasing power and ability to find smaller suppliers. All these call
for a productive partnership between the FMCG industry and the government. Experts
see this as an emerging opportunity. A partnership between the government, which wants
to drive Internet penetration into smaller towns, and FMCG companies who want to ride
off a shared infrastructural network to enable superior logistics and drive product
communications. Such a partnership can jointly drive the Internet network deeper into the
Indian heartland. It seems the excitement is just beginning in the Indian FMCG industry.
Rural marketing has become the latest marketing mantra of most FMCG majors. True,
rural India is vast with unlimited opportunities. All waiting to be tapped by FMCGs. Not
surprising that the Indian FMCG sector is busy putting in place a parallel rural marketing
strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, Colgate-
Palmolive and Britannia Industries are only a few of the FMCG majors who have been
gung-ho about rural marketing. With reason.
India’s agrarian economy is fundamentally strong. Rural India accounts for as much as 70
per cent of the nation’s population. That means rural India can bring in the much needed

volumes and help FMCG companies to log in volume-driven growth. That should be
music to FMCGs who have already hit saturation points in urban India.
Certainly, rural marketing holds the key to success of FMCG companies, which are
desperate to find ways out to gain deeper penetration. Not just the rural population is
numerically large, it is growing richer by the day. Of late, there has been a phenomenal
improvement in rural incomes and rural spending power. Successive good monsoon has
led to dramatic boost in crop yields. Consider this statistics: foodgrain production
touched 200 million tones during fiscal 1999 against 176 million tones logged during
fiscal 1991. Not just improved crop yields, tax-exemption on rural income too has been
responsible for this enhanced rural purchasing power.

KEY ISSUES FACED BY FMCG COMPANIES IN RURAL MARKET
It's a volume-value game. Most Indian FMCG majors know this well. That is why FMCG
companies such as Marico Industries are gearing up for bigger advertisement and sales
promotion campaigns aimed at the rural buyer. Marico’s high-pitch rural marketing
exercise involves repositioning brands, repackaging products and re-pricing them, all
with an eye on the rural wallets. The company has been working constantly on extending
its parallel rural sales and distribution networks, which already finds a place among the
industry’s top three. Concerns abound over the inability of rural markets to meet the
soaring rural ambitions of the Indian FMCG majors. Is the perception that industry
majors such as Hindustan Lever are on the verge of diluting their rural focus true? Does
the urban consumer featured on the cover of Hindustan Lever’s 1998 annual report reflect
this shifting focus? It is a tactical shift, just a trade-off between value and volume,
between the urban market and the rural market". For, focusing all out on one of these
markets at the cost of the other could be suicidal. That is why a few FMCG companies
are not putting in concerted efforts to tap the rural market. Consider the case of Cadbury.
The company has clarified that the rural market is not for it, at least for now. Meanwhile,
Marico is trying hard to get into the premium-end hair-oil market. What do all these
portend? Rural marketing could open the doors of opportunities, but the path is paved
with thorns. One major limitation here is this: most FMCG players just do not have the
critical size for going all out for rural marketing. That is why most FMCG players are
expected to concentrate both on rural and urban marketing: focus on urban markets for
value and focus on rural markets for volumes. One result-oriented marketing strategy
here is this: offer value-additions to existing lines to lure the urban consumer and
alongside offer the rural consumer wide-ranging choices within a single product category
in a bid to generate high volumes.
There are more problems in rural marketing. Success in rural marketing calls for a sound
network and a thorough understanding of the rural psyche. Rural consumer’s price-
sensitivity is something the FMCG players should be alive to. Rural income-levels are
largely determined by the vagaries of monsoon and thus rural demand is not a steady
horse to ride on. This makes rural marketing a gamble. It is more than a gamble for
FMCG minors who do not have a clutch of strong brands across product segments. These
FMCG minors are not able to cross-subsidize their products and go for product
experimentation. The result: FMCG minors have a limited reach, are not able to erect
entry barriers and have no ways to minimize the impact from loss of sale opportunities.
The vast and diverse rural market calls for multi-tiered distribution networks, efficient
logistics and friendly infrastructure.
Another issue is the stark difference in the characteristics of the consumers. The
consumers stand apart as two different markets as is evident from their current
consumption baskets, and their attitude towards essential and luxury items. In addition,
although the evolution is towards a better lifestyle therefore product and brand choice is
there in both these markets, the rate of evolution is highly different.

The real test still lies ahead. One major hurdle in rural marketing is: whether an FMCG
player will be able to offer the best price and aspirational values to the rural consumer
who has a peculiar tendency to mimic his urban counterpart. So, what should the FMCG
players do now? They should not only price their products competitively, but also offer
their rural prospects maximum value for money spent. Certainly, reaching out to 3.33
million retail outlets is an uphill task. The only way out for Indian FMCG players: put in
place an aggressive cost structure, which would enable them to offer low-price and value-
for-money products. But then, FMCG is a low-margin business with a high cost of raw
materials. Consider the case of Marico: its material cost works out to a high of 59 per
cent on sales. Therein lies the rural marketing paradox. However, customer-centric and
market-savvy FMCG companies have always chased prospects when they perceive there
is a latent demand. For instance, Hindustan Lever’s Rin, Surf and Lux are available even
in India’s most obscure villages. Hindustan Lever had given shape to its rural strategy a
few years ago when it perceived that its urban market was shrinking due to an industrial
slowdown. Its Operation Bharat that focused on personal care products made the most out
of surging rural incomes. The result was there for all to see. The company has been able
to clock in double-digit profits every three years and log in double-digit revenues every
four years. Britannia with its Tiger brand of biscuits and Colgate-Palmolive with its low-
priced and conveniently packaged products designed for the rural masses have been other
pioneers in rural marketing. Thus, Britannia and Colgate-Palmolive have been able to
derive more than 30 percent of their revenues from rural markets.
Sure, there is a lot of money in rural India. But, there are obstacles. The biggest obstacle
is that the rural consumer is still evolving. Only FMCGs with deeper pockets, unflinching
rural commitment and staying power can play this rural game. Cost of setting up a huge
retail network has saw many casulaties, the notable being the P&G which abandoned its
plan to fight the likes of Lever in the rural segment on its own. Instead, it is aiming to
piggyback on the Marico Industries which has got a strong presence in these markets
through its flagship brand "Parachute". The FMCG stalwart Hindustan Lever has started
its ambitious project "Project Shakti", a five-month old marketing initiative involving
women belonging to micro-credit self-help groups (SHGs) in the Nalgonda district of
Andhra Pradesh, similar to the highly successful experiment Bangladesh's Grameen Bank
used in rural areas of the country.

FUTURE OUTLOOK
Domestic market is witnessing a structural shift in terms of demand with rural markets
beginning to show increased demand for FMCG products. This is happening at a time
when the urban market is showing signs of saturation. However, the low level of
penetration in the rural areas is a cause of concern. For a number of consumer
expendables the penetration levels are extremely low, but are expected to increase with
the passage of time and rise in income levels. For instance, for toilet soap, the average
expenditure per user household for low-income households is Rs. 237, while it has
increased to Rs. 706 for high-income groups. Rural market at a staggering 122 million,
five times the urban market, is hard to ignore for anyone.
This on the other hand also provides an excellent opportunity for the industry players in
the form of a vastly untapped market. However, to propel the demand in the rural areas,
issues like taxes and costs would be very crucial, given the cost-conscious nature of the
consumers there. Recent Bugdet hike in FMCG products like toothpastes do not bode
well for the companies's efforts to focus on spreading awareness about oralcare in these
areas and the increased usage of oral care products there.
Another area which offers immense growth opportunities is unbranded segment.

However, cost will again be the determining factor for success here. The increased
inflow of imported consumer goods in the country, especially from China, as a result of
lifting of the QRs (Quantitative Restrictions) by the government, is also expected to give
the domestic players a run for their money. In recent times, the markets have been seeing
a veritable war over the retail shelf, which promises to intensify in the foreseeable future.
Lifting of the quantitaive restrictions and dereservation of several items, which were
earlier reserved for SSIs, are expected to lead to intense competition in the market place.
In the wake of such developments, the crucial success factor will be the distribution
strength a company would be able to have or develop. However, in the wired world that
alone won't be enough as a entry barrier. Internet is fast emerging as a strong distribution
channel and the new players are finding it easier to launch assaults through this medium
very effectively. That is why we are seeing web intiatives from market majors like HLL,
Godrej etc. which want to pre-empt competitors in that space. And, it won't be an
exaggeration to say that the next FMCG war will be fought on the wired turf.
Brand building will be another key issue. There has been a spurt in promotional activities,
which has resulted in an increasing fight for the customer's attention at the point of
purchase. This has made brand differentiation at the retail level extremely difficult. This
has been further aggravated by brand extension strategies adopted by the companies. One
good example is the Hindustan Lever. The company, in some of the product categories
like soaps, have relied heavily on brand extensions. In case of Lifebuoy, a toilet soap, so
many variants have flooded the shelves, however this could also mean diluted focus, on
part of the company and confusion for the consumers. HLL has recently planned to trim
its product portfolio and concentrate on key brands only. It is expected to withdraw from

the markets variants of its toothpaste brand "Close Up" such as Close Up Renew and
Close Up Oxyfresh.
Companies will be increasingly reviewing the quantity versus quality equation, as well as
distribution synergies, to try and leverage for the best possible distribution at the least
possible cost. This could be a crucial factor in deciding the fate of players.
The key factors that are expected to trigger future growth for the FMCG industry include
reduction in excise duties, relaxation of licensing restrictions and reduced dominance of
unorganized sector due to creation of level playing field. The growing reach of
advertising medias like satellite and cable TV too is expected to give a boost to the
market penetration initiatives of the industry players.
The results of a survey done by National Council of Applied Research (NCAER) suggest
that Indian FMCG space is all set to enter a new growth phase, sample this: the study
says that the lower income group is expected to shrink from over 60 percent (1996) to 20
per cent by 2007 and the higher income group is expected to rise by more than 100 per
cent. It looks, the industry is all set for a fast-paced race ahead.

PRICING BY FMCG COMPANIES
It's a volume-value game. Most Indian FMCG majors know this well. That is why
FMCG companies are gearing up for bigger advertisement and sales promotion
campaigns aimed at the rural buyer. high-pitch rural marketing exercise involves
repositioning brands, repackaging products and re-pricing them, all with an eye on
the rural wallets. The companies has been working constantly on extending its
parallel rural sales and distribution networks, which already finds a place among the
industry’s top three. Concerns abound over the inability of rural markets to meet the
soaring rural ambitions of the Indian FMCG majors. Is the perception that industry
majors such as Hindustan Lever are on the verge of diluting their rural focus true?
Does the urban consumer featured on the cover of Hindustan Lever’s 1998 annual
report reflect this shifting focus? It is a tactical shift, just a trade-off between value
and volume, between the urban market and the rural market". For, focusing all out
on one of these markets at the cost of the other could be suicidal. That is why a few
FMCG companies are not putting in concerted efforts to tap the rural market.
Consider the case of Cadbury. The company has clarified that the rural market is not
for it, at least for now. Meanwhile, Marico is trying hard to get into the premium-end
hair-oil market. What do all these portend? Rural marketing could open the doors of
opportunities, but the path is paved with thorns. One major limitation here is this:
most FMCG players just do not have the critical size for going all out for rural
marketing. That is why most FMCG players are expected to concentrate both on rural
and urban marketing: focus on urban markets for value and focus on rural markets
for volumes. One result-oriented marketing strategy here is this: offer value-
additions to existing lines to lure the urban consumer and alongside offer the rural
consumer wide-ranging choices within a single product category in a bid to generate
high volumes.
There are more problems in rural marketing. Success in rural marketing calls for a
sound network and a thorough understanding of the rural psyche. Rural consumer’s
price-sensitivity is something the FMCG players should be alive to. Rural income-
levels are largely determined by the vagaries of monsoon and thus rural demand is
not a steady horse to ride on. This makes rural marketing a gamble. It is more than
a gamble for FMCG minors who do not have a clutch of strong brands across product
segments. These FMCG minors are not able to cross-subsidize their products and go
for product experimentation. The result: FMCG minors have a limited reach, are not
able to erect entry barriers and have no ways to minimize the impact from loss of
sale opportunities. The vast and diverse rural market calls for multi-tiered
distribution networks, efficient logistics and friendly infrastructure.
Another issue is the stark difference in the characteristics of the consumers. The
consumers stand apart as two different markets as is evident from their current
consumption baskets, and their attitude towards essential and luxury items. In
addition, although the evolution is towards a better lifestyle therefore product and
brand choice is there in both these markets, the rate of evolution is highly different.
The real test still lies ahead. One major hurdle in rural marketing is: whether an
FMCG player will be able to offer the best price and aspirational values to the rural
consumer who has a peculiar tendency to mimic his urban counterpart. So, what
should the FMCG players do now? They should not only price their products

competitively, but also offer their rural prospects maximum value for money spent.
Certainly, reaching out to 3.33 million retail outlets is an uphill task. The only way
out for Indian FMCG players: put in place an aggressive cost structure, which would
enable them to offer low-price and value-for-money products. But then, FMCG is a
low-margin business with a high cost of raw materials. Consider the case of Marico:
its material cost works out to a high of 59 per cent on sales. Therein lies the rural
marketing paradox. However, customer-centric and market-savvy FMCG companies
have always chased prospects when they perceive there is a latent demand. For
instance, Hindustan Lever’s Rin, Surf and Lux are available even in India’s most
obscure villages. Hindustan Lever had given shape to its rural strategy a few years
ago when it perceived that its urban market was shrinking due to an industrial
slowdown. Its Operation Bharat that focused on personal care products made the
most out of surging rural incomes. The result was there for all to see. The company
has been able to clock in double-digit profits every three years and log in double-
digit revenues every four years. Britannia with its Tiger brand of biscuits and
Colgate-Palmolive with its low-priced and conveniently packaged products designed
for the rural masses have been other pioneers in rural marketing. Thus, Britannia
and Colgate-Palmolive have been able to derive more than 30 percent of their
revenues from rural markets.
Sure, there is a lot of money in rural India. But, there are obstacles. The biggest
obstacle is that the rural consumer is still evolving. Only FMCGs with deeper pockets,
unflinching rural commitment and staying power can play this rural game. Cost of
setting up a huge retail network has saw many casulaties, the notable being the P&G
which abandoned its plan to fight the likes of Lever in the rural segment on its own.
Instead, it is aiming to piggyback on the Marico Industries which has got a strong
presence in these markets through its flagship brand "Parachute". The FMCG stalwart
Hindustan Lever has started its ambitious project "Project Shakti", a five-month old
marketing initiative involving women belonging to micro-credit self-help groups
(SHGs) in the Nalgonda district of Andhra Pradesh, similar to the highly successful
experiment Bangladesh's Grameen Bank used in rural areas of the country.
The recent price cuts by fast-moving consumer goods giants, Hindustan Levers Ltd
(HLL) and Procter and Gamble (P&G) proves, once again, that the Indian market still, by
and large, supports volumes, not value propositions. No matter how hard one may try and
brand a product price sensitivity overrules brand preference — if its not priced right, it's
just not going to generate sufficient volumes.
Realisation has come to P&G — though a bit late and now it wants to become more
'affordable'. By slashing prices from nearly 25 to 50 per cent on its two detergent
brands, Tide and Ariel, P&G has not only restructured the balance of brand power in
India, but has also hurt HLL — and itself — where it hurts the most … its bottom line.
As the two traditional rivals in the global FMCG market carry out their slugfest in
India, their share values have tumbled; P&G which launched the price war has seen a
14 per cent decline in its share price, the HLL stock fell 19 per cent on the same day.
The share of an uninvolved Nirma, too, was dragged down by eight per cent.
P&G's move from a premium niche to a mass base, is indeed a proactive marketing
effort. But, as industry watchers point out, HLL's reaction in slashing its prices is merely

an attempt to protect its turf. If so, is 'marketing' really about how low you can price your
product?
Concepts like 'market research', 'value', 'branding' and 'loyalty' seem to have been
dumped with HLL's counter offensive of a price cut of its own. The rationale, in HLL's
words, is to face competition without blinking.
Till recently, the price war was restricted to HLL and P&G. Now, to square off the
probability that customer loyalties would shift with price cuts, even smaller players have
entered the fray. Henkel Spic has cut the prices on its detergent brand Henko
Stainchampion by 15 per cent to Rs.75 per kg.
With revenues already hard to generate and margins under tight pressure, this decision is
going to prove expensive for HLL. Analysts estimate that the price cuts will cost HLL
between Rs120 and 150 crore.
As a market leader in almost all the major product lines that it operates in, HLL did what
it had to do. But then, as a market leader with a 40 per cent share of the detergents
market, as opposed to P&G's 10 per cent, isn't the onus of growing the market on the
market leader?
The sachet was an innovative stroke of marketing genius that reduced product
differentiation and changed the dynamics of the detergents market. Today, sachet sales
constitute about 15-20 per cent of the detergents market. But innovation seems to have
deserted the soaps and detergents industry ever since.
With penetration at it's highest and the market saturated, the

Rs4,000-crore detergents market has been stagnating for almost five
years. Compounding this problem are the smaller players like Ghari
detergents, who offer products of similar quality, at almost half the
price.
On the face of it, the price cuts seem logical. Lower prices should
get new users into the market and propel others to upgrade from the
not-so-premium brands to Tide, Ariel or Surf Excel. P&G saw the
volumes of its sachet sales almost tripling when it halved the prices
on the 20-gram packs of Tide and Ariel, to Re 1 and Rs 1.50 respectively, in September
2003.
But will price cuts on larger packs prove equally successful? And if not, then will there
be another round of price cuts? HLL, at least, has definitely ruled that out, saying there
was "no room for more price cuts on Surf Excel".
A further round of price cuts indeed seems unlikely for both manufacturers since raw
material costs have been rising. The Consumer Guidance Society of India has already

initiated a probe, to find out if there has been any degradation in the quality of products to
enable the current round of price cuts.
Everybody knows that India is a 'volumes' market, and as marketers, both HLL and P&G
understand that pricing and distribution are the key to success. But unless marketers come
up with something radical, cutting prices will only get them thus far and no further. A
sustained growth will be hard to come by, and players will just have to make do with a
shrinking pie.
What is needed now from the rivals is something like a 'sachet', a conceptual
breakthrough, to stimulate fresh growth

PILLARS OF FAST MOVING CONSUMER GOODS
The Fast Moving Consumer Goods (FMCG) business is built on two pillars - Brands and
Distribution. The under given is the comprehensive conceptual coverage of these and
other key marketing concepts
1. BRANDING
2. VALUATION OF BRANDS
3. DISTRIBUTION
4. MARKETING
5. MARKET RESEARCH
6. MARKET SEGMENTATION AND POSITIONING
7. ADVERTISING AND PROMOTIONS

BRANDING
What is a brand ?
A brand is name, term, sign, symbol or design or a combination of them which is

intended to identify the goods or services of one seller or group of sellers and to
differentiate them from those of competitors’
A Trade mark is "a brand or a part of brand that is given legal protection because it is
capable of exclusive appropriation."
Manufacturers can use their own brands (known as Manufacturers’ brands) or brands of
their distributors (Distributors’ brands).
Why branding?
Manufacturers/ distributors use brand names for a variety of reasons from simple
identification purposes to having legal protection for unique features of the products from
imitations and help consumers recognize certain quality parameters. In some cases,
brands are just used to endow the product with unique story and character which itself
can be a basis for product differentiation.
Special importance of brands for FMCG products
While brands can represent all types of goods or entities, they have special importance
for FMCG products. Brand equities are stronger in FMCG products as the consumer is
reluctant to try unknown brands/ unbranded products for the following reasons
• these products individually account for a small part of household spending.

• most of these products are personal use
• In many cases, it is difficult to differentiate a product on technical or functional
grounds and therefore the consumer is reluctant to switch to an unknown brand.
• Successful brands generate strong cash flows, which enable the owner of the
brand to reinvest a part of it in the form of aggressive advertisements/ promotions.
This reinforces the perceived superiority of a brand.

How a brand is created ?
FMCG companies spends enormous sums on building a brand equity by way of

-advertisements/publicity
-freesamples
-lowentryprice
- promotions (schemes for dealers, consumers etc)
Advertisement and promotion can induce trials but for sustained loyalty, the
manufacturer has to offer superior quality and value for money. Most successful brands
are founded on a chance discovery of a new product/ process or assiduous research and
development work. Major players invest in R&D on their existing brands and improve
the product quality continuously to maintain their edge over competitors.
Branding strategies
a) Individual brands Vs Umbrella brands
Individual brand has its own identity and the corporate or common name is not used to
promote its equity. In case umbrella brand, there is a generic brand with association of
some values. For instance, Hindustan Lever follows individual branding strategy and has
several brands in the same category such as Lux, Liril, Rexona soaps etc. Competitor
Nirma has mainly followed the umbrella branding strategy such as Nirma Bath, Nirma
Beauty, Nirma Super, Nirma Shikakai soap etc. Only recently, the company for the first
time diverted from its strategy of umbrella branding with the launch of Nima.
Advantages of Individual branding strategy are
• Some of the products which flop in the market, do not have negative spill over
impact on other brands. For example, Nirma is associated with popular end of
products, which becomes a major deterrent for its expansion in the premium
segment.
• Consumers looking for a change are offered distinctly new brands by the same
manufacturer.
But individual branding requires expensive advertisements and brand building exercises.
Also, each new brand does not benefit from the positive perceptions of earlier brands.

In umbrella branding, manufacturers have advantage of
• Establishing a new product quickly with association of quality/ benefits of the

mother brand (a classic case in Indian context has been Godrej).
• No need for name research, expensive advertisement for creating brand names,
recognition and preference.
b) Brand extensions
Brand extensions are used for a group of products such as Clinic Plus Shampoo, Clinic
All Clear., Clinic Plus hair oil or Close Up Renew, Close Up Oxyfresh, Close Up
Sensation, etc. The brand has some unique USP and there are cosmetic/ functional
variations in the extensions. The strategy is to build upon initial success of a brand entry
by creating flanker it ems and minor variants of the basic brand. Brand extensions may
be used within product categories (In some products like shampoos, there can be natural
variants such as shampoo for normal hair, dry hair or for specific problem solving like
anti-dandruff). It may also be used for different product segments (eg Sunsilk brand being
extended to hair oil)
c) Multi brands
Marketer introduces brands mostly in large markets, which compete with each other in
almost the same segment. In multi branding, there is cannibalization but overall result is
greater market share. Net incremental market share is enough to justify the investment in
the new brand. For instance Hindustan Lever has several brands (Lux, Breeze, Hamam,
Rexona, etc) in the same category ie toilet soaps.
Accounting for brand expenses
Expenses incurred by way of advertisements, free samples, promotions etc are treated as
revenue expenditure by accountants, as they do not create any tangible assets. The
intangible assets created in the form of a brand pays back in the form of repeat buying
and pricing power over a long period of time. An established brand is a precious asset
and when sold, fetches a price several times the value of tangible assets required to
manufacture the product.
There is no generally accepted methodology for valuing and accounting for brands. Also,
all methods recommended for valuing brands suffer from lack of objectivity and
consistency. There is considerable risk as expenses incurred on a unsuccessful brand has
to be written off almost entirely. But the same are paid back several times in case of
successful brands. In case of FMCG companies, assets are considerably understated as
they do not include value of brands. Inclusion of brands in assets will - dilute return on
networth - reduce gearing ratio.

It can be argued that high return on networth shown by established companies is

overstated as assets (ie Brands) are understated. Similarly, in case of companies in
investment phase, making extensive investment in new brands, would exhibit depressed
return on networth as investment in brands is being written off, pulling down the profits.
Some companies defer writing off a part of the expenditure for brand building. The
expenditure not written off in the year is treated as deferred revenue expenditure.

VALUATION OF BRANDS
Valuation of brands
Value of a brand is represented by the incremental cash flow resulting from a product
with a brand versus a product without a brand name or with weaker brand name.
Brand valuation is a complex process and involves a lot of subjectivity. There are no
widely accepted techniques of brand valuation. There are several considerations which
cannot be standardized or quantified such as
• To pre-empt competition from taking over a brand

• Synergy with the company acquiring existing brands/ businesses
• Strategic entry into a new product category
• Prevent damage to existing brands. Many a times stiff competition results in price
cutting, aggressive promotions, lower margins for all the competing brands.
• Confidence in the acquirer of the brand to rejuvenate a languishing brand.
Value of an acquired brand
In case of an acquired brand, price paid for the brand over and above the value of tangible
assets, represents value of the brand. For accounting purposes consideration paid for the
brand is typically broken up as follows :
1. Goodwill
2. Trademark and patents
3. Technology and knowhow
4. Non compete agreement
Some of the popular methods for valuation of brands are discussed below :
Bert technique (Intra-brand Plc) values brands based on following factors. It gives scores
on each factor and values the brand as multiple of sales/ earnings based on the aggregate
score.
- USPs of the brand

- Stability of the brand
- Markets namely the industry in which the brand is in use.
- Internationality of the brand commanding a higher weightage than a local brand.
- The long term trends of the brands
- Brands receiving consistent investment are more valuable.
- Legal protection commanded by brands through registration and trade mark laws.
- Quality of support received by the brands.

Cost basis - The valuation is done by aggregating all costs incurred on a brand from the
conception stage. These costs include market survey, research & development, launch
and subsequent advertising expenditures. These costs are adjusted for inflation and
present values are calculated. Then adjustments are made to provide for discount in case
of a declining trend in the product life cycle or premium in case of ascending trend in
market share and product life cycle.
Market value - Valuation at market price (the best bidder quote) can be at divergence
from the fundamental value of the brand. For instance, a large company may pay an
abnormally high price to protect its major brand or remove a nuisance from the market or
derive synergies in its existing business. Such valuations are subjective.
Earnings model - In this method, valuation is done by identifying, separating and

quantifying earnings that can be attributed to the brand and capitalizing these earnings at
a suitable discounting rate. The multiple would depend on several factors such as
category growth prospect, emerging competition and brand’s relative position, edge in
terms of technology, strength of loyalty to the brand etc.
Some case studies on brand valuation, acquisitions and transfers
Brand valuation
1. Infosys brand valuation
Brand takeovers
1. Cibaca takeover by Colgate
2. Lakme takeover by Hindustan Lever
3. Captain Cook and Tarla Dalal by International Bestfoods
Brand transfers
1. Marico
2. Navneet

DISTRIBUTION
Distribution channels and network
Marketing or Distribution channel refers to the set of marketing intermediaries which

manufacturers link together to reach their products to the ultimate consumers. Depending
on the product, nature of market and manufacturers’ resources/strategy, there can be one
or more links between the manufacturer and consumer.
a. Manufacturer - Retailers
b. Manufacturer - Wholesalers - Retailers
c. Manufacturer - Stockists - Wholesalers - Retailers .
Why use distribution channels
There are several benefits for a manufacturer particularly in case of consumer goods to
rely on these marketing intermediaries rather than develop one’s own distribution
network.
• Efficiency in performing the basic marketing task by these intermediaries who

through their experience, specialization, knowledge of local conditions, contacts
and scale, offer services which manufacturers can scarcely do on their own.
• Cost advantage most of these intermediaries in India are family owned outfits.
Their cost of operations and overheads are substantially lower.
• Focus : Manufacturers can concentrate on their core activity and optimize return
on assets.
Retailing
In India, there are over 5 million retail outlets dispersed all over the country. The retailing
industry provides employment to over 18mn people. 1 out of every 25 families in India is
engaged in the business of retailing. Ownership and management are predominantly
family controlled. However in sharp contrast to developed countries, unit average size of
a retail outlet in India is very small.
Organized retailing, however, has been a recent phenomenon and is relatively

undeveloped. There are no large super market chains/ shopping malls. Consumers are
unwilling to pay a premium for convenience shopping as their counterparts in the western
countries do. While small chain stores called Apna Bazaars and Sahakari Bhandaars,
which offer products at reasonable prices have been fairly popular, Department Stores
and Food Stores are slowly gaining popularity. A large number of corporates have
recently ventured into retailing.
The retail outlet in India can be broadly categorized as follows:

 G rocery stores
General purpose stores
Food stores
Pan bidi shops
Chemist/ drug stores
Cold chains
 Others
The relative share of grocers dropped from over 50% in the early 90's to 35% in the late
90's. Chemist outlets on the other hand, have been expanding their product range to
include high margin FMCG products from shampoos to ketchup. Panwallas are also
emerging as full fledged consumer product outlets.
Table : Growth in retail outlets (m nos)
Year Urban Rural Total

1978 0.58 1.76 2.35
1984 0.75 2.02 2.77
1990 0.94 2.42 3.36
1996 1.80 3.33 5.13
Composition of urban outlets
Grocers 34.7%
Cosmetic stores 4.0%
Chemist 6.3%
Food Stores 6.6%
General Stores 14.4%
Pan + stores 17.0%
Others 17.0%
Composition of rural outlets
Grocers 55.6%
General stores 13.5%
Chemist 3.3%
Others 27.6%

MARKETING
Marketing
Direct marketing
In direct marketing manufacturers reach the consumers directly. Direct marketing can be
undertaken in several ways such as mail order, own retail outlets, mobile vans etc. A new
innovative approach to direct marketing viz Multilevel marketing, is becoming
increasingly popular. Also gaining ground slowly is E-tailing ie selling products through
the internet.
Multilevel marketing model
Multi level marketing refers to direct marketing through an ever-increasing number of

direct distributors. Independent distributors sell products directly to the consumers and
appoint new distributors and train them. The distributor earns commission at two levels,
one is his/ her own commission and two a proportion of commission earned by other
distributors appointed by him/ her. None of these distributors are employees of the
company.
Distributors are not allowed to sell these products to retailers. The company saves about
25% of realizations by eliminating retail channel, which is shared with distributors.
The company insists that the distributors should take prior appointment with the
consumer. Personal interaction is not only convenient but adds value as customer get
valuable advice on the product and how to use it. This helps in creating awareness and
removing misconceptions like cosmetics are harmful for the skin.
Direct marketing (multi level approach) in personal care products is extremely popular
abroad. In Brazil, about 60% of personal care products are sold through direct marketing.
In India, direct marketing has been slowly growing. Word of mouth has a strong impact
on purchase decision of a consumer, specially in personal care and cosmetic products.
Direct marketing has mainly been undertaken by the new MNC entrants (notably
Oriflame, Avon). Hindustan Lever has also recently launched a new personal product
brand Aviance which is sold directly to consumers exclusively by trained beauty
specialists. Direct marketing has also been extensively used in marketing of household
appliances like Vacuum cleaners. However given the widely spread geographical area in
India, direct marketing cannot be easily used to build aan extensive national reach and is
more likely to be used as a supplementary channel.

MARKET RESEARCH
Market research activities encompass studies on
market characteristics
measurement of market potential and size,
market share analysis,
competitive products,
new products acceptance/ product preference,
sales (region wise, consumer wise etc) analysis,
short/ long term sales forecasting,
advertisement effectiveness
post-shipment data (actual shipment by manufacturers),
retail stores audit (actual sales at sample outlets)
trade feedback and distribution,
brand recall, point of sale material etc.
It requires skilled people for data collection as well as analysis. Several large consumer
companies have in-house MR department. Most others retain specialized and professional
MR agencies.
The significance of market research has increased considerably in the recent times as
- Size of operations of major players has increased to national and international markets.
- Marketing executives are physically away from the market and hence the need for flow
of information.
- In the environment of increasing competition and multiple products competing for
consumers’ preference information about the market has tremendous utility.
- Information is required for segmenting the market and appropriate pricing and
positioning of the products.
Market research approach
Typically, a market research activity involves the following 5 steps ,
Problems definition This forms the basis of research and failure to identify the problem
precisely will result in finding a correct solution for a wrong problem.
Research design : The next step is to set out objectives of research clearly, determined
data collection methods, finalize research instruments and sampling plan.
Field work : After finalization of research design, the actual data collection begins. It can
be done by the agency on its own or through subcontracting to third parties. Data is
collected by questionnaires/ direct interviews, telephonic interviews, simple observation
etc.

Data analysis : The next step forms the heart of research activity. It involves extracting
meaningful information from the data collected and analyzing the information
statistically and also from business perspective. Statistical techniques include simple/
multiple linear programming models, time series, exponential series, regression analysis,
simulation, marko chain process etc.
Report preparation : The final step is to prepare a report, present major findings in a
manner amenable to managerial decision taking. There may be some follow up and
revalidation required.
Test marketing
Test marketing refers to testing out product and marketing mix with a small number of
well chosen consumers which are representative of the target segment. Test marketing is
frequently used by consumer companies, in contrast to industrial companies which prefer
feedback through informal channels. Test marketing improves knowledge of target
consumers, potential sales and is an effective tool to pre-test alternative marketing plan.
In most products, it is important to check trial rates as well as re-purchase rates.
Consumers panels
Consumer panels refer to a set of consumers with different demographic characteristics

(so as to be representative of target population) who agree to co-operate in market
research, typically for a consideration. Market research agencies and companies try to
collect information on buyers characteristics by introducing a new product to the
consumer panels. The firm estimates trials as well as the repeat purchasing by this
method. There are statistical models to forecast market shares, demand, brand switching
etc.

MARKET SEGMENTATION AND POSITIONING
A market is defined as individuals, organizations with purchasing power, and desire/

willingness to purchase. Markets can be categorized based on the buyers as follows :
Producers market trade in raw material, equipment, supplies, machines etc.
Reseller market trade in finished goods, services from producers
Consumer market : refers to market where end consumer buys the products for personal
or household use. Consumer market can be bifurcated into durables and non-durables
markets. The non-durable products are also known as fast moving consumer goods.
Market segmentation
Markets comprise of heterogeneous segments of consumers. Market segmentation refers

to process of identifying a group of buyers with similar buying desires and requirements.
Each segment is targeted by the marketeer with a distinct marketing mix.
Broadly markets can be segmented on the following basis :
Geographic : location, nations, states, cities, rural, urban areas etc
Demographic variables such as age, sex, family size, marital status, income, occupation,
education, family life cycle, religion, nationality, social class.
Psychographic variables such as lifestyles, personality, buying motivation, product

knowledge.
Benefits segmentation divides the market along buying motives. For instance, in case of
toothpastes, benefits could be decay prevention, white teeth, fresh breath, good taste, low
price etc.
Within a segment, there can be further segmentation such as a market segmented along
geographic areas can be further segmented on the basis on income and so on.
Income segmentation
Income segmentation is one of the most popular and convenient way of segmenting the
market. Consumers can be broadly divided into low income, middle income and high
income group. Most FMCG products are also segmented along the target consumer
segments in economy, popular and premium categories. Price differential between
popular and premium products is significantly higher than what would be warranted by
manufacturing cost differentials. Marketeers create product differentiations with focussed
advertisement/ promotions and superior packaging also.

Segmentation and consolidation
With increasing competition, players try out to carve separate niche which leads to
greater segmentation of the market. As each brand needs significant investment for
launch as well to sustain equities, the plethora of brands become unmanageable. The
process of restructuring and cost engineering results in consolidation and phasing out of
weaker brands and thereby reducing the market segmentation.

ADVERTISING AND PROMOTION

Advertising consists of non-personal form of communications. The communication is
conducted through trade media under player sponsorships. Advertising aims at providing
information about the product, arouse demand for the product and emphasize on superior
features of the advertised product over others. Players have to decide on overall
advertisement budget, message and mode of presentation, type of media, timing etc. They
invariably do post audit of advertising efficacy.
Promotions are of two types viz pull promotions where consumers are incentivized and
push promotion where dealers/ retailers are incentivized. There are several forms of
promotion such as distributing free samples, discount coupons, gift offers for consumers
and target based incentives, display schemes etc for retailers. Marketeers also sponsor
charity programmes, sports etc to promote corporate/ brand image.

FMCG CONSUMTION IN RURAL INDIA
Here the rain gods still play havoc with one's dreams. The dusty village path winds past a
cluster of slumbering cottages and leads one to a weekly rural bazaar or haat, brimming
over with din, bustle and transaction. This is where the real India resides. Telephone is a
luxury here. Electricity, if at all, comes here only in fits and starts. And a delivery by road
may take any stretch of time.
However, things are changing fast now. Thanks to the increasing literacy level and media
explosion, people are becoming conscious about their lifestyles and about their rights to
live a better life. Brand consciousness is on the rise. This, clubbed with increasing
disposable income of rural households, has made the rural consumer more demanding
and choosier in his purchase behaviour than ever before. And the dusky village damsel
has now learned to pine for a satin rose.
The rural India offers a tremendous market potential. A mere one percent increase in
India's rural income translates to a mind-boggling Rs 10,000 crore of buying power.
Nearly two-thirds of all middle-income households in the country are in rural India. And
close to half of India's buying potential lies in its villages. Thus for the country's
marketers, small and big, rural reach is on the rise and is fast becoming their most
important route to growth. Realizing this Corporate India is now investing a sizeable
chunk of its marketing budget to target the rural consumers.
Organizations like Hindustan Lever Ltd., Nirma Chemical Works, Colgate

Palmolive, Parle foods and Malhotra Marketing have carved inroads into the
heart of rural markets. Various categories of products have been able to spread
their tentacles deep into the rural market and achieved significant recognition in
the country households. And, in the process, the regional brands, local brands
and the other unbranded offerings got displaced by the leading brands
Company Household penetration

HLL 88%
Nirma Chemical Works 56%
Colgate Palmolive 33%
Parle Foods 31%
Malhotra marketing 27%
% volume of local
Category
brands/unbranded
Washing cakes/bars 88%
Tea 56%
Salt 33%

Of the expenditure on consumer goods in rural household, approximately, 44% is

on food articles such as biscuits, tea, coffee and salt, 20% on toiletries, 13% on
washing material, 10% on cosmetics, 4% on OTC products and 9% on other
consumables. A number of category products have established themselves firmly
in the rural households.
It is evident that in the villages low-priced brands are well accepted and one
might feel that a larger proportion of the purchases made in rural market can be
attributed to local/ unbranded players. Surprisingly, however, the unbranded/local
component contributes to a substantial portion of the volume of only a few of the
highly penetrated categories.
Category Brand with highest

Category
Penetration penetration
Toilet Soap Lifebuoy
Washing cakes/Bars 91%
Wheel
Edible oil 88%
Double iran
Tea 84%
mustard
Washin powder / 77%
Lipton Taaza
liquid 70%
Nirma
Salt 64%
Tata Salt
Biscuits 61%
Parle G
INCREASING BRAND AWARENESS
In the rural families, studies indicate a slow but determined shift in the use of categories.
There is a remarkable improvement in the form of products used. For instance,
households are upgrading from indigenous teeth-cleaning ingredients to tooth powder and
tooth-pastes, from traditional mosquito repellant to coils and mats. There is also a visible
shift from local and unbranded products to national brands. From low-priced brands to
premium brands.

FMCG CONSUMPTION
Organizations like Hindustan Lever Ltd., Nirma Chemical Works, Colgate Palmolive,
Parle foods and Malhotra Marketing have carved inroads into the heart of rural markets.
Various categories of products have been able to spread their tentacles deep into the rural
market and achieved significant recognition in the country households. And, in the
process, the regional brands, local brands and the other unbranded offerings got displaced
by the leading brands.
Company Household penetration

HLL 88%
Nirma Chemical Works 56%
Colgate Palmolive 33%
Parle Foods 31%
Malhotra marketing 27%
% volume of local brands
Category
/ unbranded
Washing cakes/bars 88%
Tea 56%
Salt 33%
Of the expenditure on consumer goods in rural household, approximately, 44% is on food

articles such as biscuits, tea, coffee and salt, 20% on toiletries, 13% on washing material,
10% on cosmetics, 4% on OTC products and 9% on other consumables. A number of
category products have established themselves firmly in the rural households.
It is evident that in the villages low-priced brands are well accepted and one might feel
that a larger proportion of the purchases made in rural market can be attributed to local/
unbranded players. Surprisingly, however, the unbranded/local component contributes to
a substantial portion of the volume of only a few of the highly penetrated categories.
Category Brand with highest

Category
Penetration penetration
Toilet Soap
91% Lifebuoy
Washing cakes/Bars
88% Wheel
Edible oil
84% Double iran mustard
Tea
77% Lipton Taaza
Washin powder / liquid
70% Nirma
Salt
64% Tata Salt
Biscuits
61% Parle G
FOCUS ON URBAN CATEGORIES

Though the commodity products have greater penetration, traditionally urban categories
such as skin creams and talcum powder have also made a mark. While the urban talcum
powder market suffered a de-growth, the rural talcum powder market darted ahead.
Similarly, growth of rural skin cream market was at par with that of urban skin cream
market. This clearly indicated that after being considered urban for a long time, some
categories are now wearing a rural face. And, in many a case, it is the rural market that is
actually driving the growth of category.
PREMIUM BRANDS
Pond's is the leader in the talcum powder category with a penetration of 65% and volume
contribution of 56%. Its rivals viz. Nycil and Liril are trailing far behind. Moreover, 60%
of the Pond's users have purchased no other brand i.e. they are 100% brand loyal. This
reflects the strength of the brand in rural bazaar.
Category Household Penetration

Skin creams 18%
Talcum Powders 15%
the skin care category, Fair & Lovely fairness cream, with a penetration of 75%, accounts
for 60% of the skin care market in rural India. It also enjoys the undistinguished
patronage of 58% of its user households. Both Pond's and Fair & Lovely are enjoying a
monopoly in the rural markets in their respective categories.
Rural India is not averse to trying out the premium brands at high prices. A study
indicated that a majority of the premium brand users are using the brand for the first time.
Similarly 0.9% of the talcum powder-using families have started using Denim talc and
0.7% of the shampoo using households started using Pantene. Surveys also reveal that
trials are not restricted to the more affluent echelon of the villages. The experimenting
households are more-or-less evenly spread across the various socio-economic clusters of
the rural market. This should further encourage the marketers to focus their attention on
rural buyers.
Brand Penetration of category users

Surf 6.2%
Ariel 4.5%
Pantene 1.8%
Denim 1.8%
The rural youths are more open to fresh concepts as against their elderly family members.
Their difference in choice of products/brands with the seniors of the households often
leads to a “dual-usage” of product categories. As an instance, 20% of the households
using tooth powder also use tooth paste. Similarly, many of the households using

premium brands also use mass market brands. For example, while 15% of Surf and 12%
of Ariel using families also use Nirma detergent, 3% of Denim users use Pond's
Dreamflower talc and 18% of Pantene using households use Clinic shampoo as well.
AMAZING INNOVATOR
With a queer psychology of purchase and usage, Indian rural market is still a puzzle to
marketers. In many a case, it stretches its imagination to find surprisingly different uses
of some of the products. And the red-faced marketers admit that they actually sell their
products in areas they would otherwise find difficult, simply because there are other uses
for them. For instance, in parts of Northern India, condoms are used by weavers as gloves
on their fingers to weave fine threads. Lubrication on condoms allows them fine control
on threads and protects their sensitive fingers. Buffaloes displayed at the haats for sale
are dyed an immaculate black with Godrej hair dye. Horlicks is used as a health beverage
to fatten up cattle in Bihar. In villages of Punjab, washing machines are being used to
make frothy lassi in bulk. Paints meant for colouring up the rich-smooth walls are used to
paint the horns of cattle to make identification easier and to achieve a long-term
protection from theft. Iodex is rubbed into the skins of animals after a hard day's work to
relieve muscular pain. The organizations in question might not be pleased with such
usage. However, their moneybags keep on jingling.
RURAL MARKETING – THE “HINDUSTAN LEVER LIMITED PRESPECTIVE

THE CHALLENGE
Around 700 million people, or 70% of India's population, live in 6,27,000 villages in
rural areas. 90% of the rural population is concentrated in villages with a population of
less than 2000.
The statistics is daunting. Particularly for companies, such as HLL, which market
Packaged Mass Consumer Goods (PMCG) of everyday use, the size of the rural market
makes it essential to tap.
Indeed, we have traditionally focused on the rural market. Several of company's major
business categories, such as Fabric Wash, Personal Wash and Beverages, already get over
50% of their sales from rural areas. Our distribution system is the best amongst PMCG
companies.
But the company also recognize that there is much more that needs to be done. To service
rural markets, the key issues that need to be addressed are availability, awareness and
overcoming prevalent attitudes and habits.
EXTENDING AVAILABILITY
Data on rural consumer buying behavior indicates that the rural retailer influences 35% of
purchase occasions. Therefore, sheer product availability can determine brand choice,
volumes and market share.
Project Streamline was conceptualised to significantly enhance HLL’s control on the

rural supply chain through a network of rural sub-stockists, who are based in these very
villages. As part of the project, higher quality servicing, in terms of frequency, credit and
full-line availability, would be provided to rural trade. Thereby, giving the company a
substantial competitive edge over the next decade.
The principle of Project Streamline is to leverage HLL’s scale and organisational

synergy to increase reach in rural markets. The pivot of Streamline is the Rural
Distributor (RD), who has15-20 rural sub-stockists attached to him. Each of these sub-
stockists is located in a rural market. The sub-stockist then performs the role of driving
distribution in neighbouring villages using unconventional means of transport such as
tractor, bullock cart, et al.
From 1998, the project has been rolled out in select states of the country where the terrain
or poor stage of market development typically makes any distribution system unviable.
The Streamline system has extended direct HLL reach in these markets to about 37% of
India's rural population from 25% in 1995. Most important, the number of HLL brands

and SKUs stocked by village retailers has gone up significantly. Having done that, the
project now aims to expand the company’s coverage to 50% of rural population by 2003.
Distribution will acquire a further edge with Project Shakti, HLL's partnership with Self
Help Groups of rural women. The project, started in 2001, already covers over 5000
villages in 52 districts of Andhra Pradesh, Karnataka Madhya Pradesh and Gujarat, and is
being progressively extended. The vision is to reach over 100,000 villages, thereby
touching about 100 million consumers. The SHGs have chosen to adopt distribution of
HLL's products as a business venture, armed with training from HLL and support from
government agencies concerned and NGOs. A typical Shakti entrepreneur conducts
business of around Rs.15000 per month, which gives her an income in excess of Rs.1000
per month on a sustainable basis. As most of these women are from below the poverty
line, and live in extremely small villages (less than 2000 population), this earning is very
significant, and is almost double of their past household income. For HLL, the project is
bringing new villages under direct distribution coverage. Plans are being drawn up to
cover more states, and provide products/services in agriculture, health, insurance and
education. This will both catalyse holistic rural development and also help the SHGs
generate even more income. This model creates a symbiotic partnership between HLL
and its consumers, some of whom will also draw on the company for their livelihood, and
helps build a self-sustaining virtuous cycle of growth.
INFLUENCING AFFORDABILITY
Project Streamline focused on extending distribution, and Project Bharat's influence

was restricted to raising penetration and awareness levels. On the anvil, is a new rural
programme, which will reach villages with a population below 2000 and influence
income as well.
This path-breaking venture aims to facilitate the doubling of HLL’s share of the rural
consumer's wallet in three years. The model is unique in that it influences all the variables
that influence growth. This model triples physical reach, doubles communication reach,
creates a platform for influencing attitude changes and raising incomes.
The company’s rural growth engine raises incomes of rural families by channel
intervention through rural Self-Help Groups (SHG), which operate like direct-to-home
distributors. The model consists of groups of (15-20) villagers below the poverty line
(Rs.750 per month) taking micro-credit from banks, and using that to buy HLL products,
which they will then directly sell to consumers. In the process, generating employment
and incomes for themselves, and increasing the reach of our products.
HLL is tying up with various Non-Governmental Organizations, United Nations'

Development Programme (UNDP), and voluntary organizations to propagate health and

hygiene messages. The goal is to reach 2,35,000 villages up from the current 85,000;
75% of the population up from 43% today; and a message reach of 65% up from the
current TV reach of 33%. In the process the company aim to increase access, influence
attitudes, create a channel to raise awareness of its brands and catalyse affluence in rural
India.
ENHANCING AWARENESS
Mass media reaches only 57% of the rural population. Generating awareness, then, means
utilising targeted, unconventional media including ambient media. HLL has been
utilising events such as fairs and festivals, haats, et al, as occasions for brand
communication. Cinema vans, shop-fronts, walls and wells are other media vehicles that
the company has utilised to heighten brand and pack visibility.
OVERCOMING ATTITUDES AND HABITS
Creating distributive reach is not sufficient to tap the rural markets. Market development
can be a difficult task because in rural India, both consumption and penetration is low.
For instance, only three out of 10 people in rural areas use toothpaste or talcum powder,
or shampoo and skin care products, and only six use washing powders.
Even in categories with high penetration, such as soaps, consumption is once per five
bathing occasions.
Project Bharat, the first and largest rural home-to-home operation to have ever been
mounted by any company, sought to address many of these issues. The operation was
conducted in high-potential districts of the country. The exercise was started by HLL’s
Personal Products Division in 1998, and covered 13 million households by the end of
1999. In the course of the operation, company vans visited villages across the country and
distributed sample packs comprising a low-unit-price pack each of shampoo, talcum
powder, toothpaste and skin cream priced at Rs. 15. The distribution was supported by
explanation of product usage and a video show, which was interspersed with product
communication. Thus HLL generated awareness of its product categories and the
availability of affordable packs. Consumers were also made aware of the superior
benefits of using our products vis-à-vis their current habits, and the affordability of the
pack sizes on offer. The project, thus, successfully addressed issues of awareness,
attitudes and habits. Hopefully, as consumers in rural areas get exposed to such value-
added, value-for-money alternatives, they will continue to buy into the categories. The

project saw a 100% increase in penetration, user ship and top-of-mind awareness in the
districts targeted.
However, sampling once is not adequate to convert non-users. So Personal Products

rolled out a follow-up programme, the Integrated Rural Promotion Van (IRPV), to
once more target villages with a population of over 2,000.

ITC e-Choupal
ITC’s International Business Division, one of India’s largest exporters of agricultural commodities,
has conceived e-Choupal as a more efficient supply chain aimed at delivering value to its
customers around the world on a sustainable basis.
The e-Choupal model has been specifically designed to tackle the challenges posed by the
unique features of Indian agriculture, characterised by fragmented farms, weak infrastructure and
the involvement of numerous intermediaries, among others.

‘e-Choupal’ unshackles the potential of Indian farmer who has been trapped in a vicious cycle of
low risk taking ability > low investment > low productivity > weak market orientation > low value
addition > low margin > low risk taking ability. This made
him and Indian agribusiness sector globally
uncompetitive, despite rich & abundant natural
resources.
Such a market-led business model can enhance the

competitiveness of Indian agriculture and trigger a
virtuous cycle of higher productivity, higher incomes,
enlarged capacity for farmer risk management, larger
investments and higher quality and productivity.
Further, a growth in rural incomes will also unleash the

latent demand for industrial goods so necessary for the continued growth of the Indian economy.
This will create another virtuous cycle propelling the economy into a higher growth trajectory
Appreciating the imperative of intermediaries in the Indian context, ‘e-Choupal’ leverages

Information Technology to virtually cluster all the value chain participants, delivering the same
benefits as vertical integration does in mature agricultural economies like the USA.
‘e-Choupal’ makes use of the physical transmission capabilities of current intermediaries –

aggregation, logistics, counter-party risk and bridge financing –while disintermediating them from
the chain of information flow and market signals.

CHAUPAL SAGAR, BY CIGARETTE GIANT ITC

The Crop Shop - from toothpaste to tractors, this rural mall has it all :-it
Rafiqganj, about
four kilometres from
Sehore town in
Madhya Pradesh, is
not a city, nor even
a one-horse town. It
is a little
village...except that it boasts of having the first rural shopping
mall in the country. Chaupal Sagar, set up by cigarette giant
ITC, stands on an eight-acre plot with a shopping area of 7,000
square feet.
Along with soaps, detergents and toothpaste, the mall sells

almost everything — TVs, DVD players, pressure cookers,
room heaters, watches, sewing machines and grinders. And, of
course, cigarettes. Farmers can also buy motorbikes, or even
tractors. ITC has launched its own rural range of clothing and
shoes too — trousers at Rs 166 a pair tailored for the village
folk.
The mall seems to be doing brisk business. Though its launch

is in the first week of October, it has informally opened its doors
to buyers. ITC says the daily sales is already between Rs
70,000 to 80,000. TVs and DVD players are among the costlier
items that have found rural customers. "The idea is to create a
one-stop destination for farmers," says S. Shivkumar, chief
executive officer of ITC.
Chaupal Sagar is a bit different from city malls. What had

started four years ago as an experiment to use IT tools to
enable farmers find the best price for their produce has now
metamorphosed into this shopping idea. The scenario ITC
foresees is something like this: post-harvest, the farmer, with
his family, drives into Chaupal Sagar in a tractor trolley laden
with the grain he proposes to sell. He parks the tractor on the
digital weighing bridge close to the entry point. His grain
weighed, he drives on to the godown where the produce is
unloaded and he gets his money.
Meanwhile, his kids can enjoy the swings and video games and
his wife may be going around the shopping mall mentally
drawing up a shopping list. Cash in hand, the farmer family can
then make its purchases and drive back by evening, with the
tractor laden with the goodies. If they like, they can have a bite
in the cafeteria. And the farmer may even carry fertilisers and

pesticides for the next crop and get his tractor fuelled at the
diesel pump.
The villagers are

delighted at the new
shopping
experience. But the
key question will be
whether they will
show interest once
the novelty factor
wears out. "I will
definitely come here
with my family," says 65-year-old Kaluram from Piparia who
has come just to "have a look." Sunil, 12, walks confidently to
one of the racks where his favourite biscuits are stacked. Sunil
is no city-bred kid, he lives in a small hamlet. If he is not
overawed by the sprawling mall, it is because he is a regular
visitor. "I come here practically everyday while on my way back
from school," he says.
The shopping area is only a part of the vast Chaupal Sagar. At

the back of the mall is a godown where ten thousand tonnes of
grain can be stored. Then, the entertainment area with video
games and swings. A diesel pump, a cafeteria and a soil-
testing laboratory are also coming up and so is a sale point for
fertilisers, pesticides and other agro-inputs. A bank, an
insurance company office and a training centre for farmers will
complete the set-up. If he needs to, the farmer can consult a
doctor who will be available on the premises.
According to ITC, the Chaupal Sagar is the logical culmination

of the e-chaupal scheme launched by the company in Madhya
Pradesh. These e-chaupals were small units set up to help
farmers. Typically, each unit has a Rs 2 lakh infrastructure
including a computer, a ups and a telephone line for logging on
to the internet. A room in the house of a medium-level farmer
usually served as the e-chaupal. The sanchalak — as this
farmer would be designated— provides free information to the
others about the prices and demand for agriculture produce in
different mandis.The sanchalaks got a commission when a
farmer sold his produce to ITC.
The experiment started with four e-chaupals. Presently there

are 1,700 units in 26 districts. It is the success of these farmer-
run centres that made ITC think about launching the Sagar
Chaupal which would serve as a organised retail outlet.
According to ITC, fast moving consumer goods and white
goods manufacturers are keen to tap the fast prospering rural
markets. If the Chaupal Sagar set up at a princely cost of Rs
4.5 crore succeeds, then ITC has plans to set up five rural
malls in Madhya Pradesh by next March. But the proof will be
in the volume of sales. In the metros many malls are doing
slack business with more window-shoppers than buyers. Will

the rural populace of Sehore be any different?
COCA-COLA AND PEPSI FIGHTING FOR THERE SHARE OF THE BIG

RURAL MARKET
The cola majors, Coke and Pepsi, are trying to penetrate deep into the rural
markets with innovative pricing and marketing strategies.
APART from the high-decibel price wars and

the usual battle over market shares, cola
brands Coca-Cola and Pepsi have been in a
quiet behind-the-scenes skirmish - to reach
the rural masses. After an almost stagnant
growth in this segment for the last two years,
both Coke and Pepsi have made efforts this
year to penetrate deep into the rural markets
by substantially increasing their retailer and
distribution network and with innovative
pricing and marketing strategies.
While the per-capita consumption of carbonated soft drinks in rural areas is just 2.8 litres
compared to the 7.4-litre consumption nationally, the cola majors say this renewed effort
has helped step up sales in the rural markets considerably. While Pepsi says that the
contribution of the rural sales to the overall sales of the company has been in the range of
10 to15 per cent this year, Coke spokesperson's, in a recent interview to Catalyst, has
been quoted as saying that the company has increased its rural share from nine per cent
two years ago to 25 per cent this year, by penetrating as many as 40,000 villages.
However, both the companies feel that the rural
markets are still largely untapped and a lot needs
to be done. Both of them feel that there is
substantial scope to further increase the
contribution of the rural markets to the overall
sales.
"The major challenge which is faced in the rural
markets is availability. Since soft drinks are sold in
returnable glass bottles, one cannot sell through
the conventional FMCG wholesale channel to drive
availability in rural markets."
Therefore, the company, says Kovoor, has chosen a `hub and spoke' format of
distribution. "The spoke is typically closest to the retail outlets and is serviced by a
hub distributor who is supplied directly from the plant or the company's warehouse.
This format allows for large loads traveling longer distances and short loads doing
short distances which is cost-effective."

Similarly, Coca-Cola also has a hub and

spoke distribution format. "We use all
possible means of transport that range
from trucks, auto rickshaws, cycle
rickshaws and hand carts to even camel
carts in Rajasthan and mules in the hilly
areas, to cart our products from the
nearest hub,
Once available, the focus is then on getting
the consumer to try the product by giving
him a reason to buy. This also means
making the product available in a chilled form at the neighbourhood store, getting
the pricing and packaging right.
According to the Coke spokesperson, due to the poor and erratic power supply in
villages, the company has invested in non-electric chilling equipment to ensure the
availability of chilled products to the consumers. Also he says, "We have doubled the
number of refrigerators in the market to five lakh in the last one year."
With the rural market being extremely price sensitive, the soft drink companies have
to make sure that they strike the right balance as far as pricing is concerned. "We try
and make our products affordable in terms of unit price point. We also take into
consideration the price of the `alternate beverage' options that the consumer has .
However, considering the price-sensitive nature of the consumers in these areas, it is
only the glass bottles that allow the price to be as low as Rs 5, says Kovoor.
"If the same bottle was non-returnable, the end price would have been more than
double because of the cost of the package and that is not a great price offering for
the rural consumer," he says. "However glass bottles are tougher to distribute and
sell since they have to be brought back and the outlets have to deposit glass and
crates to sell our products," he adds.
Apart from pricing, reworking the pack size
was also necessary. "The introduction of 200
ml packs at highly affordable prices provided
us with a strong product offering, as our
international quality products are made
available at affordable prices. This has helped
us compete and increase our share and
presence in this market," points out the Coke
spokesperson.
In fact, a powerful driver for both the
companies in the rural markets has been the
200 ml packs.
But attractive pricing and convenient packaging is not enough to sell the brand in
these markets. The greatest challenge is to convince the consumer the need to buy
this product. Says Kovoor, "The issue in the rural markets is not spending power. In
fact, most rural consumers have the spending power, but they have to be given a
tangible reason to buy a soft drink when they have other options to quench their
thirst, such as water or a homemade sherbet."
Therefore, while marketing the product, it is also important for these companies to
do something, which is of relevance to the consumers. In fact, Kovoor feels that

operating rural vans with Pepsi campaigns painted on them is not a very effective
idea to connect with the consumers. "We instead try to participate in various rural
activities such as melas, undertake display drives in mandi stalls, run on-pack
promos and focus a lot on price communication."
Apart from associating in the various mela and haat activities Kovoor points out that
the rural consumers relate a lot to celebrities. "Celebrities have worked out like a
dream for us," he says. A poster of Bollywood star such as Amitabh Bachchan or
cricketer Sachin Tendulkar in a mandi or a mela for instance, says Kovoor, heightens
the aspirational association of their products.
"In fact the Amitabh and Sachin campaign of Pepsi in which the two stars are
engaged in a kite fight or the Sachin campaign in which he is in the midst of
a group of children is focused on our rural audience and have done wonders
for us," he says.
Simiarly, Coke's Thanda Matlab campaign as well as the Chota Coke
campaign, points out the Coke spokesperson, also targets the rural masses.
"Apart from this, all our outdoor and indoor communications are also integrated to
capture the `consumer connect' that is established through our TV ads," he says.
Therefore it's not just right pricing and packaging, but it is the ability to establish the right
connect with the consumers which helps a brand to make it big in rural India.

HLL’S STRATEGIES FOR THE RURAL MARKET BIG PIE
The fast-moving consumer goods (FMCG) segment in India is going rural with a
vengeance.
The lead is being taken by the country’s largest FMCG company, Hindustan Lever
(HLL). The Rs 11,000-crore behemoth has indicated that it is enhancing its rural
penetration, despite the higher costs this would entail.
Incidentally, over 50 per cent of the sales of HLL’s fabric wash, personal wash and
beverages are in rural areas. And we see a future in going rural in a major way.”
The improved agricultural growth is expected to boost rural demand, though not at too
sizzling a rate. Moreover, the price drop in personal products, after the recent excise duty
reductions, is also expected to drive consumption. “Better agricultural yields will give
farmers more spending power, making the rural markets bullish,” says an analyst.
As a result, HLL has planned a rural marketing programme that is expected to result in a
marked growth in the consumption of the company’s products in the rural market. HLL
will adopt a three-pronged marketing strategy - new price points, sizes and awareness
campaigns - for its detergents and soaps segment to augment rural growth.
Deep penetration
The goal is to reach 2,35,000 villages, up from the current 85,000; 75 per cent of the
population, up from 43 per cent today; and a message reach of 65 per cent, up from the
current television reach of 33 per cent. The company is expressly aiming at reaching
villages with populations less than 2,000. The rural penetration exercise is going to be
complemented by a 15-per cent hike in advertisement expenditure.
Say company sources: “We have found ways and means to trigger growth in rural areas.
For instance, cutting across categories, we have conceived products that are relevant to
rural needs. A unique example is HLL’s Lifebuoy soap. In rural India, health is of
paramount importance, because indisposition is very directly related to loss of income.
Lifebuoy, whose core equity has been health through vigorous cleansing, has, for decades
now, been synonymous with soap in rural India. At the same time, we are making the
products affordable.”
In fact, HLL is now creating a market even for apparently premium products by offering
them in small-pack sizes, like sachets, whose unit prices are within the reach of rural

consumers. Initiated in the 1980s, sachets today constitute 70 per cent of HLL’s shampoo
sales.
The sources add: “We have managed to create a market for products like premium stain-
removing detergents (Surf Excel), beauty soaps (Lux), talcum powder (Pond’s),
toothpaste (Pepsodent) and skin cream (Fair & Lovely) by offering them in low unit price
packs.”
HLL is also going to non-conventional media to spread the word about its rural presence.
The sources add that media like wall paintings, cinema vans, weekly markets (haats),
fairs and festivals will be increasingly used. “Communication through fairs and festivals
is going to be backed by direct consumer contact,” says Banga.
Rural involvement
HLL has launched a direct contact programme called Lifebuoy Swasthya Chetana. This
project aims at covering about 5-crore people in 15,000 villages in 10 states. “The project
intends to generate awareness about good health and hygienic practices, and specifically,
how the simple habit of washing hands with soap is essential to maintaining good health.
The initiative will involve interaction with students and senior citizens, who are expected
to act as change agents,” say HLL marketing personnel.
But generating awareness will pay dividends only when steps are taken to ensure constant
availability of products. Accordingly, HLL is focusing on its retail network as well. “We
have progressively strengthened our distribution reach in rural India, which today has
about 33 lakh outlets,” HLL marketing officials say.
In 1998, they add, “we launched Project Streamline to further extend our distribution
reach. With this project, we now directly cover about 46 per cent of the rural population.
In the coming years, we will further strengthen our distribution through mutually
beneficial alliances with rural self-help groups (SHGs).”
Besides, HLL has also begun a pilot project called Project Shakti, whereby SHGs are
being offered the option of distributing relevant products of the company as a sustainable
income-generating activity.
HLL’s decision to focus on niche marketing also seems to be showing results. The
company had recently decided to focus on 30 power brands out of its portfolio of more
than 110 brands. Explaining the move, Banga says: “Today, focus is crucial and niche
marketing is the order of the day. You cannot fight every battle - you have to identify the
strengths and persist with them.”
And that is precisely what HLL seems to be doing.

CONSUMER DEMOGRPHICS
POPULATION DISTRIBUTION
OVERALL INDIA
West (%)
1.43.4 19.7 East (%)
23.3
North (%)
South (%)
25.5
31.5 Total UT
Other states
URBAN AND RURAL DISTRIBUTION

POPULATION
100
80
60 Rural %
40 Urban %
20
0
TH
TH
T
IA
T
Ts
S
AS
D
U
R
E
IN
O
E
O
W
S
N

AGE DISTRIBUTION OF POPULATION

%
PERCENTAGE
80
65
50 1992
35 1997
20 2007
5
-10
0 to 4 5 to 14 15 to 59 60 &
Above
AGE GROUP

EXECUTIVE SUMMARY :
A thorough understanding of the rural markets has become an important aspect of

marketing in the Indian marketing environment today. This attraction towards the rural
markets is primarily due to the colossal size of the varied demands of the 230 million
rural people. In fact, the rural markets are expanding in India at such a rapid pace that
they have overtaken the growth in urban markets. This rate of growth of the rural market
segment is however not the only factor that has driven marketing managers to go rural.
The other compelling factor is the fact that the urban markets are becoming increasingly
complex, competitive and saturated.
The vast untapped potential of the rural markets is growing at a rapid pace. The policies
of the government largely favour rural development programmes. This is clearly
highlighted by the fact that the outlay for rural development has risen from Rs 14000
crores in the 7th plan to Rs 30000 crores in the 8th plan period. These figures also prove
that the rural market is emerging stronger with a gradual increase in disposable income of
the rural folk. In addition, better procurement prices fixed for the various crops and better
yields due to many research programmes have also contributed to the strengthening of the
rural markets. Thus, with the rural markets bulging in both size and volume, any
marketing manager will be missing a great potential opportunity if he does not go rural.
This however raises a fundamental problem of fathoming the differences between urban
and rural markets in India. This is of paramount importance in the Indian marketing
environment as rural and urban markets in our country are so very diverse in nature, that
urban marketing programmes just cannot be successfully extended to the rural markets.
The buying behavior demonstrated by the rural Indian differs tremendously when
compared to the typical urban Indian. Further, the values, aspirations and needs of the
rural people vastly differ from that of the urban population. Basic cultural values have not
yet faded in rural India. Buying decisions are still made by the eldest male member in the
rural family whereas even children influence buying decisions in urban areas. Further,
buying decisions are highly influenced by social customs, traditions and beliefs in the
rural markets. Many rural purchases require collective social sanction, unheard off in
urban areas.
Another contrasting feature is the precision in the assessment of purchasing power of the
consumers. In urban markets, income levels are generally used to measure purchasing
power and markets are segmented accordingly. However, this measure is not adequate for
defining the purchasing power in rural areas because of the single fact that rural incomes
are grossly underestimated. Farmers and rural artisans are paid in cash as well as in kind.
However, while reporting their incomes, they report only cash earnings, which then
affects the calculation of their purchasing power. This is the reason why marketers are
often surprised to find that their products are sometimes consumed by people who,
according to their surveys and estimates do not have the purchasing power to do so.

Every marketing manager must therefore make an attempt to understand the rural
consumer better so that he can plan his strategies in such a manner that they produce the
desired results.
Unfortunately, most marketers of today try to extend marketing plans that they use in
urban areas to the rural markets and face, on many occasions failure. They should adopt a
strategy that appeals individually to the rural audience and formulate separate annual
plans and sales targets for the rural segment. Changes must be made in the marketing mix
elements such as price, place, product and promotion. Corporate marketers should refrain
from designing goods for the urban markets and subsequently pushing them in the rural
areas. The unique consumption patterns, tastes, and needs of the rural consumers should
be analyzed at the product planning stage so that they match the needs of the rural people.
For most companies wanting to enter the rural markets, distribution poses a serious
problem. Distribution costs and non availability of retail outlets are major problems faced
by the marketers. But if one takes a closer look at the characteristic features of the rural
market, it will be clear that distribution in fact, is no problem at all.
In rural India, annual melas organised with a religious or festive significance are quite
popular and provide a very good platform for distribution. Rural markets come alive at
these melas and people visit them to make several purchases. According to the Indian
Market Research Bureau, around 8000 such melas are held in rural India every year.
Besides these melas, rural markets have the practice of fixing specific days in a week as
Market Days when exchange of goods and services are carried out. This is another
potential low cost distribution channel available to the marketers. Also, every region
consisting of several villages is generally served by one satellite town where people
prefer to go to buy their durable commodities. If marketing managers use these feeder
towns they will easily be able to cover a large section of the rural population.
While planning promotional strategies in rural markets, marketers must be very careful in
choosing the vehicle to be used for communication. They must remember that only 16%
of the rural population has access to a vernacular newspaper. Although television is
undoubtedly a powerful medium, the audio visuals must be planned to convey a right
message to the rural folk. The marketers must try and rely on the rich, traditional media
forms like folk dances, puppet shows, etc with which the rural consumers are familiar and
comfortable, for high impact product campaigns.
Thus, a radical change in attitudes of marketers towards the vibrant and burgeoning rural
markets is called for, so they can successfully impress on the 230 million rural consumers
spread over approximately six hundred thousand villages in rural India.

REFRENCES
1) Bailay, R. (2003). Small packets, big business. Far Eastern Economic Review,
166, 40.
2) Balu, R. (2001). Strategic innovation: Hindustan Lever. Fast Company, 120.
3) Bullis, D. (1997). Selling to India’s consumer market. Westport, CT: Quorum

Books.
4) Dawar, N. & Chattopadhyay, A. (2002). Rethinking marketing programs for

emerging markets. Long Range Planning, 35, 457.
5) Kannan, S. (2001). Rural market – a world of opportunity. The Hindu.
6) Kripalani, M. (2002). Rural India, have a Coke. Business Week, 24.
7) Kripalani, M. (2003). Finally, Coke gets it right. Business Week, 47.
8) Luce, E. (2002). Hard sell to a billion consumers: Marketing India: The world’s
second most populous country is a magnet for US brands but its mar ket is not easy to
penetrate, says Edward Luce. Financial Times, 14.
9) Merchant, K. (2003). A salesforce for Indian villages: Marketing: Women are

poised to run an online direct selling portal that promises to reach the
smallest communities. Financial times, 9.
10) Moorthi, Y.S.R. (2002). We’re like this only. Retrieved October 31, 2003,
from http://learning.indiatimes.com/bm/guruspeak/moorthi.htm.
11) Prahalad, C.K, & Lieberthal, K. (2003). The end of corporate imperialism.
81, 109-117.
12) Srivastava, Prashant. Personal Communication. October 21 and October 31,

2003.
13) Krishnamacharyulu Ramakrishnan (2004) Rural Marketing

Dissertation: Marketing Practices by FMCG Companies For Rural Market

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MARKETING PRACTICES BY FMCG COMPANIES FOR RURAL MARKET

MARKETING PRACTICES BY FMCG COMPANIES

SUBMITTED TO:-MS RUCHI KHANDELWAL

Amity Business School, Noida 1

I express my immense pleasure and solemn gratitude to Ms Ruchi Khandelwal the

I greatly appreciated several opportunities to meet and interview concerned personnel at

Amity Business School, Noida 2

This is to certify that Project Title MARKETING PRACTICES BY

This dissertation is done under the guidance and supervision of

MS. RUCHI KHANDELWAL

Amity Business School, Noida 3

Background Of Fmcg Sector

Rural Marketing - Indian Prespective

Evolution Of Indian Rural Marketing

Strategies For Selling In Rural India

Recommended Strategies For Rural Marketing

Fast Moving Consumer Goods Sector

Fast Moving Consumer Goods Sector

KEY ISSUES Faced By Fmcg Companies In Rural

Amity Business School, Noida 4

RURAL MARKETING – THE “HINDUSTAN

Chaupal Sagar, By Cigarette Giant ITC

Amity Business School, Noida 5

BACKGROUND OF FMCG SECTOR

Amity Business School, Noida 6

Amity Business School, Noida 7

It seems the excitement is just beginning in the Indian FMCG industry.

RURAL MARKETING - INDIAN PRESPECTIVE

What’s different about rural marketing?

Amity Business School, Noida 8

Amity Business School, Noida 9

EVOLUTION OF INDIAN RURAL MARKETING

STAGE I : AGRICULTURAL MARKETING

STAGE II : RURAL INPUTS MARKETING

STAGE III : RURAL MARKETING

STAGE I : AGRICULTURAL MARKETING

STAGE II : RURAL INPUTS MARKETING

STAGE III : RURAL MARKETING

URBAN /RURAL TO RURAL

STAGE I : AGRICULTURAL MARKETING

STAGE II : RURAL INPUTS MARKETING

AGRI. INPUTS LIKE SEEDS,MACHINES,

STAGE III : RURAL MARKETING

CONSUMER DURABLES, FMCG,CONSUMABLES FOR

Amity Business School, Noida 10

TRANSACTIONAL V/S DEVELOPMENTAL MARKETING

ASPECT TRANSACTIONAL DEVELOPMENTAL

CONCEPT CONSUMER ORIENTATION, SOCIETY, SOCIETAL

ROLE STIMULATING AND CATALYTIC AND

FOCUS PRODUCT-MARKET FIT SOCIAL CHANGE

KEY TASK PRODUCT INNOVATIONS SOCIAL INNOVATIONS

NATURE OF COMMERCIAL SOCIAL-CULTURAL,

PARTICIPANTS CORPORATE ENTERPRISES GOVT,VOL AGENCIES

OFFER PRODUCTS AND SERVICES DEVELOPMENT

TARGET GROUP BUYERS BENEFICIARIES AND

COMMUNICATION FUNCTIONAL DEVELOPMENTAL

GOAL PROFITS, CUST.SATIS MARKET

MOTIVATION PROFIT MOT/ BUSINESS SERVICE MOT.

Amity Business School, Noida 11