Changing Face Of Rural Consumer In Emerging Markets Economics Essay

India is growing at an average annual rate of 7.6 for the past many years and it is expected to continue growing at an equal if not faster rate. The rapid economic growth is increasing and enhancing employment and business opportunities and in turn increasing disposable incomes. The rural consumers in India account for about 73 percent of the total consumers. In recent years, the lifestyle of a large number of rural consumers in India has changed dramatically and the process of change is going on. The buying behaviour of the rural consumers is influenced by several factors such as socio-economic conditions, cultural environment, literacy level, occupation, geographical location, efforts on the part of sellers, exposure to media etc.

As the benefits of growth trickle down, an increasing number of people are moving up from the economically weaker class to join the middle class. The middle class with its rising numbers and incomes is thus becoming the biggest market segment. The affluent class too will continue to grow in terms of size and value, albeit, at a slower pace than the middle class. Most of the companies are going rural because of large and diverse markets, increase in literacy level and changing life style of the people. Even globalization and liberalization expanded the Indian rural market.

Several studies have shown that rural consumers are generally ignorant and they are also unorganised. Under these circumstances, the sellers or the manufacturers, exploit the consumers. Though, the consumers in India have been provided with various safety measures against their exploitation. In this paper, an attempt has been made to study the changing face of rural consumer in emerging markets.

Key Words: Globalisation, Rural Consumer, Rural Market, Rural Potential.

Introduction

Rural consumers in emerging markets of developing countries are among the largest and fastest growing segments of the world’s population. In a country like India, where a substantial number of the rural people are living below poverty line, having high level of unemployment and poor literacy level; consumer awareness continues to remain low. Above all about 70 percent of India’s population lives in rural areas. There are about 6, 38,365 villages in the country as against about 300 cities and 5,161 towns. Of the 121 crore Indians, 83.3 crore live in rural areas while 37.7 crore stay in urban areas, as per the Census 2011. Even in urban areas, a large number of people live in slums whose life is not better than those living in rural areas. This clearly highlights that India is still dominated by rural population. There were 7,935 towns in 2011 as against 5,161 in 2001. About 13.3% of India’s population and 42.6% of urban population reside in 53 cities having more than a million people, while the remaining 7,882 cities account for 47.4% of the urban population. There has been a steady increase in the number of cities from 5 in 1951 to 35 in 2001 to 53 in 2011 having a population of more than 10 lacs. About 31% of the urban population lives in the top-20 cities and about 51% of the country’s urban population lives in the top-100 cities.4

A report on survey conducted by National Council of Applied Economic Research (NCAER) says that there are 720 million consumers across the villages in rural India. Hence, the development of the nation largely depends upon the development of the rural population. Agriculture is the main occupation of the rural people for their subsistence. It has been observed in the report that the condition of the rural consumers is deplorable because they are being exploited in the rural markets on account of lack of competition among the sellers. Although the rural consumers face various problems like fake brands and spurious products, misleading advertisements, unfair warranties and guarantees, and unreasonable pricing but it hardly affects their passion to buying because they want to buy those products which reflect their prosperity level. Similarly, with globalization and liberalization, rural market in India expanded its potentialities across the world. Globalization describes a process by which regional economies, societies, and cultures have become integrated through a global network of communication, transportation, and trade. Globalization can be defined as the intensification of worldwide social relations which link distant locations in such a way that local happenings are shaped by events occurring many miles away and vice – versa. Globalization generally means integrating our economy with the economy of world. Globalization had its impact on various sectors including agricultural, industrial, financial, health and many others. Globalization has helped in:

• Raising the living standards of people,

• Alleviating of poverty,

• Assuring food security,

• Creating a market for expansion of industry and services, and

• Making substantial contribution to the national economic growth.

Globalization has brought in many varieties to choose from i.e. it has given a wide range of products to choose. The rise of rural market has been the most important marketing phenomenon of 1990s, providing volume growth to all leading companies.

Objectives

To examine the reasons why companies are going rural.

To study the changing face of rural consumers

To analyse the present scenario.

To study the initiatives taken by some leading companies in the area of rural marketing.

Data Collection

The study is based upon secondary data which has been collected from various text books, journals, reports etc. Besides, a few websites have also been consulted.

Potential of Rural Market

Now-a-days, every company is excited about the potential of rural India and trying to get a grip on the rural market because the urban market is showing the sign of saturation. But the challenges are many: how to make the product affordable, how to penetrate villages with small population, connectivity, communication, language barrier, overcoming spurious brands etc. The reasons for companies going rural are manifold. Increasing rural incomes driven by agricultural growth, increasing enrolment in primary schools, high penetration of TV and other mass media which has increased the propensity to consume branded and value added products in rural areas. As per a study conducted by the Market information Survey of Households (MISH) and NCAER – rural India is quietly transforming and growing and becoming different. Today the rural market offers a vast untapped potential. According to a McKinsey survey conducted in 2007, rural India would become bigger than the total consumer market of many countries such as South Korea or Canada in another 20 years.

Marketers and manufacturers are becoming aware of the increasing purchasing powers, vast size and demand base of the once neglected Indian hinterland. They are now making efforts to understand the attitude of rural consumer. While entering the rural market companies are also resorting to CSR- Corporate Social Responsibility activities, thus helping the poor not only to augment their income but promote their products also. For example, Hindustan Uniliver’s Project Shakti not only brings revenues to the company but also assist poor rural women to become income earners by selling the company’s product in the rural markets. It provides entrepreneurial opportunity and thus improves the living standard of rural women. It is a win-win situation for the company as well as for the consumers. Some major companies that have focused in Indian rural sector so far are Asian Paints, P&G, and Bajaj Auto, LG electronics, Coca Cola, Hindustan Unilever, Britannia, Philips, Colgate, ITC and LIC. We are still to understand the rural consumer, his attitudes, and his habits, particularly from the marketing point of view. Following points explain the reasons why companies are going rural i.e. what attracts them:

Large and Scattered market

Major income from agriculture

Low standard of living

Traditional Outlook

Diverse socio-economic backwardness

Infrastructure Facilities

High Growth Rate

Facts about the Indian Rural Market

The following facts are gathered from the analysis done by National Council for Applied

Economic Research (NCAER) about the rural India:

Rural India constitutes 70% of India’s total population.

It accounts for 56% of national income.

It contributes to 1/3rd of India’s total savings.

It accounts for 64% of total expenditure.

Rural economy is estimated to reach a size of Rs 18 trillion by 2012-2013 as against Rs 12 trillion in 2007-2008.

Rural consumers’ share of total ownership of low cost items like bicycles, pressure cookers and watches during 1995-96 was 60%.

The share of rural India in the FMCG market is around 53% and is expected to reach 60% in future.

Why focus on rural consumer?

It is found that companies have expanded in rural areas because they are able to ward off competition, generate a new demand and in turn increase their sales or profits as well. The rural India offers a tremendous market potential. In fact, rural markets are the new markets offering both durable and non-durable products. Long-term perspective of marketing planning with modern approach is essential for their future growth. The Indian rural market is a goldmine, which needs to be explored. Rural consumers’ behaviour needs to be understood and products specially designed to suit the rural lifestyle. The key business players are ecstatic about the immense market potential in India’s rural areas. It is also believed that major changes have taken place in the economic fundamentals, decrease in agricultural dependence, and increase in average income, life style, standard of living of the rural due to high economic growth rate. Business tycoons plan huge investments focused on rural areas, as part of growth of rural strategy. Rural India has witnessed a wave of change in recent times. Rural markets dominate Indian marketing scene and they need special attention for the expansion of marketing activities. With media exposure and increasing literacy levels, people are now demanding a better lifestyle. Figure shown below depicts the consumer India’s confluence of change in this regard.

Figure: Consumer India’s Confluence of Change

The changing shape of income distribution suggests growth in rural incomes which in turn should herald a consumption boom. Now-a-days, liberalisation, comfort with technology, changed attitude of people especially middle income group, alongwith rise in aspiration, the rural India is going beyond agriculture and is creating a new market for mass consumption. The figure given below depicts that with the increase in income, the rural people are moving from lower to lower middle, lower middle to middle; middle to upper middle and upper middle to upper level as far as income and spending are concerned.

Figure: Rural Percent of each income group

The coming together of a diverse set of economic, demographic and social change waves-point towards the fact that a brave new market is here.

Table 1shows the demand for consumer durables in rural India. Inspite of the lower penetration and lower per capita purchase of consumer goods by rural people when compared to that of urban Indians, marketers are attracted towards rural markets because of large population (Table II)

Table 1: Demand for Consumer Durables in Rural India (% of all India)

Consumer Durables

1995-96

2001-02

2009-10

Scooters

33.1

39.4

39.9

Automobiles

37.9

36.0

37.9

Television

54.0

54.5

44.2

White goods

23.8

23.9

23.7

Fans

50.0

56.9

56.7

Low Cost items

58.1

60.1

61.3

Source: NCAER

Table 1 explain the position from 1995-96 to 2009-10. The demand for the consumer durables in case of automobiles, white goods, low cost items is more or less is same, but there is an increased trend in fans, scooters etc.

Table II: Comparative Sizes of Rural and Urban Markets

Particulars

Urban

Rural

Population 2001-2002 (million households )

53

135

Population 2009-2010 (million households )

69

153

% of All India Population

28

72

Market ( Number of town/Villages )

3768

627000

Western consumer-focused companies are growing impatient as they seek out the opportunity to sell their products both in India’s major cities as well as to consumers in rural areas. Companies should proceed with caution when marketing their products to India’s rural consumers 

http://blog.frontierstrategygroup.com/wp-content/uploads/2011/12/Rural-India.png

Present Scenario

Rural markets are witnessing ‘value growth’. That is rural consumers are willing to go for premium brands in any product category. Rural market is providing ample options to its consumer in terms of tastes, choices which are changing. The three most important factors are:

Change in consumption pattern

Change in life style

Change in behavior of rural consumer

In this regard, many large sized corporations have seen great success in rural areas because of innovative strategies like smaller packaging (Fast Moving Consumer Goods – FMCG companies have creams and soaps priced at Rs5, hair oil and shampoo sachets at Re1 and small Coke at Rs5), customized development and positioning and a good distribution network. The rural India success story is being replicated across a range of sectors in the rural markets. Thus, the sales of FMCG products in rural markets is growing at a fast pace, even faster than that in urban markets. Nielsen estimates that by 2025, the fast-moving consumer goods (FMCG) market in rural India will hit $100 billion and that inflation and pricing will be outstripped by consumption.

Presently, the rural market has more than 70 percent of toilet soaps, 50 % share of total sales of TV sets, Fans, Pressure Cookers, Bicycles, Washing soap, Blades, Tea, Salt and Tooth Powder and 38 percent of all two-wheelers were purchased in rural areas. Rural India consumers hold a major share in many categories. Bijoor adds some growth numbers. “Our rural folk have bought a lot more of FMCG; this part of the market has grown at a robust rate of 23% [over last year i.e., 2008-09],” he says. “As durables shrink in urban India, the rural market is witnessing a 15% growth rate. Some 60% of the durables market lies in rural India. Telecom in rural India is growing at 31%.” It depends on the product, of course. “Just the sheer population numbers don’t mean very much from a marketing point of view,” says Garudachar of Voltas. Statistics presented at the meet assessed the market size for nail polish at around Rs. 270 million in rural areas as against only 81 million in the urban area. Same is the case with lipstick and face creams. This is mainly due to the rise in the disposable income of an average rural family. These itself bring awesome opportunities to the investors in rural markets.14

Various initiatives have been taken by the companies like:

Nirma – the first FMCG Company which initiated and produced goods according to the rural consumers in 1970. It changed the whole Indian FMCG scene. A number of companies such as Hindustan Lever, Coca Cola, LG Electronics, followed suit to expand their base in rural market.

Maruti Suzuki introduced various innovative schemes such as a) Wheels of India scheme for State government employees which led to the sales of more than 5000 automobiles; b) Another scheme called “Ghar Ghar Me Maruti: Mera Sapna Meri Maruti” is targeted at the customer segment consisting of village panchayat members who are highly influential and respected in rural areas and nearby towns. This scheme increased Maruti sales by 16600 units; c) Other schemes Maruti are steel wheels for steel industry employees, 1 class officer for Indian Railways employees and Teacher Plus schemes for teachers.

“Gaon Chalo” By Tata Tea: “Gaon Chalo is another distinctive rural marketing initiative started in 2006 in the Uttar Pradesh by Tata tea for penetrating the rural market, the company partnered with NGO. This project has created employment opportunities to the youth in villages and small towns. Tata tea consolidated its market share in rural areas and it rose from 18% to 26.6%.

Dabur India Ltd has also tied up Indian Oil Corporation. According to agreement between the two companies, IOC retail outlets all over the country will stock and sell Dabur’s products consisting of oral care, health care, personal wash, skin care and home care products. This helps Dabur in reaching millions of rural customers. There are 1600 such IOC outlets across India.

According to report entitled ‘India Retail Report 2009’ by Images FR Research, India’s rural market offer a sea of opportunity for the retail sector? Presently, India is globally the fifth largest life insurance market in the emerging insurance economies. 78 percent households in rural India are having awareness about life insurance and just 24 percent are policy holders. The Indian pharmaceuticals market is regarded as one of the fastest growing in the world. According to a report by McKinsey, entitled ‘Indian Pharma 2015’, the rural and tier-2 pharma market will account for almost half of the growth till 2015. According to the Ministry of Communications and Information Technology, India is having more than 826.93 million mobile phones and 35.55 million landlines in April 2011, which is about 70.23 percent. Out of this about 40 percent are from rural areas, and by 2012, rural users will account for over 60 percent of the total telecom subscriber base in India. Thus, India has witnessed an increase in the purchasing power of consumers, accompanied by their desire to upgrade their standard of living. Today the rural market offers a vast untapped potential. With the rapid growth of rural market, the quantum of consumer grievances also increases simultaneously. The main problems faced by rural consumers are related to adulteration, lack of safety, quality in appliances and equipment, unfair warranties, unreasonable pricing etc. The Department of Consumer Affairs of the Government of India and various state governments has undertaken a number of innovative measures to protect rights of rural consumers. The Indian Consumer Protection Act 1986 ensure better protection of rights and interest of people who are consumers in one way or the other from the exploitation of trade and industries. Consumer disputes redressal mechanism (popularly known as consumer courts) are set up under the Act at district, state and national level to provide simple, inexpensive and quick redressal of consumer complaints. Although they are in urban areas but in rural areas, there is Panchayati Raj- a three-tier system with elected bodies at the Village, Taluk and District levels.

Conclusion

Today, rural consumers are not only buying to fulfill their basic needs but also taking care of higher needs of comfort and socialization. Moreover, they are getting more conscious about health and that they have the extra money to spend on such products. Consumer behaviour which is related to likes and dislikes and expectations of the consumers has changed in recent years owing to enhanced awareness, information technology and more importantly governmental intervention through legislations. The buying behaviour of the rural consumers is influenced by several factors such as socio-economic conditions, cultural environment, literacy level, occupation, geographical location, efforts on the part of sellers, exposure to media etc. Thus, the manufacturers are more cautious in dealing with consumers of their respective products. A recent study by the McKinsey Global Institute (MGI) suggests that if India continues to grow at the current pace, average household incomes will triple over the next two decades and it will become the world’s 5th-largest consumer economy by 2025, up from 12th now.

Mahatma Gandhi said, “A consumer is the most important visitor on our premises. He is not dependent on us, we are on him. He is not an interruption to our work; he is the purpose of it. We are not doing a favour to a consumer by giving him an opportunity. He is doing us a favour by giving us opportunity to serve him’. Keeping these words in mind, there is an urgent need to address the concerns of the rural consumers and the only way forward is to involve the available constitutional mechanism of Panchayati Raj Institutions.