Service Innovations for Rural Markets

Article submitted for publication in the special issue on Services Marketing of

Marketing Mastermind

by

Prof.Shailendra Dasari Faculty Member ICFAI Business School (IBS) 19/3, Srinivasa Industrial Estate Kanakapura Road Bangalore-560062 E-mail: shailendra.dasari@gmail.com Cell 98453 33298

Service Innovations for Rural Markets

Services, contributing close to 60% of Indias GDP, have evolved as one of the major sectors of Indian economy. While marketing of services requires a totally different approach as opposed to tangible goods, the nuances of which marketers are trying to master, their efforts in reaching out to rural markets have been more of a trial and error tale. Rural India with a population of over 740 million spread over 640000 villages offers equal potential for goods and services as that of urban markets. While FMCG marketers quick to seize upon this opportunity have already made significant inroads into rural markets, their services counterparts have lot of catching up to do. This article examines the potential offered by rural markets for services, strategies to be adopted by services marketers for rural markets, need for an innovative approach for being successful in rural markets and success stories of some of the early movers. What are rural markets? While there are several definitions the one which is widely accepted is those markets which are not urban. This includes rural and semi urban markets. For the sake of clarity a village is defined as a revenue unit with a population less than 5000. (Some villages have a population as low as 200). There are 642000 villages in India spread over an area of 3.5 million square KMs .While agriculture used to be the major source of income in rural areas ,for the past 10 -12 years the dominance of agriculture has been declining. Contribution of agriculture sector to Indias GDP was less than 20% in 2008-09. There is a sizable population of self employed persons in the hinterland and quite a few of them are into services such as repair and maintenance of motors& pump sets, TVs and other electrical appliances, farm equipment, tractors, two wheelers and other services like hospitality, transport, entertainment etc. Per capita income of rural India is about 550$ which is only half of the urban India. However the fact that 70% of Indias population lives in rural areas makes the rural markets much bigger for a number of product categories as compared to urban markets. According to National Sample Survey (NSS) 35% of households in rural India are engaged in non-agriculture activities. This apart, a number of agro based industries have been set up in rural areas providing employment mostly to the local people. Opportunities for marketers A staggering 65% of consumer expenditure in India is accounted by rural India. What is more interesting is the fact that FMCG sector has been growing @ 18% in rural India as compared to 14%in urban areas. The following facts help us understand better the increasing significance of rural markets. 53% of FMCG sales happen at Rural India.

LIC sells about 50% of their policies to rural customers Kisan credit cards which are close to 40 million in number are the same as the number of credit cards held by urban customers Hero Honda had 50% of its sales coming from rural market in FY09. Out of 120 million bank accounts in India 70 million are in rural areas

As a result of the fast changing socio-economic order of rural India, only 48% of the rural income is from the agriculture sector the balance being from services (including self employment) and industry. Though the growth agriculture sector has slowed down considerably (it has not been above 2% in the past 10 years), the growth of rural NDP has been more or less same as that of urban NDP at 6.5% per annum, which is a testimony to the increasing dominance of alternate avenues of income generation in rural India.

The reduced dependence of rural consumers on agriculture as a source of income coupled with the steady growth of rural NDP translate into the following set of opportunities for marketers a) Consumers in rural markets are far more insulated from the wide fluctuations in disposable incomes caused by vagaries of nature than ever before and their disposable incomes are not only stable but growing at a steady pace. Accordingly demand for goods and services in rural markets will also increase. b) Changing needs and aspirations of consumers who are more economically independent and relatively more mobile than the traditional farmers and farm labor will be the major driver for the demand for consumer goods in rural markets. c) Increased standard of living will result in increased demand for services such as banking, communications, insurance, education, housing, health care, utilities and entertainment. More significantly, agriculture economy and rural economy will no more be synonymous. As aptly put by Rama Bijapurkar and Omkar Goswami1 The age-old dominant picture of rural India-that of highly indebted , underfed peasants ploughing their handkerchief-sized fields with emaciated bullocks under the blazing heat of the midday sun may still be true of the agriculture economy but not of the rural economy

Constraints and challenges Despite the huge potential offered by rural India, marketers entering the rural markets face the following challenges.
1

Rama Bijapurkar &Omkar Goswami, Rural India is not just agriculture ,Business Standard :New Delhi,16th July,2005

1. Lack of basic infrastructure A majority of villages are still not accessible by road, particularly during monsoon. Even those villages connected by road are difficult to reach due to the pathetic condition of the roads. More than 100000 villages in India are yet to be electrified. Protected drinking water and cooking gas are still out of reach for the vast majority of villages. Underground sewerage system is still a dream for most of the villages. 2. Lack of marketing infrastructure a. No authentic data is available on the demand/consumption patterns of various categories of goods and services in rural markets. b. Distribution system not well established: Unlike urban markets, distribution of products in rural areas is indeed a difficult task due to lack of well developed distribution system. 3. Ineffectiveness of traditional channels of communication Print media and electronic channels which marketers traditionally depend upon may not be effective in rural markets due to low rates of literacy and more reliance on word-of-mouth communications than one- to- many channels. 4. No bulk purchases Rural consumers, a majority of whom earn wages on a daily/weekly basis lack the capacity to buy in bulk and look for low-unit price (LUP) packages of both goods and services 5. Socio-cultural factors Unlike urban areas the socio-cultural bonds are very strong in rural areas. It is not uncommon to find each community living in a separate basti. Non adherence to customs and norms of the community is viewed very seriously. Often it is the community leaders who approve a new product before others start using it. Superstitions, irrational behavioral patterns pose added challenges to marketers particularly for services such as health care and insurance. How services marketers can win in rural markets? A good marketer converts all the threats and constraints into opportunities. Instead of waiting for the government agencies to address the problems listed above, particularly in terms of creation of infrastructure, which may take a long time marketers should address these problems in a different way. While it may not be possible for private players to invest heavily in infrastructure development, which is one of the prime responsibilities of the state, they can join hands with the government agencies through PPP option. This opens a window of opportunities in education, health care, housing, sanitation etc. Commitments on the part of private players committed to this cause are certainly going to be huge in terms of time, money and other

resources. While this may sound more idealistic than pragmatic, corporates with a sense of social responsibility may not outright reject such opportunities by subjecting them to normal investment analysis. For instance Microsoft India is participating in the roll-out of tele-center kiosks across 100,000 villages, each kiosk serving six villages. According to company sources they are working with the government agencies and private sector companies including start-up companies such as Comat for setting up such kiosks. They have already invested $20 million over the last four years in rural India on programmes to transform education systems, foster local innovation and enable job opportunities and are committed to investing a similar amount in the next four years.2 What about those organizations who look at rural markets as a pure business opportunity? Before going into the details of strategies and tactics for winning in rural markets, one should not harbor the wrong notion that marketers entering rural markets are doing the rural consumers a big favor. On the other hand they are doing a favor for themselves and their stake holder by being present in rural markets which have huge untapped potential unlike the urban markets which are showing signs of saturation. Any one ignoring such a huge market citing reasons such as lack of marketing infrastructure and consumers who are not ripe enough is no better than an ostrich that buries its head in sand and oblivious to what is happening around. As such the concept of holistic marketing does not approve of marketers taking decisions that are guided solely by profit motives. Prudent marketers first take care of the unmet needs of their customers, for which they may be required to make some idiosyncratic investments, the returns on which will follow. Rural customers whose needs are taken care of by marketers not only become their loyalists for a life time but will also be instrumental in influencing a number of others to patronize their goods and services, the ultimate objective of relationship marketing. Success stories While rural initiatives such as ITCs e-Choupals, HULs Project Shakthi and Basixs micro financing are quite popular among rural folks, it will be interesting to look at the way some other enterprising organizations ventured successfully into rural markets through their innovative strategies. 1. Hindustan Petroleum One of the major constraints faced by gas companies for penetrating the rural markets is the high cost of logistics .In spite of the huge potential that existed, the business model that worked for urban markets could not be replicated in rural markets as the customers were
2

Archana Rai, Technical Companies Race for the Rural Markets ,Livemint.com,20th Oct,2008 available at http://www.livemint.com/2008/10/19222444/Tech-cos-race-for-the-rural-ma.html

spread across a vast area and quite a few of the villages were not accessible by road. While supplying gas in mini (LUP) cylinders was uneconomical for the gas companies, consumers on the other hand lacked the financial capability to pay for large cylinders. HP had overcome this problem by setting up rasoi ghar (community kitchens), a modern version of the traditional sanja chulla. Rasoi Ghar is set up in a pucca house, with six to eight gas stove stations, and a meter to record the usage of gas, allowing several villagers at a time to cook their daily meals comfortably, safely and quickly and pay on the basis of their actual usage. The hourly charge is as low as Rs 6. Village panchayats and Self Help Groups of women (SHGs) in rural areas are roped in as franchises .The first rasoi ghar was set up in 2002 and as of now rasoi ghars are operational in over 1500 villages, benefiting 20 000 households. Though the progress so far has been rather slow, mainly on account of the initial resistance to this novel concept by local bodies, HPCL are planning to speed up this project and establish rasoi ghars in 80000 villages in India. 3 The above is an example of a simple but innovative solution to a problem that initially appeared to be insurmountable. 2. Comat technologies Companies that contribute to the betterment of society need not compromise on their economic viability. Comat Technologies Pvt. Ltd, operating from Bangalore proved this beyond doubt. They offer e-governance, satellite-based education services and retail insurance products to rural consumers in 10 different states in India. The rural business centers set up by Comat are primarily access points for rural people who have all along been informationally disabled. Technology is made use of to deliver the above mentioned services thereby improving the quality of the lives of rural citizens. 4 Their business model is quite simple. Government departments, educational institutes and insurance majors like LIC make use of Comats services to reach their services to rural clients. The principal service providers do not have to invest heavily on marketing infrastructure, which is taken care by Comat who charge a nominal fee from the villagers for the services provided. This model has successfully adapted the out sourcing model prevalent in urban markets to rural India, consumers being the ultimate beneficiaries-a win win situation for all.

Rasoi Ghar:Community Kitchen available at http://www.hindustanpetroleum.com/En/UI/LPGRasoirGhar.aspx

4

A Good Business Model: An interview with CEO Sriram Raghavan,Comat Technologies,NASSCOM EMERGE Newsletter ,issue no 17,Nov 19th,2008 available at http://blog.nascom.in/emerge/2008/11/a-good-business-model-an-interview-with-ceo-sriram-raghavancomat-technologies

3. Google India Google launched Google Map Maker in India in August 2009 a tool to map small local businesses and help non-government organizations identify focus areas in semi-urban and rural locations. The company is also test marketing another new application, a voice-based search that deciphers Indian accents. Once this service is launched commercially, users in India, particularly those in the hinterland will be able to access Googles search capability by dialing a toll-free number, without the need of a computer. Such an innovative service will be a real boon for farmers and small traders in rural India who can not afford to have their own computers and lack the technical skills to access search engines through the conventional means. In terms of reach and acceptability this service will be far ahead of EChoupals set up by ITC in select villages. According to Mr. Prasad Ram, Centre Head of Google India We came in with products and services attuned to developed markets and found that India had large numbers of semiliterate people who use phones and may not want to use computers5

4. Max New York Life Insurance Company Max New York Life is launching a scheme tailor made for consumers with cyclical income flows. The product, Max Vijay currently being test marketed in Allahabad district is targeted at low-income consumers. An initial payment of Rs1000 followed up with minimum premium amounts as low as Rs10 covers the policy holders against any eventuality. Even if a Max Vijay customer relocates to some city in search of work, he can still make payments at collection centers such as local kirana (general merchant) stores and mobile recharge centers. 15-18% of the companys total income is expected to come from non-urban markets, in three years time, an indication of the ongoing shift in their strategy.6 Max Vijay is ideally suited to rural and semi urban customers whose cash flows are not regular and income levels comparatively low as compared to urban customers. 5.Villgro Stores Villgro is a Rural Retail Chain for selling innovative products to rural consumers.
5 6

Archana Rai, Technical Companies Race for the Rural Markets,op.cit ibid

After starting their operations in January, 2007 in TN Palyam, a small town near Gobichettypalyam in Erode district of Tamil Nadu, Samruddhi(later on the name was changed to Villgro )have set up five more stores at different locations in rural TamilNadu. Their objectives are 1. 2. To enhance livelihood assets of rural lives through adoption of innovations To showcase a scalable and replicable model for marketing innovations

Villgro primarily focuses on four sectors Agriculture, Dairy, Energy and Water. The products offered are innovative in nature, in line with their objective innovations accessible to the end users.7 of making

The marketing model of Samruddhi focuses on Village Level Entrepreneurs (VLEs) who are named as Samruddhi Ammas and Samruddhi Ayyas. VLE is the last mile access channel to scale up and market innovations at the grassroots level. 8 Some of their fast moving products include Oorja Stove, organic fertilizers for agriculture like Super Hume, Bio-Phos, Bio-Potash, Nemate, Megacal etc. Each store covers about 7-8 KM radius and supports 6-8 commission agents. It is retail with a difference that focuses on sale of innovative products to rural folks, creating employment opportunities for local people in the process. Conclusion The above case studies establish beyond doubt that the marketing strategies designed for urban markets can not be successfully scaled up to rural markets. A thorough understanding of the social, cultural and economic factors specific to rural markets will go a long way in formulating strategies that are tailor made for rural markets. With the gradual saturation of urban markets ,marketers can not any more afford to overlook the semi-urban and rural markets that account for almost 65% of the total amount spent by Indian consumers .Instead of complaining about lack of proper infrastructure marketers have to come out with innovative solutions to surmount the problems unique to rural markets .Adopting a long term perspective, becoming partners in the social transformation process and offering cost-effective solutions are the three mantras for success in rural markets. Organizations that are quick to realize this will have a distinct competitive advantage over their counterparts. ------------------------------------------------------------------

www.villgro.org (official website of Villgro) http://www.villgro.org/index.php?option=com_content&view=article&id=26&Itemid=35

http://www.villgro.org/index.php?option=com_content&view=article&id=26&Itemid=35 http://www.comat.com/services_government_more.html http://www.projectsmonitor.com/detailnews.asp?newsid=7701 http://www.thehindubusinessline.com/2008/08/13/stories/2008081350540800.htm