Why Rural Markets

Published Date: 02 Nov 2017

ABSTRACT

It may seem paradoxical that modern Information& Communication Technology (ICT), associated in our minds with developed country markets and capital-intensive methods of production, has any relevance for a country where many millions still lack basic needs. Nevertheless, there are many efforts underway in India and other developing countries to demonstrate the concrete benefits of IT for rural populations, and to do so in a manner that makes economic sense(with profits).

We live in a world increasingly propelled by technological change.

We live in a world increasingly propelled by technological change. The thrust lies in a quest to make our lives better, simpler and more productive through electronic commerce (or E-commerce). Agriculture in India has been identified as one of the great promises of e-commerce; the high level of fragmentation present in the supply chain, large volumes traded, and homogeneous products only reinforced the expectations. Electronic commerce (e-commerce) is relatively new to the agricultural industry, and affects such aspects of the organization as its strategy, processes, customer relationship, information technology, and business culture. E-commerce markets are expected to be more transparent and more perfectly competitive than physical markets, conditions that should attract more consumers and thus increase demand. Through examples, this paper will assess

The trend of Internet adoption and the use of e-commerce strategiesin rural marketing in India

Value at the “Bottom of the Pyramid”

INTRODUCTION

Prime Minister Manmohan Singh talked about his vision for rural India: "My vision of rural India is of a modern agrarian, industrial and services economy co-existing side by side, where people can live in well-equipped villages and commute easily to work, be it on the farm or in the non-farm economy. There is much that modern science and technology can do to realize this vision. Rural incomes have to be increased. Rural infrastructure has to be improved. Rural health and education needs have to be met. Employment opportunities have to be created in rural areas."

'Go rural' is the new mantra of marketing gurus after analyzing the social and economic changes in villages. The Rural population is approximately three times more than that of urban, so that Rural consumers have emerged as the prime target market. Although a lot is spoken about the tremendous potential of the undiscovered rural market, advertisers and companies find it easier to compete for a share of the already segregated urban market.

WHY RURAL MARKETS?

• There are 638,365 villages in India and 5,034 towns, according to the 2001 Census
• In 6, 00,000 villages, 72% of India's population resides
• Socio-economic changes (lifestyle, habits and tastes, economic status)
• Literacy level (25% before independence - more than 65% in 2001)
• Infrastructure facilities (roads, electricity, media)
• Increased income
• Increased expectations
• The number of middle income and high income households in rural India, is expected to grow from 80 million to 111 million by 2007 while urban India is expected to grow from 46 million to 59 million
• There are more crorepatis in rural Punjab than in a few big urban cities
• Number of poor household is expected to fall by half to 28 million in 2006-07 from 61 million in 1997-98
• A SWOT Analysis

Strengths	Opportunities
1. Labor Cost- Cheap 2. Human Resources are plenty 3. Not tapped by the corporate 4. Agriculture- main occupation 5. Large number of consumers 6. Large number of producers 7. Diverse agro climate conditions	1. Untapped resources 2. Technology advancement 3. Enabling rural people to participate in the global market 4. Can generate more employment opportunities 5. Near absence of rural industries 6. Low cost of production 7. Existence of reference groups
Weaknesses	Threats
1. Information asymmetry 2. Low literacy rate 3. Low Purchasing power 4. Inadequate infrastructure 5. Lack of internet connectivity 6. High cost and non availability of credit 7. Fragmented land holdings	1. Rural people's perception towards technology 2. Integration of the scattered population 3. Closer to the mother nature 4. Conservative society 5. Migration to urban areas 6. Different languages 7. Politicization of the rural society.

THE RURAL MARKET POTENTIAL

Some of the facts below will indicate the growing potential of Rural Markets in India and how the trend is shifting to service the needs of this vast unattended group of consumers.

• The rural market is growing steadily over the past few years and is now emerging to be bigger than the urban market.
• At present in Rural India, 53 per cent of all FMCGs and 59 per cent of all consumer durables are being sold.
• The biggest FMCG Company in India HLL derives more than half of its Rs. 120 billion revenues from the rural markets
• The rural market for FMCG is Rs. 650 billion, for durables Rs. 50 billion, for tractors and agri-inputs Rs. 450 billion and two- and four-wheelers, Rs. 80 billion. In total, a whopping Rs. 1230 billion.
• There are 47,000 haats in India
• LIC sells 55% of its policies in rural India
• 50% of BSNL's mobile phone connections are in rural India
• There are 24 million Kisan Credit Cards issued in rural India which exceeds the 17.7 million credit plus debit cards issued in urban India.

RURAL MARKETING & E-COMMERCE

Marketing includes the activities of all those engaged in the transfer of goods from producer to consumer—not only those who buy and sell directly, wholesale and retail, but also those who develop, warehouse, transport, insure, finance, or promote the product, or otherwise have a hand in the process of transfer. It is estimated that the cost of marketing accounts for approximately 50% of the retail price paid for a commodity.

Much of the marketing activity and product development was concentrated on Urban and affluent class, which is only the tip of an iceberg and as identified by C K Prahlad in his book, “The Fortune at the Bottom of the Pyramid” much of the market potential is still available at the bottom of the pyramid (BOP).

The real challenge is how to make this market accessible, sustainable and profitable.

The answer to this very significant question is “Technology.”

“Digital inclusion and electronic connectivity can be a tool to empower rural India. Some of the demonstrated opportunities includes Akshaya (Kerala) for education, webhealthcenter.com for general health, E-Choupal, Tara Haat, Drishtee, NDDB, etc. for leveraging economic gains, Bhoomi, eSeva, Gyandoot, Lokvani, NEGP, etc. toward creation of electronic governance, SARI in Tamilnadu, n-Logue in many states, and NIC centres in the North East as multipurpose tele-centres to name a few. Some of the recent initiatives in this area also include Lifelines, which is a digital inclusion program helping rural communities in India to become a part of the digital society. It is a voice-based service for village communities and helps them to become a part of India's fast-growing digital society by providing them information related to agriculture, animal husbandry, horticulture, fisheries, dairy sciences and post harvest technologies. In the sphere of voice-based agricultural advice, there is government - assisted Kisan Call Centre (KCC). This is a nationwide toll free Question & Answer system accessed via the number 1551 but only from BSNL/MTNL landlines. The service provides “real-time” responses to queries from farmers and currently averages 50,000 calls per month. There are a couple of other agricultural-based information services in India like “e-Sagu,” where the agricultural expert delivers advice by getting the crop status in the form of digital photographs and other information. The farmer is charged annually on per acre basis. Presently 30 villages are covered in pilot.”

The agricultural system has always been unjust to primary producers. for example, soya beans are an significant oilseed crop that has been dispensed from India's Small Scale Industries Act to allow for developing in big, modern facilities. Yet 90% of the soybean crop is sold by farmers with smallholdings to traders, who act as buying agents for buyers at a local, government regulated marketplace, called a mandi. Farmers have only an estimate idea of price trends and have to accept the price offered to them at auctions on the day that they bring their crop to the mandi. As a result, traders are well placed to take advantage of both farmers and buyers through practices that develops system wide inefficiencies.

There is a huge gap in rural India when it comes to timely and relevant information exchange. Farmers account for 65 percent of the labour force and many find it very cumbersome to get access to the kind of information they actually need. All of these make strong reasons for electronic commerce (information and communication technology) in rural emerging market regions.

ROLE OF E-COMMERCE

There are around 638365 villages in India. Most of these rural people engage themselves in farming, food processing, agro-based products, hand-looms, handicrafts and cottage industries. The goods or products they produce are sold to local people in the same market.

If they need to sell outside their locality, they need to know about the prevailing market conditions and have to depend on number of intermediaries. The average area of land per farmer in the rural areas is around 2-3 acres. Whereas in case of developed countries, the average land in rural area ranges between 10-15 acres. E-commerce can help to bring down the velocity between urbanization and industrialization. It facilitates the rural people to address these issues in various forms. They are: -

Ø Aggregation: The per capita agricultural land possessed by the Indian farmer is comparatively meagre as compared to the per capita agricultural land possessed by the farmer in the developed countries. Thus, the Indian farmers are not able to put forth their voices in the market. E-commerce can knit the farmers together to see the best prevailing market conditions and they aggregate their produce to get a better price for their product. Thus, E-commerce can help to overcome the size barriers and allow them to enjoy the bargaining power of sellers.

Ø Integration: Information is power. In a country like India, the scattered nature of the rural economy has to be integrated by a network. The network here refers to the linking of rural producers and consumers by providing the required information that will help them earn fruitful returns. E-commerce enables smooth flow of processes and information across the rural boundaries. Internet with appropriate software enables easier connectivity. The cycle time of the business operations can be reduced. Since the cycle time is reduced, the farmers are no longer restricted by the credit constraints imposed by the local money-lenders. Thus, E-commerce can automatically reduce the role of unorganized moneylenders. But integration becomes highly complex as a result of aggregation. (The integration of people by electronic media also requires a high cost).

Ø Dis-intermediation: The farmers have to approach the intermediaries to make their product available in the market. The intermediaries generally procure the product at a throwaway price and sell at attractive prices in the urban markets. In return, the rural producers get a very meagre amount, as compared to the profit the intermediaries make out of selling the product directly.
Therefore, the farmer is lacking market information and denied the real benefit of the products. E-commerce provides a solution to these issues. Internet and other communication technologies can help the farmer to update the market and help him understand the customers in the market. Thereby, it helps in the elimination of the intermediaries, who eat up the profit.

Ø Re-intermediation: Then comes the re-intermediation. Re-intermediation is the process of assigning the work or same job to the existing channel member. It is like redefining the role of the existing intermediaries. In the rural sector, introduction of E-commerce can enable the intermediaries to take a new avatar as a consumer friendly middleman. It is these intermediaries, who get better quality products for the industries and also a better price for the producers. This can happen through introduction of E-commerce in rural areas. Since the rural producers have trust on these intermediaries, they don't see information and communication technology as a complex task.

ITC's E-Choupal

ITC Limited is one of India's prominent diversified conglomerates. Traditionally a tobacco and cigarette producer, it has grown into a conglomerate dealing in hotels, packaging, agricultural business, information technology, and FMCGs. ITC provides current information on several aspects to the farmers in rural areas in India through their E-Choupal initiative. Currently ITC has over 5,000 e-choupals covering more than 30,000 villages in Madhya Pradesh, Uttar Pradesh, Maharashtra, Rajasthan, Karnataka, and Andhra Pradesh. ITC has even setup Chaupal Sagar, a retailing outlet aimed at providing rural consumers with high-quality and low-cost products.

Objectives & Goals

E-Choupal aims to provide Indian farmers ready access to crop-specific real-time information and customized knowledge in their native language. Using their Internet connection, farmers can obtain daily closing prices on local mandis, as well as track global price trends through a network of computers. They can also find information about new farming techniques and use e-choupal to order seeds, fertilizers and other product such as consumer goods from ITC or its partners at prices lower than those available from village traders. By doing so, ITC wants to improves the farmers' decision-making ability, thereby helping them to better align their farm output to the projected demand in Indian and international markets. During harvest time, ITC offers to buy the crop directly from any farmer at the previous day's closing price and the farmer then transports his crop to an ITC processing centre, where the crop is weighed electronically and assessed for quality. The farmer is then paid for the crop and is also paid a transport fee. Bonus points, which are exchangeable for products that ITC sells, are given for crops with quality above the norm.

Key Lessons

E-Choupals deliver relevant technology in the hands of the farmers, which can improve the economic condition of the entire village. E-Choupal is one of the very few ICT projects in India that has effectively utilized e-commerce transactions for poverty alleviation. One of the key lessons is that ICT can reduce the number of middlemen involved between agriculture commodity producers and final consumers. Another key factor is that very simple technology solutions are available to create networks in rural areas, which can function as virtual agricultural commodity market places.

HUL's PROJECT SHAKTI

Hindustan Unilever Limited (HUL) and its constituent companies have been in India since 1931.Over these decades, while HUL has benefited from the developments in the country, it has contributed equally to these developments.

HUL launched Project Shakti in the year 2001, with the purpose of integrating business interests with national interests. Starting with a small pilot project in Nalgonda district of Andhra Pradesh, Project Shakti has now spread across the country with about 39,000 women members. The vision of the project is to create 100,000 Shakti entrepreneurs covering 500,000 villages, and of touching the lives of 600 million rural people by the year 2010.

The aim of Project Shakti is to create employment oppurtunities for underprivileged rural women, by providing a sustainable micro enterprise opportunity, and to improve rural living standards through health and hygiene awareness. Under the project, HUL offers a range of mass-market products to the SHGs, which are relevant to rural customers. It provides training to the SHGs in the basics of enterprise management. It also provide them with on-the-job training and support. This is a key factor in ensuring the stabilization of their fledgling businesses. HUL imparts the necessary training to these groups on the basics of enterprise management, which the women need to manage their enterprises. For the SHG women, this translates into a much-needed, sustainable income contributing towards better living and prosperity. Armed with micro-credit, women from SHGs become direct-to-home distributors in rural markets.

ADVENT OF i-SHAKTI

A key factor that has hindered the development of rural India has been lack of access to important information and services. As we know, India has a big geography and small infrastructure; it is often difficult to reach the rural areas.

In order to effect both livelihood opportunities and living standards of village communities ‘i-Shakti' - an IT-based rural information service has been introduced to provide information and services to meet rural requirements in agriculture, education, vocational training, health and hygiene. The premise of the i-Shakti model is to give need based demand driven information and services across a huge variety of sectors that effect the daily livelihood opportunities and living standards of the rural community. The i-Shakti kiosk will be handled by the Shakti Entrepreneur, which further improves the relationship we have already developed and builds new capacity. HUL expects that the information given would increase the productivity of the rural community and unleash the economic and social development.

CONCLUSION

“Thus in recent years, rural markets have acquired significance, as the overall growth of the economy has resulted into substantial increase in the purchasing power of the rural communities

Rural areas are evolving into strategic market for companies which include not only domestic but MNCs too. There is great potential that lies in rural market. More and more stress is therefore being given on marketing products. It is very interesting to notice that the rural markets are at par with the urban markets. The credit for this scenario goes to the marketing policies.”

A new trend is now emerging. Rural India have started expecting Information Technology to eventually become an infrastructure on the lines of electricity, water, gas etc. with no version up gradation, no inter-operability issues, no virus, no spam problems and the like. It emphasizes that the complexities of Information Technology are coming in the way for accelerated acceptance of Information Technology solutions. This is even truer when we are talking in the context of electronic commerce in agribusiness. Ensuring affordability, creating locally relevant content in a local language, accelerating IT literacy and the conquest of complexity are the levers for achieving an electronic commerce enabled rural society.

To conclude, C.K. Prahalad's work on “The Fortune at the Bottom of the Pyramid” has become a dominant idea for the rural marketers. They have realized the presence of the vast markets in rural India and are leaving no stone unturned to vie for a share of the undivided rural pie.