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Essay on Rural Markets
Essay # 1. Introduction to Rural Markets:
Rural markets represent large numbers of underserved people. Both in terms of numbers of people and volumes, rural markets are enticing for companies that face stagnant growth in saturated urban markets. It is believed that rural markets represent the ‘blue ocean’ or vast unlimited opportunities for managers and are considered as virgin territories.
But the opportunity is not easy to crack. Rural markets are complex and scattered and they require huge investments and innovative approaches. A marketing manager has to operate in areas which have suffered decades of neglect and lack even the basic infrastructure, such as transport, electricity, education, purchasing power and financial institutions, which are taken for granted in urban markets. That is why, cracking rural markets is a difficult task and companies have to understand all aspects of doing business there.
Rural marketing does not mean simply selling goods in rural areas. It is much more than that; companies have to try to remove market separations so as to be successful in such areas. This article takes a 360-degree view of rural markets and describes its characteristics that impact rural marketing strategies. It describes the size of the rural market and its demographic and economic profile. First, we look at a BoP portrait by Hammond et al. (2007), which uses household survey data to measure the empirical size and scope of BoP markets.
A BOP Portrait:
The World Resources Institute report explains that a large segment of the low-income population—the 4 billion people of the BoP—is not integrated into the global market economy and do not benefit from it. It further says that BoP markets are often rural and very poorly served, dominated by the informal economy, and, therefore, relatively inefficient and uncompetitive.
Yet these markets represent a substantial share of the world’s population. Data from 110 countries show that the BoP makes up 72 percent of the population, with an overwhelming majority in Africa, Asia, Eastern Europe, Latin America and the Caribbean.
They also share other characteristics:
1. Significant Unmet Needs:
Most people in the BoP have no bank account and no access to modern financial services. Most do not own a phone. Many live in informal settlements with no formal proof of residence. And, many lack access to water and sanitation services, electricity and basic health care.
2. Dependence on Informal Livelihoods:
Most people in the BoP lack access to markets to sell their labour, handicrafts or crops and have no choice but to sell to local middlemen who exploit them. As small-scale farmers and fishermen, they are vulnerable to destruction of the natural resources they depend on but are powerless to protect. In effect, informality and subsistence are poverty traps.
3. Impact of a Poverty Tax:
Many in the BoP pay higher prices for basic goods and services than wealthier consumers. This is in the form of extra payment or effort required to obtain the goods and services. But, they often receive lower quality as well. For example, the poor often pay more for transportation to reach a distant hospital for their treatment, or have to take loans from moneylenders at very high interest rates, or buy sachets or small quantities of goods in which the per unit cost is much higher than if purchased in bulk.
Any rural marketing strategy has to reduce difficulties faced by people in remote areas. So, while companies look for potential in such markets, they must try to solve local problems. The opening case of Pidilite shows how companies must be active in rural areas and do activities much beyond the scope of marketing in order to realize its true potential.
Essay # 2. Potential of Rural Market:
The potential of rural markets in India is visible when we consider two factors – the general rise in the level of prosperity as people move away from agriculture and find alternative employments, and the large government investments and schemes for rural areas. However, such trends ignore that rural markets are also marked with deep caste, religious and economic disparities. Though recent trends have created pockets of prosperity in Indian villages, large sections of the population have been pushed to the fringes of existence.
The general rise in the level of prosperity has brought in two dominant shifts in the rural consumption patterns. First, because of lifestyle marketing, people want to use the products that are used in urban markets. There is also an element of conspicuous consumption, as people want to show their neighbours that they are modern by consuming the latest products and brands. Second, better communications and branding have caused a shift in preference for branded goods. That is the reason that rural markets are said to represent huge opportunities.
Essay # 3. The Rural Market Paradox:
Almost every report on rural marketing starts with a description of the huge potential it has; more than two-thirds of the 1.2 billion people living there spending some US$69 billion annually. These reports lament the fact that companies do not serve rural markets properly, thereby losing out on a great opportunity. They are seen as great opportunities waiting to be tapped. Since urban markets are more or less saturated, companies look for top-line growth by selling in rural areas.
An Accenture report, Masters of Rural Markets states, “India’s rural markets represent an opportunity no company can afford to ignore”. It says that rural markets are growing at rates faster than urban areas, and rural consumers are beginning to buy lifestyle products. “Between 2009 and 2012, spending in rural India reached US$69 billion, significantly higher than the US$55 billion spent by urban populations,” the report states.
A Deloitte (2014) report states, “Rural and semi-urban areas will be key drivers of India’s economic strength in the coming years, providing markets for a wide range of products and services. The value of rural India’s consumer goods market is expected to rise to US$100 billion by 2025.” McKinsey’s report Bird of Gold expects incomes to triple by 2025, and while “the new wealth and consumption will be created in urban areas, rural households will benefit too.”
Dr. C.K. Prahalad had shown that there is a fortune at the bottom of the pyramid.
In Fortune at the Bottom of the Pyramid, Prahalad described the BoP proposition as follows:
i. There is huge purchasing power in BoP markets, which companies can tap to make significant profits by selling to the poor.
ii. Companies can thereby bring prosperity to the poor, and thus can help eradicate poverty.
iii. MNCs can lead the way in selling to the poor and reducing poverty.
The opportunity is indeed huge. Prahalad wrote that there were huge profits to be made by serving globally the 4-5 billion people who live on under US$2 a day, a market that is valued globally at US$13 trillion a year.
This reasoning has not come true. Few companies have actually been able to build profitable businesses in BoP markets. Large parts of rural areas still remain untouched by companies. Karamchandani et al. (2011) have expressed reservations about attempts to conquer BoP markets. “Despite the extent of the markets and the volume of the hype, few multinational firms have built sizable businesses serving people who survive on just a few dollars a day,” they write.
It is hardly a wonder that many rural retail initiatives have either had to shut or had to scale down the operations. The kind of purchasing power and change in consumer behaviour that was imagined by these retail companies simply did not exist.
Economic projections apart, poverty, indebtedness, and isolation persist in rural markets. We try to unravel this market paradox by looking at the economic geography and then looking at the size and characteristics of rural markets.
Economic Geography:
Reports that talk of the untapped market opportunity in rural areas miss the fact that the opportunity is not evenly spread.
While there is opportunity in terms of population, rise in income and education levels of some groups, there is also desperate poverty marked by widespread hunger, exploitation and farmers’ suicides. Sekhar and Padmaja (2013) write, “Rural India presents a baffling dichotomy of images—on the one hand persisting poverty and on the other hand corporate giants betting big on the growing potential of rural markets.” That is why, one strategy for rural markets does not work; companies have to look at micro-markets in a granular way.
McKinsey and Company (2014) has worked out India’s economic geography in 2025 showing the growth potential of India’s districts. India’s growth drivers vary across different geographic units—some districts have high economic growth, others are middling performers and still others lag the overall economy. The urbanization rate of a district shows how fast its economy is growing.
The report finds that per capita GDP of urban and semi-urban districts (defined as those with urbanization greater than 60 percent and between 35 and 60 percent, respectively) is four to five times that of rural districts (those with urbanization of less than 15%). Second, income growth varies in states and districts.
Certain regions will add consuming class households faster, while in other regions, the ranks of the new aspiration related buying (but not yet consuming class) segment will rise faster. Companies have to develop their data on which districts will grow faster than others in terms of economic and income potential. The division of 640 districts in terms of GDP growth is shown in Table 2.1.
The analysis given in Table 2.1 helps in identifying high growth areas and segments. The Suzuki example in our Closing Case shows how dissecting the market into rural niches based on geography and occupation helped in identifying prosperous pockets which the company could target with tailor-made custom strategy. As a result, its rural share of revenue multiplied in an otherwise stagnant market. Such strategies followed by other companies have resulted in finding marketing opportunities in rural areas.
4. Composition of the Rural Market:
Consumers in rural areas require a wide variety of goods and services. These consist of consumer goods for their personal use, farming implements and goods that are used in agriculture and services, which constitutes the life in rural areas. Here, the term agriculture does not mean merely growing food crops, but also allied activities such as poultry farming, fishing, animal husbandry, cottage industries, and so on.
Besides these, there are health centres, schools, cooperatives, transport and other activities that require both products and services to carry on with their activity. Based on this understanding, we can describe the composition of the rural market into three main components, as shown in Table 2.2.
Rural markets, however, do not represent a unified structure and lie scattered across the country.
Essay # 5. Features of Rural Markets:
However, they have some common features which are described below:
Features of Rural Markets:
In terms of number of people, the Indian rural market is almost twice as large as the entire market of the USA or that of Russia But, since the market is not developed, it poses tremendous challenges. Rural marketing is dependent on rural development; the lack of development hampers the efforts of many companies. Some large companies have undertaken management of social and economic change in the rural sector which, in turn, helps in their marketing efforts. But large areas still remain isolated.
Each area has its own characteristics, but some common ones have been described below:
1. Large and Scattered Market:
Though the rural market of India is very large in terms of number of people and area, it is a scattered market. People are spread over 6 lakh villages throughout the country.
2. Seasonal Income:
Since nearly 60 percent of the people earn their living—directly or indirectly—from agriculture, they have seasonal income. Rural prosperity is tied with agricultural prosperity and the quality of monsoons.
3. Traditional Outlook:
Tradition and old customs are still alive in Indian villages. Many villages tend to be isolated from urban areas and hence maintain their own beliefs and lifestyles. Many villages still have feudal societies.
4. Diverse Socio-Economic Lifestyles:
Rural consumers have diverse socio-economic lifestyles ranging from the very luxurious to the destitute. There are large regional variations as well. Rural markets exhibit linguistic, religious and cultural diversities and economic disparities. There are sharp and varied regional preferences, habit patterns and behavioural characteristics.
5. Lack of Infrastructure:
Rural areas in India suffer from total lack of infrastructure or have very poor infrastructure. Facilities such as roads, warehouses, communications, electricity and financial institutions are woefully inadequate.
6. Large Numbers of Rural Poor:
The market is undeveloped, as the people who constitute it still lack adequate purchasing power. There are a large number of households that have been isolated from the development process, with poor standard of living, low per capita income and socio-cultural backwardness. Incomes are highly skewed, with certain sections of society completely isolated.
7. Media Dark Environments:
Rural communities are media dark, in the sense that they lack newspapers, TV and other types of media exposure. Though this is changing rapidly, spreading marketing messages among rural consumers still remains a huge challenge.
Essay # 6. Influences in Rural Markets:
Many companies make the mistake of extending urban strategies in rural areas, but rural markets are entirely different.
Malli (2009) describes the influences that operate in rural markets:
1. Intra-Community Influences:
Rural communities tend to be close-knit, with strong relationships within the community. That is why, rather than formal marketing efforts using mass media, companies have to depend on generating personal communications and positive word-of-mouth publicity. The influence of sources of authority is critical. These could be local leaders or celebrities, but very often it may just be the local grocer who can help brand adoption and diffusion within a rural community. Educated people, rich farmers, doctors and those holding senior government jobs, too, hold influence over rural communities.
2. Media:
The key issue in communicating to rural audiences is media access. Though penetration of TV is increasing and urban targeted communication spills over to rural consumers, there are only few exclusive rural channels of any significance in most markets. However, rural consumers are more receptive to advertising than their urban counterparts. Local media has to be used, such as publicity vans that travel to remote and scattered communities with portable communication devices and audio-visual shows.
Live demos are helpful in reaching rural audiences. One such example is that of Colgate, which has created a powerful touch-point with its Oral Health Programme. Rural consumers are offered a ‘free oral check-up’ and through it, the company gets a captive audience for trial and brand building.
3. Customers:
Rural consumers are slower to adopt new brands and categories than their urban counterparts. To get people to try out products, companies have to be prepared for longer lead times before their investment yields returns. But once satisfaction is gained, rural customers show high levels of loyalty and recommendation. Many brands that are no longer available in urban areas can still be found in rural India, showing longevity of brands in villages. New brands face the challenge of getting accepted, because changing rural habits is difficult.
4. Festivals and Occasions:
Rural markets are marked by seasonality of demand. Rural incomes are higher during harvest months. This affects demand, which is highly seasonal and concentrated on a few months during the year. High value goods find high demand during festivals, which often coincide with harvest months. Companies thus have to understand the rural market behaviour and focus their marketing activities during times in which incomes are higher rather than distribute them over the year.
5. Entertainment:
Though TV and mobiles are increasing penetration, rural communities have limited entertainment options. This means that companies can get a ready audience if their marketing communications offer entertainment. Communications that are engaging can increase brand trials and usage. Rural consumers are more readily persuaded by marketing efforts, such as personal experience, seeing others using it or live demonstrations of the brand in action. BTL activities are, therefore, important in rural marketing.
6. Retailer:
The retailer in rural areas is just not a means to distribute goods but a powerful communication channel. This means that companies must educate retailers in rural areas and provide incentives so that they endorse and use their influence to sell a company’s products.
7. Social Platforms:
Companies must engage in social activities to build trust with the rural consumer. This also makes them more acceptable to stakeholders. For instance, HUL’s clean hands campaign uses a social message of reducing disease to sell its hygiene products. Its rural marketing programme, Project Shakti, tries to make rural women independent by giving them livelihoods, distributing the company’s products at the same time.
Getting favourable influence calls for much groundwork to be done.
Essay # 7. Problems in Rural Markets:
Companies venturing into rural markets have to face a number of problems. Though the markets are large if we consider the population, they are unlikely to be profitable for large companies. Not only are the costs of serving rural markets very high, but villages are geographically dispersed and culturally heterogeneous, posing nightmares for distribution and marketing. Weak infrastructure adds to the woes of marketing companies as they increase the cost of doing business.
The barriers to rural markets are many and are described below:
1. Uncertain Cash Flow:
Consumers in rural areas live in uncertainty as their cash flows depend on agricultural conditions. “Bottom-of-the-pyramid customers aren’t just poor; they live in a state of uncertainty,” writes Karamchandani et al. (2011). They further state that large upfront payments are simply out of the question. In Kenya, for example, many small farmers do not buy fertilizer because they cannot afford the large 50 kg bags.
2. Ability to Manage Large Numbers of Low-Margin, Low-Value Transactions:
Large companies often lack the ability to manage the very large number of transactions in rural areas, each being low margin and low value. Selling small packages necessarily entail managing millions of transactions which are of very small size each. To encourage savings, some companies offer the facility of making small daily payments toward the purchase of gold as they cannot make large savings payments.
3. Long Payback Periods:
Investments in rural areas involve slow returns and thus have long payback periods; many companies are simply unable to make such investments.
4. Scattered Populations:
Distribution is a major challenge while serving rural markets. Companies often face the problem of getting salesmen to travel large distances for small orders, and then sending small packets to remote areas.
5. Informal Markets and Intermediaries:
Companies, which used to work in formal markets lack the ability to deal with informal markets and intermediaries.
6. Lack of Manpower:
It is not easy to find qualified managers and salespersons who are willing to work in rural areas. The severe shortage of people inhibits efforts of Companies to reach villages.
7. Lack of Infrastructure:
Inconsistent electrical power, scarce infrastructure such as roads, warehouses and transport, unreliable communication systems and social norms hinder marketing efforts in rural areas. Lack of electronic payment systems makes it a cash economy, with its attendant problems.
8. Organizational Culture:
Most large corporations, run by urban educated managers, lack the culture and understanding to work in rural markets. Neither they are willing to bear the hardship of living in rural areas, nor are they able to understand the way of thinking of rural consumers.
9. Reducing Costs:
To make profits in rural markets, companies have to learn to reduce the costs of serving them. Innovative methods are needed in designing and producing new and rugged products, in sales and distribution and in financial methods. This task is often beyond managers who are used to following rigid systems in their companies. Value has to be added not by adding product features but solving customer problems.
10. Sales and Service Warranties:
Even if companies are able to sell in rural areas, they face difficulties in providing service warranties. Building and maintaining service centres across rural areas calls for very high investments, which may not justify the volumes of business in small villages.
11. Estimating Demand:
Companies face the problem of estimating demand, which varies considerably. In turn, they are unable to estimate how much stock is needed to be maintained and produced.
12. Spurious Brands:
Local manufacturers supply a number of imitations of big brands. Such goods are cheaper and hence more desirable. Very often, customers cannot make out the difference between a spurious brand and the original one. Soft drinks are refilled in original bottles which give the impression of being original. Companies are unable to match the prices of imitation products and, thus, lose market share.
Despite the problems, rural markets hold promise, as many companies have shown. All it calls for is innovative ways of looking at markets.
There is little doubt that rural areas hold great promise, as outlined below:
1. Emerging Trends in Rural Markets:
Despite the problems in rural markets, it cannot be denied that a large, underserved population exists in rural areas.
2. Internet Availability:
Villages have traditionally lacked information relating to a variety of uses. With the advent of Internet and affordable smartphones, they can access any information online. This opens up a channel of information, marketing and distribution of goods. Companies can have a dialogue or two-way communication through the Internet. They can empower the people by providing them crop and weather information and sell products online. By combining IT with mobile technologies, companies can reach rural customers like never before.
3. Apni Mandis and Kisan Mandis:
Many urban areas are encouraging apni mandis or kisan mandis (farmers’ markets) where agricultural producers can sell their goods directly to consumers in large towns. These help in eliminating the middleman and, thereby, the producers can earn better than what they earn by selling in the villages. At other places, farmers’ cooperatives help sell village produce, providing a direct link between producers and consumers. The system helps urban consumers as well, as they get lower prices and fresh produce. For other village produce, fairs and exhibitions organized by various agencies help bring products of handicrafts and village industries to the doorstep of city dwellers.
4. Exports:
The government has been implementing several schemes to help exports of rural produce. The Agricultural and Processed Food Products Export Development Authority (APEDA) was established by Government of India in 1986, and it helps the development of industries for export by providing financial assistance and by establishing standards for exports. It helps in improving packaging and marketing outside India and reduces transaction and handling costs through a single window system to facilitate export of perishable agricultural produce. Food processing industry has also given a boost to rural areas.
5. Better Farming Practices:
Farmers can switch to need-based production and adopt better farming practices than they have been following in the past. Since crops are grown in particular seasons, oversupply and drastic price cuts are common in the agricultural produce. Through information on crops and demand forecasting, producers can use their farms to grow crops that are in demand, thus moving from a supply driven market to a demand driven market.
6. Food Processing Industry:
Food processing is being encouraged in the country. According to the Ministry of External Affairs (2016), the food processing industry is one of the largest industries in India and is ranked fifth in terms of production, consumption and export. The government encourages investments in the sector.
However, a Food and Agriculture Organization (FAO) report points out that much of India’s food is wasted (FAO 2013). It produces more than 110 million tonnes of fruit and vegetable and only 1.3 percent of the output is processed by the organized sector commercially. This shows that there is immense potential for industries that process or store food produced by farmers.
As these trends become stronger and companies find ways of solving their marketing problems, rural areas may well see heightened activity in the coming years. But, at the same time, companies that devise relevant products that help make villagers’ lives simple will have better chances of success.