Rural market segmentation can be done on various variables.
Occupational Segmentation:
Occupational or sociological segmentation is based on source and consistency of income. In rural markets, occupation determines income and forms a significant basis for segmentation. Though there are variations across regions, about 40 percent of rural consumers are engaged in agriculture, followed by wage earners with 35 percent.
This shows that nearly three-fourths population of rural India has unstable income and depends on agriculture. Such incomes vary with monsoon and climatic conditions. Companies need to design offering for consumers with unstable income. Selling goods on equated monthly instalments (EMIs), which is popular with the urban salaried class, will cause difficulty for rural consumers.
The occupations in rural areas (Table 3.9) are summed up as:
i. Artisans, farm labourers – Consisting of carpenters, blacksmiths, craftsmen and labourers.
ii. Small farmers – Farmers with very small holdings or with a share in jointly held farms.
iii. Tenant farmers – Tenant farmers who work on leased or rented land to share the crops and income with owners of the land.
iv. Medium level farmers – Farmers with economically efficient size of landholdings.
v. Large farmers – Zamindars, rich money-lenders and people with very large, ancestral land. They also tend to be local leaders and politicians, with links in urban areas, giving their land on lease to tenant farmers.
Thomson Rural Market Index (TRMI):
Hindustan Thomson Associates developed a guide to rural market segmentation in 1972 and revised it in 1986. They collected data in 335 districts based on 26 variables. The TRMI is based on 10 variables having strong correlation to rural market potential.
They are:
1. Agricultural labourers
2. Gross cropped area
3. Gross irrigated area
4. Area under non-food crops
5. Pump sets.
6. Fertilizers consumption
7. Tractors
8. Rural credit
9. Rural deposits, and
10. Electrification.
Based on these factors, the districts are classified as A, B, C, D and E, in order of high to low market potential.
MICA Rural Market Ratings (MRMR):
The MRMR is a useful marketing tool and a multimedia guide to rural India. It has been developed by the Mudra Institute of Communications Ahmedabad (MICA) in association with ML Infomap Pvt. Ltd., New Delhi. The rural market index indicates the rural market potential of all the districts of India, analyzed on 42 variables. Using digital mapping technology, it presents maps of all districts, shaded to indicate the level of market potential.
Managers can thus graphically see areas with different patterns of market potential, along with related data such as bank loans, demographics, infrastructure, and so on. The tool also gives location of ‘haats’, or actual rural markets. By clicking on a haat, one gets to know the days of the week the market takes place. Routing can be done through the road and railway map of India, which is incorporated in the software.
Income and Savings:
The 68th round survey on level and pattern of consumption expenditure was conducted between July 2011 and June 2012 by the NSSO. The household MPCE shows that the average MPCE was around Rs. 1,430 for rural India and about Rs. 2,630 for urban India. Thus, the average urban MPCE was about 84 percent higher than the average rural MPCE for the country as a whole, although there were wide variations in this differential across states.
An analysis in Mint (2014) shows that:
i. Low Levels of Consumption:
For rural India, the median MPCE was Rs. 1,198. Only about 10 percent of the rural population reported household MPCE above Rs. 2,296 and only 5 percent reported MPCE above Rs. 2,886. While average MPCE was Rs. 1,054, the median rural MPCE was Rs. 895, signifying half the rural population belonged to households with consumption expenditure below Rs. 30 per day. For urban India, the median MPCE was Rs. 2,019. Only about 10 percent of the urban population reported household MPCE above Rs. 4,610 and only 5 percent reported MPCE above Rs. 6,383.
ii. Food Accounts for Half the Expenditure:
For the average rural Indian, food accounted for 52.9 percent of the value of consumption during 2011-12. This included 10.8 percent for cereals and cereal substitutes, 8 percent for milk and milk products, 7.9 percent on beverages, refreshments and processed food and 6.6 percent on vegetables. Among non-food item categories, fuel and light for household purposes accounted for 8 percent, clothing and footwear for 7 percent, medical expenses for 6.7 percent, education for 3.5 percent, conveyance for 4.2 percent, other consumer services for 4 percent and consumer durables for 4.5 percent. For the average urban Indian, 42.6 percent of the value of household consumption was accounted for by food.
iii. Inequalities have Risen:
The data shows that the per capita expenditure level of the urban consumer is now 91 percent higher than his rural counterpart, compared with 80 percent in the earlier 61st round of the survey conducted in 2004-05.
iv. Consumption Expenditures are Rising:
The survey shows an increase in consumption power across the country. The rural per capita consumption has grown 6 percent in 2009-10 against 1.2 percent in 2004-05. Similarly, urban per capita consumption has risen 6.8 percent compared to 2.9 percent in the earlier survey.
The study shows that average rural MPCE during 2011-12 stood at around Rs. 1,430 for rural India, a 35.7 percent increase compared to the 2009-10. Of the total expenditure, rural households spent less than half on food items, suggesting rise in wages. The average urban MPCE was 84 percent higher than rural areas. The share of expenditure on food declined substantially from 53.6 percent to 48.6 percent in rural areas and from 40.7 percent to 38.5 percent in the urban areas. The faster rise in the share of non-food expenditure in rural areas suggests a rise in wages. The rural wages went up from Rs. 231.59 a day in 2009-10 to Rs. 299 a day in 2011-12, a 29 percent increase.
The Economic Times (2013) reports that as MGNREGA has led to increase in wages, people in rural areas are spending more on non-food items. Within food, the share of protein-based items went up in the consumption basket. The share of milk and milk products went up from 8.6 percent in 2009-10 to 9.1 percent. Among non-food items, the share of durable goods in the consumption basket of rural areas went up from 4.8 percent to 6.1 percent.
The highest score for rural areas in India is from Kerala where monthly per capita consumer expenditure is almost one-third more than the national average. Nine out of India’s 17 large states do better than the national average for rural areas. Among the northern states, he three states doing better than the national average are Haryana, Punjab and Rajasthan.
Segmentation on incomes show a wide variation in consumer behaviour as described below:
1. High Income:
Those belonging to upper strata—landlords, large farmers, businessmen and traders—exhibit distinct buying and consuming patterns. Much of their buying is done from nearby towns since they have large vehicles like jeeps and tractor trolleys. A trip to the town means buying goods for the whole month; most of the buying is done in bulk. In this way, their buying behaviour is closest to consumers in developed countries, who stock goods in their basements. Only a few daily consumables are bought from the local market. The high income group is also most likely to be influenced by brands and advertising.
ii. Middle Income:
Large middle income families also buy many products in bulk. Food items like grains are purchased in bulk while fresh produce is bought on a daily or weekly basis. Small middle class families are likely to buy most of their needs from the local market. The middle income group is likely to be more dependent on local stores than the high income group. Rather than buying brands, people in the middle income group are likely to get their clothes stitched locally.
iii. Lower Income:
People in the lower income group depend on local stores and markets for all their needs. Local shopkeepers provide them credit, advice and easy delivery, which suits these consumers. Purchasing is done more often, though in lesser quantities. People in the lower income group are also likely to buy smaller packs.
Ownership of Goods:
Segmentation of rural households can be made on the basis of ownership of particular goods. Such a segmentation analysis reveals categories that are growing or declining. It also shows opportunities for selling goods with little penetration in rural areas.
Data from NSSO in its report no 541 (2012) reveals interesting trends. While the ownership of households with bicycle is somewhat stable and declining for radio, the ownership for categories like motorcycle, car, television and refrigerator shows an increasing trend, showing the increasing prosperity of people over the years. Sewing machines seem to be going out of fashion but coolers and air-conditioners are being sold more (Table 3.10).
The growth rates and comparison with urban households is shown in Table 3.10. The ownership shows a rising trend for all categories of durables. Mobile phones have the steepest graph, showing quick adoption, a result of falling prices and easy availability. In other categories, penetration levels are quite low, revealing a looming opportunity for companies. However, innovative marketing and financing schemes need to be offered to increase adoption of durables.