In this article we will discuss about:- 1. Introduction to Rural Marketing 2. Highlights of Rural Marketing 3. Consumer Behaviour 4. Trends.
Introduction to Rural Marketing:
With the growth and development of agriculture, large number of industrial products is being used as inputs for productivity improvement and maintenance. Similarly, a large number of industrial and urban manufactured products are being used for various consumption purposes in rural areas.
There is a definite trend in favour of the industry playing a predominant role in rural/agricultural production and consumption processes. This new and increasing role has prompted a new way for understanding the processes known as rural marketing.
Though the concept of rural marketing is used in various contexts for different purposes, in the developing world, the marketing of products, especially agricultural inputs is a very special and yet, not a fully understood branch. This in turn, leads to significant amount of confusion at the level of both the conceptual discussion as well as the empirical analysis and problem-solving.
If we adopt the typical business management definition of marketing as an activity of identifying and satisfying customer needs, then rural marketing for our purposes amounts to dealing with various inputs/products/services meant for the rural market. This does not take care of the rural part of the definition. But, it is very crucial to precisely define a market in terms of its constituents and boundaries.
It is here, that we need to differentiate marketing of agricultural inputs from other types of rural marketing activities. Rural marketing in this sense, is different from agricultural marketing which means marketing of rural products to the urban/rural consumer or institutional markets. It is also different from rural marketing of the consumer products which deals with marketing of urban/ rural produced goods in rural areas for final consumption.
Rural marketing of inputs is basically a process of delivering manufactured or processed inputs or services to rural producers, the demand for which is basically a derived outcome. Therefore, when there is marketing of inputs, we are concerned with a rural market in which an urban product has to be sold.
So, the process of marketing becomes a case of urban to rural activity which is characterised by various peculiarities of rural market in terms of nature of market, products and processes. Defined this way, rural marketing would also include developmental marketing.
The rural marketing of agricultural inputs as an activity, differs from agricultural or consumer products marketing in terms of the nature of transactions, which includes participants, products, modalities, norms and outcomes. All of these are significantly different from those of rural to rural flows which is also called rural marketing and rural to urban flows.
The participants in this case will be producers, sellers, facilitators, regulators, buyers and consumers. The specific participants in the agricultural input markets are input manufacturers, dealers, farmers, opinion makers, government agencies and traders. Similarly, the products are different because they are bulky, costly, used rarely, mostly being bought on credit and have derived demand.
The modalities of a transaction which include space, time and ownership utilities and roles and terms of various participants are also different in the case of agricultural inputs. The sale of inputs on credit and on subsidy are some of the important modalities in this market.
The norms of the market, which are in the form of formal and informal rules governing the behaviour of the participants and their liabilities are again very different for input markets. It is well known that the non-formal agencies have their own ways of dealings with farmer-buyers in case of absence of any significant policy and regulatory framework.
Finally, the outcome of the transactions, in terms of satisfaction or lack of it is that it has impact on subsequent transactions, for various participants, whose nature of relationships is one of the most crucial aspects of this market.
In the recent past, we have seen such outcomes in terms of large debts due to unfortunate failure of crops and even suicides by the farmers because of the malfunctioning of the market. This kind of outcome puts question marks on various components of the agri-business chain and hence threatens the future of business in this line.
Further, the existing approach to rural markets has viewed the market as homogenous one. But in practice, there are significant buyer and user differences across regions as well as within, that requires a differential treatment of the marketing problems. These differences could be in terms of the type of farmers, type of crops and other agro-climatic conditions.
The understanding of market norms in agricultural input markets is crucial, not only to devise good marketing strategies, but also to avoid and unearth unethical practices which distort the market environment. Since, the products are inputs in a production process, some of these practices have implications for food, health and environmental sectors.
Even the question of outcomes is always marked by risk and uncertainties for the ultimate users. Therefore, rural marketing needs to combine concerns for profit with concern for the society. In practice, besides being tilted towards profit, it has ignored the concern for the society.
The rural market for agricultural inputs, has so far been largely a case of market pull and not market push. The products reach these markets more by default than by design. Most of the jobs of marketing and selling is left to the local dealers and retailers.
The market for inputs get interlocked with other markets like output, consumer goods, money and labour. And this affects the efficient functioning of the input markets in terms of product performance and image building. In case of developmental marketing, though the various dimensions of transactions remain intact they get distributed under multiple channels like government, voluntary agencies and corporate sector.
As a developmental intervention, agricultural input marketing as an activity gets influenced by village level endogenous factors, i.e., socio- cultural, political, economic and locational, which give rise to various conflicts. These conflicts are further reinforced by various contributors like rich farmers, community leaders, social workers and government employees at the village level.
Finally, all these conflicts need to be resolved and performed as a co-operative activity with the help of various village level institutions like panchayats, co-operatives, banks and NGOs. Therefore, the final outcome of a rural marketing activity will depend on the nature and effectiveness of interaction with these contributors in the market.
Consumer Behaviour in Rural Marketing:
The first step in building distribution channels for rural areas is to understand the buying behaviour of the rural customer.
For the purpose of designing distribution channels, we consider three factors in rural buyers’ behaviour:
1. Socio-Economic factors.
2. Type of goods sold.
3. Place of purchase.
1. Socio-Economic Factors:
Consumers belonging to different socio-economic segments exhibit distinct behaviours. High income families consisting of large farmers, landowners and traders tend to be educated and exposed to modern lifestyles. They usually have their own vehicles, such as a pickup truck or a jeep, which are used for regular trips to a nearby town for business or recreation. Most of the purchasing is done during these trips.
In this respect, the purchasing behaviour of these consumers resembles that of consumers in the developed world—they visit the supermarket (in this case the nearby town) on a weekly or bi-weekly basis and stock goods for consumption over a one or two-week period. High income families also buy products for their farm or domestic use in bulk from dealers in the town and transport the goods themselves in their tractor trolleys or pick-up vans.
Middle and low income families do not have this luxury. For middle income families, a trip to the nearby town is more of an outing for fun and recreation. The kind of purchases made on these trips is of branded clothes and other products meeting their aspirations. Routine and low value purchases are done from local retailers. Such consumers do not buy in bulk but prefer to buy in small lots from local retailers.
Low-income families do not travel to nearby towns except on special occasions and tend to buy small quantities on a daily basis from local retailers. Small packs and sachets are popular with this segment. The village fair is an opportunity for a family outing and to buy high value and non-routine items such as clothes and appliances. The village fair becomes an important means of reaching a large number of rural consumers at one go.
Companies, indeed, report that a bulk of their sales are achieved during these fairs and gatherings. Companies have to build channels to cater to these different types of consumers. A one-size-fits-all strategy will probably not work as many rural retail chains have discovered in the past to their cost. The socio-economic segments and their preferred places of purchases are summarized in Table 6.1.
2. Type of Goods Sold:
Consumers in villages wait for special occasions like festivals and fairs, usually held around the harvest time for big ticket purchases. Marriages are other opportunities of rural splurges. These are the times when a large portion of a company’s annual sales is accomplished. Supply chains have to be built accordingly to cater to high seasonal demand and very little demand for the rest of the year.
Even then, the access to dependable electricity supply will limit sales of electrical appliances. Shortage of water in many areas means that washing machines and detergent powders cannot be sold. Companies trying to reach rural consumers must look for solutions to these problems and operate as social enterprises.
3. Places of Purchase:
As explained, low value items, food items and routine products are purchased from local retailers, but the rural consumer takes an occasional trip to the nearby town or city to buy products of a non-routine nature. It is also important to remember that people in rural areas treat the trip to the nearby town as a fun outing and it becomes a ritual to buy some products that are not available with the rural retailer.
That is why, the hub-and-spoke model is used in rural distribution – the town serves as a hub that serves various villages. There is plenty of opportunity for companies to build rural distribution chains that bring goods and services to a hub that is accessible to some villages. Companies must have dealers who supply to these villages or maintain their own depots for the purpose in such towns. The types of products and the favoured areas for purchase are summed up in Table 6.2.
Distribution channels must be designed to cater to these buying habits. Many products are services and are best left to town and city dealers, because people like to buy them on outings with their families. Companies have to identify such towns and create their hubs there. It would only pay to develop deep supply chains either for regularly consumed goods or for goods and services that actually solve problems of rural people. When supply chains are sought to be built for occasionally purchased goods, many of them end in failure because of poor offtake and high costs.
Small traders often fill in the gap and supply goods to villages. In many villages people depend on travelling merchants who supply goods, then on the village fair or similar gatherings and finally on a trip to nearby towns. Rural markets also consist of the less well-off who buy their daily requirements from local traders in small quantities. Travelling salesmen and merchants bring non-routine goods to their doorstep. Much of this distribution is aimed at helping consumers avoid trips to nearby towns for their requirements.
Retail hubs in towns aggregate supplies from several manufacturers. Even though these rural supermarkets supposedly bring convenience, they do not work well because rural consumers do not buy everything from a single location. Agricultural inputs are provided by dealers in towns. A few companies have taken up initiatives to involve the local people and help bring goods and services to the doorstep of the consumer. Companies have evolved their own models of distribution to cater to rural markets.
Trends in Rural Marketing:
Several trends in rural marketing have been observed. In this article, we describe the trends that may impact life in villages, and thereby companies’ efforts in rural marketing. We have divided the trends into leading trends, which have a positive impact on rural consumption, and debilitating trends, which stymie efforts of change and modernization.
Increase in income and education are important factors that affect marketing. As rural folk become more aware, it is expected that they will start consuming modern products just like their urban counterparts. Aiding in this are the banking and MFIs, which are slowly spreading their area of influence. As ICTs penetrate villages and micro-payment systems proliferate, it is expected that more people would benefit by coming into the financial mainstream. Innovation and modernization, aided in part by social businesses and NGOs, would help transform the lives in villages.
However, we cannot ignore trends that debilitate rural India. These headwinds threaten to keep villages in a time warp of tradition, poverty and backwardness. Farm indebtedness and distress is increasing in Indian villages – a bad monsoon pushes back purchasing power across rural areas in the country. Global warming is expected to accentuate this. An imbalanced society, which deliberately excludes a large population and prevents penetration of technology stands in the way of modernization.
Add to this primitive infrastructure, consisting of bad roads, warehousing and communications, and we have strong forces that block efforts of rural marketing. The efforts of government have historically been full of shortcomings, while private organizations and NGOs, though noble, have at best a limited impact. These leading and debilitating trends are summarized in Table 12.1.
Which trends become stronger than others will determine the future of rural marketing. There are two opposing views regarding the outcomes. In its report, Bird of Gold, McKinsey Global Institute (2007) shows that, given a growth rate of 7-8 percent, incomes will triple by 2025, which will reduce poverty and help India’s bird of gold take flight. Accenture, too, echoes this and writes in its report, Masters of Rural Markets (2010) – “There is no question that India’s rural markets are becoming a powerful economic engine.”
It gives five reasons for greater business confidence in rural India – (a) rural spending is now less dependent on farm income, (b) increase in the minimum support prices that farmers earn on produce sold to the government, (c) increase in government spending in rural areas, (d) improved access to finance and institutional credit and (e) government measures such as waiver of agricultural loans and the MGNREGS.
The SECC data from The Hindu (2015), on the other hand, points to a rather bleak scenario- despite more than six decades after independence, economic growth seems to have by passed India’s villages. The data shows that the rural market comprises almost three-fourths of households in which the main earning member earns less than Rs. 5,000 per month, which means that a majority of households are either poor or very close to destitution. The optimistic outcomes are contrasted with SECC data in Table 12.2.
In the future, will India’s bird of gold take flight or poverty and social exclusion continue to dog developmental efforts? Will rural India become the growth engine for consumer goods companies or will it remain the bleak landscape with pockets of prosperity?
The SECC data certainly points to the fact that the situation is not very bright. Rural markets seem attractive because of millions of underserved customers, but companies have to really tread carefully between the two opposite scenarios. They have to go beyond commercial objectives and try to improve rural lives to succeed in the long run. Many companies have actually transformed some aspect of rural lives while also serving their business objectives.
The opening case of Danone shows that companies can and do transform lives through four approaches:
i. Introduce social innovation in products and processes by approaching rural marketing as a distinct discipline.
ii. Change the performance parameters of the business from the bottom line to the triple bottom line.
iii. Change the nature of business completely and become a social business.
iv. Develop relevant technology to solve local problems.
This approach not only transforms marketing but also lays the foundation of an economic system that does not focus on consumption but on sustainability. These are further helped by a change in economic models and reporting on environmental and sustainability that will impact on the how companies tackle rural marketing in the future.
We thus discuss the future on the following five major trends:
i. A change in economic thinking.
ii. Innovation in products and processes.
iii. Development of reporting methods for sustainability.
iv. Emergence of a new business model—the social enterprise.
v. Application of new technologies such as big data.
Towards a New Economic System:
A slow realization is dawning that companies cannot continue to operate in the unsustainable ways that they have in the past. There is also a rethinking about the model of capitalism that dominates world economies. It is increasingly being felt that while capitalism has contributed to increased wealth and better quality of life, it has also caused deep negative environmental and social impacts.
Thus, the understanding that profit generation and maximization, while being legitimate objectives of companies, must also be accompanied by economic, social and environmental betterment. In other words, the world is heading to a more ‘humane capitalism’. Companies realize that the ‘business-as-usual’ approach—one in which natural resources are exploited ruthlessly—is creating problems of pollution and sustainability across the globe. If such development goes unchecked, we are in for great social and environmental upheavals that may well destroy the planet.
The reorientation of business as a social enterprise is now recognized as essential for the future of business itself. Writing that the global economic system is under threat, Bower et al. (2011a) point out in their book, Capitalistic at Risk – Rethinking the Role of Business, “Business must serve both as innovator and activist—developing corporate strategies that effect change at the community, national, and international levels.” Reich (2016) writes in his book, Saving Capitalism, “We are lurching toward a capitalism so top-heavy it cannot be sustained.”
Stieglitz (2002) had echoed this in his book Globalization and Its Discontents, “Globalization today is not working for many of the world’s poor; it is not working for much of the environment; it is not working for the stability of the global economy.” That is, we have a system today in which the rich are reaping the benefits of development, while vast numbers of poor live in traditional livelihoods bordering on poverty.
It is also being felt that the limits of sustainability have been reached—the planet cannot sustain the runaway consumption that the economic system dictates. This can best be described as an unstable system. A positive future for the planet depends on a new paradigm that links business and development and promotes social, economic and environmental stability around the world.
Corporations thus have a broader role in society. Porter and Kramer (2002) write, “We are learning that the most effective way to address many of the world’s most pressing problems is to mobilize the corporate sector where both companies and society can benefit.”
It is time that companies understood that social and economic goals are integrally connected. Preserving the environment benefits not only the society but companies too, because reducing pollution and waste leads to a more productive use of resources. Boosting social and economic conditions in developing countries can create more productive locations for a company’s operations as well as new markets for its products.
Bower et al. (2011b) argue that businesses must identify the issues that could disrupt the global market system in the coming decades- they look to modifying the market capitalism system in which business must lead as an innovator and as an activist, mobilizing resources to spread the innovations. All this will shape the future of marketing- it will depend on how companies fulfill their objectives of profits, sustainability and inclusive growth. Indeed, many companies are doing so.