LG, Hero Honda, Nicholas Piramal to focus on rural markets

Spread across 650,000 villages, with an average population of 1,100 rural villagers were long regarded by city dwellers as backward and impoverished and irrelevant, something to drive past on the way to something else.

That is no longer the case. Rural India is now becoming a major market for India Inc. Don't forget India lives in its villages. That's because roughly three-fourths of the country's population resides in the rural interiors of the country.

Consider the fact rural India has 3.3 million active internet users, a new report by the Internet and Mobile Association of India (IAMAI) states. The research - part of the ongoing I-Cube 2008 being jointly undertaken by IMRB International and IAMAI - also notes there are 5.5 million people who claim to have used internet at some point. Since rural India was mapped for the first time, the year-on-year growth of internet users in rural India could not be estimated.

"The penetration of internet in rural India is directly related to the activities of the government and NGOs," says Subho Ray, IAMAI president. "Given the various government and private sector efforts to connect rural Indians, this was the right time to take the survey to rural India and find out the state of affairs there."

India's 700 million villagers now account for a massive $100 billion a year consumer spending in the country. Millions step into consumerism each year, graduating from the economics of necessity to the economics of gratification, buying themselves motorcycles, televisions, mobile handsets and four-wheelers.

The National Council of Applied Economic Research, or NCAER, has pared its demand forecasts for automobiles, refrigerators and television (TV) sets for this fiscal year and the next, signaling that a slowdown in demand for these products, which make up a quarter of India's manufacturing output, may drag on longer than foreseen by industry executives.

NCAER is, however, bullish on untapped potential in rural areas and believes demand in the countryside will continue to clock double-digit growth.

Korean consumer elctronics firms LG Electronics India and Samsung, two-wheeler maker Hero Honda, pharma products maker Nicholas Pirmaml, mobile services provider Bharti Airtel are among a handful of well-established companies making a concerted push into rural India in recent months to boost flagging sales. They are joining some notable segment leaders like Bajaj Electricals and Bajaj Auto that have had a strong presebnce in rural areas.

Now, the largest consumer electronics company in India by sales, LG, plans to focus heavily on rural markets through channel expansion, set up a services network and roll out a slew of entry-level products. 

LG Electronics defines all cities and towns other than the seven metros cities as rural and semi-urban market. To tap these unexplored country markets, LG has set up 45 area offices and 59 rural/remote area offices.

Earlier Airtel and Samsung tied up with IFFCO to sell their mobiles and services. IFFCO is the world's largest farmers co-operative of fertilizers (See: Bharti Airtel sets up joint venture with IFFCO to provide rural mobile phone services). IFFCO has about 37,000 member units spanning all-over India. Some of the other telecom giants and DTH service providers are looking at dying PCOs as a channel of distribution. 

Hero Honda wants to change the rural market dynamics which is hovering around 10 per cent (of households owing a two-wheelers).

Its strategies include selling during festive seasons, tying up with new dealers, providing finance with local co-operative institutions. Meanwhile, Bajaj is launching a Bike, specifically to suit rural Indian youth needs. It is setting up 20 outlets in affluent, but severely under penetrated, rural districts. Moreover, it has created specialist dealerships for rural markets, called 'Rural Dealerships'.

Nicholas Piramal has focused on general practitioners, to cater to rural markets to increase its penetration with a field-force of 800 people. Most of the pharma companies are looking at post-office as their distribution platform. Some of these companies conduct health-care workshops in the rural areas by tapping the local doctors.

The challenges
Mohan Krishnan, senior vice-president BIRD, a specialised unit of IMRB International says, "The rural market holds tremendous potential for any media. However, for the internet to flourish in rural India, the applications need to be in vernacular languages, preferably with Text to Speech capabilities. It would be better if visual symbols, graphics and rich media applications are used. The key question is, whether we have the right infrastructure to support these applications."

The first challenge is to ensure availability of the product or service. India's 650,000 villages are spread over 3.2 million sq km; 700 million Indians may live in rural areas, finding them is not easy.

However, given the poor state of roads, it is an even greater challenge to regularly reach products to the far-flung villages. Any serious marketer must strive to reach at least 13,113 villages with a population of more than 5,000. Marketers must trade off the distribution cost with incremental market penetration.

For marketers, the challenge is to ensure affordability of the product or service. With low disposable incomes, products need to be affordable to the rural consumer, most of whom are on daily wages.

Some companies have addressed the affordability problem by introducing small unit packs. LG plans to roll out several new models in low-end segments like direct cool refrigerators, twin-tub washing machines, solo microwave and CRT TVs in the first half of 2009. This is in sharp contrast to LG's erstwhile strategy to focus on premium products in the Indian market for the past couple of years.