Rural marketing has become the latest marketing mantra of most FMCG majors. True, rural India is vast with unlimited opportunities. All waiting to be tapped by FMCGs. Not surprising that the Indian FMCG sector is busy putting in place a parallel rural marketing strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, Colgate-Palmolive and Britannia Industries are only a few of the FMCG majors who have been gungho about rural marketing. With reason.

The lure
India’s agrarian economy is fundamentally strong. Rural India accounts for as much as 70 per cent of the nation’s population. That means rural India can bring in the much needed volumes and help FMCG companies to log in volume-driven growth. That should be music to FMCGs who have already hit saturation points in urban India.

Certainly, rural marketing holds the key to success of FMCG companies which are desperate to find ways out to gain deeper penetration.

Not just the rural population is numerically large, it is growing richer by the day. Of late, there has been a phenomenal improvement in rural incomes and rural spending power. Successive good monsoon has led to dramatic boost in crop yields. Consider this statistics: foodgrain production touched 200 million tonnes during fiscal 1999 against 176 million tonnes logged during fiscal 1991. Not just improved crop yields, tax-exemption on rural income too has been responsible for this enhanced rural purchasing power.

And the future is expected to be more promising. Consider this statistics from a National Council of Applied Research (NCAER) survey: lower income group is expected to shrink from over 60 per cent (1996) to 20 per cent by 2007 and the higher income group is expected to rise by more than 100 per cent. And most FMCG segments are expected to log in double-digit growth.

Value-volume trade-off
Most Indian FMCG majors know this well. That is why FMCG companies such as Marico Industries are gearing up for bigger advertisement and sales promotion campaigns aimed at the rural buyer. Marico’s high-pitch rural marketing exercise involves repositioning brands, repackaging products and re-pricing them, all with an eye on the rural wallets. The company has been working constantly on extending its parallel rural sales and distribution networks, which already finds a place among the industry’s top three.

Okay, there is a hiccup here. Concerns abound over the inability of rural markets to meet the soaring rural ambitions of the Indian FMCG majors. Is the perception that big guns such as Hindustan Lever are on the verge of diluting their rural focus true? Does the urban consumer featured on the cover of Hindustan Lever’s 1998 annual report reflect this shifting focus? Says Namit Nayegandhi, an analyst with the Mumbai-based Motilal Oswal Securities: "It is a tactical shift, just a trade-off between value and volume, between the urban market and the rural market".

Nayegandhi sounds sense. For, focusing all out on one of these markets at the cost of the other could be suicidal. That is why a few FMCG companies are not putting in concerted efforts to tap the rural market. Consider the case of Cadbury. The company has clarified that the rural market is not for it, at least for now. Meanwhile, Marico is trying hard to get into the premium-end hair-oil market.

What do all these portend? Rural marketing could open the doors of paradise, but the path is paved with thorns. One major limitation here is this: most FMCG players just do not have the critical size for going all out for rural marketing. That is why most FMCG players are expected to concentrate both on rural and urban marketing: focus on urban markets for value and focus on rural markets for volumes. One result-oriented marketing strategy here is this: offer value-additions to existing lines to lure the urban consumer and alongside offer the rural consumer wide-ranging choices within a single product category in a bid to generate high volumes.

More obstacles
There are more problems in rural marketing. Success in rural marketing calls for a sound network and a thorough understanding of the rural psyche. Rural consumer’s price-sensitivity is something the FMCG players should be alive to. Rural income-levels are largely determined by the vagaries of monsoon and thus rural demand is not a steady horse to ride on.

This makes rural marketing a gamble. It is more than a gamble for FMCG minors who do not have a clutch of strong brands across product segments.

These FMCG minors are not able to cross-subsidise their products and go for product experimentation.

The result: FMCG minors have a limited reach, are not able to erect entry barriers and have no ways to minimise the impact from loss of sale opportunities. The vast and diverse rural market calls for multi-tiered distribution networks, efficient logistics and friendly infrastructure.

Uphill task
The real test still lies ahead. One major hurdle in rural marketing is: whether an FMCG player will be able to offer the best price and aspirational values to the rural consumer who has a peculiar tendency to mimic his urban counterpart. Says Nayegandhi: "This calls for efficient marketing. FMCG players need to position their products properly, reach out to the masses effectively and convey the right message."

So, what should the FMCG players do now? They should not only price their products competitively, but also offer their rural prospects maximum value for money spent. Certainly, reaching out to 3.33 million retail outlets is an uphill task. The only way out for Indian FMCG players: put in place an aggressive cost structure which would enable them to offer low-price and value-for-money products. But then, FMCG is a low-margin business with a high cost of raw materials. Consider the case of Marico: its material cost works out to a high of 59 per cent on sales. Therein lies the rural marketing paradox.

However, customer-centric and market-savvy FMCG companies have always chased prospects when they perceive there is a latent demand. For instance, Hindustan Lever’s Rin, Surf and Lux are available even in India’s most obscure villages.

Hindustan Lever had given shape to its rural strategy a few years ago when it perceived that its urban market was shrinking due to an industrial slowdown. Its Operation Bharat that focused on personal care products made the most out of surging rural incomes.

The result was there for all to see. The company has been able to clock in double-digit profits every three years and log in double-digit revenues every four years. Britannia with its Tiger brand of biscuits and Colgate-Palmolive with its low-priced and conveniently-packaged products designed for the rural masses have been other pioneers in rural marketing.

Thus, Britannia and Colgate-Palmolive have been able to derive more than 30 per cent of their revenues from rural markets.