Understanding factors affecting Rural Consumption

A Research Project I submitted in

partial fulfillment of Semester VII

MBA (Tech)
Civil
By

Vatsal Shah
Amman Patel
Ravinshu Shrivastava

Under
Supervision of
Prof. Dasika Chaitanya

2014-15

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 DECLARATION

I hereby declare that the research project titled, Understanding factors affecting rural
consumption submitted by us is based on original work carried out by us. I certify
that it has not been submitted anywhere else & further declare that Mukesh Patel
School of Technology Management and Engineering- NMIMS (deemed-to-be-
university) will have the copyright on the project report submitted by me to the
college (MPSTME).

Thanking You,

Vatsal Shah
Amman Patel
Ravinshu Shrivastava

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Contents
ABSTRACT ......................................................................................................................................................... 4
INTRODUCTION.............................................................................................................................................. 5
LITERATURE REVIEW ................................................................................................................................ 6
Rural Income and Poverty .......................................................................................................................... 6
Managing household cash ........................................................................................................................... 7
Rural decision making.................................................................................................................................. 8
Changing channels of outreach .............................................................................................................. 10
Awareness ..................................................................................................................................................... 11
GAP FINDINGS .............................................................................................................................................. 11
PROBLEM STATEMENT .......................................................................................................................... 12
MODEL .............................................................................................................................................................. 12
OBJECTIVES OF STUDY .......................................................................................................................... 13
TENTATIVE METHODOLOGY.............................................................................................................. 13
HYPOTHESIS.................................................................................................................................................. 14
REFERENCES ................................................................................................................................................. 15

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ABSTRACT

This paper studies the present scenario of consumption trends in rural India. It is easy
to map what these consumers buy, how much they consume and from where they
procure. But it is tedious to study which factors are in control and justify their
behavior and decision making process. The factors such as literacy, community
influence, family ethics, festivals, perceived benefits and income shocks have an
effect on the above process. Thus rural consumers are different than their urban
counterparts. It is mainly influenced by limited exposure to products, services and
knowledge of its best practices. Besides, it is also directly impacted by their income
and savings. Due to such limited outlook and exposure, they tend to spend meagerly
in areas of better education, healthcare, insurance, technology and their general
betterment leading to their upliftment in standard of living. Thus, conclusions from
the study can be used for better infrastructure planning, framing government policies
and implications for various services and technology companies willing to enter this
domain.

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INTRODUCTION

The rural market has remained a majorly unexplored sector and the one that makes
India as the most sought after markets around the world. A simple lifestyle clubbed
with very little exposure to modern amenities, illiteracy coupled with unwillingness to
bring about a change in the surroundings, are the main factors responsible for the
rural markets being unexploited. Besides, lack of adequate infrastructure facilities &
technological know- how is far from being on par with urban market. As the rural
region of country comprises of nearly 850 million people & the economy growing
rapidly at a CAGR of 6.2%, most of the business houses generate about 30- 35% of
their revenues from this area. Due to peoples steady rise in disposable incomes, the
consumption levels in rural India are mirroring to those of urban counter parts, though
gradually. It can be researched by taking into consideration the rural spending on
healthcare, education, food, durables, agricultural inputs, technology & social
parameters. It is of significant interest to many researchers to understand the market
& tap its potential optimally leading to more consumption & in turn enhancing
business value.

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LITERATURE REVIEW

Rural Income and Poverty

Shatakshee Dhongde (2004), talks about the differences analyzed between poverty at
the state & national levels respectively. Due to slow & steady rise in average income
levels, there has been a gradual decline in poverty levels in the country. Study is done
to measure the difference in poverty levels, due to difference in mean income levels
& difference between their distributions of income both of which are its variables.
The results of study show that mean income levels, distribution of incomes as well as
poverty levels vary a lot across all the states in India.
Example: In states of Gujarat & Punjab, there is significantly low level of poverty,
only because of higher income levels as well as better distribution of income levels.
We can conclude that in India, while explaining the differences in state and national
poverty levels differences in the state and national mean income level are more
significant as compared to differences in the distributions of income.

Raghav Gaiha (1988) studies the relationship between the poverty level & agricultural
growth in rural India. A survey was conducted in about 4200 rural households during
the 1968-69, 1969-70, and 1970-71, to know the impact of new agricultural
technology on income levels & savings in rural areas.
People, who had willingness to risk & innovate, brought in new technology which
resulted in agricultural productivity i.e. high yield & income, more distribution of
cropped area & in turn leading to more employment.
It concluded that the poorest of the poor fared better compared to moderately poor
households, only reason being greater cultivable land with new agricultural
technologies leading to higher yield & employment hence making rural households
generate more income.

Anjali kumar, Santkumar, Dhiraj k. singh and Shivjee (2011) in this paper has studied
the numerous fashions and patterns of rural employment diversification and numerous
aspects that affect rural employment diversification towards non-farm sectors. There
has been a persistent rise in gap between earnings in agricultural sector and
nonagricultural sectors. The government also has started various employment

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schemes to handle with the poverty. With reference to various explorations its been
presented that non-farm sectors have grown significantly.
The study has shown the growing reputation of non-farm sectors in offering
employment to rural personnel across major states of India. This could be observed as
one of the potential route to produce employment openings, and increase food and
nutritional security and thereby dropping poverty in the rural areas of the country.
Also, rural employment diversification within the crops subsector has been visible,
demonstrating the possibility of creating gainful employment opportunities by shifting
towards cultivation of horticulture and cash crop. An elegant technical program based
on local condition of area can help in solidification of their skills which would benefit
and provide better employment in non-farm sector.

S.L.Shetty (1990), talks about the absence of any evidence of improvement in rural
savings. Those occupied in agricultural activities, their household savings did nt
increase as much as compared to the savings of people involved in non-agricultural
activities. The non-farm incomes have grown at faster rate than previous years. Non-
farm disposable income has benefited from reduction in marginal tax rates in income
and property taxes. Author says that for promoting more savings in the rural sector,
subsidies from government plays a vital role. Government in-turn has to balance its
expenditures in subsidies and desired GNP through driving consumption.

Managing household cash

Hemant Sharma (2010), studies & relates how saving decision in rural households are
affected by the income shocks. It also talks about the differences in saving behavior of
nuclear & joint families. In rural India major risk attached is of drought or excessive
rains, which can result into crop failures & ultimately hardship for people. Therefore
savings are the best way of self-insurance in rural region.
Survey was conducted in about 700 households between July & November 2009 in 26
villages of Sirsa, Rewari, Hisar & Rohtak in Haryana, India. The complete data was
analyzed to bridge between 2 aspects of effects of health & weather related income
shocks on savings & Type of family structure on savings.
He concludes by saying that both types of households react similarly to weather &
health related income shocks, either by reducing their liquid assets or by reducing

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their productive assets or livestock. Author suggests that adequate health insurance
schemes must be made handcrafted benefitting rural people.

Vijayendra rao (January 2001) studied poverty and public celebrations in India and
examined how poor households spends large sums on celebrations such as weddings,
festivals etc. Using qualitative and measurable data from southern region of the
country, he observed how families who earn barely enough to survive spend
enormous amount of money on celebrations and investigated a typical household
spends nearly 7 times its annual income on daughters marriage. Additionally, 15% of
its expenses on regular period spend on celebrating village festivals. They incline to
find such large sum of money by going strictly into debt at large fraction of interest
which leads to indebtedness and occasionally bonded labor.

In this paper author showed that spending on such events can be explained by
analyzing the decision-making process keeping poverty in mind. He argues publically
observable celebrations helps in maintaining social reputation and makes status
benefits over competitions. The first role is central to maintain the networks essential
for social relationships and coping with poverty. The second is correlate of mobility
that may become more prevalent as income rise.

Rural decision making

K. Malar Mathi and C. Saraswathi (2013) in their research attempts to explain how
lifestyle of rural population has transformed and how it influences the purchasing
behavior of rural consumers. They also tried to measure the various dynamics that
influences the purchasing. They examines and tried to understand social, cultural,
occupational factors that influence the choice, buying behavior and decision making
process of rural consumers.
The research shows that each individual sees products in his own way, their decision
making attitude contrasts with products. Thus their study concludes that different
behaviors influence consumers buying patterns. Products familiarity and its
experiences also have a major role in decision making process of consumers. This
study suggests that promotion tools may not lead to successful customers; however it

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may detect the potential of consumers in a particular segment. So its better to
emphasize the product in a multidimensional approach.

Amreek Singh and Vakil Singh (2014) in their exploration acknowledged 8 such
factors i.e. price, quality, warranty, advertisement, brand, friends recommendations,
family members recommendation and packaging which rural consumers consider
while making purchase choices. They also documented that the outcome of these
aspects on rural consumers activities fluctuate with age and income. The researchers
observed that the importance of all these factors on rural consumer buying behavior
demonstrated an accelerating drift with age and income.
The impact of price and quality on buying performance of rural consumer increases
expressively with increase in age and income. For a lower income group the
advertisement and brand devotion hardly plays any role as he will buy the product
bearing in mind his procuring power. Friends and family members agreements had
significantly more impact on buying decisions of lower income consumers than high
income consumers. Packaging had significantly more impact on buying decision of
lower income consumers than high income consumers.

When it comes to FMCG or perishable goods in the rural markets, it is the fastest
growing segment, largely related to its deeper penetration of products and increase in
disposable income. A study undertaken to explore factors that influence buying
behavior by rural consumers of personal care products in Coimbatore districts shows
quality, brand benefits, nearness to selling point as main criterias, cost being
secondary (Prialatha, 2011). The study excludes the effects of advertisement and
promotional activities and focuses on differences in literacy levels of respondents and
their participation in rational thinking.
With increase in education levels, the premature decisions in buying has reduced and
the rural buyers who were becoming more brand and value conscious, were ready to
travel to nearby towns to purchase their desired quality and brand of products.
Further, they were found to be less influenced social group. Within social group,
unmarried respondents were found to be more influenced by brand name and social
group than married counterparts, which were on the contrary more influenced by
income and budget.

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Changing channels of outreach

The growth in rural income, availability of consumer products and improved media
coverage place a new challenge to the marketing and advertisement professionals
(Aneja, 1992). It is utmost important to plan the media mix to reach the target
consumer for a specific product category. The aggregate exposure to all means of
communication is directly related to the literacy level of rural consumer and his
income earning capacity.
Among the various channels available like news paper, television, radio, video, author
has identified that bearing to the low and slowly rising literacy levels, readership
which is directly related, remains extremely low.
Secondly, there exists a considerable share of radio listeners, owing to the cheap price
and easy availability. Further exists a direct correlation between electrification and
TV viewership. Even though viewership remains close to medium, it is the most
important source to information dissemination in rural India, as their minds are better
impacted through audio-visual. In 45% of rural India, there is no organized way in
which the government and other marketers can deliver, other than word of mouth
which has been identified as a key medium of mobilizing information.
Hence for every product, the ad campaign must be based on literacy, available
infrastructure to support media, or resort to non-traditional forms of advertising.

Focusing on the changing face of rural lifestyle, Bansal (2013) set out to find how
rural youth are becoming opinion leaders in influencing buying decisions which was
till now under the flanges of elderly.
Rise in education level of youth can be correlated with shift in this decision making,
citing young males moving out to work in nearby cities and towns and conveying the
savings to their families. This has led to creation in additional disposable income and
thus also complementing demand for consumer products. This has gradually made
their opinions for brand and product decisions get a higher preference over the
elderly, which was the status quo. Brand adherence is high among them
Marketers have to focus around innovating products and suggested that rural
marketing must be inclusive of four As affordability, availability, awareness &
acceptability.

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Awareness

Another important factor in the rural market is consumer awareness which remains
low (Mishra, 2011). These customers are generally perceived as ignorant and
unorganized, due to which they are exploited by providing sub-standard, fake, expired
goods and are cheated by black marketing and hoarding. Also, there is low awareness
of the supportive redressal systems for their grievances. Presently there is lack of
overall and coherent strategies to educate consumer awareness by the government.
Rural consumers are generally skeptical about urbanities and hence it is difficult for
them to get rural customers to buy. Field studies found a major portion of respondents
depended and trusted local shop and weekly markets and few went to towns and cities
for shopping and even lesser portion were aware of the standards labels and quality
marks. This high reliance on simple conventional solutions and ambiguity for urban
products and services make it difficult for them to proliferate in the rural markets.
Hence there are losses experienced especially by Pharma and FMCG companies due
to counterfeits, which could be avoided by strengthening consumer literacy, redressal
systems and empowerment.

GAP FINDINGS

There is very little research done to show how Indias social dynamics is responsible
in rural spending i.e. towards basic parameters like healthcare, insurance, education
which can result in improving their standard of living. Further, the literature failed to
explain the relation between use of new agricultural technology and the willingness of
the beneficiaries to reinvest in further improvement which has been barely explored
as per the rural context in India. There is also lack of information on the severity of
the illnesses which could result in an income shock.

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PROBLEM STATEMENT

Modern technologies which are gradually proliferating in Indias farmlands are

improving productivity and raising their disposable incomes, enabling them to spend
higher. There are various factors that influence what they buy ranging from literacy to
media exposure & consumer awareness. But how they are prioritizing the
expenditures from savings has to be unearthed?
Further, India which is community centric society has very varied social dynamics
when it comes to maintaining social image, continuing customs. The spending to
satisfy their social needs can be seen in light of hindering their ability to spend
elsewhere which directly has an impact on their consumption in various categories of
products and services.

MODEL

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OBJECTIVES OF STUDY

To study the variances in inter-state spending during festivals.

To study the investments & perceived benefits in using the advanced agricultural
techniques.
To study awareness of available technologies.
To explore the individual budget allocations.
To investigate the difference among rural respondents with regard to their gender,
marital status, age group and education level for each of the influencing factors.

TENTATIVE METHODOLOGY

Primary data will be gathered with the help of numerous surveys as well from
government published secondary data.
A comprehensive Field Study would be conducted in villages across Maharashtra,
Madhya Pradesh, Gujarat & Bihar to equally represent Indias regional development.
5 villages from a particular district in each of these states will be surveyed. Further,
stratified non-random sampling will be used for selecting respondents.

Questionnaire would be prepared which will comprise of

1) Questions concerned with respondents profile i.e. Gender, Age, Occupation,

Education, Family size, Monthly Household Income (MHI) & Access to formal
and informal credit facilities.
2) Questions related to respondent sources of income.
3) Provision of various expenditures in their budget.
4) Average festivals celebrated and their attitude towards consumption.
5) Data on the assets and their overall financial health.

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HYPOTHESIS

H01: There is no significant difference in the mean scores of various influencing

factors of rural consumers belonging to different age groups.
H02: There is no significant difference in the mean scores of various influencing
factors of rural consumers belonging to marital status.
H03: There is no significant difference in the mean scores between the interstate
spending on festivals.
H04: There is no significant indication regarding income shocks affecting the
household's asset portfolio.

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REFERENCES

Dhongde, S. (2004). Decomposing spatial differences in poverty in ndia (No.

2004/53). Research Paper, UNU-WIDER, United Nations University (UNU).

Gaiha, R. (1988). Income mobility in rural India. Economic Development and

Cultural Change, 279-302.

Sharma, H. (2010). Impact of income shocks on asset portfolio of rural Indian

households: An empirical analysis. IBSU Scientific Journal (IBSUSJ), 4(1), 17-38.

Shetty, S. L. (1990). Saving Behavior in India in the 1980s: Some lessons.

Economic and Political Weekly, 555-560.

Singh, A., & Singh, V. (2014) Factors Affecting Buying Behavior of Rural
Consumers. Population, 102(121.0), 18-1

Kumar, A., Kumar, S., & Singh, D. K. (2011). Rural employment diversification in
India: Trends, determinants and implications on poverty.

Mathi, K., & Saraswathi, C. (2013). Changing Life Style and its impact on the
Purchase Behavior among the Rural Customers. Asia pacific journal of research.

Rao, V. (2001). Poverty and public celebrations in Rural India. The Annals of the
American Academy of Political and Social Science, 573(1), 85-104.

Aneja, R. K. (1992). Evolving Optimum Media-Mix and Communication Strategies

for Rural Markets. Economic and Political Weekly, M75-M79.

Misra, S., Chadah, M. S., Singh, A. K., & Mishra, V. N. Consumer Awareness in Rural
India-An Empirical Study.

Bansal, M. P., Maan, M. V. K., & Rajora, M. M. (2013). Rural Retailing in IndiaA
Changing Paradigm. International Journal of Advanced Research in Computer
Science and Software Engineering, 3(11).

Mathi, P. P. ((2011)). A Study on factors influencing rural consumer buying

behavior towards personal. International Journal of research in commerce &
management.

15
Papers studied as per the following order:

Vatsal Shah:

1) Dhongde, S. (2004). Decomposing spatial differences in poverty in India (No.

2004/53). Research Paper, UNU-WIDER, United Nations University (UNU).

2) Gaiha, R. (1988). Income mobility in rural India. Economic Development and

Cultural Change, 279-302.

3) Sharma, H. (2010). Impact of income shocks on asset portfolio of rural Indian

households: An empirical analysis. IBSU Scientific Journal (IBSUSJ), 4(1), 17-
38.

4) Shetty, S. L. (1990). Saving Behavior in India in the 1980s: Some lessons.

Economic and Political Weekly, 555-560.

Amman Patel:

1) Aneja, R. K. (1992). Evolving Optimum Media-Mix and Communication

Strategies for Rural Markets. Economic and Political Weekly, M75-M79.

2) Misra, S., Chadah, M. S., Singh, A. K., & Mishra, V. N. Consumer Awareness in
Rural India-An Empirical Study.

3) Bansal, M. P., Maan, M. V. K., & Rajora, M. M. (2013). Rural Retailing in India
A Changing Paradigm. International Journal of Advanced Research in Computer
Science and Software Engineering, 3(11).

4) Mathi, P. P. ((2011)). A Study on factors influencing rural consumer buying

behavior towards personal. International Journal of research in commerce &
management.

Ravinshu Shrivastava:

1) Singh, A., & Singh, V. (2014) Factors Affecting Buying Behaviour of Rural
Consumers. Population, 102(121.0), 18-1

2) Kumar, A., Kumar, S., & Singh, D. K. (2011). Rural employment diversification
in India: Trends, determinants and implications on poverty.

3) Mathi, K., & Saraswathi, C. (2013). Changing Life Style and its impact on the
Purchase Behavior among the Rural Customers. Asia pacific journal of research.

4) Rao, V. (2001). Poverty and public celebrations in Rural India. The Annals of the
American Academy of Political and Social Science, 573(1), 85-104.

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