Introduction:

The rural market in India started showing its potential in the 1960s. The 70s and 80s
witnessed is steady development. Post 1990s with rising income and mushrooming
middle class across the country, various companies focused on tapping rural market.
Rural Marketing in Indian economy can be classified under two board categories and
these are: the market for consumer goods that comprise of both durable and non-
durable goods and market for agriculture inputs that includes fertilizers, pesticides
and seeds so on.

The rural population in India accounts for around 833 million which is exactly 68% of
total India’s population. There are 13.8 crore households reside in 6,38,365 villages
(Census 2011). The size of rural market itself speak of its potential. The rural market
in Indian economy generates almost more than half of country’s income.

The demand and living pattern of Indian rural habitants are different and varies
considerably. The cultural dimensions are also varying and these factors certainly
make an impact on the need and behaviour of rural consumers. Rural consumers
are now demanded branded products mainly because of increase in disposable
income and literacy rate. Rural consumers have more aspirations, today this
segment of buyers consumes large variety of products, both durable and non-
durable and willing to pay right price for right products.
The government spending with various schemes/planning on irrigation, flood control,
infrastructure development, anti-poverty schemes and lead to the consumption of
manufactured items, so that they can improved the condition of rural business.

Objective of the Study:

• To understand the meaning and definition of rural marketing

• To understand the nature and characteristics of rural markets
• To understand the various distribution models for FMCG products in rural
India
• To understand the different models of distribution used by various FMCG
brands in India

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Meaning and definition of Rural Marketing
The term “rural marketing” used to be an umbrella term for the people who dealt with
rural people in one way or other. This term got a separate meaning and importance
after the economic revaluation in Indian after 1990. So, before venturing into the other
aspects of rural marketing let us discuss the development of this area in different parts
which is briefly explained here.
• Part I (Before 1960): Rural marketing referred to selling of rural products in
rural and urban areas and agricultural inputs in rural markets. It was treated as
synonymous to „agricultural marketing‟. Agricultural produces like food grains
and industrial inputs like cotton, oil seeds, sugarcane etc. occupied the central
place of discussion during this period. The supply-chain activities of firms
supplying agricultural inputs and of artisans in rural areas received secondary
attention. The local marketing of products like bamboo baskets, ropes, window
and door frames, and small agricultural tools like ploughs by sellers like black
smiths, carpenters, cobblers, and pot makers were emphasized in general. This
was totally an unorganized market where all banias and mahajans (local
business people) dominated this market.
• Part II (1960 to 1990): In this era, green revolution resulted from scientific
farming and transferred many of the poor villages into prosperous business
centers. As a result, the demand for agricultural inputs went up especially in
terms of wheat and paddies. Better irrigation facilities, soil testing, use of high
yield variety seeds, fertilizers, pesticides and deployment of machinery like
powder tillers, harvesters, threshers etc. changed the rural scenario. In this
context, marketing of agricultural inputs took the importance. Two separate
areas of activities had emerged- during this period „marketing of agricultural
inputs‟ and the conventional “Agricultural Marketing”. During this period, the
marketing of rural products received considerable attention in the general
marketing frame work. The formation of agencies like Khadi and Village
Industries Commission, Girijan Cooperative Societies APCO Fabrics, IFFCO,
KRIBHCO, etc., and also the special attention government had paid to promote
these products were responsible for this upsurge. Village industries flourished
and products like handicrafts, handloom textiles, soaps, safety matches,
crackers etc. hit the urban market on a large scale from rural areas.

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• Part III (After Mid 1990s): The products which were not given attention so far
during the two earlier phases were that of marketing of household consumables
and durables to the rural markets due to obvious reasons. The economic
conditions of the country were as such that the rural people were not in a
position to buy these kinds of products. Secondly, our market was in a close
shape and we never allowed companies (foreign) to operate in Indian market.
But we lifted the ban and opened up economy, consequently companies started
flourishing in India. The small villages/hamlets were widely scattered making
reach difficult and expensive consequently. Rural markets were seen an
adjunct to urban market and conveniently ignored. However, since 1990s,
India‟s industrial sector had gained in strength and maturity. Its contribution to
GNP increased substantially. A new service sector had emerged signifying the
transformation of agricultural society into industrial society. Meanwhile, due to
the development programmes of the central and state governments, service
organizations and socially responsible business groups like Mafatlal, Tatas,
Birlas, Goenkas and others, the rural area witnessed an all-round socio-
economic progress. The economic reforms further accelerated the process by
introducing competition in the markets. Steadily, the rural market has grown for
household consumables and durables. Rural marketing represented the
emergent distinct activity of attracting and serving rural markets to fulfill the
needs and wants of persons, households and occupations of rural people. As
a result of the above analysis, we are in a position to define rural marketing.
“Rural marketing can be seen as a function which manages all those activities
involved in assessing, stimulating and converting the purchasing power into an
effective demand for specific products and services, and moving them to the
people in rural area to create satisfaction and a standard of living for them and
thereby achieves the goals of the organization”.

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Research Methodology

The present study is descriptive in nature. The data used is secondary in nature and
has been collected from various research journals and websites.

Share of rural in total population

2001 (in crore) 2011 (in crore) Difference (crore)

India 102.9 121 18.1
Rural 74.3 83.3 9.0
Urban 28.6 37.7 9.1
(source: census of India 2011)

From the above mentioned table we can say that total growth in rural population from
the year 2001 to 2011 is around 9 crore and growth in urban population from 2001 to
2011 is around 9.1 crore. So by analysing this we can interpret that there is huge
opportunity for marketers to capture rural market.

Nature and characteristics of Rural Market

There goes a saying that the proof of the pudding lies in the eating. So also the proof
of all production lies in consumption/marketing. With the rapid pace of technological
improvement and increase in peoples buying capacity, more and better goods and
services now are in continuous demand. The liberalization and globalization of the
Indian economy have given an added advantage to sophisticated production,
proliferation and mass distribution of goods and services. Taking these into
consideration, the question may arise whether marketers should concentrate their
activities in urban India consisting of metros, district headquarters and large industrial
townships only, or extend their activities to rural India. Rural India is the real India. The
bulk of India’s population lives in villages. In terms of the number of people, the Indian
rural market is almost twice as large as the entire market of the USA or that of the
USSR.
• Agriculture is main source of income.

• The income is seasonal in nature. It is fluctuating also as it depends on crop

production.

• Though large, the rural market is geographically scattered.

• It shows linguistic, religious and cultural diversities and economic disparities.

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 • The market is undeveloped, as the people who constitute it still lack adequate
purchasing power.

• It is largely agricultural oriented, with poor standard of living, low-per capital

income, and socio-cultural backwardness.

• It exhibits sharper and varied regional preferences with distinct predilections,

habit patterns and behavioural characteristics.

• Rural marketing process is both a catalyst as well as an outcome of the general

rural development process. Initiation and management of social and economic
change in the rural sector is the core of the rural marketing process. It becomes
in this process both benefactor and beneficiary.

Rural India has a population of 83.3 core spread across 6,38,000 villages. The rural
urban distribution ratio currently is 68.84 percent and 31.16 percent respectively.

Rural Market Demand

By analysing above table we can say that The Fast Moving Consumer Goods sector
in rural and semi-urban India is estimated to cross US$ 100 billion by 2025. The rural
market is anticipated to expand at a CAGR of 17.41 per cent to US$ 100 billion during
2009-25 and rural market FMCG accounts for 40 percent of overall FMCG market in
India, in revenue terms.

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From the above table we can say that in consumer durable products the difference
between urban and rural area is nil, which means that rural people are also spending
enough money on consumer durable products because of increase in dispensable
income and literacy rate. Since in rural area approx. 68 percent of India’s total
population are living and due to slow growth rate in urban market there is a huge
chance for marketers to expand their business in rural area.

Mastering Rural Customer Reach

When it comes to reaching India’s rural customers, the biggest obstacles are
inadequate distribution networks, partners with limited capabilities, long payment
cycles and weak marketing channels. Not surprisingly, respondents to our survey cited
“high cost to serve the rural markets” as their number-one challenge: 50 percent listed
it as one of the top three challenges they face. When asked what drives the higher
costs, more than 60 percent reported higher logistics costs in rural areas. More than
40 percent of companies considered “recruiting and selecting channel partners” an
additional critical challenge they face in reaching rural customers.

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Fast Moving Consumer Goods: Hub-and-Spoke Consumers of FMCG products
expect fast response time; that is, when a consumer decides to either eat a snickers
bar or wash their laundry with Nirma detergent, the consumer expects their desired
product to be available immediately for purchase. This means that a company
entering into a rural emerging market with an FMCG product needs to make the
product available at the local village level.

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Distribution Models For Rural Markets
There are different models for distribution of FMCG and consumer durables which
have been further discussed.
Models for FMCGs
Rural distribution models of major FMCG companies can be divided into two
generalized models (MART, 2004). The first distribution model (DM1) is advanced in
nature where separate channels are used for distribution in urban and rural markets
as depicted in the figure.

The above model has been adopted by players who are well established in the market
with a deeper infiltration in rural India. The difference in rural and urban distribution
starts with the addition of sub-distributors under the distributors for deeper penetration
into villages with 5000 or less population.
The wholesalers on the other hand cater to the underserved satellite areas where the
company distribution has not yet penetrated. The FMCG giant HUL has adopted DM1
where rural distributors are appointed at district levels. HUL appoints star sellers,
basically a wholesaler for every 20-25 villages who have the capacity to invest, has a
large rural and satellite network and keep all stocks. For remote villages with less than
population of 2000 project Shakti has been introduced under which individual women

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members of SHGs are appointed as dealers for their own village and five more
neighbouring villages. HUL has also started appointing male members of the villages
known as Shaktimans who carry products in their bicycles and move from village to
village for sale.
The logistics starts with the distribution of stocks from the manufacturing units to CFA
and up to the distributors point at company expense using heavy vehicles by road.
The stock from CFA to distributor is transferred on freight-paid basis. The sub-
distributors cover the market using a van at the expense of 1-1.5 percent of their
business volume. The permanent journey plan (PJP) which is the route plan is framed
in consultation of distributors and the sales team to reduce expenses. The PJP is
prepared for 6 days in a week keeping in mind the haat days, distance and the number
of outlets to be covered and the type of required vehicle. The number outlets covered
per day are 30-40 of which 15-20 are successful. The area of distribution per distributor
is 50km radius.

Distribution Model 2 (DM2)

DM2 is a conventional model where both urban and rural distribution takes place
through the same channels as shown in figure 3. This strategy is adopted by some
regional and national players like Priyagold biscuits, Ghari detergent with limited SKUs
who generally donot adopt a separate rural strategy.

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DM2 offers better margins to intermediaries as distribution cost is minimized.
Distributors and wholesalers take up the responsibility of pushing sales to nearby
villages. The stock is dispatched to company depots from where distributors take their
share on a freight-paid basis using a heavy vehicle. Matadors and tempos are used
for transportation of goods by wholesalers in the rural areas. The area
covered by the distributor in DM2 is larger than DM1 which leads to problems in
coverage. Priyagold biscuits has adopted order booking policy as the number of
assortments is high. Nirma faced problems in adopting DM2 after the increase in its
SKUs with toiletries and Nima range of products. It has espoused a variant of DM1 as
shown in fig.parallel distribution and sales channel consisting of 2000 distributors and
an independent sales force has been set up for Nima range of products. Direct
distributors cover 300-400 wholesalers and retailers in district levels whereas sub-
distributors work at the tehsil level.

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Developing Rural India By Rural Centric Distribution Models
Rural centric distribution models optimize the existing infrastructure and human
resources available in rural markets therby creating innovative and cost-effective
sustainable business to serve rural consumer needs. These models include both
traditional-haats/shandies, cooperatives, PDS and modern approaches-SHG model,
youth entrepreneurship model, mobile retailing, petrol pumps and NGOs.
Haats: The survey report of RMAI, 2010 shows that the number of haats in India
(43,000) has outnumbered the total number of Walmart stores. The ratio is 1 walmart
to 5 haats. The average annual sales from these haats are worth INR 5000 billion.
These haats apart from agri products also sell FMCG brands like Lifebuoy, Clinicplus,
Colgate, Ponds and Fair and Lovely. The haat vendors generally buy from the nearby
wholesalers mostly on credit and sell the products to rural customers.
SHG: Also known as self help group consists of 10-15 women organized by govt or
NGOs. SHGs get loans from rural banks to set up income generating enterprises. The
project Shakti introduced by HUL has been successfully running with 7 million groups
since the year 2000 when it started in rural Andhra Pradesh. The idea was to create

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low risk, profitable micro-enterprise opportunities for women who become direct-to-
home distributors of HUL’s products. The distribution is a 3-tier network with CFA at
state level followed by rural distributors at district levels and Shakti dealers (SDs) in
remote villages. The SDs are trained and there monthly earnings vary between INR
700 to 2000. Further HUL has introduced Shaktimaans who are distribute products on
bicycles in villages with less than a population of 2000.

Vans: Companies like Eveready, HUL and 3A bazaar load vans with stocks and visit
villages where they sell the goods at retail price. This mode of distribution is known as
mobile retailing.

The public distribution system (PDS): It is a system of distribution of essential

commodities to a large number of people through a network of fair price shops (FPS)
or ration shops. India has 476,000 FPS of which 380,000 are in rural areas. Marketers
like ITC, HUL, TATA, BSNL and LIC sell their products using the PDS (Kashyap,
2012).

Cooperative societies: India has the largest network of cooperatives in the world
comprising of more than 500,000 in numbers. 34 percent of fertilizers are distributed
by these cooperatives. Warana Bazar, a milk and sugar cooperative society is running
successfully in Maharashtra. AMUL and Sri Mahila Griha udyog cooperative societies
are successfully running globally (Kashyap, 2012).

Petrol pumps and extension counters: Indian oil corporation’s has set up kisan seva
Kendra in its petrol pumps. IOCL petrol pumps sell consumer goods, agriculture and
banking products besides fuel.

Modern retail development in rural markets

The modern retail development in rural India by the introduction of shopping malls set
up by company’s like ITC, DSCL, Godrej and Tata. ITC is the initiator in this segment
with Choupal Sagar the first rural mall (kashyap,2012). These shopping malls have
led to development of marketers as well as the rural people. Marketers have an
increase in sales revenue, profits and customers by exploring the rural markets.

15
On the other hand the rural villagers who were unaware of many advancements and
happenings in the world are getting information and understanding the use of
technologies in their day-to-day lives.

Some other FMCG companies tried to reach the rural retailers through a patchwork of
wholesale and direct channels but the results were not consistent across geographies.
It was in the 1990’s that FMCG companies realized that distribution in rural market
requires a fixed model and consistency in purpose & execution. The various models
used by FMCG companies are Project Shakti (HUL), e-choupal (ITC), Hariyali Kisan
Bazaar (Godrej) etc.

Distribution Models of FMCG Companies

Following are some of the distribution models followed by FMCG companies for Rural
India:
Figure: Supervised Rural Hub & Spoke Network
for Major FMCG Companies (HUL, P&G, Marico, Perfetti, FritoLay, Nestle etc)

Hub and spoke network is the most popular rural distribution mechanism among the
larger FMCG companies like HUL, P&G, Marico, Nestle, FritoLay etc. The difference
between this Hub and spoke network and the one shown in the next diagram is the
level of control kept by the company on the substockists. These spokes or substockists
are generally monitored very closely by company personnel e.g. in FritoLay, these

16
spokes are monitored by Lower Town Class Customer Executives (LTC-CE’s) and
Roaming Retail Sales Agents (RRSA’s). Also these spokes are billed through a
company provided billing platform installed at the Superstockist office named SAMNA.
Hence, this kind of a distribution channel is heavily supervised by the principle
organization. The following network is similar in nature but supervised sparsely.
Note: CFA stands for Carrying and Forwarding Agent and the main job of this entity
is to break bulk and manage the dispatches of assorted products to the distributors.

Figure: Non-Supervised Rural Hub & Spoke Network for Smaller FMCG
Companies (Raja Biscuit, Priya, Lehar Foods)

This kind of a non-supervised network is popular in companies (or divisions within

companies like the Lehar Foods division of PepsiCo) where manpower is lower and
the volume of product is also low. The Superstockists are generally charged with the
job of appointing substockists and the company supervision ends at the Superstockist
level itself. Billing to substockists is generally in pen and paper format or in any billing
package chosen by the Superstockist. In such a model, the transactions are kept at a
minimal level by avoiding any reverse logistics like taking back of expiries.

Figure: Rural Direct distribution for Premium Products

Direct distribution in rural areas is used in case of premium products with a relatively
higher Rs/unit e.g. in case of United Breweries, Seagram’s, Officer’s Choice, Dove
Shampoo, Ponds White Beauty, Tropicana, Gatorade, Lipton Ice Tea, Quaker Oats.

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Figure: Rural Wholesale Distribution for Smaller FMCG players or lesser volume
products within larger FMCG Companies

Rural distribution through wholesale channel is popular in case of smaller FMCG

companies which cannot afford to have a dedicated distribution channel owing to lower
number of company personnel or owing to lower levels of commitment to stay for the
long term. Urban wholesalers are based in larger urban towns (greater than 1 lakh
population towns) where rural retailers go to make purchases. Feeder wholesalers are
based in feeder towns (10 thousand to 1 lakh population) which are based nearer to
villages. Feeder town wholesalers are considered very important for FMCG distribution
into rural markets. Many smaller FMCG’s are highly dependent on rural wholesale
distribution for their rural penetration.

Figure: Rural Fat Dealer model for FMCG companies with heavy reverse
logistics like Coca Cola
& PepsiCo Beverages

The fat dealer model is meant to facilitate a reverse logistics of empty glass bottles
and plastic crates back from the rural retailer to the bottling plant for washing and
refilling. The Fat Dealers (somewhat akin to spokes) are heavily supervised. The
number of manpower required in this kind of a channel is typically 3 to 4 times the
number required by a supervised Hub & Spoke Model. This model is used to distribute
beverage products like Coca Cola, Pepsi, 7 Up, Sprite, Mirinda, Fanta, Mountain Dew,
Limca, Nimbooz etc.

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Qualitative Research:
Factors Determining Choice of Model
Qualitative Research brought out the following factors determining the choice of rural
distribution model:
• The expected volume of the product in rural markets. Lower volume product
may render a dedicated distribution channel unviable and in such cases
wholesale channel may be the best option.
• The Sales & Distribution Margin available. A higher distribution margin (upward
of 8-9%) allows setting up of a Hub & Spoke network (explained below).
• Is there any reverse logistics e.g. return of glass bottles in case of beverages,
return of expiries in case of food products? If a return logistics is involved, the
cost of distribution goes up and channels like wholesale is unusable e.g.
Beverage distribution is not possible through wholesale channel
• Premium value of the product as measured in Rs/kg or Rs/Liter. Premium
products have lesser rural penetration aspirations and can even manage with
an urban model of direct distribution replicated in rural
• Credit requirement for selling the product. A product which requires a higher
credit requires a local distribution entity like a Substockist. A party located
beyond a 10km radius will find it difficult extending credit and trusting a rural
retailer with his money. Direct distribution and wholesale distribution is not a
feasible solution in such a situation.
• Number of SKU’s (Stock Keeping Units) sold through a channel. A dedicated
channel helps in selling a large number of SKU’s
• The number of company personnel supervising each district e.g. since
Tropicana has only 2-3 Sales Officers supervising each state, they possibly
cannot manage a very large network of superstockists and substockists.
• The time horizon of a product. If a product is not for a very long term or if there
is uncertainty regarding the time horizon of the product, then wholesale channel
is a good option.
• Experimental launches generally prefer the wholesale channel to test out the
demand

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Figure: Framework for designing rural distribution

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Conclusion
Marketers as discussed in the above sections have diverse ways of exploring and
penetrating the rural markets of India. They have special distribution strategies
Development of rural India not only involves the development of agriculture, health,
education, infrastructure, poverty reduction and employment generation as
said by department of rural development, 2014. Along with the government companies
have taken up the social responsibility of development of rural India. These companies
like HUL, ITC, Godrej and others have generated rural employment by their marketing
activities. Their products and brands are being distributed and sold to rural customers
by the rural people thereby generating employment, income and making availability of
goods easier.
This is helping India to progress and compete with other developed countries as most
of the people in India live in villages and semi-urban areas, who if developed properly
will lead a progressive life. As we saw from the preceding discussions, the rural
distribution model to be chosen for any kind of Rural channel reengineering has to be
a thoughtful process and cannot be a patchwork of hasty and gut-feel decisions made
by the operating managers. The “Availability” Challenge and the “Place” tool must be
as per a pre-decided decision model as provided in this paper. This rural distribution
framework is applicable for all FMCG companies operating in India.

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Articles:

• Rural Retail Management BY SATHYANARAYANA S. RAMANI GASNESH

• Accenture-Masters-of-Rural-Markets-Selling-Profitably-Rural-Consumers
• Creating a distribution advantage in India- Boston Consulting Group
• Modern Retail Emergence In Rural India-The Progressive Way-
International Journal of Information, Business and Management, Vol. 8,
No.1, 2016
• Marketing Channel Strategies in Rural Emerging Markets- Unlocking
Business Potential- By Benjamin Neuwirth
• Tapping Indian Rural Market - Rural Distribution Strategy- Deepa Ingavale

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