Rural Marketing

Which multinationals have been most successful in rural India and why?

We have several recent examples [including] LG, Nokia.... But to look at it from a historical perspective,
the ones that have been really successful for many, many years have been companies like Colgate and
Philips. These companies invested right from the beginning in rural India, saw the value of the market,
developed products that were useful for the rural market, went into the rural markets with their
distribution systems, and were very successful. In fact, the rural market always provided them with a
nice buffer they could bank on. A significant part of their sales came from the rural market.

A company like Hero Honda has more than 50% share of the motorcycle market in India. Nearly 40% of
their sales come from the rural market. And then you have Godrej which has historically been very
strong in rural markets.

What about the flip side of the equation -- multinationals that have tried to enter the rural market but
have failed? Any examples of that sort?

I won't say "failed," but I think they had sort of weak starts -- let me word it that way -- and some of
them then probably decided not to pursue that any further. I think Kellogg had a weak start in the rural
market. P&G (Procter & Gamble) never really went into the rural markets. This may be hard to accept,
but many of the U.S. multinationals -- other than Colgate -- have not done as well in rural markets in
India. Most of the successful examples come from the European multinationals. So you're looking at the
old ITC, the old Unilever.... Philips, another European multinational, was very successful.

Are there reasons why Colgate did well? And what were some of the reasons why other U.S.
multinationals didn't do well? What can we learn from their experience?

The first lesson is that the rural market requires investment. It is not a dumping ground for things
that you cannot sell elsewhere. If you think of this as, 'I have some products; let me take them to
the rural market. This is a marginal market; I'll take advantage of it,' such thinking does not
work. I think the classic principles of marketing apply just as well there. Try to make what you
can sell there, rather than just sell what you already make.

I think another mistake MNCs make is to equate price consciousness and value consciousness.
This is a very important distinction. The rural market is not price-conscious, it's value-conscious.
The reason it's more value conscious is because spending a dollar for them pinches a lot more
than spending a dollar for somebody who earns hundreds of thousands of dollars. In some sense
they can't afford to go wrong in whatever they buy. That's an important thing to keep in mind.
The other thing to keep in mind is that the frequency of use in rural India may be a lot lower than
the frequency of use for the same product in urban markets. For some of them it may be
occasional-use products as opposed to regular-use products. I think another factor that people
miss is that the rural consumer is buying many things for emotional value. If you are very rich
you show your wealth by giving [money] away to good causes. If you're not, if you are rural
poor, you show that you care for your family by buying a branded soap. So there is an emotional
value attached to brands that I think MNCs should recognize and take advantage of.

Could you give any examples of the way in which companies like Colgate have analyzed and
understood consumers in rural India to build their success?

The first thing you have to do is actually observe these customers, rather than read statistics and
notes from either some UN organization or a consulting company. See what their problems are.
See what their challenges are. How do they use their products? How do they work? What are
their daily issues? How can you tailor your products to meet their needs? For example, let's
consider soap. Urban consumers might have one soap [cake] for bathing and one for something
else. But in the rural market, if you're going to buy one soap, you probably want a multi-purpose
soap. That multi-purpose soap will be used for bathing, for bathing children as well as adults.
You must also recognize that the environment may not be as clean, so it should have some
properties that satisfy those needs. So you have a single multi-purpose soap, but it's one soap.
And you recognize that there's no place to keep multiple soaps. It has to be one. You build to that
need.

You recognize that people carry a cell phone and use it at night when there's no power. Maybe
there has to be a flashlight with the phone. So you are observing people's behavior. You see what
they want, what they don't want, and then do it better. I think that helps. I would urge all
companies to actually visit and see what people do, how they lead their lives and what their
challenges are.

How do you suggest multinationals identify new business opportunities in rural India?

I think what I said would help. Observe -- but also recognize that not all rural people are the
same. There are very rich people in rural areas who live the same lives as people in New York.
But there are also very poor people. There's more heterogeneity. But also recognize that to
understand the consumer, "rural" is not really where you live. It's more of a mindset and a way of
thinking. It's the way of approaching problems. Many have argued that there are as many rural
people in cities as there are in rural areas.
What's the difference between the urban and the rural mindset?

More spirituality. little bit more concern for family . little more appreciative

Obviously not recognizing this distinction would be a major barrier for multinationals trying to
enter rural India. What you would say are some of the principal barriers that multinationals
should expect to face? How can they overcome them?

The first barrier is appropriate product design. We should be willing to design products to meet
people's needs. If you don't do that, I don't think it's going to work.

The second thing you have to recognize is the distribution system. The distribution systems in
rural India are different than those that exist in urban India. Rural distribution outlets are smaller.
That's good news as well as bad news. The bad news is they won't carry too many things. But the
good news is if you succeed, you will be the one they'll carry.

As marketing professionals, we always study the relationship between market share and
distribution share. If you look at the large outlets in the Westernized world, your distribution
share is pretty much proportionate to your market share. So, if you have 50% of the market, the
person gives you 50% shelf space. If you have 20% share you get 20%. If you get one more than
20% you pay for it. In rural areas, the person who has the highest market share gets 100%
distribution share.

Think of a person who's traveling on a bicycle, going to a village, carrying soap to sell. He's
going to carry one brand of soap. And which is the one he's going to carry? He's going to carry
the one that is the most popular brand. Once you capture that, it's yours. So there is a clear barrier
to entry. So you invest in your brand, try to build market share -- or popularity -- so that they
carry your brand. So that's the second [barrier].

The third is frequency of use. You have to recognize that frequency of use may vary quite a bit
across urban and rural areas. Some products that are regularly used in urban areas are
infrequently used in rural areas. One strategy that some companies have adopted is to go for
smaller sizes. Another strategy is to try to increase frequency of use. Try to make one product the
product of choice. And there are other issues also. For example, because of location, because of
distances, it's not just making a cheaper product. It's also recognizing that products may have to
have different capabilities. If I am making a television for rural areas, it's not just sufficient to
say I'll have the cheapest television. It's also important to recognize that the signal strength may
be weaker in the rural areas. So I have to provide certain unique benefits. These may be totally
irrelevant in cities. When you connect a cable to a TV, the signal strength is determined by the
wire. If you are in a far away location it's mostly through the air. You need to recognize that.
To your mind, which company has been most successful in designing products for the rural
Indian market? What's the most striking example that comes to your mind?

I think Unilever would probably be at the forefront of the multinationals. It has been there a long
time.

What was their strategy?

Take, for example, soap. They have a simple carbolic soap that works across many applications
-- bathing, washing... They realized that. I think it did well. This is a good example of a company
recognizing that need. [It is also a good example] of a company recognizing that to sell you also
need to create buying power. So, if you want to sell your products among people, why don't we
create some incomes there? Create jobs for women. Bring them into the distribution system. It
increases the family income and it increases their purchasing power. I think that you grow with
them, rather than you grow at their expense.

I think people respect that. And that's a better long-term strategy -- be a part of the milieu as
opposed to trying to extract consumer surplus as quickly as you can and then get out. That's not a
viable long-term strategy in that market.

I am sure people would say that's not viable in almost any market.?

That's true. But in rural India you should create wealth as you try to absorb wealth. It has to
happen simultaneously. Companies that have become a part of the society have done better.
Unilever is a good example of that, where they've integrated themselves well into the system and
have gained from it. More recently, LG is doing a good job with their phones in India. They have
taken great care to develop phones that are suitable for the rural market, inexpensive and with
certain characteristics that are needed there.

Any final words of advice for CEOs of multinationals that want to enter rural India?

I would say two things. Distinguish between value-consciousness and price-consciousness. It's
important to remember that consumers in rural areas care about value more than price. Second,
grow with them rather than grow at their expense. I think if you keep these two things in mind,
you'll be better off.