The way rural markets are growing, it won’t be long before they start contributing substantially to profits of companies. A proactive approach is the best available tool
Rural India now accounts for around 50% of the half trillion dollar strong Indian economy. Already, 54% of FMCGs, 59% of durables, 100% of agri-inputs and between 10-50% of 4-wheelers and 2-wheelers are sold in rural India. The situation is similar in insurance, banking, telecom and other services. The rural market is now bigger than the urban market for most categories. My big thoughts for the corporations who want to work the rural market are:
RURAL BOOM: By 2012, it is expected that every village will be connected by an all-weather road, will have Internet, and almost every home will have electricity and possess a mobile phone. With significant improvement in rural infrastructure coupled with agricultural reforms, we can expect rural markets to reach inflexion point. This will lead to an explosion in demand. The way it happened in the urban markets in the mid-90s as a result of easy consumer finance, a boom in the IT sector and steep increase in the corporate salaries. Companies are not anticipating this boom and many will be taken by surprise when it happens.
REVERSE INNOVATION: Ever since the BoP concept (Base/bottom of Pyramid) was introduced, many companies have tried to transform their business models through single serve sachets, low cost production, extended mom and pop distribution and NGO partnerships. But in the rush to capture the fortune at the BoP, something may have been lost- the perspective of the poor themselves. In my view, most such initiatives have failed to hit the mark. Pushing the company’s reformulated or repackaged products into villages may indeed produce incremental sales in the short term. But in the long term, this strategy will almost certainly fail because the business remains alien to the communities it intends to serve. For decades, MNCs have sold modified products, a process widely recognised as glocalization. This strategy worked reasonably well with the more affluent urban consumers whose behavior is somewhat similar to Western consumers. With growing rural purchasing power and the three times larger population than urban, companies will need to develop appropriate products for this market. Minor modification won’t work as rural consumers are very different. This calls for a reverse innovation process, totally opposite to the globalization approach. This will involve a bottom up , community embedded process of co-invention and co-creation. Such an approach will bring the company into close, personal business partnership with BoP communities. While creating enduring value for community it will establish a foundation for a long-term corporate growth innovation.
NEW PRICE PERFORMANCE PARADIGM: Rural market requires products with decent performance at very low-cost. My advice to companies is to aim 75% performance and 25% cost. Nirma or Ghadi washing powders are excellent lower-performance, low- cost products compared to the global Surf or Ariel brands. Rural consumers want to derive core benefits from the product and these low-priced brands clean clothes adequately. Users are not worried if these powders don’t have a softener or a whitener. The sachet as a solution to making the offering more affordable will not work in long term as the price continues to remain high.
Rural India now accounts for around 50% of the half trillion dollar strong Indian economy. Already, 54% of FMCGs, 59% of durables, 100% of agri-inputs and between 10-50% of 4-wheelers and 2-wheelers are sold in rural India. The situation is similar in insurance, banking, telecom and other services. The rural market is now bigger than the urban market for most categories. My big thoughts for the corporations who want to work the rural market are:
RURAL BOOM: By 2012, it is expected that every village will be connected by an all-weather road, will have Internet, and almost every home will have electricity and possess a mobile phone. With significant improvement in rural infrastructure coupled with agricultural reforms, we can expect rural markets to reach inflexion point. This will lead to an explosion in demand. The way it happened in the urban markets in the mid-90s as a result of easy consumer finance, a boom in the IT sector and steep increase in the corporate salaries. Companies are not anticipating this boom and many will be taken by surprise when it happens.
REVERSE INNOVATION: Ever since the BoP concept (Base/bottom of Pyramid) was introduced, many companies have tried to transform their business models through single serve sachets, low cost production, extended mom and pop distribution and NGO partnerships. But in the rush to capture the fortune at the BoP, something may have been lost- the perspective of the poor themselves. In my view, most such initiatives have failed to hit the mark. Pushing the company’s reformulated or repackaged products into villages may indeed produce incremental sales in the short term. But in the long term, this strategy will almost certainly fail because the business remains alien to the communities it intends to serve. For decades, MNCs have sold modified products, a process widely recognised as glocalization. This strategy worked reasonably well with the more affluent urban consumers whose behavior is somewhat similar to Western consumers. With growing rural purchasing power and the three times larger population than urban, companies will need to develop appropriate products for this market. Minor modification won’t work as rural consumers are very different. This calls for a reverse innovation process, totally opposite to the globalization approach. This will involve a bottom up , community embedded process of co-invention and co-creation. Such an approach will bring the company into close, personal business partnership with BoP communities. While creating enduring value for community it will establish a foundation for a long-term corporate growth innovation.
NEW PRICE PERFORMANCE PARADIGM: Rural market requires products with decent performance at very low-cost. My advice to companies is to aim 75% performance and 25% cost. Nirma or Ghadi washing powders are excellent lower-performance, low- cost products compared to the global Surf or Ariel brands. Rural consumers want to derive core benefits from the product and these low-priced brands clean clothes adequately. Users are not worried if these powders don’t have a softener or a whitener. The sachet as a solution to making the offering more affordable will not work in long term as the price continues to remain high.
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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