RURAL MARKETING

MODULE 3

Syllabus:-

Segmenting, Targeting and Positioning:

Conditions for Effective Market Segmentation, Approaches for Segmenting the Rural Market,
Rural Market Segmentation Tools.

Product & Pricing Strategies for Rural Markets

Rural Product classification, Product Decisions and Strategies, Product Life Cycle Strategies in
Rural Markets, New Product Development in Rural Markets, Rural pricing Strategies.

Market segmentation

Market segmentation is a method for achieving maximum market response from limited
marketing resources by recognizing differences in the response characteristics of various parts of
the market. It is one of the most interesting and an effective tool in the hands of marketer.
Marketer segmentation is the sub-division of a market into homogeneous subset of customers
where any subset may conceivably be selected as a target market to be reached with a distinct
market mix.

Rural market segmentation is the process of dividing a potential rural market into distinct sub
markets of consumers with common needs and characteristics. Rural market segmentation is the
starting step in applying the rural marketing strategy. Once, segmentation takes place, the
marketer targets the identified customer groups with proper marketing mix, so as to position the
product/brand of company as perceived by the target segments.

According to Philip Kotler, “Market segmentation is the sub dividing of a market into
homogeneous subsets of consumers, where any subset may conceivably be selected as a market
target to be reached with a distinct marketing mix.”

Market segmentation is a method for achieving maximum market response from limited
marketing resources by recognizing differences in the response characteristics of various parts of
the market. It is one of the most interesting and an effective tool in the hands of marketer.
Marketer segmentation is the sub-division of a market into homogeneous subset of customers
where any subset may conceivably be selected as a target market to be reached with a distinct
market mix.
Rural market segmentation is the process of dividing a potential rural market into distinct sub
markets of consumers with common needs and characteristics. Rural market segmentation is the
starting step in applying the rural marketing strategy. Once, segmentation takes place, the
marketer targets the identified customer groups with proper marketing mix, so as to position the
product/brand of company as perceived by the target segments.

According to Philip Kotler, “Market segmentation is the sub dividing of a market into
homogeneous subsets of consumers, where any subset may conceivably be selected as a market
target to be reached with a distinct marketing mix.”

Important Characteristics

It is difficult to effectively catch everybody in the market place, so business will aim their
producers and services at specific parts of the market. After selecting a segment of the market,
marketer should evaluates their choice carefully and ensure that they have made the right
decision. If a business begins with promoting products of market segments without a full
evaluation, it is risky, wasting time and money. A successful market segment will usually meet
the various criteria.

To be useful, segmentation of market must exhibit some characteristics that are as follows:

Measurable:

The market segment must be measureable in order to calculate the market potential. The segment
variables must be distinct, clear and measurable. The size, profit and other relevant
characteristics of the segment must be measurable and obtainable in terms of data. If the
information is not obtainable, no segmentation can be carried out.

Companies are unable to reach rural markets effectively due to lack of comprehensive data
related to markets and consumers. In the absence of information related to size, purchasing
power and profiles of rural consumers, these were considered similar to urban cities. Today rural
markets are being studied by various companies to obtain valuable data that can be used for
segmentation.

Accessible:

The segment should be accessible through existing network of people at a cost that is affordable.
Reach is important to serve the segment. Now, while segmenting rural markets, it is important to
ensure that the segmented market is conveniently reachable to the marketer to deliver products.

Till recently, marketers preferred urban markets to rural one because of the inaccessibility of the
rural markets. But due to improvement in infrastructure and in connectivity of villages and other
new channels of distribution, rural markets are becoming increasingly accessible. Rural
consumers can be reached through vans and through village retailers visiting nearby town
distributors and retail outlets.

Segments must be accessible in two senses. Firstly, marketers must be able to make them aware
of products and services. Secondly, they must get these products to them through distribution
system at a reasonable price. For example targeting rural population could be through television,
radio and by opening outlets locally.

Differentiable:

The market segments have to be diverse that they show different reactions to different marketing
maps, if not then there would have been no use to break them up in segments. Segments attract
the consideration of marketers only when they have distinguishing features. Rural consumers are
identified as different segments as their responses may be different from urban consumers at
least for some products.

For Example: While buying a motorbike, rural consumers give more importance to sturdiness,
mileage and carrying capacity of bike, whereas urban consumers look for style, power and
aesthetics.

Substantial:

The segment should be large enough to be profitable. The segment should comprise either a large
number of light users or a small number of heavy users so that marketing becomes beneficial to
the company. It should consist of people, who are similar in perceptions, learning, attitude,
preferences and actions. As such, covering them will be easy.

Rural areas are not homogenous. Region-wise differences are found in language, mind set and
behaviour. So, it is difficult to design separate promotional programmes as the size of consumers
is not large enough to make the effort viable.

Actionable or Feasible:

It has to be possible to approach each segment with a particular marketing programme and to
draw advantages from that. The segments that a company wishes to peruse must be actionable in
the sense that there should be sufficient finance, personnel and capability to take them. Hence,
depending upon the reach of the company, the segments should be selected.

General Considerations:

Apart from the above requisites, the segment must have growth potential, be profitable, carries
no unusual risk and has competitors, who do not fight directly with the product or brand. The
firm must possess enough resources for market segmentation. The segment criteria should follow
the instructions and guidelines issued by the government regarding distribution of a particular
product.
The segment should be relatively stable over a period of time. The segment that emerge rapidly
and disappear just as quickly will not be a good segment. So segment must be suitable,
practicable and attractive to the firm.

Major Segmentation

Geographic Location:

Geographic Location is the usual and popular basis for market segmentation. The market could
be divided into urban and rural markets. While urban population is highly concentrated, rural
population is scattered over a wide geographical area. Since 1980s, many companies are
targeting rural consumers due to growing purchasing power. About 50 per cent of the rural
population lives in about one lakh villages having a population of over 2,000 each and
companies like HUL have been able to cover this segment by establishing retail network in these
villages.

We have four regions, i.e., South, West, East and North. It has been observed that consumers in
South, by and large, are conscious about cleanliness, health, education and culture. Due to hot
weather conditions, there is increased use of talcum powder in South and Ponds has a high
market share in this region. The demand for woollen dress materials is high in North during
winter season compared to other regions in the country.

Demographic Segmentation:

In rural areas, the husband provides economic security to the members of the family and he
makes purchase decisions. Nowadays, school-going children have high awareness about new
products and they are influencing buying decisions in the family. Therefore, the marketers are
targeting the younger lot for products like biscuits, chocolates, shampoos and soft drinks.

Socio-Economic Segmentation:

Major income still comes from agriculture though the share of non-farm income has gone up in
recent years. Based on occupation, there are four important groups, who form the target
population for consumer durables like colour TV, refrigerator and two-wheelers.

Farmers:

(a) The landlords which include Zamindars/Mitadars/Thakurs, traders and local moneylenders.
They possess large acres of land and have spacious houses in the village. They have high
disposable income. Their lifestyle can be compared to that of upper income group of urban areas.
They have relatives staying in cities and in many cases abroad also. Their children go to urban
schools.
(b) Affluent farmers who live in villages and follow modern methods of cultivation. They
occupy a high position in the society that is above the normal population with respect to social
and economic status in the village. They are hardworking and aspire for better living conditions.

They have high disposable income and try to maintain their status in the village. The owner
farmers who constitute 34 per cent of households, own about 30 per cent of durables.

The small and marginal farmers occupy low rank in the rural social hierarchy and their needs are
basic, i.e., food, clothing and shelter.

Traders:

The traders constitute about 8 per cent of the rural households and own between 15-20 per cent
of the durables.

Service Class:

The service class who includes teachers, clerks, mechanics, electricians in the villages and office
and factory workers, who work outside the village, constitute about 13 per cent of rural
households and own 30-40 per cent of durables.

Rural income is highly seasonal as it is dependent on agricultural activities. Therefore, most of

the purchases of durables, jewellery and clothes takes place during post-harvest season and
during festivals like Onam, Pongal, Diwali, Idd, Gudipadwa and Baisakhi.

Family life cycle exercises definite influence on consumer behaviour with regard to purchase of
consumer goods.

Example: In rural areas, the users of shampoo are the young daughter or the daughter- in-law and
the elderly women continue to use natural products like shikakai powder.

Rural Youth:

The rural youth in the age group of 20-25 years, play a major role in the purchase decisions of
the family. They view television and cinema and enjoy seeing cricket matches and action
movies. They are the target group for products like toothpaste, shampoo, soft drink, deodorant,
television model, audio system, mobile phone, etc. They are moving from bicycles to motor
cycles. Even branded clothes and shoes have entered rural homes, though the sales volumes are
low at present. Marketing researchers can meet them at telephone booth, playground, retailer
shop and village square. However, all decisions regarding agriculture and inputs are taken by the
head of the family in most of the cases.
Psychographic Segmentation:

Personality traits such as dominance, aggressiveness, achievement orientation, motivation, etc.,

may influence buyer behaviour. Lifestyle can be measured by the products the person uses and
the person’s activities, interests, opinions and values.

In a rural society, there are grades of people based on income, occupation and wealth. The
educated youth, innovative farmers, village president are the important opinion leaders and
marketers are targeting this group for promoting products and services.

Product-Oriented Approach (Customer Response Behaviour):

The customer response or buyer behaviour may be considered in relation to product benefits,
product usage, store patronage and brand loyalty. We want to know why consumer buys a certain
product. Example- Bullet Motor Cycle is considered as a sturdy vehicle (product benefits) and
creates a ‘Macho Image’.

Use Pattern:

A buyer may be classified as heavy, medium, light user and non-user. The use of consumer
products such as shampoo, hair oil, toothpaste, talcum powder is low in rural areas due to poor
affordability and many marketers have introduced small unit packs of these products to meet the
requirements of lower and middle class rural consumers. In agriculture, cotton farmers are heavy
users of pesticides and the marketers have come out with large packs (20/25 liters) of the
products to meet their special requirements.

Benefits Pattern:

Consumers buy products primarily to secure expected benefits. Rural buyers look for value for
money while purchasing products. They look for quality but cannot afford high prices. They are
concerned with utility of the products rather than mere good looks and frills. The rural
consumers particularly the lower/middle income group are budget- conscious unlike, urban
consumers who are comparatively more status-seeking.

Examples:

Bullet motor cycle is popular in villages due to its ruggedness.

HMT watches are seen on many a wrists for its utility value.

Rural consumers prefer strong tea (Kadak Chai).

Titan has introduced Sonata brand watches; priced between Rs.350 and Rs.800 to meet the
requirements of price-sensitive rural and semi-urban consumers.
Brand Loyalty:

A rural consumer is price sensitive due to low purchasing power and lack of awareness about the
quality of products available in the market. However, they will continue to patronise a brand
once they are satisfied with the product.

Example: A few of the popular brands are Lifebuoy, Parle, Ponds, Nirma, Tata Salt, Colgate,
Philips, etc.

Store Patronage:

It has been observed that rural consumer buys from the same shop. The retailer extends credit to
the consumers and many have running credit account with the same retailer. He influences
buying decisions of the consumers. Therefore, the marketers have to identify key retailers in
rural markets and ensure product availability for success of business.

Targeting

After segmenting the market based on the different groups and classes, you will need to choose
your targets. No one strategy will suit all consumer groups, so being able to develop specific
strategies for your target markets is very important.

There are three general strategies for selecting your target markets:

Undifferentiated Targeting: This approach views the market as one group with no individual
segments, therefore using a single marketing strategy. This strategy may be useful for a business
or product with little competition where you may not need to tailor strategies for different
preferences.

Concentrated Targeting: This approach focuses on selecting a particular market niche on which
marketing efforts are targeted. Your firm is focusing on a single segment so you can concentrate
on understanding the needs and wants of that particular market intimately.

Small firms often benefit from this strategy as focusing on one segment enables them to compete
effectively against larger firms.

Multi-segment Targeting: This approach is used if you need to focus on two or more well
defined market segments and want to develop different strategies for them. Multi segment
targeting offers many benefits but can be costly as it involves greater input from management,
increased market research and increased promotional strategies.

Prior to selecting a particular targeting strategy, you should perform a cost benefit analysis
between all available strategies and determine which will suit your situation best.
Positioning

Positioning is developing a product and brand image in the minds of consumers. It can also
include improving a customer’s perception about the experience they will have if they choose to
purchase your product or service. The business can positively influence the perceptions of its
chosen customer base through strategic promotional activities and by carefully defining your
business’ marketing mix.

Effective positioning involves a good understanding of competing products and the benefits that
are sought by your target market. It also requires you to identify a differential advantage with
which it will deliver the required benefits to the market effectively against the competition.
Business should aim to define themselves in the eyes of their customers in regards to their
competition.

Approaches for Segmenting the Rural Market

Based on Size of Village Population

The size of population residing in a village is a significant factor which determines the overall
potential demand for a product or service in that village

Based on Location with Respects to Nearby Town

1. Villages near Urban Centers.

2. Villages in Developing Districts

3. Immobile and self sufficient Asiatic Villages

Based on Size of Farmland

1. Marginal Farmer: holding up to 1.0 hectare

2. Small Framer: holding 1.0-2.0 hectare

3. Semi-medium Farmer: holding 2.0-4.0 hectare

4. Medium Farmer: holding 4.0-10.0 hectare

5. Large Farmer: holding 10.0 hectares and above

Rural Market Segmentation Tools

1. Thompson Rural Market Index.

2. Mica Rural Market Rating

3. Linquest

4. Indian Market Demographic

5. Business Intelligence Unit

6. Lincompass

7. ARCVIEW

Thomson Rural Market Index

This index takes the distinct as basic unit. This study is projected as a relative indicator of the
overall economic or market potential. Three hundred and Eighty Three districts are covered
under this study. The data are presented against 23 indicator.

The value of agricultural output, available for most of the districts and considered to be an
overall indicators of the rural Economy has been adopted as a parameter for compelling the
index. The presentation is done systematically within the zones and for the states in that zone.

For this purpose the markets have been classified under five different categories.

Mica Rural Market Rating

The MICA Rural Market Ratings (MRMR) has been developed by the Mudra Institute of
Communications, Ahmedabad (MICA) in association with ML Infomap Pvt. Ltd., New Delhi.

MICA is the premier institute for training communications professionals and ML Infomap is a
specialist IT consulting company, with several digital map products to its credit. The result of
this joint effort is an exciting and outstandingly useful marketing tool. For the senior marketing
executive, or media planner, or even an NGO involved in rural development work, this could be
the perfect tabletop multimedia guide to rural India. And all this has been delivered on one CD
and presented in colorful maps using digital mapping technology from MapInfo Corporation.
MICA, in its continual effort to serve the advertising and marketing community, developed a
rural market index, to indicate the rural market potential of all the districts of India. This exercise
was based on stringent research and analysis of forty-two variables.

An interesting aspect of the project is that instead of ending with just presenting this research,
great value has been added through several interesting features. For one, the data is available
only on electronic media and so can be observed and presented in several different ways just by
the click of the mouse. For another, the results of this research are presented on maps. For this,

ML Infomap’s proprietary product, The Standard Digital map of India TM has been used.
Shaded district maps indicate the level of market potential. Since the results are seen on a map,
clear patterns of market potential can be ‘seen’. Then, clicking with the information tool on a
district, one can immediately see important facts relating to it. These relate to bank advances,
demographics, infrastructure, and more.

Linquest

Initiative Media developed Linquest, a software package that provides marketers with data on
rural India. The data can be sorted based on five parameters:

1. Demographic

2. Agricultural

3. Income

4. Literacy

5. Civic Amenities

Depending on the product being launched, marketers will be interested in certain parameters
such as literacy levels, male-female ratios, bank deposits, income levels, accessibility,
dispensaries, schools and distance from the nearest town.

Indian Market Demographic

Demographics refers to physical characteristics of people such as sex, age, ethnicity, income,
family size, occupation, education, marital status, social class, and stage of the family life cycle.

Business Intelligence Unit

The term Business Intelligence (BI) represents the tools and systems that play a key role in the
strategic planning process of the corporation. These systems allow a company to gather, store,
access and analyze corporate data to aid in decision-making. Generally these systems will
illustrate business intelligence in the areas of customer profiling, customer support, market
research, market segmentation, product profitability, statistical analysis, and inventory and
distribution analysis to name a few.

Lincompass

Lintas has developed a specialised Rural marketing division named linterland and it also has
developed a software tool that does the mapping of the rural market named lincompass. Software
has calculated a fixed market potential for the district .The geographical information based
software has data on 6,26,000 villages all over the country barring Jammu and Kashmir. Each of
these districts can be analysed with 256 parameters of which 32 are considered key to avoid
overlaps.

ARCVIEW

This knowledge based intelligence system depicts the 5,87,962 villages as digitized points on the
maps depicting the market potential of an area as a cluster. It generated maps of different kinds:
agricultural maps, Socio-cultural maps, national and state highway maps and river maps.

The tool can be used for optimal decisions for logistics and distribution applications, territory
planning and dealer development. It identifies potential markets from state to district to village or
town. It also analyses accessibility, coverage and penetration enabling cost effective
transportation planning.

The product, from a marketing point of view, is a batch of benefits that a company offers to its
customers in order to satisfy their needs and requirements (the product is not just the metallic or
non-metallic material assembly). The product is approached form the customers’ satisfaction
point of view, considering that they buy satisfaction, not just material objects.

The Product Concept

The product concept proposes that consumers will prefer products that have better quality,
performance and features as opposed to a normal product. The concept is truly applicable in
some niches such as electronics and mobile handsets.

Two companies which stand apart from the crowd when we talk about the product concept are
Apple and Google. Both of these companies have strived hard on their products and deliver us
feature rich, innovative and diverse application products and people just love these brands.

One problem which has been associated with the product concept is that it might also lead to
marketing myopia. Thus companies need to take innovations and features seriously and provide
only those which the customer needs. The customer needs should be given priority.

In the past several of Microsoft’s products have been brought under the hammer with people
feeling more and more disgruntled with the operating systems because of lack of innovation and
new features. Each Microsoft operating system appears almost similar with just few tweaks.
On the other hand, innovating too soon becomes a problem. Several innovative products are
marked as experimental in the market instead of being adopted as a result of which these
products have less shelf life and might have to be taken off the market.

Thus companies following the product concept need to concentrate on their technology such that
they provide with excellent feature rich and innovative products for optimum customer
satisfaction.

The product is the offer of a company, addressed to the market in order to captivate their interest
so that the customers purchase it, use it or consume it for a specific need or desire.

Therefore, the products can be material goods, services, persons, organizations, places, ideas. In
order for the product to be better understood, it needs to be analyzed on more levels, beginning
with its essence to all the other features that can be added to the product so that it generates a
maximum satisfaction.

A 3 level product analysis reveals the following aspects:

The product essence is the benefit that the product provides

The actual product consists in the tangible and intangible features of the product that can also
meet customers’ needs

The completed product has a series of extra intangible traits that influence the purchasing
decision and contribute to customer satisfaction (extra services, brand image, strong customer
support)

Considering the various classification criteria, a product typology can be made:

1. Classification regarding the destination

 Individual consumption
 General use products-
 Basic products (bread, basic foods, toothpaste, soap, clothes)
 Extra products – unplanned purchases, caused by impulse and a momentary encounter
with a limited offer (sweets near the cash register, ice cream and fresheners in crowded
places)

 Special products (luxury) – have unique features and the buyers are ready to make
effort in order to buy them so that they can make a display of a certain social status

 Industry consumption-
 Raw materials
 Subassembly
  Investment goods
 Commercial services

2) Classification regarding the durability

 Short usage goods – are consumed at the first usage (foods, drinks, fuel)

 Long usage goods – are used for longer periods of time (buildings, furniture, clothes)

 Services – activities conducted to satisfy needs that do not require possession over the
product (are intangible).

Levels of a Product

In the 1960’s, the economist Philip Kotler changed the perception of marketing. He described
what marketing is rather than what marketers do, thereby changing marketing from a
departmental specialisation into a corporate wide doctrine. For Kotler, marketing was a ‘social
process by which individuals and groups obtain what they need and want through creating and
exchanging products and value with others’.

For him, a product is more than physical. A product is anything that can be offered to a market
for attention, acquisition, or use, or something that can satisfy a need or want. Therefore, a
product can be a physical good, a service, a retail store, a person, an organisation, a place or even
an idea. Products are the means to an end wherein the end is the satisfaction of customer needs or
wants.

Kotler distinguished three components:

 need: a lack of a basic requirement;

 want: a specific requirement for products or services to match a need;
 demand: a set of wants plus the desire and ability to pay for the exchange.
Customers will choose a product based on their perceived value of it. Satisfaction is the degree to
which the actual use of a product matches the perceived value at the time of the purchase. A
customer is satisfied only if the actual value is the same or exceeds the perceived value. Kotler
defined five levels to a product:

1. Core Benefit: The fundamental need or want that consumers satisfy by consuming the product
or service.

2. Generic Product: A version of the product containing only those attributes or characteristics
absolutely necessary for it to function.

3. Expected Product: The set of attributes or characteristics that buyers normally expect and
agree to when they purchase a product.

4. Augmented Product: Inclusion of additional features, benefits, attributes or related services

that serve to differentiate the product from its competitors.

5. Potential Product: All the augmentations and transformations a product might undergo in the
future.

Kotler noted that much competition takes place at the Augmented Product level rather than at the
Core Benefit level or, as Levitt put it: ‘New competition is not between what companies produce
in their factories, but between what they add to their factory output in the form of packaging,
services, advertising, customer advice, financing, delivery arrangements, warehousing, and other
things that people value.’

Kotler’s model provides a tool to assess how the organisation and their customers view their
relationship and which aspects create value.

Product Life Cycle

The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is
planted (introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as it
becomes an adult (maturity); after a long period as an adult the plant begins to shrink and die out
(decline).

In theory it’s the same for a product. After a period of development it is introduced or launched
into the market; it gains more and more customers as it grows; eventually the market stabilizes
and the product becomes mature; then after a period of time the product is overtaken by
development and the introduction of superior competitors, it goes into decline and is eventually
withdrawn.
However, most products fail in the introduction phase. Others have very cyclical maturity phases
where declines see the product promoted to regain customers.

Introduction

The need for immediate profit is not a pressure. The product is promoted to create awareness. If
the product has no or few competitors, a skimming price strategy is employed. Limited numbers
of product are available in few channels of distribution.

Growth

Competitors are attracted into the market with very similar offerings. Products become more
profitable and companies form alliances, joint ventures and take each other over. Advertising
spend is high and focuses upon building brand. Market share tends to stabilise.

Maturity

Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a
decreasing rate and then stabilise. Producers attempt to differentiate products and brands are key
to this. Price wars and intense competition occur. At this point the market reaches saturation.
Producers begin to leave the market due to poor margins. Promotion becomes more widespread
and use a greater variety of media.

Decline

At this point there is a downturn in the market. For example more innovative products are
introduced or consumer tastes have changed. There is intense price-cutting and many more
products are withdrawn from the market. Profits can be improved by reducing marketing spend
and cost cutting.
Product Life Cycle Strategies in Rural Markets

Every living thing and those which are created by a living being has a life span. Entire life span
of the creation (Product) is divided into a number of stages - Introduction, Growth, Maturity and
Decline as in the case of human being - child, adolescent, adult and aged. The time span of the
product in each of these stages will differ from product to product depending on various factors.

Analysis of these stages of the product is technically known as “Product Life Cycle”. The present
paper is an attempt to analyze the product life cycle in the Rural Market. For the purpose of
analyzing the concept of product life cycle in rural market the rural market segment is to be
divided in to three viz., developed, developing and under developed rural segments. This is
because rural is not a single homogeneous market, it is scattered and a product which is at its
introduction stage in underdeveloped market may be at the growth stage in the developing
market and at the saturation stage in the developed market. This classification is highly
significant as the marketing manager can plan marketing strategy for each segment depending on
the stage of PLC. Many products that enter rural markets without serious planning die out either
soon after the introduction or during the growth stage, e.g. AIM tooth paste from HLL or Ruf–n–
Tuf ready to stitch Jeans. Only companies that focus on brand building and those that continue to
innovate constantly can sustain themselves in the rural markets.

Rural Product Classification

Rural Products can be classified into four broad categories: Fast moving consumer Goods,
Consumer Durables, Services and Agricultural Goods.
Fast-moving Consumer Goods

Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer packaged
goods. Items in this category include all consumables (other than groceries/pulses) people buy at
regular intervals. The most common in the list are toilet soaps, detergents, shampoos, toothpaste,
shaving products, shoe polish, packaged foodstuff, and household accessories and extends to
certain electronic goods. These items are meant for daily of frequent consumption and have a
high return.

The Indian FMCG sector with a market size of US$14.8 billion is the fourth largest sector in the
economy. The FMCG market is set to double from USD 14.7 billion in 2008-09 to USD 30
billion in 2012. FMCG sector will witness more than 60 per cent growth in rural and semi-urban
India by 2010. Indian consumer goods market is expected to reach $400 billion by 2010. Hair
care, household care, male grooming, female hygiene, and the chocolates and confectionery
categories are estimated to be the fastest growing segments. At present, urban India accounts for
66% of total FMCG consumption, with rural India accounting for the remaining 34%. However,
rural

India accounts for more than 40% consumption in major FMCG categories such as personal care,
fabric care, and hot beverages. In urban areas, home and personal care category, including skin
care, household care and feminine hygiene, will keep growing at relatively attractive rates.
Within the foods segment, it is estimated that processed foods, bakery, and dairy are long-term
growth categories in both rural and urban areas. The growing incline of rural and semi-urban
folks for FMCG products will be mainly responsible for the growth in this sector, as
manufacturers will have to deepen their concentration for higher sales volumes.

Major Players in this sector include Hindustan Unilever Ltd., ITC (Indian Tobacco Company),
Nestlé India, GCMMF (AMUL), Dabur India, Asian Paints (India), Cadbury India, Britannia
Industries, Procter & Gamble Hygiene and Health Care, Marico Industries, Nirma, Coca-Cola,
Pepsi and others. As per the analysis by ASSOCHAM, Companies Hindustan Unilever Ltd ,
Dabur India originates half of their sales from rural India. While Colgate Palmolive India and
Marico constitutes nearly 37% respectively, however Nestle India Ltd and GSK Consumer drive
25 per cent of sales from rural India.
A rapid urbanization, increase in demands, presence of large number of young population, a
large number of opportunities is available in the FMCG sector. The Finance Minister has
proposed to introduce an integrated Goods and Service Tax by April 2010. This is an
exceptionally good move because the growth of consumption, production, and employment is
directly proportionate to reduction in indirect taxes which constitute no less than 35% of the total
cost of consumer products - the highest in Asia.. The bottom line is that Indian market is
changing rapidly and is showing unprecedented consumer business opportunity.

Consumer Durables

India’s rural consumer durable market will witness an annual growth of 40 per cent in the next
fiscal 2011-12, as against the current growth rate of 30 per cent owing to the change in lifestyle
and higher disposable income of rural India which has fascinated the consumer durable market
according to a study “Rise of Consumer Durables in Rural India” undertaken by the Associated
Chambers of Commerce and Industry of India (ASSOCHAM).

”Around 35 per cent of the total sales of consumer durable items come from rural and semiurban
markets, which will grow by 40 to 45 per cent in the near future. The consumer durable industry
is growing at a fast pace and sees a strong demand in the coming period with the growing
affordability of products as well as general buoyancy in the economy”, said Mr. Dilip Modi,
President of ASSOCHAM.

The market for consumer durables is estimated at 300 billion and is expected to reach 500 billion
by 2015. The urban consumer durables market is growing at an annual rate of nine to 12 per cent,
the rural durables market is growing at 30 per cent annually. Some high-growth categories within
this segment include mobile phones, TVs (LEDs) and music systems (IPODs).

He said the rural market in is growing faster than the urban market and the urban market has now
largely become a product replacement market. The consumer durables industry in rural and semi-
urban areas has witnessed a considerable change during the last few years. The consumer
durables sector is characterized by the emergence of MNCs, exchange offers, discounts and stiff
competition in the market to attract the growing middle class.

With being the second fastest growing economy with a rate of more than 9 per cent, with a huge
consumer class nearly 70 per cent in rural areas, consumer durables have emerged as one of the
fastest growing industries in especially in rural. Now the consumer durable industry is paying
more attention to attract rural community by promoting their products and services in their local
languages.

The consumer durable sector which contributes around 8 per cent in the Index of Industrial
Production (IIP) and which provides jobs to professionals, skilled, semi skilled and unskilled
workers, particularly women in the rural and semi-urban areas every year. The segment improves
the quality of life of people by providing entertainment/information/education/comfort and also
helps to reduce daily chores. But the importance of the sector in national economy remains
unnoticed.

The consumer durable market is set to grow by up to 45 per cent in rural and semi-urban India in
the next fiscal, thanks to the changing lifestyle and higher disposable income among the rural
people, as per a study by Assocham.

According to a study ‘Rise of Consumer Durables in Rural India’ by the industry body, the rural
durables market is growing at 30 per cent annually while the urban consumer durables market is
growing at 9 to 12 per cent every year.

Agricultural Goods

Marketing functions: In modern marketing the agricultural produce has to undergo a series of
transfers or exchanges from one hand to another before it finally reaches the consumer. This is
achieved through three marketing functions (a) assembling, (b) preparation for consumption and
(c) distribution. Concentration pertains to the operations concerned with the assembly and
transport from the field to a common assembly field or market. The produce may be taken direct
to the market or it may be stored on the farm or in the village for varying periods before its
transport. It may be sold as obtained from the field or may be cleaned, graded, processed and
packed either by the farmer or village merchant before it is taken to the market. Some of the
processing is done not because consumers desire it, but because it is necessary for the
conservation of quality. At the market the produce may be sold by the farmer direct to the
consumer or more usually through a commission agent or a broker. It may also be purchased by
traders, wholesalers or retailers. The transactions may be carried out by direct negotiation or
through middlemen, by barter or cash, by open or under cover auction, on the spot or in future
markets. The transactions take place at one or more levels in the primary, secondary or terminal
markets or all three. Distribution (dispersion) involves the operations of wholesaling and
retailing at various points. By a series of indispensable adjustments and equalizing functions, it is
the task of the distribution system to match the available supplies with the existing demand.
Product Decisions and Strategies

Product related decisions form one of the 4Ps of marketing mix. These decisions include
introduction of new products, Improvement of existing products, planned elimination of obsolete
products and, packaging and branding. In this unit, we will discuss the framework within which
these decisions are taken. Starting with identifying various types of products, we will introduce
new terms like product line and mix. Most product decisions are taken in the context of the
overall strategy of an organisation. This strategy may also include important areas of
diversification. We will discuss some of the important alternatives for diversification.

Types of Products

Let us now analyse the different types of products we come across. Generally products are
classified into two types, namely.

1. Consumer Products and

2. Industrial Products.

Consumer Products or Goods

Consumer goods are those which are used by ultimate consumers or households and in such form
that they can be used without further commercial processing. Consumer goods can be divided
into:

1. Convenience Goods;

2. Shopping Goods,

3. Durables or Durable Goods, and

4. Non-durables or Non-durable Goods.

1. Convenience Goods: These are goods which consumers generally purchase frequently
without making an effort or as a habit. The purchase is almost spontaneous and the person has
already a predetermined brand in mind. These convenience goods include soaps, newspapers,
toothpastes, toiletries, cigarettes, etc. Often convenience goods are bought impulsively or
spontaneously. For example, when people goes shopping around and see a product which attracts
his eyes, he buys it on impulse. Such goods are not purchased on regular basis.

2. Shopping Goods: These are goods which are purchased after going around shops and
comparing the different alternatives offered by different manufacturers and retailers. In this case,
emphasis on quality, price, fashion, style, etc. are of great importance. A common example, in
the Indian context, would be the purchase of sarees by ladies. Generally, ladies go looking
around from shop to shop before they make their final selection. Hence, the expression
‘shopping’ goods. These also include durables such as furniture and refrigerators. That is why a
large variety of goods offered at a retail outlet increases sales of this type of goods. A
manufacturer should also attempt to have his product properly displayed and offered at most
retail outlets.

3. Durable Goods: These are goods which are ‘durable’ or which last for some time. Examples
of such goods would be electric irons, refrigerators, television sets, etc. This type of product
requires more selling effort from the salesman. The question of after sales service and repairs is
also of importance as ‘selling points’ or ‘benefits’ which the customer would like to have.
Therefore, in case of refrigerators, the number of years of guarantee, particularly for the
compressor, is an important consideration when a consumer makes his final selection.

In case of certain types of durables, after sales service is very essential. If a customer purchases a
cyclostyling machine or duplicating machine, it is necessary for the salesman to ‘follow through’
and visit the customer to see how it is installed and used. Very often this product is operated by
‘peons’ who may not know how to do so. This results in poor duplication and copies look
unattractive and the consumer gets the impression that the fault lies with the machine. So, while
marketing such a product, it is important to guide the actual user of machine.

4. Non-durable Goods: These are goods which get depleted on consumption. For example a
bottle of soft drink is consumed at once on one occasion within a matter of minutes. Soap
obviously takes a little longer. However, in both these cases, the goods are consumed very fast.
The advantage of these goods is that they are purchased very often and therefore there are many
repeat purchases once the customer is satisfied with one product. Therefore, one must ensure
quality and appropriateness of price. These are the products that have to be advertised heavily,
with a view to inducing people to try them out, and thus, build up brand preference and brand
loyalty.

Services: Services are specially mentioned here (although they do not constitute products)
because it is generally thought that marketing is related to products alone. It should be
remembered that marketing ideas and practices are equally applicable to services with slight
adaptations in certain decisional areas. Services in content are different from products. For
example, courts offer a service. So are hospitals, the fire department, the police and the post
office. These are not products in the normal sense and yet it is very important for each of these
institutions to have an appropriate image. The police are often criticised; the fire departments
generally praised; the post office criticised for delays; the hospitals perhaps criticised for
negligence and exorbitant rates and so on. It is obvious that controlling the quality of service is
important for building its image.

Apart from government or public sector undertakings, there are ‘non-profit’ organisations such
as museums and charities. Although non-profit, they also have to provide the best form of
service for their popularity. The business and commercial sectors which includes airlines, banks,
hotels and insurance companies, and the professionals such as chartered accountants,
management consulting firms, medical practitioners etc. need marketing.

Industrial Products

These are products which are sold primarily for use in manufacturing other goods or for
rendering some service. These include items like machinery, components and raw materials
which form the bulk of industrial goods. Raw materials are sold in a different way from normal
consumer products like chocolates, which require no personal selling. Raw materials on the other
hand require a certain amount of technical knowhow on the part of the seller. The same would
apply to component parts also.

Machinery is also sold generally through the sales force, particularly if it is of the heavy type. It
is obvious that the latter cannot be stocked in retail outlets. The type of product determines the
type of marketing mix which has to be adopted.

Industrial goods also include supplies and services. Supplies may be like lubricant and oil or
typing paper in connection with the office. Supplies are similar to convenience goods. They are
purchased with very little effort and repurchased once the consumer is satisfied. They are also
marketed through retail outlets. Industrial services include maintenance and repairs. For
example, persons having typewriters naturally want them to be looked after on a regular basis
generally by the same (regular) maintenance person who is normally an outsider. Similarly, after
purchasing a computer, service is necessary. These services are often provided by small
producers or by the manufacturer of the original equipment itself.

Individual Product Decisions

We will focus on the important decisions in the development and marketing of individual
products and services. These decisions are about product attributes, branding, packaging,
labeling, and product support services. Companies have to develop strategies for the items of
their product lines. Marketers make individual product decisions for each product including:
product attributes decisions, brand, packaging, labeling, and product-support services decisions.
Product attributes deliver benefits through tangible aspects of the product including features, and
design as well as through intangible features such as quality and experiential aspects.

A brand is a way to identify and differentiate goods and services through use of a name or
distinctive design element, resulting in long-term value known as brand equity. The product
package and labeling are also important elements in the product decision mix, as they both carry
brand equity through appearance and affect product performance with functionality. The level of
product-support services provided can also have a major effect on the appeal of the product to a
potential buyer.
Individual Product Decisions

Product Attributes: Developing a product or service involves defining the benefits that it will
offer. These benefits are communicated to and delivered by product attributes such as quality,
features, style and design.

1. Product Quality: Quality is one of the marketer’s major positioning tools. Product quality
Notes has two dimensions – level and consistency. In developing a product, the marketer must
first choose a quality level that will support the product’s position in the target market. Here,
product quality means performance quality—the ability of a product to perform its functions
beyond quality level, high quality also can mean high levels of quality consistency. Here,
product quality means conformance quality—freedom from defects and consistency in delivering
a targeted level of performance. All companies should strive for high levels of conformance
quality.

2. Product Features: A product can be offered with varying features. A stripped-down model,
one without any extras, is the starting point. The company can create higher-level models by
adding more features. Features are a competitive tool for differentiating the company’s product
from competitors’ products. Being the first producer to introduce a needed and valued new
feature is one of the most effective ways to compete.

How can a company identify new features and decide which ones to add to its product?

The company should periodically survey buyers who have used the product and ask these
questions: How do you like the product? Which specific features of the product do you like
most? Which features could we add to improve the product? The answers provide the company
with a rich list of feature ideas. The company can then assess each feature’s value to customers
versus its cost to the company. Features that customers value little in relation to costs should be
dropped; those that customers value highly in relation to costs should be added.

3. Product Style and Design: Another way to add customer value is through distinctive product
style and design. Some companies have reputations for outstanding style and design. Design is a
larger concept than style. Style simply describes the appearance of a product. Styles can be eye
catching or yawn producing. A sensational style may grab attention and produce pleasing
aesthetics, but it does not necessarily make the product perform better. Unlike style, design is
more than skin deep—it goes to the very heart of a product. Good design contributes to a
product’s usefulness as well as to its looks. Good style and design can attract attention, improve
product performance, cut production costs, and give the product a strong competitive advantage
in the target market.
New-product Development

Given the rapid changes in consumer tastes, technology, and competition, companies must
develop a steady stream of new products and services. A firm can obtain new products in two
ways. One is through acquisition—by buying a whole company, a patent, or a license to produce
someone else’s product. The other is through new-product development in the company’s own
research and development department. By new products we mean original products, product
improvements, product modifications, and new brands that the firm develops through its own
research and development efforts. In this chapter, we concentrate on new-product development.

New products continue to fail at a disturbing rate. One source estimates that new consumer
packaged goods (consisting mostly of line extensions) fail at a rate of 80 percent. Moreover,
failure rates for new industrial products may be as high as 30 percent. Why do so many new
products fail? There are several reasons. Although an idea may be good, the market size may
have been overestimated. Perhaps the actual product was not designed as well as it should have
been. Or maybe it was incorrectly positioned in the market, priced too high, or advertised poorly.
A high-level executive might push a favorite idea despite poor marketing research findings.
Sometimes the costs of product development are higher than expected, and sometimes
competitors fight back harder than expected.

Because so many new products fail, companies are anxious to learn how to improve their odds of
new-product success. One way is to identify successful new products and find out what they
have in common. Another is to study new-product failures to see what lessons can be learned.

Various studies suggest that new-product success depends on developing a unique superior
product, one with higher quality, new features, and higher value in use. Another key success
factor is a well defined product concept prior to development, in which the company carefully
defines and assesses the target market, the product requirements, and the benefits before
proceeding. Other success factors have also been suggested—senior management commitment,
relentless innovation, and a smoothly functioning new-product development process. In all, to
create successful new products, a company must understand its consumers, markets, and
competitors and develop products that deliver superior value to customers. So companies face a
problem—they must develop new products, but the odds weigh heavily against success. The
solution lies in strong new-product planning and in setting up a systematic new-product
development process for finding and growing new products. Eight major steps in this process
are:

a) Idea generation: New-product development starts with idea generation—the systematic

search for new-product ideas. A company typically has to generate many ideas in order to find a
few good ones. Major sources of new-product ideas include internal sources, customers,
competitors, distributors and suppliers, and others. Using internal sources, the company can find
new ideas through formal research and development. It can pick the brains of its executives,
scientists, engineers, manufacturing, and salespeople. Some companies have developed
successful “entrepreneurial” programs that encourage employees to think up and develop new-
product ideas. Good new product ideas also come from watching and listening to customers.

The company can analyze customer questions and complaints to find new products that better
solve consumer problems. The company can conduct surveys or focus groups to learn about
consumer needs and wants. Or company engineers or salespeople can meet with and work
alongside customers to get suggestions and ideas. Finally, consumers often create new products
and uses on their own, and companies can benefit by finding these products and putting them on
the market. Customers can also be a good source of ideas for new product uses that can expand
the market for and extend the life of current products. Competitors are another good source of
new-product ideas. Companies watch competitors’ ads and other communications to get clues
about their new products. They buy competing new products, take them apart to see how they
work, analyze their sales, and decide whether they should bring out a new product of their own.
Finally, distributors and suppliers contribute many good new-product ideas. Resellers are close
to the market and can pass along information about consumer problems and new-product
possibilities.

Suppliers can tell the company about new concepts, techniques, and materials that can be used to
develop new products. Other idea sources include trade magazines, shows, and seminars;
government agencies; new product consultants; advertising agencies; marketing research firms;
university and commercial laboratories; and inventors. The search for new-product ideas should
be systematic rather than haphazard. Otherwise, few new ideas will surface and many good ideas
will sputter in and die. Top management can avoid these problems by installing an idea
management system that directs the flow of new ideas to a central point where they can be
collected, reviewed, and evaluated. In setting up such a system, the company can do any or all of
the following:

 Appoint a respected senior person to be the company’s idea manager

 Create a multidisciplinary idea management committee consisting of people from R&D,
engineering, purchasing, operations, finance, and sales and marketing to meet regularly
and evaluate proposed new-product and service ideas.
 Set up a toll-free number for anyone who wants to send a new idea to the idea manager.
 Encourage all company stakeholders—employees, suppliers, distributors, dealers— to
send their ideas to the idea manager.
 Set up formal recognition programs to reward those who contribute the best new ideas.

The idea manager approach yields two favorable outcomes. First, it helps create an innovation
oriented company culture. It shows that top management supports, encourages, and rewards
innovation. Second, it will yield a larger number of ideas among which will be found some
especially good ones. As the system matures, ideas will flow more freely. No longer will good
ideas wither for the lack of a sounding board or a senior product advocate.

b) Idea Screening: The purpose of idea generation is to create a large number of ideas. The
purpose of the succeeding stages is to reduce that number. The first idea-reducing stage is idea
screening, which helps spot good ideas and drop poor ones as soon as possible. Product
development costs rise greatly in later stages, so the company wants to go ahead only with the
product ideas that will turn into profitable products. As one marketing executive suggests,
“Three executives sitting in a room can get 40 good ideas ricocheting off the wall in minutes.
The challenge is getting a steady stream of good ideas out of the labs and creativity campfires,
through marketing and manufacturing, and all the way to consumers.”

Many companies require their executives to write up new-product ideas on a standard form that
can be reviewed by a new-product committee. The write-up describes the product, the target
market, and the competition. It makes some rough estimates of market size, product price,
development time and costs, manufacturing costs, and rate of return. The committee then
evaluates the idea against a set of general criteria such as these: Is the product truly useful to
consumers and society? Is it good for our particular company?

Does it mesh well with the company’s objectives and strategies? Do we have the people, skills,
and resources to make it succeed? Does it deliver more value to customers than do competing
products? Is it easy to advertise and distribute? Many companies have well-designed systems for
rating and screening new-product ideas.

c) Concept Development and Testing: An attractive idea must be developed into a product
concept. It is important to distinguish between a product idea, a product concept, and a product
image. A product idea is an idea for a possible product that the company can see itself offering to
the market. A product concept is a detailed version of the idea stated in meaningful consumer
terms. A product image is the way consumers perceive an actual or potential product. Concept
testing calls for testing new-product concepts with groups of target consumers. The concepts
may be presented to consumers symbolically or physically for some concept tests, a word or
picture description might be sufficient. However, a more concrete and physical presentation of
the concept will increase the reliability of the concept test. Today, some marketers are finding
innovative ways to make product concepts more real to consumer subjects. For example, some
are using virtual reality to test product concepts. Virtual reality programs use computers and
sensory devices (such as gloves or goggles) to simulate reality.

d) Marketing strategy Development: The next step is marketing strategy development,

designing an initial marketing strategy for introducing this car to the market. The marketing
strategy statement consists of three parts. The first part describes the target market; the planned
product positioning; and the sales, market share, and profit goals for the first few years. The
second part of the marketing strategy statement outlines the product’s planned price, distribution,
and marketing budget for the first year. The third part of the marketing strategy statement
describes the planned long-run sales, profit goals, and marketing mix strategy.

e) Business Analysis: Once management has decided on its product concept and marketing
strategy, it can evaluate the business attractiveness of the proposal. Business analysis involves a
review of the sales, costs, and profit projections for a new product to find out whether they
satisfy the company’s objectives. If they do, the product can move to the product development
stage.

To estimate sales, the company might look at the sales history of similar products and conduct
surveys of market opinion. It can then estimate minimum and maximum sales to assess the range
of risk. After preparing the sales forecast, management can estimate the expected costs and
profits for the product, including marketing, R&D, operations, accounting, and finance costs.
The company then uses the sales and costs figures to analyze the new product’s financial
attractiveness.

f) Product Development: So far, for many new-product concepts, the product may have existed
only as a word description, a drawing, or perhaps a crude mock-up. If the product concept passes
the business test, it moves into product development. Here, R&D or engineering develops the
product concept into a physical product. The product development step, however, now calls for a
large jump in investment. It will show whether the product idea can be turned into a workable
product.

The R&D department will develop and test one or more physical versions of the product concept.
R&D hopes to design a prototype that will satisfy and excite consumers and that can be produced
quickly and at budgeted costs. Developing a successful prototype can take days, weeks, months,
or even years. Often, products undergo rigorous functional tests to make sure that they perform
safely and effectively. The prototype must have the required functional features and also convey
the intended psychological characteristics.

g) Test Marketing: If the product passes functional and consumer tests, the next step is test
marketing, the stages at which the product and marketing program are introduced into more
realistic market settings. Test marketing gives the marketer experience with marketing the
product before going to the great expense of full introduction. It lets the company test the
product and its entire marketing program—positioning strategy, advertising, distribution, pricing,
branding and packaging, and budget levels.

The amount of test marketing needed varies with each new product. Test marketing costs can be
enormous, and it takes time that may allow competitors to gain advantages. When the costs of
developing and introducing the product are low, or when management is already confident about
the new product, the company may do little or no test marketing. Companies often do not test
market simple line extensions or copies of successful competitor products.
h) Commercialization: Test marketing gives management the information needed to make a
final decision about whether to launch the new product. If the company goes ahead with
commercialization—introducing the new product into the market—it will face high costs. The
company will have to build or rent a manufacturing facility. The company launching a new
product must first decide on introduction timing Next, the company must decide where to launch
the new product—in a single location, a region, the national market, or the international market.
Few companies have the confidence, capital, and capacity to launch new products into full
national or international distribution. They will develop a planned market rollout over time. In
particular, small companies may enter attractive cities or regions one at a time. Larger
companies, however, may quickly introduce new models into several regions or into the full
national market.

Rural Pricing Strategies

One of the key aspects of rural pricing is the distribution cost that adds to the overall cost of the
product. Marketers on the other hand have felt that the rural markets will fetch those lower
prices. Between this dilemma rural marketers have always looked at offering. Those products to
the consumers which offer more value at a lower cost. On the other hand, marketers have also
being making attempts to help consumers in rural markets switch to their products with better
price offer than their competitors or the nearest local version of the product. But before we dwell
on this issue further, it will be critical to evaluate some fundamental price structures that exist in
rural markets.

Rural markets usually work on two different price levels for similar products. Notes

1. When the product is distributed from company sources at the rural retail markets, the price
structures include the cost of distributing right at the retail or distributor level.

2. Alternatively, in other cases, the local retailer also visits the nearest distributor/dealer at the
nearest town or district to collect his stocks, and there the retailer adds his own cost of
distribution to the product.
The above Figure 9.1 is a broad indication of the kind of retailers we are referring to in point (2).

At both these levels the pricing structures are very different owing to the nature and amount of
logistics cost incurred being different. In some instances where marketers are not able to
approach certain markets for absence of proper infrastructure (primarily roads), the local retailers
take the onus of approaching the nearest distributor/dealer/stockiest. On the other hand, the local
haats and fairs also offer products at the best deal and so the third pricing structure though more
a part of promotional pricing strategy, also coexists along with the first two.

With different price structures, very often, for the same products rural marketers find it difficult
to ensure the sustainability. Sustainability also refers to maintaining similar price levels. If the
monsoon season leads to bad road conditions and the local retailer incurs a higher cost of
reaching the goods to his village, the final product price will also vary substantially. However, as
mentioned earlier, due to usage occasions and usage amount of average FMCG products being
less than urban markets, price differences in aggregate terms are not usually varying. Sachets,
one of the most successful forays in rural markets are usually low in amount and cost. The price
differentials are also at times affordable from the consumer's perspective. The retailing
comparison as shown in Table explains the differences between urban, semi-urban and village
markets with regard to pricing issues. Product and Pricing Decisions for the Rural Markets.
Pricing and Income Levels

Another issue critical to the rural markets is the large income disparity that results in the
consumption patterns being not so regular. In fact, between the urban and rural consumers the
income disparity is fairly large and hence prices for average products remain different. As a
result the basic price differentials are fairly large between these markets. Per capita income in
rural India ( 9481 per annum) is almost half of that of urban India ( 19,407 per annum) indicating
the level of income disparity between urban and rural areas.

While the highest percentages of aspirants are in the rural sector, the urban sector has the highest
number of well-off, which in practical term refers to middle and upper middle. With aspirants
and climbers forming a substantial part of the market, the value sought from the product will be
higher and marketers need to trudge this path very carefully. It does not have any easy
correlation to selling cheap and stripped down versions of the products, but offering the best
value. Small pack sizes will get easy.

A key concern facing marketers in respect of rural pricing is issue the branded versus unbranded
goods. Rural consumers are aware of the branded product vis-a-vis price as a critical aspect of
branded goods consumption. The local and spurious product will continue to exist alongside the
branded products. It does become difficult for consumers to choose at times, considering the
price disparities and the income scarcities. The spurious products are very common in the rural
settings where close imitation of a popular brand, with similar packaging could outsell the
original simply because it is sold at a far lower price, sometime a differential of 50%. AC
Nielson through a study conducted in rural markets were able to establish that sales of spurious
Vicks equaled that of the original brand.
Promotional Discounts/Promotional Pricing

Having discussed some of the basic issues in pricing for rural markets, this section looks at some
of the pricing strategies actually adopted by marketers, which are usually covered in the rural
markets. Though the remaining pricing strategies are also adopted by the rural markets,
promotional pricing is usually the preferred route. Geographical pricing and product mix pricing
are also adopted by marketers for any given market. LG's Sampoorna range of TV was launched
exclusively for the suburban and rural markets, which was a stripped down version of the core
product, eventually meeting with little success in the rural markets. The critical point for rural
markets are products focusing on needs of the consumers or the other alternative is to look at
low-priced products targeted at the price sensitive rural markets. The choice will purely be on the
organisation's objective to meet consumer demand effectively.

The figure above represents the product versus pricing issue, which will be critical to consider
for organisations entering rural markets. It is always not be true that only the cheap products will
sell in the rural markets. 'Usha found that the sales of its economy models were falling sharply in
rural areas. Farmers preferred Usha's premier Century brand, thought it was priced 20% higher,
as they found the value proposition of the latter, more in keeping with their perception of value.

Promotional pricing in the rural markets may involve introductory price offers targeted at
promoting trial, free samples or quantity discounts to ward off competition. The following table
summarizes the type of prices discounts that are in unusual practice.
A key consideration is also the sources of income in the rural sector, which affects consumption
patterns. With harvest season, disposable income goes up and farmers have a tendency to
experiment with purchases. The synchronising of price offers and assortment offers to such
patterns is referred to as 8 income stream and consumption basket offering". This in effect means
that the price and positioning decision is therefore influenced riot just by the income received but
also on when it is received and how it is allocated among different needs.

Haats and melas form an integral part of the rural consumer's shopping patterns. Owing to the
nature of such fairs and timings purchases are usually varied and even made in bulk. For
instance, the Sonepur Cattle Fair, finds buyers and sellers for not just cattle but as a variety of
other elements are also dovetailed onto the fair, it witnesses all kinds of purchases and bargains
beyond cattle. Naturally, price will be the key differentiator for most purchases. The Kumbh
Mela, the annual ritual of the Hindus, also witnesses a large number of visitors from the rural
countryside. Marketers encash every opportunity to offer the best deals and product, on such
occasions, to take advantage of the heightened purchase intention.

Competition and Pricing

You are aware that apart from the costs of a product and the consumers capacity to pay, the third
leg of the pricing decision tripod is the competition, In any competitive category, prices need to
be responsive to competition's price points as in price elastic and value for money kind of market
scenario, small differentials in seemingly similar product offers could see you lose market to
your competitors. The rural markets represent situation where competitor presence may be thin at
present but as more and more organisations warm to the emerging potential of rural markets, the
pricing decisions would need to be very sensitive to what the competition offers. Competitive
pricing offer takes the form of price reduction, package size reduction accompanied by price
reduction or offering more volume for the same price. Price setting becomes an issue when your
competitor either reduces his price or initiates a price increaser

While your final decision on price fixation under such situations may rest on an analysis of the
price sensitivity of the consumer and your own costs, certain generalisations can indicate
direction towards appropriate strategy. A price rise by the competitor should be matched in a
period of growing demand or rising costs. If you can manage to control your costs to existing
level, and are in highly price conscious market, market advantage is likely to occur when you
maintain your prices while the competition initiates a price increase. If economies of scale or
technology enable you to get a clear cost advantage, you could benefit significantly in actually
lowering prices even if it means narrower margins because you could preempt or oust
competition from the market.

Rural markets have been shown to be highly price conscious markets, especially when the brands
are perceived to be more or less similar. When the competition introduces a price reduction on
his products, you may need to carefully consider the price maintenance option. Not reducing the
price may mean loss of consumer franchise in extremely price conscious markets. On the other
hand, if the market is more value conscious and has displayed brand loyal behaviour, reinforcing
the value proposition of your brand may allow you to retain your position even in the face of
price reduction. Matching the price cut initiated by the competition is indicated when the market
is, as noted above, very price conscious and does not display any notable brand preference or
loyalty to your brand. A strategy to counter direct price cut is to offer more affordable, but
smaller package sizes. Dr. Shiva Kumar, GM, Marketing (Personal) Products, FILL, stressed that
while all Ps apply in the hinterland, price is the single most important determinant. Product and
package innovations however can be used to gain instant success as value preposition can be
built around smaller sized, specially designed offers for the rural market as demonstrated by

Brooke Bond's Al, Wheel, Kissan, Lipton Tiger etc. Following the reduction in excise duties for
tooth' powder, Colgate Palmolive, in a bid to convert rural non users to users, has reduced prices
even further and introduced a special 50 gram pouch and even a ten gram pouch, priced at 6 and
1.50 respectively. This has been done with an objective of initiating usage of tooth powder
among all the members of the family as well as to preempt competition.