 "Marketing to rural India")
The size of the prize in Indias hinterlands is on the rise. Rural India accounts for about 50 per cent of Indias GDP and nearly 70 per cent of the countrys population. Since 2000, per capita GDP has grown faster in rural areas than in its urban centres: 6.2 per cent CAGR versus 4.7 per cent. Rural incomes are growing and consumers are buying discretionary goods and lifestyle products, including mobile phones, television sets and two wheelers: between 2001 and 2009, spending in rural India was $69 billion, significantly higher than the $55 billion spent by the urban population.
Companies that recognise this enormous opportunity are experimenting with various go-to-market models to garner their share of this growth. But the results have been mixed. To understand why and what to do about it Accenture conducted a major research study of more than 100 companies to discover how successful companies are responding to the opportunities and hurdles.
An efficient sales and distribution model is the most critical factor to achieve profitable and sustainable growth in rural markets: nearly 60 percent of the survey respondents ranked it as the top imperative. Our research found that a hallmark of success in rural India is overcoming challenges in the three stages of the consumer lifecycle reaching, acquiring and retaining the rural customer. In terms of reaching the rural consumer, the biggest obstacles facing companies are inadequate distribution networks, partners with limited capabilities, long payment cycles, and weak marketing channels. Not surprisingly, respondents to Accenture survey cited high cost-to-serve the rural markets as the number one challenge: more than 50 per cent listed it as one of the top three challenges they face. As far as rural customer acquisition is concerned, understanding and meeting the diverse, specialised needs and preferences of such customers pose major challenges to companies.
Organisations often make the biggest mistakes by treating rural consumers as a homogeneous market and offering them the same value proposition they offer to urban markets. Although companies are focusing heavily on rural market customer acquisition and reach, bolstering customer retention efforts has become more important as competitors improve their market penetration.
With increasing rural competition and high cost-to-serve, providing reliable and consistent after-sales service and optimising the costs of a high-quality experience remain major obstacles. The wide geographic dispersion of a small number of customers drives high sales-service costs, and many businesses cannot provide a dedicated after-sales service network.
Our experience of working with organisations across sectors indicates that companies respond to these challenges is what differentiates them in the rural marketplace.
Success in Indias rural markets hinges on the performance of companies on two key measures: rural performance that is the degree to which rural markets are strategically important to a companys growth agenda, defined by the contribution of rural markets to the enterprises top and bottom lines. Rural innovation, or the level of rural focused innovations, in a companys product, packaging, pricing, channels and operating models.
With these two measures in mind, we have classified companies into four categories of success: rural masters, rural performers, rural voyagers and new entrants.
Rural masters are profitable companies that have secured a significant rural market share. They excel at execution. They apply rigour to governance and control to make sure their strategies translate into required actions. They have developed novel strategies to serve rural consumers and draw on an intimate understanding of consumers cultures and needs to enter rural markets. They have well-conceived expansion strategies that they support with significant capital and resources.
Rural performers are profitable entities that have established a strong rural footprint by using conventional approaches or by emulating Rural masters. They often lack an innovative streak. They tend to focus on existing product portfolios and try to mitigate risk through aggressive product marketing to strengthen their position. These companies have been successful in the past. But in the future, they may struggle in a changing and more competitive landscape.
Rural voyagers have adopted disruptive approaches to serve Indias rural markets. For example, they create unique products and services, customise pricing or packaging, or develop new channels to reach the last mile.
However, they are yet to make profits. Though rural voyagers often understand rural consumers better than their competitors, they usually take a more cautious approach toward expansion. Furthermore, they learn from their initial forays (such as pilots conducted in a few states) to determine their next investment strategies and tactics. A large number of companies fall into this quadrant, and they still face many challenges. In some cases, rural voyagers can seek government help to subsidise their products on a large scale. However, they must also invest in channel partners and engage with community influencers to achieve acceptance among rural consumers and succeed.
New entrants are companies that have recently made forays in rural markets. Conservative in nature, many of these enterprises have limited operations and have not generated the profit needed to create economies of scale. Though these companies can learn from the experience of rural masters, they face high barriers to entry. These companies will need to make extra efforts to create a differentiated position for themselves in the rural marketplace.
As rural markets evolve and competition in rural markets intensifies, companies will have to look for new approaches to harness this opportunity in ways that protect their margins while also growing revenue. Deploying the correct sales and distribution model can assist companies in driving profitable growth in a relatively short span of time. Rural masters will have to find ways to scale operations without hurting their bottom line. For a rural performer, the challenge will be to create differentiated offerings and brand loyalty to retain customers and sustain their business models. Rural voyagers will build their own ecosystems and brand awareness to acquire new customers. New entrants will travel their own paths to penetrate rural markets. By focusing on the specific needs, behaviours and preferences of the rural consumers, and by applying a systematic approach to market expansion, companies can accelerate their rural expansion journey.
Companies that recognise this enormous opportunity are experimenting with various go-to-market models to garner their share of this growth. But the results have been mixed. To understand why and what to do about it Accenture conducted a major research study of more than 100 companies to discover how successful companies are responding to the opportunities and hurdles.
An efficient sales and distribution model is the most critical factor to achieve profitable and sustainable growth in rural markets: nearly 60 percent of the survey respondents ranked it as the top imperative. Our research found that a hallmark of success in rural India is overcoming challenges in the three stages of the consumer lifecycle reaching, acquiring and retaining the rural customer. In terms of reaching the rural consumer, the biggest obstacles facing companies are inadequate distribution networks, partners with limited capabilities, long payment cycles, and weak marketing channels. Not surprisingly, respondents to Accenture survey cited high cost-to-serve the rural markets as the number one challenge: more than 50 per cent listed it as one of the top three challenges they face. As far as rural customer acquisition is concerned, understanding and meeting the diverse, specialised needs and preferences of such customers pose major challenges to companies.
Organisations often make the biggest mistakes by treating rural consumers as a homogeneous market and offering them the same value proposition they offer to urban markets. Although companies are focusing heavily on rural market customer acquisition and reach, bolstering customer retention efforts has become more important as competitors improve their market penetration.
With increasing rural competition and high cost-to-serve, providing reliable and consistent after-sales service and optimising the costs of a high-quality experience remain major obstacles. The wide geographic dispersion of a small number of customers drives high sales-service costs, and many businesses cannot provide a dedicated after-sales service network.
Our experience of working with organisations across sectors indicates that companies respond to these challenges is what differentiates them in the rural marketplace.
Success in Indias rural markets hinges on the performance of companies on two key measures: rural performance that is the degree to which rural markets are strategically important to a companys growth agenda, defined by the contribution of rural markets to the enterprises top and bottom lines. Rural innovation, or the level of rural focused innovations, in a companys product, packaging, pricing, channels and operating models.
With these two measures in mind, we have classified companies into four categories of success: rural masters, rural performers, rural voyagers and new entrants.
Rural masters are profitable companies that have secured a significant rural market share. They excel at execution. They apply rigour to governance and control to make sure their strategies translate into required actions. They have developed novel strategies to serve rural consumers and draw on an intimate understanding of consumers cultures and needs to enter rural markets. They have well-conceived expansion strategies that they support with significant capital and resources.
Rural performers are profitable entities that have established a strong rural footprint by using conventional approaches or by emulating Rural masters. They often lack an innovative streak. They tend to focus on existing product portfolios and try to mitigate risk through aggressive product marketing to strengthen their position. These companies have been successful in the past. But in the future, they may struggle in a changing and more competitive landscape.
Rural voyagers have adopted disruptive approaches to serve Indias rural markets. For example, they create unique products and services, customise pricing or packaging, or develop new channels to reach the last mile.
However, they are yet to make profits. Though rural voyagers often understand rural consumers better than their competitors, they usually take a more cautious approach toward expansion. Furthermore, they learn from their initial forays (such as pilots conducted in a few states) to determine their next investment strategies and tactics. A large number of companies fall into this quadrant, and they still face many challenges. In some cases, rural voyagers can seek government help to subsidise their products on a large scale. However, they must also invest in channel partners and engage with community influencers to achieve acceptance among rural consumers and succeed.
New entrants are companies that have recently made forays in rural markets. Conservative in nature, many of these enterprises have limited operations and have not generated the profit needed to create economies of scale. Though these companies can learn from the experience of rural masters, they face high barriers to entry. These companies will need to make extra efforts to create a differentiated position for themselves in the rural marketplace.
As rural markets evolve and competition in rural markets intensifies, companies will have to look for new approaches to harness this opportunity in ways that protect their margins while also growing revenue. Deploying the correct sales and distribution model can assist companies in driving profitable growth in a relatively short span of time. Rural masters will have to find ways to scale operations without hurting their bottom line. For a rural performer, the challenge will be to create differentiated offerings and brand loyalty to retain customers and sustain their business models. Rural voyagers will build their own ecosystems and brand awareness to acquire new customers. New entrants will travel their own paths to penetrate rural markets. By focusing on the specific needs, behaviours and preferences of the rural consumers, and by applying a systematic approach to market expansion, companies can accelerate their rural expansion journey.
Sanjay Dawar
MD, Accenture management consulting
MD, Accenture management consulting
The next three articles in the series will examine various approaches companies can adopt to succeed in rural markets