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Total consumer spending and per-capita GDP in India's countryside have been outpacing growth in its cities for a decade - exciting the imaginations of companies everywhere. In a recent Accenture study, 67 per cent of the businesses we surveyed said they plan to swiftly step up their rural-market expansion efforts. But despite the size of the prize, our research shows that companies face serious obstacles in their attempts to reach India's rural consumers. For one thing, poor infrastructure makes selling and distribution difficult. Equally frustrating, the channel partners that companies rely on to grapple with challenges quite often don't have the skills or loyalty needed for success.
Still, some companies are managing to overcome these hurdles-using innovative approaches to capture big slices of the rural market "pie" and generating impressive profits. We call them rural masters, and our findings indicate that they excel at three practices critical for reaching consumers in India's far-flung rural markets.
Devising a robust approach to the last mile
To reach India's rural markets, rural masters adopt a multipronged approach to reach the rural fragmented markets. They mix and match their channel strategies as needed - switching among strategies that may include a centrally directed hub-and-spoke model and a reliance on village entrepreneurs, or "feet on the street." Take two-wheeler manufacturer Hero Motors, which added authorised representative dealers to its existing hub-and-spoke network. Appointed by dealers, the representatives make it easy for locals to buy bikes and get them serviced. This new role added 5,000-plus touch points to Hero's channel strategy, enabling the company to extend its reach to 20 percent of India's six lakhs villages.
ITC, on the other hand, uses four distribution approaches to reach the last mile - traditional distributor vans to serve customers directly; sub-distributors in defined geographies to provide intensive distribution focus; direct reach through two- and three-wheelers to seed activities in villages with high market potential. Finally, ITC leverages its well-known parallel sales and marketing platform known as eChoupal and Choupal Sagars for consumer activation activities.
Companies are also adopting channels that are mostly used in urban markets. E-commerce is a prime example. According to the eBay India Census, one out of every 10 purchases, and one out of every 20 sales are from rural India, with almost 1,270 rural hubs transacting online. In the future, the online channel can become a game changer for companies trying to access rural markets. It can provide a costeffective means to extend a company's reach exponentially by overcoming geographic barriers.
Focus on market expansion
Rural masters identify specific customer segments - clusters of villages and consumer groups - they want to target for penetration. A few big clusters centred in four or five large states can have the same market potential as a large number of clusters dispersed across the country. Setting priorities helps leading companies deploy sales people effectively and tailor their marketing strategies. They use detailed market scanning and segmentation to understand important nuances across clusters and spot the best opportunities.
For instance, when Maruti made its initial foray into rural India in 2007, it identified many small clusters for potential car sales, including turmeric farmers in Tiruchengode in Tamil Nadu and apple growers in Himachal Pradesh. Today, these clusters generate consistent sales. According to company data, many clusters buy 35-50 vehicles per month-and that number doubles during harvest time. Rural masters also use new technologies to build a complete picture of their target clusters. Consider consumer products giant Dabur. The company uses GIS tools to analyse its own and rivals' market penetration. It then integrates economic and geographic data to identify opportunities. The company defines a new cluster of markets every month that its distribution network is expected to cover. And it uses route mapping to define van routes as well as criteria for selecting distributors. Rural sales representatives cover villages in a 60-mile radius from Dabur's headquarters. The company supplies them with inexpensive tablets that track their daily activity and provide information on van routes, work schedules, and order status.
Forging sustainable channel relationships
The hotter the competition in rural markets, the more crucial channel relationships become. Yet many aspiring channel partners don't have the scale and capabilities needed for success in rural India. Companies compete fiercely to snap up the good ones, only to see partners get lured away by rivals promising bigger, better deals.
To overcome these challenges, rural masters work hard to engage their partners and keep them loyal. They start by demonstrating their commitment to building mutually beneficial relationships. Many provide training to their partners. For example, they may teach them advanced selling and promotion techniques.
Others outfit their partners with infrastructure to make them even more valuable. Mahindra, the world's largest tractor company, is a case in point. In 2007, the company set out to transform its channel partners from mere tractor dealers into real partners for farmers. It redefined its dealerships as "Samriddhi Centres" to emphasise how they can spread prosperity. Using initial investments of about $7,500 from the dealers, Mahindra upgraded the dealerships' infrastructure so they could provide farmers with information on weather, crops, pests, agricultural market locations, and prices; offer soil- and water-testing facilities; and run farm-productivity demonstrations. These offerings attract farmers to the dealerships and boost the odds that they'll become loyal Mahindra customers. Through 155 Samriddhi Centres, Mahindra has helped more than 150,000 farmers, and it aims to boost that number to 10 million by 2020.
Some rural masters also build familial bonds with their channel partners to strengthen trust and loyalty.
For example, dairy cooperative Amul invites its channel partners to the company's headquarters. During these visits, partners gain exposure to Amul's network of cooperative institutions and visit the company's plants. The programme wins partners' trust and loyalty by establishing a personal bond with partners.
Poor infrastructure and fragile channel relationships often frustrate companies' efforts to seize the growth opportunities arising in rural India. But as Accenture's research on rural masters reveals, companies can overcome the challenges by using the right channel strategies, understanding their target customers, and finding and keeping the best channel partners.
Sanjay Dawar
MD, Accenture management consulting
