economyenglish CA harley bs The importance of India’s rural markets has never been lost on companies in auto, consumer goods or telecom. Almost a third of a consumer goods company’s sales come from rural areas, while almost 45-50 per cent of a two-wheeler major’s and a telecom operator’s revenues come from the hinterland. Similarly, passenger-car makers derive 30 per cent of their revenue from the countryside.
Yet, rural areas are constantly evolving, much like their urban counterparts, and throwing up interesting insights in the process. A just-released study by Nielsen points to how only a third of the country’s 600,000 villages account for the bulk of domestic rural consumption. Called ‘rurban’ markets, these villages have a high level of affluence and therefore, show a high level of aspiration as well as consumption. But are marketers doing enough to realise the potential of these markets?
Nielsen’s study suggests that while consumer-facing businesses and brands have pushed their presence aggressively into rural areas, identifying the right markets where their efforts should be concentrated remains a challenge. “When picking the most attractive markets, high-potential villages should not be confused with those that have a high density of population. This is a prevalent practice and is inefficient,” A J R Vasu, analytics lead, Nielsen South Asia, who is the author of the study, says.
Companies say they are doing their best by using data and analytics tools to figure out where the consumption markets truly exist. Firms such as Dabur, Hindustan Unilever and ITC, whose sales contribution from rural areas is ahead of the consumer goods market at around 35-40 per cent, already have a substantial field force in the hinterland to help them identify high-potential markets, Abneesh Roy, senior vice-president, research, institutional equities, Edelweiss, says.
“The direct distribution push into rural areas in recent years is intended to help these firms understand these very high-potential areas,” he says. The picture is no different with two-wheeler and four-wheeler companies or even tractor majors, who’ve been aggressively setting up dealerships and small contact centres for rural consumers in recent months. Quite often, say experts, these centres give these companies a sense of which direction sales are headed and who is buying what.
Tata Motors, for instance, plans to set up more outlets in semi-urban and rural areas in the next few months to attract first-time car buyers. These centres will be set up in those areas where the buying power exists, say experts, using levers such as discounts and one-time down payments to lure consumers. Mahindra & Mahindra’s auto division, on the other hand, plans to deepen its service network into rural areas by nearly 50 per cent in the next year and a half to tap into the ‘rurban’ potential.
Maruti-Suzuki, the country’s largest passenger-car maker, is already pushing its Nexa-branded premium showrooms not only into more cities, but also affluent rural areas. Clearly, big companies and brands know where the consumption potential exist in the hinterland, prompting the shift, experts said.
Nielsen’s study says that transportation infrastructure, basically, the ease of reaching rural areas, is one of the most important factors in identifying and selecting high-potential areas or ‘rurban’ markets. Some of the other parameters include health and market infrastructure as well as mobile connectivity. “Population, in contrast, while contributing to 50 per cent overlap between villages with high density of people and those with high sales is not the sole driver of rurban markets,” Vasu says.
The study argues that the most important task when prioritising markets in rural areas includes gathering socio-economic and geo-spatial data, getting a sense of existing sales and affluence levels as well as figuring out the condition of roads and allied infrastructure. A hub-and-spoke distribution model, the report says, should then be built, where hubs serve as nodal points and spokes become the last-mile delivery joints.