I have been in India for the past week and one of the trends I have noticed is the increased focus on the rural market. Perhaps it is the ongoing elections or maybe the global recession, but companies across the board seem to have a renewed emphasis on targeting the rural consumer.
Culling thru the headlines there are a few key facts that seem to stand out:
- In sheer numbers, rural consumers present a larger opportunity. The rural sector consists of 700 million of India’s billion plus population. As a target market, it provides enormous opportunities for solutions that can scale.
- Rural consumer buying power is slowly growing to challenge the urban sector. Rural Indian consumer spending grew faster than in the city in the five years leading to 2007 according to the WSJ article, India Defies Slump. Households with disposable income are rising faster in rural than urban India.
- The Indian rural sector seems to have been less affected by the global slowdown. Relatively protectionist tariffs and regulations have served to insulate India in general and the rural sector in particular from the global financial crisis. Anecdotally, companies like Coca Cola, Reliance, Mahindra and LG have reported growth from their rural sales to have helped offset an overall market slowdown.
- Consumers in the urban centers have been tapped out for certain segments. For example the urban teledensity is near saturation in most cities with some subscribers carrying more than one cell phone. The rural segment represents a fresh and relatively untapped sector.
- Rural consumers tend to be loyal and local. Companies first to the market with quality products find customers stay loyal to their brand. The lower consumer density in the rural areas and higher distribution costs discourage competition and result in near monopoly or duopolies. Rural consumers though are as discriminating about quality and service and won’t settle for a poor product.
The results are several consumer initiatives that are targeting this segment.
- Insurance companies are viewing rural consumers as a growing target and are tailoring low priced products and refining new channels of distribution to get to the spread out rural consumer in a cost effective way.
- Consumer giant GE has announced it will be rolling out several low cost devices, starting with their portable ECG machine that is geared to providing affordable health care services in the rural sector.
- Consumer goods manufacturers, like WIPRO’s non-IT divisions, have shown 20% plus growth in the rural sector. LG Electronics expects to get over 45% of its Indian sales from rural India. The Associated Chambers of Commerce and Industry of India projects that rural consumer goods sector will grow at 40% per year versus only 25% in urban India. In addition, around 40% of the total retail market of about $280 million is from the rural sector.
- Rural BPO companies, like eJeevika, are exploiting the pool of trained labor that is available in rural India to provide services, particularly local language support services, at a lower cost. The added bonus is higher retention as they find rural employees tend to stay local instead of hopping from job to job.
- The rural subscriber becomes the battleground for mobile operators as they see their growth coming increasingly from this segment. India added 15.64 million subscribers in March 2009 driven mainly from smaller towns and rural areas. India is expected to grow to 500 million subscribers by 2012 with rural subscribers growing from 25% to over 40% of the market by then according to Credit Suisse. Rural subscribers while more expensive to service, are more loyal and have a lower churn rate.
Overall these are all positive signs that there is a renewed emphasis on the rural sector. However unless there is a commensurate increase in rural infrastructure and employment that increases incomes, just targeting consumption in the already stressed sector will not amount to much economic progress.