Sunday, May 9, 2010

Changing Face of the Rural Economy

Changing Face of the Rural Economy

In the book, "Fortune at the Bottom of the Pyramid", C.K. Prahalad argues that if we stop thinking of the world's four billion poor as victims or a burden and instead see them as value-conscious consumers, a whole new world of opportunity will open up.

Some companies seem to have really taken this thinking to heart. Companies like General Motors, Tata Tea, Marico and Dabur have increased their focus on the rural consumer in a bid to reach out to the largest segment of consumers in India. This still-being tapped segment has tremendous value that remains unlocked, and the majors

are eager for a share of the pie. In 2008, the rural consumption rate for FMCG

(Fast Moving Consumer Goods) grew faster than the urban centers, which got

companies revisiting their bottom of the pyramid strategies.

Home to 720 million people living in over 627,000 villages across the hinterland,

the rural population represents 60 percent of India's consumer base. With an

average literacy level at 60% and rising, increasing numbers of consumers from

the rural belt are now being aggressively targeted by companies. Mobile

telephony penetration has also increased, and companies like Nokia are coming

out with new tools to offer value to these customers. The Nokia Life Tools (NLT)

offer farmers access to information on agricultural pricing, enabling them to get

better prices for their output. TC through its E-Chaupal initiative has removed the

middle men and has added value to the farmer through opening up the

commodity trading terminals. All this comes at a price which the end consumer is

comfortable with in terms of value.

The focus on rural markets has also spawned a new breed of managers, with

companies sending their battalions of MBAs into the rural belt to better

understand the consumer and his needs. General Motors has been setting up a

dealer network in the tier 2/3 cities to pitch its products the Spark, Tavera and

UVA. The focus is shifting to delivering value by connecting better with the target

audience, rather than retrofitting an existing urban product to the market.

Thanks to the penetration of satellite television, the rural consumer is very brand

literate and can discern value. Trust is a major factor which companies like HUL,

Tata Tea, Dabur and the likes can cash in on, having built it up over several

decades of interaction with the rural consumer. The emotional bond with the

customer will ensure brand loyalty is retained for a longer period of time, unlike

the urban belt, where consumers are more eager to try new products.

All in all, the rural consumer is now a significant player in the eyes of companies,

one whom it pays to woo and maintain over the long term. This viewpoint will

likely percolate down to the management education sector where the rural

management programs still lack the attraction that the regular MBA program

offers. But this is likely to change as the new rural consumer emerges out of his


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