Ten years ago, foreign consumer products were scarce in India and only available to the affluent section. Import restrictions prevented or severely hindered foreign consumer goods from entrance to India. With the economic liberalization that ensued, foreign brands are now prevalent across India. Today, multinational corporations view emerging markets such as India as prime opportunities for growth. Rural markets are growing twice as fast as the urban markets. With a rural population equal to just less than 2.5 times the population of the entire United States as of the 2000 census, the potential consumer base is astounding.
But generally speaking, success in India’s rural markets for multinational corporations has been mediocre at best. It is from these struggles and failures, however, that multinational corporations seeking to enter the rural Indian market can learn how to do so more wisely.
Kellogg’s’ is an excellent example of a company that has struggled in the Indian market. Kellogg’s entered the Indian market in the mid-1990’s. They intended to find a new market, which would consist of over a million people, many of whom did not eat cereal. What Kellogg’s discovered was that they were introducing a completely new product category. This meant they would have to invest large sums of money to create new eating habits in consumers. The most common Indian breakfast consists of biscuits and tea.
While Kellogg’s was busy creating new eating habits, local competitors were able to snatch away portions of India’s already small cereal market by introducing local cereal flavors at lower prices. The unimpressive sales that followed in their first three years resulted in Kellogg’s needing to completely realign their marketing to meet local needs as well as introduce a line of inexpensive breakfast biscuits. Disappointments like this have caused companies who seek to enter the rural Indian market to reevaluate their entire approach.
Understand the Rural Market
With a population already in excess of one billion people, India has caught the eye of multinational corporations across the globe as a place of opportunity for exploring new markets. While India has portions of their population that would be considered wealthy or middle class by Western standards, a much greater percentage of India’s population is still low income. As a result, they spend money, live, and use products differently than the countries where most multinational corporations originate. Rural areas, in particular, exemplify these differences.
Understanding the characteristics that make the people and the market in rural India unique, can help corporations to enter this market with success. The key characteristics define the term rural, determine the amount and flow of income, and determine the types of products and packages that are typically used in rural India.
Defining Rural
Seventy percent of India’s population, or approximately 700 million people, live in rural areas. This equates to just under 2.5 times the population of the U.S. A location is defined as rural if at least 75 percent of the population is agrarian. With such a large number of potential consumers, it is clear why multinational corporations would like to successfully penetrate the rural Indian market.
Rural Income
With an average income equivalent to $42 per month ($504 dollars per year), rural Indians have a very low disposable income. Most rural homes have minimal storage space and no refrigeration. Very few people own or have access to cars. As a result, rural Indian purchasing habits tend to be of an “earn today, spend today” mentality.
Rather than buying in bulk, which would mean paying more for a large quantity upfront, rural Indians tend to buy what they need for short segments of time. These factors result in consumers buying products locally, as well as on a daily basis. In addition to the fact that income levels are low, rural incomes also vary greatly depending on the monsoons. When a monsoon hits, this devastates the livelihood of most rural consumers because they are dependent on agricultural work for income. Corporations are also directly affected because this makes it difficult to predict demand.
Products and Uses
Before a company considers entering the rural market, understanding the types of products and packages that rural Indians typically use is crucial.
For example, urban Indian consumers would typically use toothpaste for brushing their teeth, while most rural Indians prefer using tooth powder .
As a company seeking to enter India’s market with an oral care product, this would be an important fact to know and consider during both the product and package development stages. Similarly, Hindustan Unilever Ltd. (HUL), the Indian subsidiary of Dutch-based Unilever, discovered that rural Indians tend to use the same soap for washing everything from hair to their bodies to clothing (if they use any soap at all). Because HUL manufactures products including various soaps and detergents, HUL product and packaging development processes have taken this rural habit into account by designing all-in-one soaps. By taking into account the low disposable incomes and the unique product and package needs of this market, consumer products that are designed and packaged for this market have great potential.
Any company starting to venture in rural Indian market must have to look into these aspects and after that, schedule their next steps, because one-step wrong from their side can ruin their whole brand image in other parts of the country also.