A market boasting 25 crore potential customers, with overall incomes growing at a compounded annual growth rate of 10.95 percent cannot be ignored for long. And India's C and D class cities and rural markets offer just such an opportunity.
According to studies conducted by The Rural Network, an alliance of several leading marketing organizations in the country, the number of middle class households with annual income ranging between Rs 45,000 to Rs 2,15,000 is around 2.74 crore in rural India.
The study also brought to light several interesting facts that make India's hinterland markets even more interesting to IT manufacturers and distributors. Of the six-lakh villages in India, 5.22 lakh have a public telephone. By early 2005, around 41 million Kisan Credit Cards were issued with cumulative credit of Rs 977 billion, resulting in tremendous liquidity. Of 20 million Rediffmail signups, 60 percent are from small towns. The small cities also account for 50 percent of Rediff's online shopping site.
Several other prosperity indicators make up-country India an enticing business proposition to the astute marketer. Rapid improvement in infrastructure, for instance, promises to be the biggest growth driver. According to the same report, by the end of the decade, 70 percent of the smaller cities and villages are expected to be connected by road. More than 90 percent of the villages have already been connected to the power grid, though only 44 percent of the homes have electric connections.
The telephone density has gone up by 300 percent in the last 10 years. The percentage of families living below the poverty line has also declined from 46 percent to 27 percent and literacy level has improved from 36 percent earlier to 59 percent now.
The best part is that this opportunity is largely untapped making it an attractive market. Says S. Sriram, CEO, Select Technologies, “Growth in the smaller markets has been consistently higher for some time now. And this trend will continue. In matured products like printing solutions, close to 30 percent of overall business comes from the smaller cities.”
The revolution in the cellular space has made communication simpler. Advancement in technology has made it affordable to link branch offices to central offices and for Internet connectivity. According to Kaushal Khandor, GM-sales and marketing, Neoteric Infomatique, this opens up significant business opportunities for IT distributors.
Adds S. Narendran, GM-marketing, TVSE, “The C&D class markets offer the highest growth potential for IT manufacturers. The market in these cities is growing at the rate of 40 percent while the national market growth rate is around 30 percent. We anticipate more than a million SMEs—the prime customer segment—to get automated in the next few years.”
While the opportunities are there for all to see what are the challenges that prevent marketers from launching a full-fledged promotional cum marketing campaign in these markets?
Issues
For the IT manufacturer, the main problems in rural marketing include understanding the rural consumer, poor infrastructure, physical distribution, channel management, promotion and marketing communication.
Manufacturers may be reluctant to make significant investments in these emerging markets because there are costs attached to developing a new market and often the business volumes don't justify these investments. Says Khandor, “The PC penetration in the smaller markets is not high. Hence, demand for components and ancillary products are also not high. A full-fledged branch operation would require investment into infrastructure, logistics support, manpower, etc.”
The cost of doing business is also quite high. According to Rajesh Goenka, divisional head, Rashi Peripherals, prices tend to be higher by around 4 or 5 percent in the smaller markets, due to the added overheads. Even the transit time to reach the end customer is quite high. And since service and turnaround time tend to suffer as a result of this, it affects growth. Payment flexibility is also an issue, as most multinational banks do not have branches in the hinterlands. Khando says, banks are not equipped to reach these regions.
The credibility of the partner is also at stake. Says Khandor, “In the more developed markets it is easier to verify the credentials of a partner through references from the trading community. But in the developing markets, the distributor has to depend on personal relationships.”
Strategies
The dynamics of the rural markets are drastically different from those seen in the urban landscape. This is where a keen understanding of the small town consumer comes into play. But none of these markets operate on any single principle making it a challenging job for the marketer. Marketers have adopted various
strategies to circumvent these issues and tap this vast potential. Distributors push manufacturers to introduce area specific schemes depending on the dynamics of the market. Most distributors also push the manufacturer to dedicate special resources and support for these markets.
Says Khandor, “Schemes and strategies should be market specific. It is not possible for a reseller in a small market to achieve the targets set for the partners in the metros. Schemes should be achievable and should be based on market dynamics. Partners here are more susceptible to recognition. Hence, the incentives should revolve around these factors.”
According to Sriram, hoardings and advertisements through the regional media also provides good responses, depending on the product being sold. Says he, “Most large organizations have their head office in larger cities where central decisions are taken. But in the long run it pays to understand the users at these locations to manage sales better.” Adds Khandor, “A channel partner in a particular market would indulge in demand fulfillment.
But to actually develop the market and generate demand for a product, the distributor has to set up a direct office in the region.” Neoteric recently conducted road shows in 62 cities. While it didn't result in immediate business opportunities, it has helped the distributor penetrate further into the hinterlands.
Neoteric believes that this will also help prepare the next generation in these markets to be more open to investing in the right products.
TVSE has been focusing on expanding its channel network and increasing its local presence in the C and D class cities. Even Rashi has been focusing on expanding its direct presence. Recently, it set up its 40th branch in Gangtok, Sikkim to cater to the markets there. Currently, it's considering the viability of setting up a full-fledged branch in Andaman.
Prior to expanding into a new region, the distributor has to consider various parameters including the key industries present there, opportunities in the educational sector and existing business opportunities that will aid in penetrating the market.
The market in the hinterlands tends to be scattered. To overcome this hurdle, distributors can work closely with the local trade associations. This will provide them with a ready database of potential customers in the region.
Growth Aspects
The challenge in these markets is to sell a concept or a solution than a product. For most manufacturers C and D class markets is the buzzword. But only a few have actually done any promotional activity or made serious investments in these markets.
Manufacturers should look at introducing products that have specifically been manufactured keeping the Indian customer in mind. IT is not a priority for most customers in the hinterlands. Brand owners need to focus on educating the consumer about its advantages.
The Indian customer is value conscious. Hence, efforts should concentrate on introducing high quality products instead of palming them with cheap inferior products. The latter strategy will only result in loss of trust in IT products. The up-country markets are growing at more than double the industry growth rate. To tap this potential manufacturers and distributors need to enter early and develop the market rather than wait and play the catch up game.
The future holds promise for those who can understand the market dynamics and exploit to their best advantage.
According to studies conducted by The Rural Network, an alliance of several leading marketing organizations in the country, the number of middle class households with annual income ranging between Rs 45,000 to Rs 2,15,000 is around 2.74 crore in rural India.
The study also brought to light several interesting facts that make India's hinterland markets even more interesting to IT manufacturers and distributors. Of the six-lakh villages in India, 5.22 lakh have a public telephone. By early 2005, around 41 million Kisan Credit Cards were issued with cumulative credit of Rs 977 billion, resulting in tremendous liquidity. Of 20 million Rediffmail signups, 60 percent are from small towns. The small cities also account for 50 percent of Rediff's online shopping site.
Several other prosperity indicators make up-country India an enticing business proposition to the astute marketer. Rapid improvement in infrastructure, for instance, promises to be the biggest growth driver. According to the same report, by the end of the decade, 70 percent of the smaller cities and villages are expected to be connected by road. More than 90 percent of the villages have already been connected to the power grid, though only 44 percent of the homes have electric connections.
The telephone density has gone up by 300 percent in the last 10 years. The percentage of families living below the poverty line has also declined from 46 percent to 27 percent and literacy level has improved from 36 percent earlier to 59 percent now.
The best part is that this opportunity is largely untapped making it an attractive market. Says S. Sriram, CEO, Select Technologies, “Growth in the smaller markets has been consistently higher for some time now. And this trend will continue. In matured products like printing solutions, close to 30 percent of overall business comes from the smaller cities.”
The revolution in the cellular space has made communication simpler. Advancement in technology has made it affordable to link branch offices to central offices and for Internet connectivity. According to Kaushal Khandor, GM-sales and marketing, Neoteric Infomatique, this opens up significant business opportunities for IT distributors.
Adds S. Narendran, GM-marketing, TVSE, “The C&D class markets offer the highest growth potential for IT manufacturers. The market in these cities is growing at the rate of 40 percent while the national market growth rate is around 30 percent. We anticipate more than a million SMEs—the prime customer segment—to get automated in the next few years.”
While the opportunities are there for all to see what are the challenges that prevent marketers from launching a full-fledged promotional cum marketing campaign in these markets?
Issues
For the IT manufacturer, the main problems in rural marketing include understanding the rural consumer, poor infrastructure, physical distribution, channel management, promotion and marketing communication.
Manufacturers may be reluctant to make significant investments in these emerging markets because there are costs attached to developing a new market and often the business volumes don't justify these investments. Says Khandor, “The PC penetration in the smaller markets is not high. Hence, demand for components and ancillary products are also not high. A full-fledged branch operation would require investment into infrastructure, logistics support, manpower, etc.”
The cost of doing business is also quite high. According to Rajesh Goenka, divisional head, Rashi Peripherals, prices tend to be higher by around 4 or 5 percent in the smaller markets, due to the added overheads. Even the transit time to reach the end customer is quite high. And since service and turnaround time tend to suffer as a result of this, it affects growth. Payment flexibility is also an issue, as most multinational banks do not have branches in the hinterlands. Khando says, banks are not equipped to reach these regions.
The credibility of the partner is also at stake. Says Khandor, “In the more developed markets it is easier to verify the credentials of a partner through references from the trading community. But in the developing markets, the distributor has to depend on personal relationships.”
Strategies
The dynamics of the rural markets are drastically different from those seen in the urban landscape. This is where a keen understanding of the small town consumer comes into play. But none of these markets operate on any single principle making it a challenging job for the marketer. Marketers have adopted various
strategies to circumvent these issues and tap this vast potential. Distributors push manufacturers to introduce area specific schemes depending on the dynamics of the market. Most distributors also push the manufacturer to dedicate special resources and support for these markets.
Says Khandor, “Schemes and strategies should be market specific. It is not possible for a reseller in a small market to achieve the targets set for the partners in the metros. Schemes should be achievable and should be based on market dynamics. Partners here are more susceptible to recognition. Hence, the incentives should revolve around these factors.”
According to Sriram, hoardings and advertisements through the regional media also provides good responses, depending on the product being sold. Says he, “Most large organizations have their head office in larger cities where central decisions are taken. But in the long run it pays to understand the users at these locations to manage sales better.” Adds Khandor, “A channel partner in a particular market would indulge in demand fulfillment.
But to actually develop the market and generate demand for a product, the distributor has to set up a direct office in the region.” Neoteric recently conducted road shows in 62 cities. While it didn't result in immediate business opportunities, it has helped the distributor penetrate further into the hinterlands.
Neoteric believes that this will also help prepare the next generation in these markets to be more open to investing in the right products.
TVSE has been focusing on expanding its channel network and increasing its local presence in the C and D class cities. Even Rashi has been focusing on expanding its direct presence. Recently, it set up its 40th branch in Gangtok, Sikkim to cater to the markets there. Currently, it's considering the viability of setting up a full-fledged branch in Andaman.
Prior to expanding into a new region, the distributor has to consider various parameters including the key industries present there, opportunities in the educational sector and existing business opportunities that will aid in penetrating the market.
The market in the hinterlands tends to be scattered. To overcome this hurdle, distributors can work closely with the local trade associations. This will provide them with a ready database of potential customers in the region.
Growth Aspects
The challenge in these markets is to sell a concept or a solution than a product. For most manufacturers C and D class markets is the buzzword. But only a few have actually done any promotional activity or made serious investments in these markets.
Manufacturers should look at introducing products that have specifically been manufactured keeping the Indian customer in mind. IT is not a priority for most customers in the hinterlands. Brand owners need to focus on educating the consumer about its advantages.
The Indian customer is value conscious. Hence, efforts should concentrate on introducing high quality products instead of palming them with cheap inferior products. The latter strategy will only result in loss of trust in IT products. The up-country markets are growing at more than double the industry growth rate. To tap this potential manufacturers and distributors need to enter early and develop the market rather than wait and play the catch up game.
The future holds promise for those who can understand the market dynamics and exploit to their best advantage.
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