Hierarchy of markets and rural market index

Hierarchy of Rural Markets in India

India is home to about 650,000 villages, housing approximately 850 million consumers, making up around 70% of the country's population. These rural areas contribute significantly to the national economy, accounting for about half of India's Gross Domestic Product (GDP). The consumption patterns in these areas are increasingly mirroring those of urban regions, presenting substantial opportunities for businesses.

Market Structure

The rural market structure can be understood by analyzing the interaction between products and consumers, segmented into four quadrants:

Quadrant I: Rural-to-Rural Transactions

  • Description: Both the buyer and seller are from rural areas.
  • Characteristics: This represents a closed-loop system where rural produce is consumed within the rural economy, maintaining a constant economic cycle.
  • Example: A farmer selling produce to a local village market.

Quadrant II: Urban-to-Rural Transactions

  • Description: Urban products are marketed and sold in rural areas.
  • Characteristics: Marketers focus on introducing urban goods to rural consumers, often without sustainable market strategies.
  • Example: Selling urban-manufactured FMCG products in rural stores.

Quadrant III: Integrated Urban-Rural Market Linkage

  • Description: Products move freely between urban and rural markets.
  • Characteristics: Establishing a robust link between urban and rural markets, allowing the exchange of goods and improving living standards and consumption patterns across both areas.
  • Example: Rural handicrafts sold in urban boutiques and urban electronics sold in rural markets.

Quadrant IV: Urban-to-Urban Transactions

  • Description: Both the buyer and seller are from urban areas.
  • Characteristics: A closed-loop system where urban produce is consumed within urban regions.
  • Example: An urban manufacturer selling products directly to urban retailers.

Market Segmentation

Rural India is a significant contributor to the manufacturing sector, accounting for 55% of the manufacturing GDP and hosting 75% of new factories built in the last decade. Rural consumption per person has seen a substantial increase, growing by 19% yearly between 2009 and 2014.

Rural Marketing Strategies:

  • Segmentation:
    • Heterogeneity: Recognizing the diverse nature of rural markets.
    • Prerequisites: Identifying the necessary conditions for effective segmentation.
    • Degrees: Understanding various levels of segmentation.
    • Basis: Utilizing criteria such as demographics, geography, and socio-economic factors for segmentation.
    • Approaches: Adopting different methods to segment the rural market, such as geographic or behavioral segmentation.
  • Targeting:
    • Evaluation and Selection: Assessing and choosing the most promising market segments.
    • Coverage: Ensuring comprehensive coverage of selected market segments.
  • Positioning:
    • Identifying and Developing: Creating a clear positioning concept tailored to rural consumers.
    • Communicating: Effectively conveying the positioning concept to the target market.

Degrees of Segmentation

  • Mass Marketing:
    • Approach: Treating all consumers uniformly.
    • Example: Hindustan Unilever Limited (HUL) initially offered a single detergent brand, "Surf," to all consumers. However, when Nirma entered the market with a more affordable product, HUL introduced "Wheel" to compete effectively.
  • Segment Marketing:
    • Approach: Identifying substantial and responsive market segments and targeting them with appropriately designed, low-priced products.
    • Example: Developing specific product lines tailored to the needs and affordability of different rural segments.

Additional Insights

  • Investment Potential: Rural India offers a vast investment opportunity due to its large population and changing consumption patterns.
  • Income Growth: Rural per capita GDP has grown at a Compound Annual Growth Rate (CAGR) of 6.2% since 2000.
  • Consumption Trends: The gradual alignment of rural consumption patterns with urban trends presents a lucrative market for consumer companies.
  • Media Influence: Increased media penetration has heightened rural consumers' awareness of new products and brands.
  • Government Initiatives: Policies and programs aimed at rural development significantly impact the rural market landscape.