Ten years ago, foreign consumer products were scarce in India and only available to the wealthy section. Import restrictions prevented or severely hindered the entry of foreign consumer goods into India. With the economic liberalization that followed, foreign brands are now prevalent throughout India. Today, multinational corporations see emerging markets like India as prime growth opportunities. Rural markets are growing twice as fast as urban markets. With a rural population equivalent to just under 2.5 times the population of the entire United States according to the 2000 census, the potential consumer base is staggering.
But overall, the success of multinational corporations in rural Indian markets has been mediocre at best. Yet it is from these struggles and failures that multinational corporations seeking to enter the rural Indian market can learn how to do so more intelligently.
Kellogg’s is a prime example of a company that has struggled in the Indian market. Kellogg’s entered the Indian market in the mid-1990s. They intended to find a new market, consisting of over a million people, many of whom did not eat grain. What Kellogg’s discovered was that they were introducing an entirely new product category. This meant that 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 grab parts of India’s already small cereal market by introducing local cereal flavors at lower prices. The lackluster sales that followed in the first three years resulted in Kellogg’s needing to completely realign its marketing to meet local needs, as well as introduce a line of inexpensive breakfast biscuits. Disappointments like this have caused companies looking to enter the rural Indian market to re-evaluate their entire approach.
Understand the Rural Market
With a population already exceeding one billion people, India has drawn the attention of multinational corporations from around the world as a place of opportunity to explore new markets. While India has parts of its population that would be considered wealthy or middle class by Western standards, a much larger percentage of India’s population remains 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 successfully enter this market. The key features define the term rural, determine the amount and flow of income, and determine the types of products and packages typically used in rural India.
Definition of 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 US 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 want to successfully penetrate the rural Indian market.
Rural Income
With a median income equivalent to $42 per month ($504 per year), rural Indians have very little disposable income. Most cottages have minimal storage space and no refrigeration. Very few people own or have access to cars. As a result, rural Indian clothing buyers tend to have an “earn today, spend today” mentality.
Instead of buying in bulk, which would mean paying more for a large quantity up front, rural Indians tend to buy what they need for short periods of time. These factors result in consumers buying products locally, as well as on a daily basis. Apart from the fact that income levels are low, rural incomes also vary greatly depending on the monsoons. When a monsoon arrives, it devastates the livelihood of most rural consumers because they depend on farm 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, it is crucial to understand the types of products and packages that rural Indians typically use.
For example, urban Indian consumers often use toothpaste to brush their teeth, while most rural Indians prefer to use tooth powder.
As a company looking to enter the Indian market with an oral care product, this would be an important fact to be aware of and consider during the product and package development stages. Similarly, Hindustan Unilever Ltd. (HUL), the Indian subsidiary of Dutch-based Unilever, found that rural Indians tend to use the same soap to wash everything from hair to body to clothing (if that use some soap). Because HUL manufactures products that include various soaps and detergents, HUL’s packaging and product development processes have taken this rural habit into account when designing all-in-one soaps. Considering the low disposable incomes and unique product and packaging needs of this market, consumer products designed and packaged for this market have great potential.
Any company starting to venture into the rural Indian market should keep these aspects in mind and after that plan their next steps, because one wrong step on their part can also ruin their entire brand image in other parts of the country.