Management consultancy, McKinsey, has recently found that brand owners have much to gain if they pay close attention and tailor their products and services to the unique needs of rural markets. Given that the market is expected to contribute to a large portion of Indian consumption in the coming years, McKinsey suggests that companies must be able to channel cost-effective products and services to these markets. In addition, the consultancy recommends raising brand awareness in community centers, working first in villages with electricity and more than 3,000 residents, and developing close relationships with local retailers.

NEW DELHI: Brand owners stand to gain substantial benefits from rural Indian shoppers if they respond to the unique demands of this market, research by McKinsey has found.

The consultancy reported that 90% of Indians living in the countryside were technically “deprived” in 1995, declining to 65% in 2005, and potentially falling to 46% in 2015 and 29% in 2025.

Consequently, the number of “aspirers” able to buy branded goods should rise from 32% in 2005 to 47% in 2015 and to 48% in 2025. By then, 23% of shoppers will come from affluent groups like “seekers” and “strivers”.

In terms of actual outlay, cumulative expenditure in rural regions was pegged by McKinsey to hit INR26.4tr in 2025. This can be compared with INR16.7tr in 2015 and INR9.7tr in 2005.

As such, this audience will provide nearly 40% of Indian consumption by 2025, and will pass the 50% mark in sectors like food, beverages and tobacco. These figures do not even include rural people visiting towns to purchase goods.

“There are real advantages to doing business in rural India,” McKinsey said. “There is typically less competition than in urban areas, so rural markets are often dominated by the top two or three brands in a category. As a result, prices tend to be higher, and more stable, than elsewhere.”

To tap this trend, the consultancy advised, companies must supply rural markets cheaply and efficiently, for example by setting low minimum orders, working with local people to deliver goods and services, and opening small kiosks.

Strong relationships with local retailers are also key. This can be achieved by allowing the firms to transport goods or forming tie-ups with firms in other categories to “bundle” products and services.

Marketing models must similarly be adapted. Given that 60-80% of rural income is generally drawn from agriculture, campaigns should run shortly after the harvest.

Participating in microfinance schemes, putting ads in communal gathering places, holding product demonstrations and using high-profile or influential brand advocates may all prove profitable.

Pursuing a targeted approach is also sensible, and prioritising villages with electricity and over 3,000 residents – “regional centres” or “able villages” – holds particular benefits, as these areas account for 90% of overall rural sales.

Equally, the “agricultural rich” take 30% of income, with labourers on 20%, artisans and people in equivalent-sized businesses on 15%, and the “agricultural poor” on 13%, suggesting segmentation could be worthwhile.

Data sourced from McKinsey; additional content by Warc staff, 23 November 2011