project report on marketing

1. DISSERTATION REPORT
ON
“Marketing Practices by FMCG Companies
for Rural Market”
By
VISHAL DAHIYA
PGDM (PG-14-90020)
SUBMITED TO – Ms. MANI TYAGI
ACCMAN INSTITUTE OF MANAGEMENT, GREATER
NOIDA
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2. ACKNOWLEDGEMENT
First and foremost I would want to thank my ACCMAN INSTITUTE OF
MANAGEMENT, GREATER NOIDA, for giving each and every student a
platform of such nature where even before the completion of course,
interaction with the industry and exposure to the same is made possible.
I learnt a great deal from relevant people of such stature where I was able to
obtain valuable feedback on my evolving thoughts about the changes that
have been taking place in the rural India.
Last but not the least I am grateful to all those persons who were involved
with me in the project for their co-operation and support.
VISHAL DAHIYA
CONTENTS
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3. PAGE
CH-0 ABSTRACT 4
CH-1 LITERATURE REVIEW 6
CH-2 BACKGROUND OF FMCG SECTOR 11
CH-3 RURAL MARKETING- INDIAN PERSPECTIVE 14
CH-4 ANALYSIS OF THE RURAL MARKET IN INDIA 16
CH-5 EVOLUTION OF INDIAN AND RURAL MARKETING 17
CH-6 PROBLEMS OF RURAL MARKETING 22
CH-7 MYTHS ABOUT RURAL MARKET 24
CH-8 STRATEGIES FOR SELLING IN RURAL INDIA 26
CH-9 RECOMMENDED STRATEGIES FOR RURAL MARKETING 29
CH-10 ADVERTISING IN RURAL INDIA 31
CH-11 KEY ISSUES FACED BY FMCG IN RURAL MARKET 32
CH-12 PRICING BY FMCG IN INDIA 38
CH-13 PILLARS OF FMCG 42
A-MARKETING
B-MARKETING REASEARCH
C-MARKET SEGMENTATION AND POSITIONING
D-ADVERTISING AND PROMOTION
CH-14 FMCG CONSUMPTION IN RURAL INDIA 52
CH-15 DATA INTERPRETATION 58
CH-16 CONSUMER DEMOGRAPHICS 69
CH-17 BIBLIOGRAPH 71
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4. CHAPTER-0
ABSTRACT
A thorough understanding of the rural markets has become an important aspect of
marketing in the Indian marketing environment today. This attraction towards the rural
markets is primarily due to the colossal size of the varied demands of the 230 million
rural people. In fact, the rural markets are expanding in India at such a rapid pace that
they have overtaken the growth in urban markets. This rate of growth of the rural market
segment is however not the only factor that has driven marketing managers to go rural.
The other compelling factor is the fact that the urban markets are becoming increasingly
complex, competitive and saturated.
The vast untapped potential of the rural markets is growing at a rapid pace. The policies
of the government largely favour rural development programmes. The rural market is
emerging stronger with a slow but an increase in disposable income of the rural people.
In addition, better procurement prices fixed for the various crops and better yields due to
many research programmes have also contributed to the strengthening of the rural
markets. Thus, with the rural markets bulging in both size and volume, any marketing
manager will be missing a great potential opportunity if he does not go rural.
This however raises a fundamental problem of fathoming the differences between urban
and rural markets in India. Rural and urban markets in our country are so very diverse in
nature, that urban marketing programmes just cannot be successfully extended to the
rural markets. The buying behavior demonstrated by the rural Indian differs tremendously
when compared to the typical urban Indian. Further, the values, aspirations and needs of
the rural people vastly differ from that of the urban population. Buying decisions are still
made by the one who is oldest male member in the rural family whereas children
influence buying decisions in urban areas. Further, buying decisions are highly
influenced by social customs, traditions and beliefs in the rural markets.
Another contrasting feature is the precision in the assessment of purchasing power of the
consumers. In urban markets, income levels are generally used to measure purchasing
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5. power and markets are segmented accordingly. However, this measure is not adequate for
defining the purchasing power in rural areas because of the single fact that rural incomes
are grossly underestimated. Farmers and rural artisans are paid in cash as well as in kind.
However, while reporting their incomes, they report only cash earnings, which then
affects the calculation of their purchasing power. This is the reason why marketers are
often surprised to find that their products are sometimes consumed by people who,
according to their surveys and estimates do not have the purchasing power to do so.
Every marketing manager must therefore make an attempt to understand the rural
consumer better so that he can plan his strategies in such a manner that they produce the
desired results.
For most companies wanting to enter the rural markets, distribution causes a serious
problem. Distribution costs and non availability of retail outlets are major problems that
are faced by the marketers these days. But if one takes a closer look at the characteristics
of the rural market, it will be made clear that distribution is not a problem at all.
In rural India, annual melas are organised with a religious and festive importance are
quite popular and provide a very good platform for distribution. Rural markets come alive
at these melas and people visit them to make several purchases by rural people.
According to the Indian Market Research Bureau, around 8000 melas are being held in
rural India annually. Besides these melas, rural markets have the practice of fixing
specific days in a week as Market Days when exchange of goods and services are carried
out. This is yet other potential low cost distribution channel which is available to the
marketers. Also, every region consisting of several villages is generally served by one
satellite town where people prefer to go to buy their durable commodities. If marketing
managers use these towns they will be able to cover a large section of the rural population
very easily.
While planning strategies that are promotional in rural markets, marketers should be very
careful in choosing the vehicle used for communication. They must remember that only
16% of the rural population has access to a vernacular newspaper. Although television is
undoubtedly a powerful medium, the audio visuals must be planned to convey a right
message to the rural folk. The marketers must try to rely on the rich people and
traditional media forms like puppet shows and folk dances to which the rural consumers
are familiar to and are comfortable, for putting a high impact on product campaigns.
Thus, a radical change in attitudes of marketers towards the vibrant and burgeoning rural
markets is called for, so they can successfully impress on the 230 million rural consumers
spread over approximately six hundred thousand villages in rural India.
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6. CHAPTER-1
REVIEW OF LITERATURE
LITERATURE REVIEW
(I) ‘Strategies For Rural Marketing By an Organization’
Course Project Report by Rajarshi Rakshit and M.L. Narsimhan
ITC e-Choupal an innovative strategy which is elaborative and extensive in rural
markets so far. Critical factors in the apparent success of the venture are ITCs extensive
knowledge of agriculture, the effort ITC has made to retain many aspects of the existing
production system, including retaining the integral importance of local partners, the
company’s commitment to transparency, and the report and fairness with which both
farmers and local partners are treated.
(II) The Marketing Mastermind (2003), Hindustan Lever rural
marketing Initiatives by "A Mukund" Marketing Mastermind has
given the perspectives in which HLL has approached towards
rural markets.
Promotion of brands in rural markets requires the special measures. Due to the
social and backward condition the personal selling efforts have a challenging role to play
in this regard. The word of mouth is an important message carrier in rural areas. Infect
the opinion leaders are the most influencing part of promotion strategy of rural promotion
efforts. The experience of agricultural input industry can act as a guideline for the
marketing efforts of consumer durable and non-durable companies. Relevance of Mass
Media is also a very important factor.
(III) The Economic Times (2003), "The rural market likes it strong"
the strength of rural markets for Indian companies. Financial
express, June 19, 2000 has published the strategy about FMCG
majors, HLL, Marico Industries, Colgate Palmolive have formula
had for rural markets.
The Indian established Industries have the advantages, which MNC don't enjoy in
this regard. The strong Indian brands have strong brand equity, consumer demand-pull
and efficient and dedicated dealer network which have been created over a period of
time. The rural market has a grip of strong country shops, which affect the sale of various
products in rural market. The companies are trying to trigger growth in rural areas. They
are identifying the fact that rural people are now in the better position with disposable
income. The low rate finance availability has also increased the affordability of
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7. purchasing the costly products by the rural people. Marketer should understand the price
sensitivity of a consumer in a rural area. This paper is therefore an attempt to promote the
brand image in the rural market.
(IV) RURAL MARKETING A CRITICAL REVIEW
By Miss. P. PIRAKATHEESWARI, Lecturer in Commerce, Sri
Sarada College for Women (Autonomous), Salem 16.
‘Go rural’ is the slogan of marketing gurus after analyzing the socio-economic changes in
villages. The Rural population is nearly three times the urban, so that Rural consumers
have become the prime target market for consumer durable and non-durable products,
food, construction, electrical, electronics, automobiles, banks, insurance companies and
other sectors besides hundred per cent of agri-input products such as seeds, fertilizers,
pesticides and farm machinery. The Indian rural market today accounts for only about Rs
8 billion of the total ad pie of Rs 120 billion, thus claiming 6.6 per cent of the total share.
So clearly there seems to be a long way ahead. Although a lot is spoken about the
immense potential of the unexplored rural market, advertisers and companies find it
easier to vie for a share of the already divided urban pie.
The success of a brand in the Indian rural market is as unpredictable as rain. It has always
been difficult to gauge the rural market. Many brands, which should have been
successful, have failed miserably. More often than not, people attribute rural market
success to luck. Therefore, marketers need to understand the social dynamics and attitude
variations within each village though nationally it follows a consistent pattern looking at
the challenges and the opportunities which rural markets offer to the marketers it can be
said that the future is very promising for those who can understand the dynamics of rural
markets and exploit them to their best advantage. A radical change in attitudes of
marketers towards the vibrant and burgeoning rural markets is called for, so they can
successfully impress on the 230 million rural consumers spread over approximately six
hundred thousand villages in rural India.
(V) Monish Bali, "The rural market likes it strong", The Economic
Times, [Interview by An Awasthi], August 23, 2000; Neeraj Jha,
"Gung-ho on rural marketing", The Financial Express, June
19, 2000.
‘Creating brands for rural India’
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8. Rural markets are delicately powerful. Certain adaptations are required to cater to the
rural masses; they have unique expectation and warrant changes in all four parameters of
product, price, promotion and distribution.
A lot is already emphasized on adapting the product and price in terms of packaging,
flavouring, etc and in sachets, priced to suit the economic status of the rural India in sizes
like Rs.5 packs and Re.1 packs that are perceived to be of value for money. This is a
typical penetration strategy that promises to convert the first time customers to repeated
customers.
The promotion strategies and distribution strategies are of paramount importance. Ad
makers have learnt to leverage the benefits of improved infrastructure and media reach.
The television airs advertisements to lure rural masses, and they are sure it reaches the
target audience, because majority of rural India possesses and is glued to TV sets!
Distributing small and medium sized packets thro poor roads, over long distances, into
deep pockets of rural India and getting the stockiest to trust the mobility is a Herculean
task. Giving the confidence those advertisements will support. Sales force is being trained
to win the confidence of opinion leaders. Opinion leaders play an important role in
popularizing the brand. They sometimes play the role of entry barriers for new products.
(VI) History of FMCG in India
In India, companies like ITC, HLL, Colgate, Cadbury and Nestle have been a
dominant force in the FMCG sector well supported by relatively less competition
and high entry barriers (import duty was high). These companies were, therefore,
able to charge a premium for their products. In this context, the margins were also
on the higher side. With the gradual opening up of the economy over the last
decade, FMCG companies have been forced to fight for a market share. In the
process, margins have been compromised, more so in the last six years (FMCG
sector witnessed decline in demand).
NESTLE INDIA
Nestlé India is a subsidiary of Nestlé S.A. of Switzerland. With six factories and a large
number of co-packers, Nestlé India is a vibrant Company that provides consumers in
India with products of global standards and is committed to long-term sustainable growth
and shareholder satisfaction.
After India’s independence in 1947, the economic policies of the Indian Government
emphazised the need for local production. Nestlé responded to India’s aspirations by
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9. forming a company in India and set up its first factory in 1961 at Moga, Punjab, where
the Government wanted Nestlé to develop the milk economy. Progress in Moga required
the introduction of Nestlé’s Agricultural Services to educate, advise and help the farmer
in a variety of aspects. From increasing the milk yield of their cows through improved
dairy farming methods, to irrigation, scientific crop management practices and helping
with the procurement of bank loans. Nestlé set up milk collection centres that would not
only ensure prompt collection and pay fair prices, but also instil amongst the community,
a confidence in the dairy business. Progress involved the creation of prosperity on an on-
going and sustainable basis that has resulted in not just the transformation of Moga into a
prosperous and vibrant milk district today, but a thriving hub of industrial activity, as
well. For more on Nestlé Agricultural Services.
Hindustan Unilever Limited (HUL)
The Global arm of Hindustan Unilevers Limited is Unilever's and its mission is to
add Vitality to life. Their products meet everyday needs for nutrition, hygiene, and
personal care with brands that help people feel good, look good and get more out of life.
HUL has deep roots in local cultures and markets around the world which gives them a
strong relationship with their consumers, which are the foundation for their future
growth. They benefit from there wealth of knowledge and international expertise to the
service the local consumers - a truly multi-local multinational.
HUL believes that an organization’s worth is also in the service it renders to the
community. HUL is focusing on health & hygiene education, women empowerment,
and water management. It is also involved in education and rehabilitation of special
or underprivileged children, care for the destitute and HIV-positive, and rural
development.
COLGATE PAMOLIVE INDIA LTD
From a modest start in 1937, when hand-carts were used to distribute Colgate
Dental Cream, Colgate-Palmolive (India) today has one of the widest distribution
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10. networks in India. is a household name in India with one out of two consumers using a
modern dentifrice. Consistently superior quality, innovation and value for money
products emerging out of advanced technology employed, has enabled Colgate to be
voted ‘The Most Trusted Brand’ in India across all brands
BRITANNIA
Britannia strode into the 21st Century as one of India's biggest brands and the pre-
eminent food brand of the country. It was equally recognized for its innovative approach
to products and marketing: the Lagaan Match was voted India's most successful
promotional activity of the year 2001 while the delicious Britannia 50-50 Maska-Chaska
became India's most successful product launch. In 2002, Britannia's New Business
Division formed a joint venture with Fonterra, the world's second largest Dairy Company
NIRMA
Nirma is one of the few names - which is instantly recognized as a true Indian
brand, which took on mighty multinationals and rewrote the marketing rules to win the
heart of princess, i.e. the consumer.
India is a one of the largest consumer economy, with burgeoning middle class pie. In
such a widespread, diverse marketplace, Nirma aptly concentrated all its efforts towards
creating and building a strong consumer preference towards its ‘value-for-money’
products.
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11. CHAPTER-2
THE FMCG SECTOR
BACKGROUND:
The FMCG sector has been the cornerstone of the Indian economy. Though, the
sector has been in existence for quite a long time, it began to take shape only during the
last fifty-odd years. To date, the Indian FMCG industry continues to suffer from a
definitional dilemma. In fact, the industry is yet to crystallize in terms of definition and
market size, among others. Generally, FMCG refers to consumer non-durable goods
required for daily or frequent use. The sector touches every aspect of human life, from
looks to hygiene to palate. Perhaps, defining an industry whose scope is so vast is not
easy.
Post-reforms, the industry's growth has been hinging around a burgeoning rural
population which has witnessed significant rise in disposable incomes. Consequently, the
rural markets have been witnessing intense competition in almost all the consumer
product classes. Another reason which has led to rise in this trend is the saturation in
urban markets in most of the consumer non-durable goods categories. This has led to the
industry players scrambling for greater rural penetration as a future growth vehicle, the
area which accounts for 70% of the total Indian households
The FMCG sector consists mainly of sub segments viz. personal care, oral care and
household goods. This can be further sub-divided into oral care, soaps and detergents,
Health and Hygiene products, beauty cosmetics, hair care products, food and dairy-based
products, cigarettes, and tea and beverages. Of late, there seems to be a liberal approach
towards branding of the companies/products as FMCG; companies in businesses like
liquors (United Breweries), paints (Asian Paints), adhesives (Fevicol) too are being
labeled as FMCG stocks in the stock market parlance. Quite interestingly media stock
Zee Telefilms was labelled as FMCG stock by a mutual fund, which had Zee as its top
holdings in its FMCG sector scheme at one point of time!
So far, it has been a chequered graph for the MNCs operating in the Indian FMCG
industry. Domestic companies are only beginning to make their presence felt in the
industry. It has taken tremendous consumer insight and market savviness for the FMCG
players to reach where they are today. But, the journey seems to have just now begun for
the players as the majority of the rural populace are yet to get access to the items of daily
usage like toothpastes, soaps and shampoos.
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12. Things however started to change post-reforms during the nineties. The floodgates
were opened. And MNCs who had saturating home-markets and who were hungrily
looking for markets elsewhere rushed in. Categories were created which were in
categories products such as hair-oil, skincare, and many new product categories were also
created. Facets which were untouched of the Indian consumer were explored. The FMCG
players had in front of them a vast untapped market and a market that was fast growing.
Income-levels were rising. A new class which was upwardly mobile was emerging.
Television, satellite and cable televisions were helping the market to grow on further in
rural areas by changing aspirations and lifestyles.
The canvas got widened for the FMCG players, but also the challenges. Rules of
this game has been changed. Strategies, in their true sense, came in the front. Quite
unlike in the past, companies started looking for ways to expand their product-portfolios
and distribution reach. Acquisition of brands became the norm of the day because it gave
the players an easy option of attaining growth in the FMCG sector. That is true of the
MNCs who are known for their deep down pockets .
With domestic consumption close to Rs 80,000 crore, the FMCG sector has today
become the one of the largest in the country. In terms of size and importance, it is going
to grow further. Notwithstanding experts' predictions that there would be enough room
for everybody to co-exist, the name of the game is going to be competition and more and
more of competition. One of the biggest challenges that is facing the Indian FMCG
industry is to get to the next level of innovation. "You people need a strong local product
ranges," says McKinsey's Fernandes.
So, the key to success in the Indian FMCG industry lies in: cutting down the costs,
investing in brand building in the form of marketing, advertising and promotions,
providing good price points and aggressive pricing, offering products such as packaged
atta and milk that add value and convenience and protecting their human talents from
poachers.
Alongside, FMCG players also need to go in for some new initiatives. Consider HUL
for instance. The company has made it very clear that Internet is going to be its key
delivery vehicle which will have expedite in its distribution and sales efforts. Surely,
Internet is going to alter the way FMCG companies plan and do its business. With
reasons. Internet provide so many opportunities for FMCG companies in the areas of
logistics, interface with customer and value added chain.
Considering the Internet's role in the logistics. FMCG players can use the Internet to
extend their logistic’s network beyond the traditional expensive and time consuming
EDI-based solutions. Fernandes:says "Internet is the huge value-driver for an industry
with such a wide reach media and the huge SKU complexity." This would start with
connections between the factory and C&F ,and then move on to huge complex networks
reaching to key urban distributors and dealers. And over thet time, even time to rural
dealers and retailers.
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13. As far as interface with customer is concerned, Internet have wonders here. Over the
time, successful e-marketeers(electronic marketers ) can use the Internet to develop user-
friendly communities, which are very important in creating loyalty and in testing the
worth of the products. Whats more, FMCG companies can come altogether to make e-
purchasing portals and increase their purchasing range and able to find smaller suppliers.
Fine. All these call to make productive partnership between the FMCG industry and
the government. Experts see this full of opportunity. A partnership between the
government, which have intention to drive Internet penetration into smaller towns, and
FMCG companies who has it’s own interst to ride off a shared infrastructural network to
have superior logistics and enable product communications. Thia partnership can jointly
enable the Internet network deeper in the Indian heartland.
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14. CHAPTER-3
RURAL MARKETING - INDIAN PERSPECTIVE
What’s different about rural marketing?
Price have influencing role . Companies have, in fact, launched lower-priced
products targeted at the rural market. Some time back, Escorts Yamaha had priced its
model YD 125 at Rs 30,000 to clear the stock and the scheme was a runaway hit. Besides
pricing, the second most important thing is repetition of communication to increase recall
value.
The repetition should not be too soon as it then tends to get monotonous, nor should it be
too long. The ideal time is after one month and before three months. This helps establish
the image of the companies and allows the target audience to differentiate products. This
is important because of the widespread prevalence of spurious products in the rural
market.
Innovative tools should focus on providing entertainment along with delivering the
message. In this regard, our concepts like rural mobile fairs, caravans, screens at the
Kumbh Mela etc have been well received by the consumers.
The Indian rural market have vast size and also demand offers provide great
opportunities to marketers. Two-thirds of Indian consumers live in these rural areas and
estimated almost half of the national income is generated fromthese rural areas. It is very
natural that rural markets consist an important part of the total market of India. Our
nation is having around 450 districts, which consist approximately 630000 villages
which having there own parameters such as literacy rate, , income levels, accesbility,
connectivity with nearest towns, etc.
The success mantra for a brand in the Indian rural market is still as unpredictable as
rain. It always seems difficult to gauge the rural market. Many companies, who should
have been successful as they tried very hard, have failed very miserably. People’s
attribute in rural market success to luck. Therefore, marketers should understand the
social aspects and attitude changes within each village, but nationally it follows a
consistent pattern.
While the rural market provide a big attraction to the marketers, it would be simple
to think that any FMCG company can easily move into the market and go away with
sizable share. Actually the market abound with variety of problems. The main problems
facing rural marketing are:
• Physical Distribution
• Channel Management
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15. • Promotion and Marketing Communication
The problems of physical distribution and channel management adversely affect the
service as well as the cost aspect. The existing market structure dwell of primary rural
market and retail outlet. The structure includes stock points in the feeder towns to service
these retail outlets at village levels. But sometimes it becomes very difficult to
maintaining the necessitate service level for the delivery of the product at retail level.
One of the way could be using company delivery vans which can serve two
purposes- it can take the products to the customers in every nook and corner of the
market and it also enables the firm to establish direct contact with them and thereby
facilitate sales promotion. However, only the big giants can afford this channel. The
companies having relatively fewer resources can make joint distribution, where a joint
venture estanlished between non-competitive marketers to facilitate distribution.
As a general rule, rural marketing have more intensive personal and door to door
selling efforts compared with urban marketing. Marketers should understand the
mentality of the rural consumers and then perform accordingly. To effectively tap the
rural market a brand must associate itself with the same things the rural folks do. This can
be possibly done by utilizing the various rural local media to reach them in their own
language and in large numbers so that the brand can be establish association with the
countless rituals, celebrations, festivals, and other activities where they socialy assemble.
One very good example can be quoted of Escorts, where they concentrate on deeper
penetration .In September-98 they established rural marketing sales. They did not depend
on T.V or print advertisements rather give effort on focused approach depending on
geographical and market parameters like fares, melas etc. Looking at the ‘kachha’ roads
of village they positioned their mobike as tough vehicle. They present advertisements
showed Dharmendra riding Escort vehicle with the punch line ‘Jandar Sawari, Shandar
Sawari’. And as a result, they hit sales of 95000 vehicles annually.
One more example, which can be quoted best , example of HUL. A last year HUL
started ‘Operation Bharat’ to capture the rural markets. Under this campaign HUL
passed out, low–priced free sample packets of its toothpaste, fairness cream, Clinic plus
shampoo and hair oil, and Ponds cream to approxmatily twenty million households.
Hence ,looking at the threats and the opportunities which rural markets provide to the
marketers it can be understand that the future will very promising for those who can
understand the aspects of rural markets and use them to their best advantage.
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16. CHAPTER-4
ANALYSIS OF THE RURAL MARKET IN INDIA
Rural market of India consists of about 80% of the population of the country.
Apparently in terms of the number of people, the Indian rural market is almost twice as
large as the entire market of USA or Russia. This market is not only large, but very much
scattered geographically. It is also as diverse as it is scattered. It exhibits linguistic,
regional and cultural diversities and economic disparities, and hence, it can easily be
considered as more complex than the market of a continent as a whole.
The rural market scene has undergone a steady and encouraging change over the last
three decades. Inspite of several barriers to faster growth, the growth has not only been
quantitative, but also qualitative. This change has been possible because of new
employment opportunities and new sources of income made available through rural
development programmes which have resulted in green and white revolutions and a
revolution in rising expectations of rural masses.
The rural buyers in India provide a tremendous range of .contradictions and paradoxes
which baffles the urban-based marketing people and, even more so, the foreign observers.
Rural consumers are less homogeneous than compare to their urban counterparts and
different from region to region.
The rural market is made up of two broad components i.e., the market for
consumption goods and the market for agricultural inputs. The rural markets are by and
large less exploited. Another important features of the rural market is that at least in the
present context, it is largely agriculture oriented. Green revolution and the consequent
prosperity is restrict to very few selected areas in the country. As a result, the effective
demand for consumer items has not spread all over rural India. Income generated from
the money sent by the members of their families employed in towns and abroad also
helped the rural people to spend more on consumer goods.
It has been noted that the rural consumer is discerning and the rural market vibrant.
At the current rate of growth it will soon outstrip urban market. Surveys and audits for a
number of consumer products and services have, over the years, clearly highlighted the
emerging importance of this sector.
The rural market is no more sleeping. 'Go Rural' Is the latest slogan. Rural
consumption of all products is growing by leaps and bounds, since the urban market has
reached near saturation levels in a number of categories.
In short, the sheer size of the rural population will serve as a large potential demand base
for a variety of products:
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17. CHAPTER-5
EVOLUTION OF INDIAN RURAL MARKETING
EVOLUTION STAGES:
• STAGE I : AGRICULTURAL MARKETING
• STAGE II : RURAL INPUTS MARKETING
• STAGE III : RURAL MARKETING
FLOW OF GOODS
• STAGE I : AGRICULTURAL MARKETING
RURAL TO URBAN
• STAGE II : RURAL INPUTS MARKETING
URBAN TO RURAL
• STAGE III : RURAL MARKETING
URBAN /RURAL TO RURAL
TYPE OF PRODUCTS:
• STAGE I : AGRICULTURAL MARKETING
AGRICULTURAL PRODUCE
• STAGE II : RURAL INPUTS MARKETING
AGRI. INPUTS LIKE SEEDS,MACHINES,
FERTILISERS ETC
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18. • STAGE III :RURAL MARKETING
CONSUMER DURABLES, FMCG,CONSUMABLES FOR
CONSUMPTION AND PRODUCTION ETC
RURAL CLASSIFICATION
CONSUMER MARKET: ALL KINDS OF CONSUMMABLES, FOOD
PRODUCTS, TOILETRIES, COSMETICS, TEXTILES,
FOOT WEAR ETC WATCHES, BICYCLES,
RADIO, TV, KITCHEN APPLIANCES, FURNITURE,
SEWING MACHINE, TWO WHEELER ETC.
INDUSTRIAL MARKET: AGRICULTURAL AND ALLIED ACTIVITIES,
FARMING, COTTAGE INDUSTRIES, HEALTH
CENTRE, SCHOOL, COOPERATIVE, PANCHAYAT,
OFFICE ETC. SEEDS, FERTILISERS, PESTICIDES,
TRACTORS ANIMAL FEED, ETC
SERVICES MARKETS: REPAIRS, TRANSPORT, BANKING, CREDIT,
INSURANCE HEALTHCARE, EDUCATION,
COMMUNICATION , POWER ETC.
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19. ATTRACTIVENESS OF RURAL MARKET
- LARGE POPULATION
- RAISING PROSPERITY
- GROWTH IN CONSUMPTION
- LIFE-STYLE CHANGES
- LIFE CYCLE ADVANTAGES
- MARKET GROWTH RATES HIGHER THAN URBAN
- RURAL MARKETING IS NOT EXPENSIVE
- REMOTENESS IS NO LONGER A PROBLEM.
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20. DIFFERENCE BETWEEN RURAL AND URBAN MARKETING
ASPECT URBAN RURAL
PHILOSOPHY MARKETING MARKETING AND
SOCIETAL AND SOCIETAL, DEVELOPMENT,
GREEN,RELATIONSHIP RELATIONSHIP
MARKET
DEMAND HIGH LOW
COMPETITION ORG SECTOR UNORG.SECTOR
CONSUMERS
LOCATION CONCENTRATED WIDELY SPREAD
LITERACY HIGH LOW
INCOME HIGH LOW
EXPENDITURE PLANNED,EVEN SEASONAL
NEEDS HIGH LEVEL LOW LEVEL
INNOVATION ADOPTION FASTER SLOW
PRODUCTS
AWARENESS HIGH LOW
CONCEPT KNOWN LESS KNOWN
POSITIONING EASY DIFFICULT
USAGE METHOD EASILY GRASPED DIFFICULT TO GRASP
QUALITY PREFERENCE GOOD MODERATE
FEATURES IMPORTANT LESS IMPORTANT
PRICE
SENSITIVE YES VERY MUCH
LEVEL DESIRED MEDIUM-HIGH LOW-MEDIUM
DISTRIBUTION
CHANNELS MULTI VILL SHOPS, SHANDIES,
HAATS, YATRAS
TRANSPORT FACILITIES GOOD AVERAGE
PRODUCT AVAILABILITY HIGH LIMITED
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21. PROMOTION
ADVERTISING ALL TV,RADIO, MULTI
LINGUAL
PERSONAL SELLING DOOR 2 DOOR OCCASSIONALLY
FREQUENTLY
SALES PROMOTION ALL GIFTS,DISCOUNTS,DEMO
PUBLICITY GOOD OPPORTUNITIES LOW
FACTORS CONTRIBUTING TO RURAL BOOM
The marketing boom in the rural areas is caused by such factors as increased
discretionary income, marketable surplus of product, like vegetables and eggs, rural
development schemes, unproved infrastructure, increased retailing and retailers,
increased awareness with information explosion, expanding TV networks, liberalised
Government policies for rural development, emphasis on rural markets by companies,
new cadre of entrepreneurship, competitive and creative sales promotion, packaging
revolution and, changing life styles in the rural areas. .
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22. CHAPTER-6
PROBLEMS OF RURAL MARKETING
In the Indian context, rural marketing is 4 complex subject. For a business
organisation, rural marketing is beset with a number of problems. The prices of rural
marketing poses many problems due to the vastness of the country and a high potentiality
for providing an effective marketing system.
Besides, a few other problems stem from the under developed markets and
illiterate and gullible people constitute the major segment of the markets. More
purchasing power is not enough. It is not enough to have some consumption pioneers.
The activation of buying on a wide scale is an essential precondition for the exploitation
of the rural market.
It is now unanimously accepted that the rural salesmanship in India has been
insufficient and inadequate and out of proportion to the agriculture revolution. This calls
for strong bias in favour of raising the rural demand as against the urban demand. The
traditional marketing activities of promotion, distribution, sales and servicing, undertaken
so far in the urban and semi-urban contexts are to be extended to cover a much wider area
in a rural environment by introducing appropriate innovation, selection and adoption.
There are about 5,76,000 villages in India, 79 percent of them with a population of less
then 1,000 each.
MAJOR PROBLEMS IN TAPPING THE RURAL MARKET
1. High distribution costs
2. High initial market development expenditure
3. Inability of the small retailer to carry stock without adequate credit facility
4. Generating effective demand for manufactured foods
5. Wholesale and dealer network problems
6. Mass communication and promotion problems
7. Banking and credit problems
Page 22

23. 8. Management and sales managing problems
9. Market research problems
10. Inadequate infrastructure facilities (lack of physical distribution, roads warehouses
and media availability)
11. Highly scattered and less populated markets
12. Low per capita and poor standards of living, social, economic and cultural back-
wardness of the rural masses
13. Lower exposure to different product categories and brands
14. Cultural difference between urban based marketers and rural constumers.
The development of the rural market will involve additional cost both in terms of
promotion and distribution. In rural marketing, often it is not promotion of a brand that is
crucial, but creating an awareness concerning a particular product field, for instance,
fertilizers and pesticides.
Urban and semi-urban based salesmen are not able to tap the full potential in the villages.
Here, it may be suggested that the marketers may select and employ the educated
unemployed from villages.
CHALLENGES
Rural market in India is very large and fast growing consumer market with
over 75% of the population residing in rural and semi-urban areas. With the increase in
competition and saturation of urban market, corporates are now working hard to tap the
potential of rural market to increase their market shares. Business Managers are devising
aggressive marketing and promotional strategies to create brand consciousness and
loyalty among the rural consumers. On the other hand, with the increase in disposable
income the rural consumers are more brands sensitive and willing to pay for quality. To
tap this market potential and increasing brand consciousness among rural consumers,
major corporates are today organising campaigns and participating in rural hats, melas
and exhibitions for market promotions, visibility and brand building
Page 23

24. CHAPTER-7
MYTHS ABOUT RURAL MARKET
HERE are some myths on the rural market to mull over: The rural market is a
homogeneous mass, urban ads are equally suitable for rural audiences, Western market
research methodologies are suitable for rural markets too.
Mr Pradeep Kashyap, Managing Director, MART and member, The Rural
Network, demolished these rural myths and several others while outlining his theme
presentation at a conference on rural marketing and communications organised by FICCI
here today.
Mr Kashyap said that it was a myth that the rural market could be treated as a
single entity. Instead it has a vast cultural diversity and vastly varying rural
demographics. The second myth is that purchasing power is low. He said that at 15.6
million `middle class' households, the rural areas compared well with 16.4 million urban
households. For the same income level, disposable surplus in the rural area is much
higher than urban, he said. Another myth he said is that ad agencies and marketers bank
on TV to reach rural areas. However, he said that television reach is only 36 per cent of
households. Urban ads, Mr Kashyap explained, was not always suitable for rural
audiences - another myth.
The mother of all myths, Mr Kashyap said, was that the rural boom was over.
However, he said that rural market size has grown rapidly and while it was true that
growth has tapered off, it already presented a huge market. Mr Kashyap dwelt on the key
challenges in the future for rural marketers. One of them was market penetration.
Marketers also had to look at increasing occasions for use of FMCGs in rural households.
Rural incomes needed to be increased through rural market growth. One other
challenge lay in making effective use of the large available infrastructure of post offices
and public distribution shops and haats and melas. Companies would have to meet the
challenge by creating an independent rural marketing team with its sales targets and
budgets, said Mr Kashyap. They would also have to design appropriate products keeping
rural usage and environment in mind and be innovative with their distribution channels.
The future, he said, would see technology play a key role in transforming markets.
There will also be a proliferation of large format rural retail stores, he said.
agency team to help focus on rural markets
"RURAL marketing is often confused with below-the-line communication such as
promotions and contests," says Mr R.V. Rajan, Managing Director, Anugrah Madison
Advertising, a rural marketing communications outfit, referring to the absence of
understanding of the rural markets by many brands.
He says that although companies are aware about potential of the rural market, but
they lack the long-term perspective in planning. "Instead of investing in research, they
enter in the market implement activities for short-term gains," he adds.
Page 24

25. To change this foolish situation, The Rural market Network, an alliance agreement
between four rural communication agencies (Rural Relations, Marketing & Research
Team (MART), Sampark Marketing & Advertising Solutions, and Anugrah Madison),
are planning to held seminars to provide help to clients to understand the realities of the
rural market.
"We are also planning to held specific workshops to give training to middle-level
managers who can tackle issues related with rural communications," he says. The first
seminar is planned to be on September 6 in Mumbai.
Mr Rajan briefs that the main objective of creating this joint network is to exploit
the integral strength of each partner and get benefit from the synergies as a group. "There
are no institution which can provide strategic planning about rural markets and
implementation on as a whole all-India level under one roof," points out Mr Rajan.
Thus , this network, reportedly the first and only of its kind, is taking on the
regional expertise of each of its partners to provide a national perspective, to develop
rural marketing long term strategies. Its main objective is to provide customised research,
strategic planning services, implementation and understanding of rural marketing
initiatives. A client may also permits complete access to the huge database of rural
markets that this network has collected..
At lower level like an operational level, these four partners of the Rural Network
work on a revenue-sharing arrangement.
Page 25

26. CHAPTER-8
STRATEGIES FOR SELLING IN RURAL INDIA
OPPORTUNITY
The Indian rural market with its vast size and demand base offers a huge
opportunity that MNCs cannot afford to ignore. With approxmatily 128 million
households, the rural population is almost three times the urban.
As a result of the growing wealthiness, powered by good monsoons and the
increase in agricultural production to 200 million tonnes from 176 million tonnes in 1991,
Rural India has a large consuming class with 41 per cent of India's middle-class and 58
per cent of the total disposable income.
The importance of the rural market for FMCG and marketers is underlined by the
fact that the rural market includes for close to 70 per cent of toilet-soap sell and 38 per
cent of all two-wheeler purchased.
The rural market includes the sale of half the total market for TV sets, , pressure
cookers, bicycles, washing soap, blades, salt , toothpowder and tea, . the rural market for
FMCG products is seems to grow much faster than compare to their urban counterpart.
THE 4A APPROACH
The rural market may be alluring but it is not without its problems: Low per capita
disposable incomes that is half the urban disposable income; large number of daily wage
earners, acute dependence on the vagaries of the monsoon; seasonal consumption linked
to harvests and festivals and special occasions; poor roads; power problems; and
inaccessibility to conventional advertising media.
However, the rural customer is not unlike his urban counterpart in many aspects.
The more daring MNCs are meeting the consequent challenges of availability,
affordability, acceptability and awareness (the so-called 4 As)
Page 26

27. (I) AVAILABILITY
The first challenge is to ensure availability of the product or service. India's 627,000
villages are scattered over 3.2 million sq km; 700 million Indians may still live in rural
areas, know about them is not easy. However, the state of road is poor, it is an even
bigger challenge to regularly supply products to the far-flung villages. Any serious
marketer must hit to reach at least 13,113 villages having a population of more than
5,000. Marketers must decline the distribution cost with the incremental market
penetration. Over the many years, India's largest MNC, Hindustan Unilever, a subsidiary
of Unilever, has built a strong distribution channel system which helps its brands reach to
the interiors most of the rural market. To provide the service to remote village, stockists
use autorickshaws and manual rickshaw sometimes , bullock-carts and even boats in the
backwaters of Kerala. Coca-Cola, which counted rural India as a future growth driver,
has provide a hub and spoken distribution model to arrive the villages. To ensure full
advantage, the company provide supplies, twice in a week, large distributors those who
act as hubs. These distributors and dealers appoint and supply, once in a week, smaller
distributors in adjoining areas. LG Electronics considers all cities and towns other than
the seven metros cities of india as rural and semi-urban market. To capture these
untouched country markets, LG has set up 45 local area offices and 59 rural/remote area
offices.
AFFORDABILITY
The second big challenge is to ensure affordability of the product or service. With
low consumable incomes, products need to be quote at the affordable price to the rural
customer, most of whom are depend on daily wages. Some companies have understand
the affordability problem by opening small unit packs. Godrej recently launched three
brands of Cinthol, Fair Glow and Godrej in small 50-gm packs, priced at Rs 4-5 meant
specifically for Madhya Pradesh, Bihar and Uttar Pradesh — the so-called `Bimaru'
States.
Hindustan Unilever, among all the first MNCs to understand the potential of India's
rural market, has introducsed a variant of its largest selling soap brand, Lifebuoy at Rs 2
for 50 gm. This is done to mainly target the rural market. Coca-Cola has explained the
affordability issue in good manner by introducing the returnable 200-ml glass bottle
priced only at Rs 5. The initiative has worked: now 80% of new drinkers come from the
rural markets. Coca-Cola has also introduced Sun fill which is a powdered soft-drink
concentrate. The ready-to-mix and Sunfill is available in a two kind of sachet, a single-
serve sachet of 25 gm priced at Rs 2 and mutiserve sachet of 200 gm cost of Rs 15.
Page 27

28. (II) ACCEPTABILITY
The third challenge is also difficult to gain acceptability for the product or service
offered. Therefore, there is a need to introduce products that suit the rural market. First
company which has reaped huge profit by doing so is LG Electronics. In 1998, it
introduced a customised TV for the rural people and christened it Sampoorna. It was a
recorded hit selling 100,000 sets in very first year. Because of the less supply of the
electricity and lack of refrigerators in the rural areas, Coca-Colintroduced low-cost ice
boxes — a tin boxes for new outlets and thermocol boxes for seasonal outlets.
The insurance companies that provide tailor-made products for the rural market have
performed well. HDFC STANDARD LIFE has topped private insurers by giving policies
worth Rs 3.5 crore in total period. The company collaborated with non-governmental
organisations and providing reasonably-priced policies in the form of group insurance
covers.
(3)AWARENESS
With large parts of rural India is not accessible to conventional advertising media
— only 41 per cent rural households have access to TV — building awareness is also
another challenge. Fortunately, however, the rural consumer also has the same likes as
the urban consumer — watching movies and listening music — and for both the urban
and rural consumer, the family is the important or key unit of identity. However, the rural
customers expressions different from his urban counterpart. For the farmer outing is
confined to local fairs and festivals and watching TV is confined to the state-owned
Doordarshan. Consumption of branded products is not common rather treated as a special
treat or indulgence.
Hindustan Unilever relies heavily on its own company-organised media. These are
some promotional events organised by dealers. Godrej Consumer Products, which is
trying to push its soap brands into the far interior areas, uses radio to reach deeper to local
people in their language.
Coca-Cola brand uses a combination three TV, cinema and radio to reach 53.6 per
cent of rural households. It doubled its budget on advertising on Doordarshan, which
alone has reach to 41 per cent of rural households. This brand has also used banners,
posters and grabbed all the local forms of entertainment. Since price is the key issue in
the rural areas, Coca-Cola advertising stressed itsnew `magical' price point of Rs 5 per
bottle in all media.. LG Electronics uses different way it uses vans and road shows to
reach rural customers. The company also uses local language in advertising. Philips India
adopt wall writing and radio advertising to gain its growth in rural areas.
The main dilemma for MNCs ready to tap the large and fast-growing rural market
whether they achieve this without hurting the company's profit margins. Mr Carlo Donati,
Page 28

29. Chairman and Managing-Director, Nestle, while admitting that his company's product
range is mainly designed for the urban consumers, cautions companies from plunging
headlong into the rural market to capturing rural consumers can be expensive. "Any
generalisation" says Mr Donati, "about the rural India you could be wrong and one
should first focus on high GDP growth areas, be it urban, semi-urban(town) or rural."
Page 29

30. CHAPTER-9
RECOMMENDED STRATEGIES FOR RURAL
MARKETING
The past practices of treating rural markets as appendages of the urban market
is not correct, since rural markets have their own independent existence, and if cultivated
well could turn into a generator of profit for the marketers. But the rural markets can be
exploited by ruralising them, rather than treating them as convenient extensions of the
urban market. To expand the market by grabbing the countryside, more and more MNCs
are plunder into India's rural markets. Among those that have made some headway are
Hindustan Unilever, Coca-Cola, LG Electronics, Britannia, Standard Life, Philips,
Colgate ,Palmolive and the foreign-invested telecom companies.
The focus should be on infecting marketing culture into the villages. The educated
unemployed youth of the near by villages could be trained to wrok for this mission.
Overcoming the income variability
Savvy firms create innovative opportunities for the rural segments that are lagging
behind in purchasing power. The local distribution for Akai in India, Baron International,
realized that the market for new television sets are primarily urban. However, there was a
considerable inertia when it came to replacing a working TV set of a previous
generation.But Baron also knew that there existed a market, primarily rural, for used
televisions. Rural retailers can only purchased traded-in sets from urban dealers. Urban
consumers can got something for their old TV sets, urban retailers made their own
margins from selling the traded-in sets, rural retailers also made a profit on used TVs and
rural consumers were provided TV sets they could easily afford.consequently, Baron’s
sales increased by 1500%
Wider competition for a product
Many of the rural buyers tend to have very little stock of money, only a flow.
resultantly, they ready to make purchases only to meet their day to day needs and have
very little capacity to build inventory. The marketing implications of this are far-
reaching. Not only are pack sizes and price points affected, but in turns out that
consumers have to make a selection from a much wider array of product categories. Thus
the nature of competition for any given product is much broader. For instance, in a
Page 30

31. village haat, Coca Cola competes not just with Pepsi, but with a broad set of purchases
that the rural consumers consider as “treats”.
Preference for Low Unit Packs (LUP)
Trial is often encouraged by Low Unit Packs (LUP) or sachets. The sachet packaging
strategy caught the popular FMCG imagination in the early 1990s and it
Basic strategies as per the above mentioned :-
1. DECENTRALISING RURAL MARKETS
Decentralizing the Rural Market by detaching them from the urban bases. A give-and-
take two-way approach should replace the present one-way exploitation
2. SELECTION OF THE SALESMAN
The salesman in rural markets should be selected from the educated unemployed
villagers, trained well and appointed as salesmen. The town-to-villages shuttling
salesmen are to be replaced by stationary salesman in villages "
3. EDUCATE THE VILLAGERS
Companies should also adequately concentrate on educating the villagers to save them
from spurious goods and services .
4. NEW PRODUCTS MARKET
Rural markets are laggards in picking up new products. This pshyc will help the
companies to frame their marketing efforts accordingly. This will help to sell inventories
of products which is out dated in urban markets.
Page 31

32. CHAPTER-10
ADVERTISING IN RURAL INDIA
MARKETING COMMUNICATION, LANGUAGE, AND CONSUMERISM.
A dramatical change is in the progress. Villagers who used to crack open peanut
M & M candies, eat the nut and throw away the shell are now demanding chocolate
candies that will melt in their mouths, not in their hands. Charcoal-cleaned teeth is not a
common sight; so is the case with twigs of niim (neem) and babul (babool) tree. Today,
the bright shine of Colgate or other international brand of toothpaste have more appeal
than the traditional methods of cleaning teeth. Even the native methods of cleaning teeth,
such as daatun karnaa and musaag lagaanaa, are also being replaced by new methods
such as paste karnaa, 'to brush teeth with paste'. Even a very simple query such as:
Where are you from? is not free the overtones of marketization and globalization in the
rural discourse. Globalization and consumerism and is occupying parts of India where,
some would venture to say, time seems to have ceased for centuries.
These small villages and small towns, which were once inconsequential dots on the
maps, are now getting the attention from global marketing giants and media planners.
Thanks to globalization, economic liberalization, IT revolution, female power, and
improving infrastructure, middle class of rural India today has more disposable income
than urban India. Rural marketing is getting new heights in addition to rural advertising.
Rural India shows the heart of India. Approximately 80% of Indian lives in over
ahalf of million villages (627,000), generating more than half of the national income.
Based on the interviews with consumers, media giants, and analysis of case studies,
following insights can be derived:
Various facets of rural media (conventional and non-conventional) and integrated
marketing communication. In addition to rural market discourse, media forms such as
wall paintings, calendar advertising, outdoor advertising, print, radio and television
advertising.
• Art of crafting messages to meet rural tastes and sensibilities. In particular,
uniquely Indian media forms such as video van technology, which has changed
the face of not only marketing but also political campaigning. Rural markets
(haat) which are the mobile McDonald's or Walmarts of India.
• Targeting women and religious groups in addition to rural population.
• Marketing taboo products such as 'bidi', cigarettes, sanitary supplies, and other
such products.
• Globalization and its effects on product naming, product monitoring, rural
discourse and media forms.
• Creativity and deception, together with guidelines for advertisers and marketers.
Page 32

33. CHAPTER-11
KEY ISSUES OF THE INDIAN FMCG MARKET
Heavy launch costs
Companies incur huge costs on the launch of new products. The entire launch
process goes through a series of processes such as product development, market research,
test marketing. All this require huge cash outflow. Further, in order to build brand
awareness and develop franchise for a new brand initial expenditure is incurred on
launch advertisements, free samples and product promotions. Launch costs are as high as
50-100% of revenue in the first year and these costs progressively reduce as the brand
matures, gains consumer acceptance and turnover rises. For established brands,
advertisement expenditure varies from 5 - 12% depending on the categories. It is very
common to give occasionally push by re-launches, which include positioning of brands
with sizable marketing support.
Less capital intensive
The sector is not so capital intensive as majority of the product classes require very
low investment in fixed assets. The sector is also characterised by high turnover to
investment ratio; turnover is typically five to eight times the investment made in a
greenfield plant at full capacity. Another reason for the sector being less capital intensive
is that bulk of sales from manufacturers takes place on a cash basis.
Contract Manufacturing
Manufacturing of products by third party vendors is quite common. In order to keep
a check on costs and hence increase affordability of their products, companies in many
cases prefer to go for contract manufacturing by third party.
Marketing Drive
Marketing assumes a significant place in the brand building process of the industry
players. This helps in reaching out to a large consumer base and fight with the existing
brands. Even for an existing brand it requires constant marketing efforts to keep the
demand alive and kicking.
Market Research
Before the launch of any new product, conducting market research to gauge the
consumers' reaction is very important. This is because consumers' purchase decisions are
based on perceptions about brands and which keep on changing with fashion, income and
Page 33

34. changes in lifestyle. Also in case of consumer goods it is difficult to differentiate
products on technical or functional grounds, unlike in the case of industrial products.
Now with increasing competition, there is tremendous pressure on the companies to do
extensive market research, test market it before coming out with any new product.
Presence of a large unorganized market
The FMCG sector is characterized by a huge unorganized market. Factors like low
entry barriers in terms of low capital investment, fiscal incentives from government, low
brand awareness, especially in rural areas led to the mushrooming of the unorganized
sector.
Other features
In urban areas, the consumption dispersion is logically and practically broken up by
the population strata i.e. the Town Class. The urban elite, or the people living in metros,
consume a proportionately higher value of FMCGs. This has an effect on the retailing
structure also, as the retailer varies his stocking pattern and his basket of services,
according to the needs and the purchasing habits of the consumer on the one hand and his
own desire to differentiate from other such service providers on the other.
The key to success in the Indian FMCG industry consist: cost cutting , investment in
brand building in the form of positive marketing, advertisements and promos, providing
good price s and aggressive pricing, offering products such as packaged atta and milk that
add value and convenience and protecting their human talents from poachers. Alongwith,
FMCG players need to move for new initiatives. Consider HUL for instance. The
company has made it ver clear that the Internet is going to be its key delivery vehicle,
which will have expedite its distribution and sales efforts. Sure, Internet is going to
change the way FMCG companies strategize and do business. With reasons. Internet
provide huge opportunities to FMCG companies in the areas of logistics interface with
consumers and value added chain.
Building a solid distribution network calls for massive investments. Indian FMCG
players, not like their foreign counterparts, will not take chances with new brands, just
incase they failed. But more than thses financial handicaps, it was a rigid mentality
framework that was responsible for the laid down attitude: they were complacent, anti-
change and anti-growth. This mindset clouded their own vision and strategy. Dabur has
seems to be a slow-changer to date. Some of the McKinsey recommendations such as
exiting from non-core businesses met with strong objections from some members of the
promoter family. Family feuds, so typical of Indian corporates, left domestic FMCG
majors with little time for marketplace battles and strategizing.
Major Indian consumer product companies (like Britannia, P&G, HUL, etc.) have a
very strong presence through their strong brands. These companies make considerable
investment in R&D to sharpen and maintain their edge in the business. Diversified
portfolios, wide distribution networks and scale economies of these companies deter new
Page 34

35. players from entering. Brand equity, therefore, is an extremely important factor in FMCG
industry. One of the other most critical factors is the ability to build, develop, and
maintain a robust distribution network.
The major issues that new MNC entrants face are low income levels, non-existence
of super markets in India, an incredible 5 million retail outlets, and a typically slow
moving low consumer demand resulting in dealers/retailers being reluctant to allocate
their resources and time.
The pace of competition
MNCs had both good product propositions and deep pockets to back them. Their
parent's wide product range ensured that the new products kept hitting the Indian market.
Players like Cadbury redefined the basic tacts of the chocolate confectionery industry. It
not only launched new varieties and flavors, but in fact helped to change the consumption
patterns.
Take the case of Cadbury's exercise as positioning its chocolate as a snack food.
Others like Procter & Gamble (P&G) and SmithKline Beecham had chosen to be little
different. They decided introduction of new products through their 100 per cent
subsidiaries instead of their Indian subsidiaries which were already existing. In P&G's
case, though the move was targeted at avoiding and protecting it from high costs of
product launches and brand building, it might have deprived the Indian arm the
opportunities of leveraging P&G's global brands and high growth areas.
For a fairly long time, Indian FMCG players remained low-decibel advertisers. It was
only Nirma, who was a deliberate low-decibel advertiser, at its own will. It still is. Such
was its corporate philosophy. It did not even come in the 1999 top-ten list of advertisers,
which had Dabur at number two, and Marico at four. When practically everybody else
have increased their advertisement-budgets, Nirma continued to gain volumes by passing
on the cost-benefits to its consumers. Nirma proved that finally what matters is
understanding the consumer and his needs. Which is more a positioning strategy rather
than a marketing ploy. Another Indian major FMCG which have reaped hefty benefits
from its innovative positioning is Dabur.
Value for money
Since the global recession of 1991-94, which had hit the consumer spending hard,
value-for-money became the buzzword for FMCG companies globally. These FMCG
companies relied heavily upon major restructuring and cost rationalization exercises as
business had continued to become very competitive. Many packaging innovations were
also resorted to India was not different. There was a paradigm shift towards value-for-
money products and, to some extent and obviously towards the rural market.
What Nirma continued to do all these years suddenly became the must-do for many
FMCG players. Price cuts became unavoidable to keep the market share from squeezing.
Sometimes, the cuts touched to ridiculous levels. Economic recession hit the urban
Page 35

36. peoples’ pockets badly and forced the companies to train their guns on rural India, which
had started witnessing a major change in its aspiration and lifestyles and even had an
income that translated into increasing volumes. Companies such as HUL, Colgate and
Britannia who already had a strong rural focus, geared up the gas further. HUL uncovered
its "Operation Bharat". Britannia pushed its brand called Tiger biscuits to every nook and
corner of the country, while Colgate went about wooing the rural masses by offering low-
priced products like Colgate tooth powder and other products in convenient packaging.
Those who could not do it on their own went to rely on somebody else. P&G, whose
distribution is largely urban, decide to leverage Marico's retail reach.
P&G and SmithKline Beecham, are another interesting cases with small product
range like theirs, they have been able to achieve what others could not and proved that
what you need is a good and convenient product, marketed effectively and sold at the
right price, i.e. less price to price sensitive consumers.
Acquisitions all the way
Of late, an interesting trend seen in the Indian FMCG sector has been brand
acquisitions. This represents an increasing awareness among the FMCG players are
talking today more and more of product "fits" while discussing the brand acquisitions. It
is not acquiring anything and everything as it was in the past.
Forget brands, protect those who make them. Though there was some amount of
brand acquisition, the real worry of the domestic FMCG players was to protect the
makers of their brands from getting copied. The real challenge for all FMCG players,
however, is in holding on to human talent which makes the brands rather than the brands
themselves. FMCG marketers are known to be the best marketers globally and have
takers in industry as diversified as telecom and cellular, even insurance. HUL has learnt it
the hard and long way.
Consider the role of Internet in logistics. FMCG players can leverage Internet to
extend their network of logistics beyond the traditional expensive EDI-based solutions.
This would begin from having connections between the factory and C&F and then
moving on to more complex networks reaching out to key urban distributors and
wholesalers. And time to time, even to rural wholesalers and retailers. As far as interface
with consumers is concerned, Internet can work wonders here. Over time, marketers who
were successful could leverage the Internet to develop user-communities, which are
invaluable in creating loyalty and in testing the products. What more, FMCG companies
can come together to form e-purchasing portals and accelerate their purchasing power
and ability to find smaller suppliers. All these demand a productive partnership between
the FMCG industry and the government. Experts see this as an growing opportunity. A
partnership between the government, which wants to drive Internet penetration deeper
into smaller towns, and FMCG companies who want to ride off a shared infrastructural
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37. network to enable higher and superior logistics and drive product communications. Such
a partnership can jointly drive the Internet network deeper into the Indian industry. It
seems the excitement is just beginning to start in the Indian FMCG industry.
Rural marketing has become the latest marketing tact or the so-called ‘mantra’ of
most FMCG majors. Truely, rural India is huge with unlimited opportunities. All waiting
to be tapped by the FMCGs. It will not be surprising that the Indian FMCG sector is busy
putting in place a rural marketing strategy which is parallel to urban marketing strategy.
Among the FMCG majors, Hindustan Lever, Marico Industries, Colgate-Palmolive and
Britannia Industries are only a handful of the FMCG majors who have been gung-ho
about rural marketing. With reason India’s agrarian economy is fundamentally strong.
Rural India accounts for as much as 70 per cent of India’s population. That means rural
India can bring in the much needed volumes and help FMCG companies to log in
volume-driven growth. That should be like music to FMCGs who have already hit onto
saturation points in urban India.
Certainly, rural marketing holds the key to success of FMCGs, which are very
desperate to find ways out to gain deeper penetration in the markets. Not that the rural
population is numerically large, it is growing richer day by day. Of late, there has been a
phenomenal increment in rural incomes and rural spending power. Successive good rains
have led to dramatic boost in crop yields. Consider this statistics: foodgrain production
touched 200 million tones during fiscal 1999 against 176 million tones logged during
fiscal 1991. Not only the crop yields have improved but also tax-exemption on rural
income too has been responsible for this enhanced rural purchasing power.
FUTURE OUTLOOK
Domestic market is witnessing a structural shift in terms of demand with rural
markets beginning to show increased demand for FMCG products. This is happening at a
time when the urban market is showing signs of saturation. However, the low level of
penetration in the rural areas is a cause of concern. For a number of consumer
expendables the penetration levels are extremely low, but are expected to increase with
the passage of time and rise in income levels. For instance, for toilet soap, the average
expenditure per user household for low-income households is Rs. 237, while it has
increased to Rs. 706 for high-income groups. Rural market at a staggering 122 million,
five times the urban market, is hard to ignore for anyone.
This on the other hand also provides an excellent opportunity for the industry
players in the form of a vastly untapped market. However, to propel the demand in the
rural areas, issues like taxes and costs would be very crucial, given the cost-conscious
nature of the consumers there. Recent Bugdet hike in FMCG products like toothpastes do
not bode well for the companies's efforts to focus on spreading awareness about oralcare
in these areas and the increased usage of oral care products there.
Page 37

38. Another area which offers immense growth opportunities is unbranded segment.
However, cost will again be the determining factor for success here. The increased
inflow of imported consumer goods in the country, especially from China, as a result of
lifting of the QRs (Quantitative Restrictions) by the government, is also expected to give
the domestic players a run for their money. In recent times, the markets have been seeing
a veritable war over the retail shelf, which promises to intensify in the foreseeable future.
Lifting of the quantitaive restrictions and dereservation of several items, which were
earlier reserved for SSIs, are expected to lead to intense competition in the market place.
In the wake of such developments, the crucial success factor will be the
distribution strength a company would be able to have or develop. However, in the wired
world that alone won't be enough as a entry barrier. Internet is fast becoming a strong
distribution channel and the new players are finding it very easier to launch assaults
through this medium effectively. That is why we are seeing web intiatives from market
majors like HLL, Godrej etc. which want to pre-empt competitors in that space. And, it
won't be an exaggeration to say that the next FMCG war will be fought on the wired turf.
Brand building will be another key issue. There has been a spurt in promotional
activities, which has resulted in an increasing fight for the customer's attention at the
point of purchase. This has made brand differentiation at the retail level extremely
difficult. This has been further aggravated by brand extension strategies adopted by the
companies. One good example is the Hindustan Lever. The company, in some of the
product categories like soaps, have relied heavily on brand extensions. In case of
Lifebuoy, a toilet soap, so many variants have flooded the shelves, however this could
also mean diluted focus, on part of the company and confusion for the consumers. HUL
has recently planned to trim its product portfolio and concentrate on key brands only. It is
expected to withdraw from the markets variants of its toothpaste brand "Close Up" such
as Close Up Renew and Close Up Oxyfresh.
Companies will be increasingly reviewing the quantity versus quality equation, as
well as distribution synergies, to try and leverage for the best possible distribution at the
least possible cost. This could be a crucial factor in deciding the fate of players.
The key factors that are expected to trigger future growth for the FMCG industry
include reduction in excise duties, relaxation of licensing restrictions and reduced
dominance of unorganized sector due to creation of level playing field. The growing
reach of advertising medias like satellite and cable TV too is expected to give a boost to
the market penetration initiatives of the industry players.
The results of a survey done by National Council of Applied Research (NCAER)
suggest that Indian FMCG space is all set to enter a new growth phase, sample this: the
study says that the lower income group is expected to shrink from over 60 percent (1996)
to 20 per cent by 2007 and the higher income group is expected to rise by more than 100
per cent. It looks, as if the industry is all set for a fast-paced race in future.
Page 38

39. CHAPTER-12
PRICING BY FMCG COMPANIES
It's a volume-value game. Most Indian FMCG majors knows this very well.
That is why FMCG companies are gearing up for bigger advertisement and sales
promotion campaigns aimed at the rural buyer. high-pitch rural marketing exercise
involves repositioning of brands, repackaging of products and re-pricing them, all with
considering the rural wallets. The companies has been working constantly on extending
its parallel rural sales and distribution networks, which already finds a place among the
industry’s top three. Concerns be over the inability of rural markets to meet the soaring of
rural ambitions of the Indian FMCG majors. Is the perception that industry majors such
as Hindustan Lever are on the verge of diluting their rural focus true? Does the urban
customer featured hihghlighted on the cover of Hindustan Lever’s 1998 annual report
reflect this shifting focus? It is a tactical shifting, it is a trade-off between value and
volume, between the urban and the rural market". For, focusing all out of one of these
markets at the cost of the other could be big mistake . That is why a few FMCG
companies are not putting in efforts to go for the rural market. Instance of the case of
Cadbury. The company has clarified that it is not entering the rural market, at least for
now. Meanwhile, Marico is trying harder to get into the market of premium-end hair-oil .
What do all these point at? Rural marketing could open the doors of opportunities, but the
path is paved with thorns. One major limitation here is this that most FMCG players just
do not have the critical size to start rural marketing. That is why the most of FMCG
players are expected to be concentrate both on rural marketing and urban marketing:
focus on the urban markets for value and, focus on rural marketing for volumes. One
result-oriented marketing strategy here is this: offer value-additions to existing product
lines to lure the urban consumer and alongside offer the rural consumer wide-ranging
choices within a single product category in a bid to generate high volumes.
There are lot more problems existing in rural marketing. Success in rural market
calls for a sound network and a deep understanding of the rural mentality. Rural
consumer’s are price-sensitive and this is something that the FMCG players should be
alive to. Rural income are largely determined by the condition of monsoon and therefore
rural demand is not a steady horse to ride on. This makes rural marketing a uncertain. It is
more like a gamble for FMCG minors who do not have a clutch of strong brands across
product segments. These FMCG minorss are not able to cross-subsidize their products
and go for product experimentation. The result: FMCG minors have a limited reach, are
not able to erect entry barriers and have no ways to minimize the impact from loss of sale
opportunities. The diverse rural market calls for multi distribution networks, efficient
logistics and friendly infrastructure.
Another issue is the stark difference in the characteristics of the consumers. The
consumers stand apart as two different markets as is evident from their current
consumption baskets, and their attitude towards essential and luxury items. In addition,
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40. although the evolution is towards a better lifestyle therefore product and brand choice is
there in both these markets, the rate of evolution is highly different.
The real test will lies ahead. One major hindrance in rural marketing is: whether an
FMCG player will be able to provide the best price and aspirational values to the rural
consumer ,who has a peculiar tendency to emitate his urban counterpart. So, what should
FMCG players do now? These should not only price that products competitively, but
also provide their rural prospects maximum value for money. Certainly, reaching to 3.33
million retail outlets is like an uphill task. The only way for Indian FMCG players to: put
in place an aggressive cost structure, which will enable them to offer low-price and
value-for-money products. But then, FMCG is a low-margin business with a high cost of
raw materials. Take the case of Marico: its material cost works out to a high level of 59
per cent on sales. Therein lies the rural marketing paradox. However, the customer-
centric and the market-savvy FMCG companies have always been chased prospects when
they perceive there is a latent demand. For example, Hindustan Lever’s Rin, Surf and
Lux detergent are available even in India’s most interior villages. Hindustan Lever had
been given shape to its rural strategies , a few years ago when it perceived that its urban
market was going down due to an industrial slowdown.HUL s Operation Bharat that
mainly focused on personal care products made the most of surging rural incomes. These
result was there for every one to see. The company has able to clock in double-digit
profits every three years and gain double-digit revenues every four years. Like Britannia
with its Tiger brand of biscuits and Colgate-Palmolive with its low-priced and
conveniently packaged products designed for the rural people have been other pioneers
in the rural marketing. Thus, Britannia and Colgate-Palmolive have been able to derive
more than 30 percent of their revenues from rural markets.
Sure, there is a lot of income in rural India. But, there are obstacles. The main
obstacle is that the rural customer is still evolving. Only FMCGs with deeper pockets,
unblinking rural commitment and staying in power can enjoy this rural game. Cost of
setting up a huge retail network has saw many casulaties, the notable being the P&G
which abandoned its plan to fight the likes of Lever in the rural segment on its own.
Instead, it is aiming to piggyback on the Marico Industries which has got a strong
presence in these markets through its flagship brand "Parachute". The FMCG stalwart
Hindustan Lever has started its ambitious project "Project Shakti", a five-month old
marketing initiative involving women belonging to micro-credit self-help groups (SHGs)
in the Nalgonda district of Andhra Pradesh, similar to the highly successful experiment
Bangladesh's Grameen Bank used in rural areas of the country.
The recent price cuts by FMCG giants, Hindustan Unilevers Ltd (HUL) and
Procter and Gamble (P&G) proves, once again, that the Indian market still, by and large,
supports only volumes, not value propositions. No matter how hard one may try and
brand a product price sensitiviness over rules the brand preference — if its not quoted
right price, it's just not going to generate sufficient volumes.
Realisation has touched to P&G — although a bit late and but now it wants to
become more 'affordable'. By cut down prices from nearly 25 to 50 per cent on its two
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41. detergent brands, Tide and Ariel, P&G has not only redefine
the balance of brand power in India, but has also hurt HUL — and itself — where it
hurts the most … its bottom line.
As the two traditional rivals in the global FMCG market carry out their rivalry in
India, their share values have toppled; P&G which has launched the price war seen at 14
per cent decline in its share price, the HUL stock fell 19 per cent on the same day. The
share of an uninvolved Nirma, too, was brought down by eight per cent.
P&G's move from the premium niche to the mass based, is indeed a proactive
marketing work. But, as industry watchers point out, HUL's reaction in slashing its prices
is merely an attempt to protect its turf. If so, is 'marketing' really about how low you can
price your product?
Concepts like 'market research', 'value', 'branding' and 'loyalty' seem to have been
dumped with HUL's counter offensive of a price cut of its own. The rationale, in HUL's
words, is to face competition without blinking.
Till recently, the price war was restricted to HUL and P&G. Now, to round off the
probability that customer loyalties will shift with price cuts, even smaller players have
entered the market. Henkel Spic has cut down the prices on its detergent brand Henko
Stainchampion by 15 per cent to Rs.75 per kg.
With revenues already hard to generate and margins under tight pressure, this
decision is going to prove expensive for HUL. Analysts estimated that the price cuts will
cost HUL between Rs120 and 150 crore.
As a market leader in almost all the major product lines that it operates in, HUL did
what it had to do. But then, as a market leader with a share of40 per cent of the detergents
market, as opposed to P&G's 10 per cent, isn't the onus of growing the market on the
market leader?
The small sachet was an innovative stroke of marketing genius that reduced product
differentiation and changed the growth of the detergents market. Today, sachet sales
made about 15-20 per cent of the detergents market. But innovation seems to have
deserted the soaps and detergents industry ever since.
With penetration at it's highest and the market saturated, the Rs4,000-crore
detergents market has been stagnating for almost five years. Compounding this problem
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42. are the smaller players like Ghari detergents, who offer products of
similar quality, at almost half the price.
On the face of it, the price cuts seem logical. Lower prices should get new users into the
market and propel others to upgrade
from the not-so-premium brands to Tide, Ariel or Surf Excel. P&G saw the volumes of
its sachet sales almost tripling when it halved the prices on the 20-gram packs of Tide and
Ariel, to Re 1 and Rs 1.50 respectively, in September 2003.
But will price cuts on larger packs prove equally successful? And if not, then will
there be another round of price cuts? HUL, at least, has definitely ruled that out, saying
there was "no room for more price cuts on Surf Excel".
A further round of price cuts indeed seems unlikely for both manufacturers since
raw material costs have been rising. The Consumer Guidance Society of India has already
initiated a probe, to find out if there has been any degradation in the quality of products to
enable the current round of price cuts.
Everybody knows that India is a 'volumes' market, and as marketers, both HUL and
P&G understand that pricing and distribution are the key to success. But unless marketers
come up with something radical, cutting prices will only get them thus far and no further.
A sustained growth will be hard to come by, and players will just have to make do with a
shrinking pie.
What is needed now from the rivals is something like a 'sachet', a conceptual
breakthrough, to stimulate fresh growth
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43. CHAPTER-13
PILLARS OF FAST MOVING CONSUMER GOODS
The Fast Moving Consumer Goods (FMCG) business is built on two pillars - Brands and
Distribution. The under given is the comprehensive conceptual coverage of these and
other key marketing concepts
1. BRANDING
2. VALUATION OF BRANDS
3. DISTRIBUTION
4. MARKETING
5. MARKET RESEARCH
6. MARKET SEGMENTATION AND POSITIONING
7. ADVERTISING AND PROMOTIONS
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44. BRANDING
What is a brand ?
A brand is name, term, sign, symbol or design or a combination of them which is
intended to identify the goods or services of one seller or group of sellers and to
differentiate them from those of competitors’
A Trade mark is "a brand or a part of brand that is given legal protection because it is
capable of exclusive appropriation."
Manufacturers can use their own brands (known as Manufacturers’ brands) or brands of
their distributors (Distributors’ brands).
Why branding?
Manufacturers/ distributors use brand names for a variety of reasons from simple
identification purposes to having legal protection for unique features of the products from
imitations and help consumers recognize certain quality parameters. In some cases,
brands are just used to endow the product with unique story and character which itself
can be a basis for product differentiation.
Special importance of brands for FMCG products
While brands can represent all types of goods or entities, they have special importance
for FMCG products. Brand equities are stronger in FMCG products as the consumer is
reluctant to try unknown brands/ unbranded products for the following reasons
• these products individually account for a small part of household spending.
• most of these products are personal use
• In many cases, it is difficult to differentiate a product on technical or functional
grounds and therefore the consumer is reluctant to switch to an unknown brand.
• Successful brands generate strong cash flows, which enable the owner of the
brand to reinvest a part of it in the form of aggressive advertisements/ promotions.
This reinforces the perceived superiority of a brand.
How can a brand be created ?
FMCG companies spends enormous sums on building a brand equity by way of
-advertisements/publicity
-freesamples
-lowentryprice
- promotions (schemes for dealers, consumers etc)
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45. Advertisement and promotion can induce trials but for sustained loyalty, the
manufacturer has to offer superior quality and value for money. Most successful brands
are founded on a chance discovery of a new product/ process or assiduous research and
development work. Major players invest in R&D on their existing brands and improve
the product quality continuously to maintain their edge over competitors.
Branding strategies
a) Individual brands Vs Umbrella brands
Individual brand has its own identity and the corporate or common name is not used to
promote its equity. In case umbrella brand, there is a generic brand with association of
some values. For instance, Hindustan Lever follows individual branding strategy and has
several brands in the same category such as Lux, Liril, Rexona soaps etc. Competitor
Nirma has mainly followed the umbrella branding strategy such as Nirma Bath, Nirma
Beauty, Nirma Super, Nirma Shikakai soap etc. Only recently, the company for the first
time diverted from its strategy of umbrella branding with the launch of Nima.
Advantages of Individual branding strategy are
• Some of the products which flop in the market, do not have negative spill over
impact on other brands. For example, Nirma is associated with popular end of
products, which becomes a major deterrent for its expansion in the premium
segment.
• Consumers looking for a change are offered distinctly new brands by the same
manufacturer.
But individual branding requires expensive advertisements and brand building exercises.
Also, each new brand does not benefit from the positive perceptions of earlier brands.
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46. In umbrella branding, manufacturers have advantage of
• Establishing a new product quickly with association of quality/ benefits of the
mother brand (a classic case in Indian context has been Godrej).
• No need for name research, expensive advertisement for creating brand names,
recognition and preference.
b) Brand extensions
Brand extensions are used for a group of products such as Clinic Plus Shampoo, Clinic
All Clear., Clinic Plus hair oil or Close Up Renew, Close Up Oxyfresh, Close Up
Sensation, etc. The brand has some unique USP and there are cosmetic/ functional
variations in the extensions. The strategy is to build upon initial success of a brand entry
by creating flanker it ems and minor variants of the basic brand. Brand extensions may
be used within product categories (In some products like shampoos, there can be natural
variants such as shampoo for normal hair, dry hair or for specific problem solving like
anti-dandruff). It may also be used for different product segments (eg Sunsilk brand being
extended to hair oil)
c) Multi brands
Marketer introduces brands mostly in large markets, which compete with each other in
almost the same segment. In multi branding, there is cannibalization but overall result is
greater market share. Net incremental market share is enough to justify the investment in
the new brand. For instance Hindustan Lever has several brands (Lux, Breeze, Hamam,
Rexona, etc) in the same category ie toilet soaps.
Accounting for brand expenses
Expenses incurred by way of advertisements, free samples, promotions etc are treated as
revenue expenditure by accountants, as they do not create any tangible assets. The
intangible assets created in the form of a brand pays back in the form of repeat buying
and pricing power over a long period of time. An established brand is a precious asset
and when sold, fetches a price several times the value of tangible assets required to
manufacture the product.
There is no generally accepted methodology for valuing and accounting for brands. Also,
all methods recommended for valuing brands suffer from lack of objectivity and
consistency. There is considerable risk as expenses incurred on a unsuccessful brand has
to be written off almost entirely. But the same are paid back several times in case of
successful brands. In case of FMCG companies, assets are considerably understated as
they do not include value of brands. Inclusion of brands in assets will - dilute return on
networth - reduce gearing ratio.
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47. It can be argued that high return on networth shown by established companies is
overstated as assets (ie Brands) are understated. Similarly, in case of companies in
investment phase, making extensive investment in new brands, would exhibit depressed
return on networth as investment in brands is being written off, pulling down the profits.
Some companies defer writing off a part of the expenditure for brand building. The
expenditure not written off in the year is treated as deferred revenue expenditure.
VALUATION OF BRANDS
Valuation of brands
Value of a brand is represented by the incremental cash flow resulting from a product
with a brand versus a product without a brand name or with weaker brand name.
Brand valuation is a complex process and involves a lot of subjectivity. There are no
widely accepted techniques of brand valuation. There are several considerations which
cannot be standardized or quantified such as
• To pre-empt competition from taking over a brand
• Synergy with the company acquiring existing brands/ businesses
• Strategic entry into a new product category
• Prevent damage to existing brands. Many a times stiff competition results in price
cutting, aggressive promotions, lower margins for all the competing brands.
• Confidence in the acquirer of the brand to rejuvenate a languishing brand.
Value of an acquired brand
In case of an acquired brand, price paid for the brand over and above the value of tangible
assets, represents value of the brand. For accounting purposes consideration paid for the
brand is typically broken up as follows :
1. Goodwill
2. Trademark and patents
3. Technology and knowhow
4. Non compete agreement
Some of the popular methods for valuation of brands are discussed below :
Bert technique (Intra-brand Plc) values brands based on following factors. It gives scores
on each factor and values the brand as multiple of sales/ earnings based on the aggregate
score.
- USPs of the brand
- Stability of the brand
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48. - Markets namely the industry in which the brand is in use.
- Internationality of the brand commanding a higher weightage than a local brand.
- The long term trends of the brands
- Brands receiving consistent investment are more valuable.
- Legal protection commanded by brands through registration and trade mark laws.
- Quality of support received by the brands.
Cost basis - The valuation is done by aggregating all costs incurred on a brand from the
conception stage. These costs include market survey, research & development, launch
and subsequent advertising expenditures. These costs are adjusted for inflation and
present values are calculated. Then adjustments are made to provide for discount in case
of a declining trend in the product life cycle or premium in case of ascending trend in
market share and product life cycle.
Market value - Valuation at market price (the best bidder quote) can be at divergence
from the fundamental value of the brand. For instance, a large company may pay an
abnormally high price to protect its major brand or remove a nuisance from the market or
derive synergies in its existing business. Such valuations are subjective.
Earnings model - In this method, valuation is done by identifying, separating and
quantifying earnings that can be attributed to the brand and capitalizing these earnings at
a suitable discounting rate. The multiple would depend on several factors such as
category growth prospect, emerging competition and brand’s relative position, edge in
terms of technology, strength of loyalty to the brand etc.
Some case studies on brand valuation, acquisitions and transfers
Brand valuation
1. Infosys brand valuation
Brand takeovers
1. Cibaca takeover by Colgate
2. Lakme takeover by Hindustan Lever
3. Captain Cook and Tarla Dalal by International Bestfoods
Brand transfers
1. Marico
2. Navneet
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49. DISTRIBUTION
Distribution channels and network
Marketing or Distribution channel refers to the set of marketing intermediaries which
manufacturers link together to reach their products to the ultimate consumers. Depending
on the product, nature of market and manufacturers’ resources/strategy, there can be one
or more links between the manufacturer and consumer.
a. Manufacturer - Retailers
b. Manufacturer - Wholesalers - Retailers
c. Manufacturer - Stockists - Wholesalers - Retailers .
Why use distribution channels
There are several benefits for a manufacturer particularly in case of consumer goods to
rely on these marketing intermediaries rather than develop one’s own distribution
network.
• Efficiency in performing the basic marketing task by these intermediaries who
through their experience, specialization, knowledge of local conditions, contacts
and scale, offer services which manufacturers can scarcely do on their own.
• Cost advantage most of these intermediaries in India are family owned outfits.
Their cost of operations and overheads are substantially lower.
• Focus : Manufacturers can concentrate on their core activity and optimize return
on assets.
Retailing
In India, there are over 5 million retail outlets dispersed all over the country. The retailing
industry provides employment to over 18mn people. 1 out of every 25 families in India is
engaged in the business of retailing. Ownership and management are predominantly
family controlled. However in sharp contrast to developed countries, unit average size of
a retail outlet in India is very small.
Organized retailing, however, has been a recent phenomenon and is relatively
undeveloped. There are no large super market chains/ shopping malls. Consumers are
unwilling to pay a premium for convenience shopping as their counterparts in the western
countries do. While small chain stores called Apna Bazaars and Sahakari Bhandaars,
which offer products at reasonable prices have been fairly popular, Department Stores
and Food Stores are slowly gaining popularity. A large number of corporates have
recently ventured into retailing.
The retail outlet in India can be broadly categorized as follows:
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50. Grocery stores
General purpose stores
Food stores
Pan bidi shops
Chemist/ drug stores
Cold chains
 Others
The relative share of grocers dropped from over 50% in the early 90's to 35% in the late
90's. Chemist outlets on the other hand, have been expanding their product range to
include high margin FMCG products from shampoos to ketchup. Panwallas are also
emerging as full fledged consumer product outlets.
Table : Growth in retail outlets (m nos)
Year
Urban Rural Total
1978
0.58 1.76 2.35
1984
0.75 2.02 2.77
1990
0.94 2.42 3.36
1996
1.80 3.33 5.13
Composition of urban outlets
Grocers
34.7%
Cosmetic stores
4.0%
Chemist
6.3%
Food Stores
6.6%
General Stores
14.4%
Pan + stores
17.0%
Others
17.0%
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51. Composition of rural outlets
Grocers
55.6%
General stores
13.5%
Chemist
3.3%
Others
27.6%
Page 51

52. MARKETING
Marketing
Direct marketing
In direct marketing manufacturers reach the consumers directly. Direct marketing can be
undertaken in several ways such as mail order, own retail outlets, mobile vans etc. A new
innovative approach to direct marketing viz Multilevel marketing, is becoming
increasingly popular. Also gaining ground slowly is E-tailing ie selling products through
the internet.
Multilevel marketing model
Multi level marketing refers to direct marketing through an ever-increasing number of
direct distributors. Independent distributors sell products directly to the consumers and
appoint new distributors and train them. The distributor earns commission at two levels,
one is his/ her own commission and two a proportion of commission earned by other
distributors appointed by him/ her. None of these distributors are employees of the
company.
Distributors are not allowed to sell these products to retailers. The company saves about
25% of realizations by eliminating retail channel, which is shared with distributors.
The company insists that the distributors should take prior appointment with the
consumer. Personal interaction is not only convenient but adds value as customer get
valuable advice on the product and how to use it. This helps in creating awareness and
removing misconceptions like cosmetics are harmful for the skin.
Direct marketing (multi level approach) in personal care products is extremely popular
abroad. In Brazil, about 60% of personal care products are sold through direct marketing.
In India, direct marketing has been slowly growing. Word of mouth has a strong impact
on purchase decision of a consumer, specially in personal care and cosmetic products.
Direct marketing has mainly been undertaken by the new MNC entrants (notably
Oriflame, Avon). Hindustan Lever has also recently launched a new personal product
brand Aviance which is sold directly to consumers exclusively by trained beauty
specialists. Direct marketing has also been extensively used in marketing of household
appliances like Vacuum cleaners. However given the widely spread geographical area in
India, direct marketing cannot be easily used to build aan extensive national reach and is
more likely to be used as a supplementary channel.
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