Weddings anywhere in the world mean shopping, and India is no exception. In Indian villages, though, a marriage in the family means shopping not just for the trousseau and home appliances — it also means buying hair dye, henna and bigger bars of soap. For many households in rural India, what the rest of the world considers everyday products are luxuries to be indulged in once in a while.
Consumer products companies in India are working overtime to change that thinking. At Godrej Consumer Products Ltd (GCPL), though, ensuring its products fly off village store shelves has become the governing ambition. In April 2009, GCPL initiated the ambitious Project Dharti (Dharti is the Hindi word for Earth) to increase the company’s focus on rural India. The program’s goals are: to generate sales in rural India that overtake within a year the contribution of the country’s urban areas; that rural sales growth will outstrip overall sales increases; and that GCPL’s distribution network within three years will have expanded to 50,000 villages and 8,000 small towns across India.
At first glance, those aren’t unreachable targets for the US$450 million company. About 38% of GCPL’s revenues came from rural markets in 2008-09 and the company already had a presence in 15,000 villages and 4,000 small towns when Project Dharti was launched. GCPL is the second largest bath soap manufacturer in India, after Hindustan Unilever. The company claims its Godrej No.1 brand is the best-selling Grade 1 soap (the highest rating of the Bureau of Indian Standards based on the fat content; toilet soaps have a higher fat content than bathing bars) and the market leader across north India.
A combination of internal and external reasons has led to this shift in focus. First, GCPL realized that the urban share of its soap sales was higher than the rural share. “This created a dichotomy as ours is essentially a portfolio of value brands — and rural India is a value-for-money market,” explains Dalip Sehgal, managing director of GCPL. Then there was the economic downturn of 2008-09. While consumer goods were largely insulated from the slowdown, the demand for consumables in urban India didn’t grow as fast as it did in rural markets. The Nielsen Company estimates that the fast-moving consumer goods market in India grew 14% in the 12 months ending November 2009. Rural demand accounted for 18% of the growth, while urban demand made up only 12%.
Another reason is the natural growth of the rural market. Rural incomes are on the rise due to increasing food price realizations and government-sponsored employment programs, and that in turn is leading to growing consumption in those markets. A frequently-quoted statistic is that rural India already accounts for 54% of India’s fast-moving consumer goods (FMCG) sales, while a white paper by retail consultancy Technopak Advisors and the Confederation of Indian Industry predicts that the rural consumer market will reach US$425 billion in 2010-11, with 720 to 790 million customers. GCPL’s annual report of 2008-09 also acknowledges the potential: “Estimates indicate that over 300 million people will move up from the category of rural poor to rural lower middle class between 2005 and 2025. With this change, rural consumption levels are expected to rise to current urban levels by 2017. Such developments in India’s markets are expected to create major opportunities for Indian consumer product companies.”
The Mumbai-based company, which is part of the US$2.28 billion Godrej group, is ensuring it is well-placed to take advantage of that opportunity when it occurs. Sehgal says GCPL is already halfway to achieving its Project Dharti goals. By February 2010, the distribution network had been expanded to 6,000 small towns and 22,000 villages. Rural sales’ contribution to total revenue has increased to 42%, and GCPL has gained a percentage point each in market share of hair color and soaps.
The Four Mantras of Successful Rural Marketing
So, what is GCPL doing right? R. Seshadri, managing director of Anugrah Madison, an advertising agency that focuses on rural and semi-urban markets, believes there are four mantras for a brand to succeed in India’s rural markets: “Customize product and communication; build recognition through demonstration; build word of mouth for the brand; and build access through innovation and a cost-effective distribution channel.” He says GCPL seems to doing all that, and more.
Conventional wisdom says rural consumers need customized products designed to suit their needs, their conditions and their wallets. But they also want products similar to those available in urban markets, so many believe that small compromises in product quality are acceptable. Not so, declares Pradeep Lokhande, founder of rural management consultancy Rural Relations. “Rural consumers want the same product as urban shoppers. If you compromise on quality to make it affordable now, they will shun your brand when their income levels increase. And if they can’t afford your prices now, they aren’t your customers.” Sehgal agrees: “Aspiration levels have gone up. They want the same brands they see on TV. The only vector is affordability and demonstrated usage in new categories.”
The solution lies in customizing the size of the offering, not the product itself. GCPL has done just that, introducing smaller packages of the same products, at price points rural consumers can afford. Smaller bars of soap, herbal henna packets for 10 cents, sachets of powder hair dye and talcum powder for 20 cents act as entry points for rural consumers, who return for larger packs when their budgets permit. Sales of consumer products in rural markets peak immediately after the harvest and during festivals and the wedding season (September through December), when many of India’s 600,000 villages are in a have-cash-will-spend mood.
Company executives say the response to the smaller packages has been strong, especially in South India, where the smallest available size of GCPL’s Cinthol soap retails at 50 cents. An 11-cent bar has been added to the portfolio.
Communication and promotion strategies also need to be tailored to suit rural customer needs. It starts with the media plan. For value brands like Godrej No.1, GCPL has stopped advertising on private cable and satellite channels, preferring the cheaper and more widely received government-owned television network, Doordarshan, as well as All-India Radio. In addition, it advertises on regional language TV channels and in local publications. “It is more cost-effective to be on Doordarshan since the share of voice is higher,” explains Sehgal. In addition, brand recall in urban areas is unlikely to be affected since a campaign for Godrej products is running parallel across all national media. The hair color brands and soap brand Cinthol also retain a more conventional media plan, including ads on cable television.
The commercials that appear on regional TV channels and Doordarshan are quite different from those on cable television, keeping local sentiments in mind. For instance, visuals of people playing with their hair or running their fingers through their hair would be frowned upon in conservative villages, although it’s a common image in hair care product advertising across the country. “We ensure we speak the language of middle India,” Sehgal notes. “The idiom may be simpler but the proposition at all times is one of great value.”
Seshadri points out that demonstration and recognition are critical to success in rural markets, as is interactive customer engagement. “The rural consumer is just evolving from the economics of necessity to the economics of gratification. Unlike the urban consumer, he is largely a first-time user of several product categories, be it FMCG or durables,” he adds. Regular below-the-line activity such as in-store demonstrations and stalls at village fairs and farmers’ meets are also forming part of GCPL’s rural marketing strategy.
Barbers as Brand Ambassadors
In particular, GCPL is counting on word-of-mouth brand building for its Expert line of hair color products. The company is reaching out to 50,000 barbers and salons in nine states, offering to engage them in a co-branding exercise. Under the program, the salons add the “Expert” tag to their names, with all fixtures — including mirrors and chairs — displaying the GCPL brand logo prominently. The salons will also be provided grooming kits including the hair dye, mixing bowl and brush, as well as other GCPL products such as talcum powder and shaving cream. “Most people turn to their hairdressers for advice when they decide to color their hair. So it makes sense for us to influence the influencer,” says Sehgal.
The chain of Expert barbershops will enhance GCPL’s reach in the hinterland. In the past year, the company has added 7,000 villages and 2,000 small towns to its distribution network. Typically, GCPL’s distribution operates on a hub-and-spoke model where a super-stockist in a small town oversees distribution for several adjoining villages, which are looked after by sub-stockists. The company reaches deeper into the interior through regular visits to stock smaller villages with supplies. “[A] good distribution network is the only answer in rural India,” notes Rural Relations’ Lokhande. “Companies need to keep two issues in mind here: one, ensure distributor margins are high enough to make them service their territories well; and two, offer consumers a choice of products so that the marginal cost of distribution reduces, while avenues of income generation increase.”
But there’s a trade-off between the cost of distribution and incremental penetration. Given the expense of running and maintaining a vehicle and the need to extend credit to shopkeepers in smaller villages, the cost involved in reaching settlements with less than 2,000 people isn’t offset by the consequent increase in sales. Anugrah Madison’s Seshadri notes: “About 83% of India’s villages are in the 2,000 and below population strata, with hardly any shops. So, most marketers need to address the top 17% [of] villages, which account for 50% of [the] rural population and 50% of rural wealth. Of course, having done this, reaching the last mile (villages with populations below 2,000) is the biggest challenge.” Sehgal adds: “Every incremental village is smaller, so doubling reach will not double revenue. That is the commercial dilemma FMCG companies face: the deeper you venture into population strata, the smaller the business opportunities.”
Still, he isn’t fazed by the challenges. Sehgal is confident about completing Project Dharti well in time. After all, he says, “It isn’t as if we only just discovered rural India. What we discovered last April was the need to expand rapidly and, accordingly, accelerated our pace.”