Almost half the world’s population is non-urban. More than three billion people live in the sprawling rural regions of Asia, Africa and other developing countries. Companies and governments cannot afford to ignore these consumers if they want to be successful, writes Vijay Mahajan in his recent book, Rise of Rural Consumers in Developing Countries: Harvesting 3 Billion Aspirations. Mahajan, a professor of marketing at the University of Texas at Austin, examines the main factors driving growth in rural markets, its major barriers, and how these can be overcome.
In a conversation with Knowledge at Wharton, Mahajan notes that because of increased information flow thanks to rural migrants and communications technology, rural consumers have similar aspirations as their urban counterparts do. Still, there is a lot still left to understand about consumer behavior in rural areas, like family relationships and the importance of religious and social events.
An edited transcript of the conversation follows.
Knowledge at Wharton: What inspired you to write this book?
Vijay Mahajan: When I was working on my last book The Arab World Unbound, it was the first time I had gone to 18 countries, including the Persian Gulf countries. I kept seeing the organizations and the infrastructure. And the moment I got out of the Gulf countries and went to Jordan and then to Egypt and Morocco, it hit me that I had missed a very important component of the developing countries. This was the fact that apart from the Gulf countries, the rest of the world was predominantly rural.
I started talking to companies, especially in Egypt and in Morocco, about what the consequences are of the urban versus rural divide. Although I gained some data I really did not investigate much. I also realized that for my book titled The 86% Solution, as well as for Africa Rising, I had mostly gone to major urban centers because that’s where the headquarters are [of companies like] Coca-Cola and Unilever. They took me to all the major urban centers because they wanted to showcase what they were doing.
When I came back and started looking at some other data, I realized this is a very major issue. India alone has a 70% rural population. The more I dug into that, I realized that almost half of the world’s population is non-urban. And interestingly, more than 3 billion people live in rural regions in Asia, Africa and the developing countries.
What also surprised me was that even the U.S. was ninth in terms of the largest rural population. I started digging a little bit about the U.S. in terms of health care, education and so on. But then, I moved back to the developing countries and decided to focus on 10 of them. I realized that out of the 3 billion who live in Africa and Asia, 1 billion were just in South Asia — in Pakistan, Bangladesh, India and the small neighboring countries.
Knowledge at Wharton: If you were to look at the 10 major rural markets you have identified in the book, what are the main factors driving their growth?
“Rural aspirations are very much the same as in urban areas.”
Mahajan: Three or four factors underlie their growth. One, there is a dedicated movement from the governments. I saw that with China, with Vietnam, with Thailand and also, to some extent, with India. Governments are trying to develop policies to help eradicate poverty. The second most important aspect I noticed was rural migration. All migrants from rural areas send money back home. But it’s not only the money; it’s also the impact [they create]. Many of them have gone outside the country – from India to the Middle East for example, as cooks, drivers and maids and they talk to their families back home on Skype, on mobile phones. So rural migrants are becoming major influencers in their villages and towns.
Also, as compared to urban centers, rural centers are still very much into religion and culture and the most amazing things happen during the religious and social holidays like the Chinese New Year, Tet [New Year] in Vietnam or during Ramadan. Technology is also playing a major role in spreading information in farming, in health care, etc. So several factors are creating a lot of excitement, which I probably would not have seen 10 or 15 years ago.
Knowledge at Wharton: When you talk to companies and chief marketing officers, have they tapped into the rise of rural consumers? Or is this an underserved market?
Mahajan: Almost all the companies I met are aware that urban centers are saturated. They also know that urbanization is not going to happen overnight. India is where the U.S. used to be in the 1880s. China is where the U.S. was in the 1920s. It took the U.S. 90 years to get to this urbanization of 81%.
I think companies are aware of the fact that governments would like to have urbanization, sometimes artificially. But the rural population is not going to go away. Unilever, for instance, simply cannot survive in South Asia if they ignore 1 billion rural people. Out of the 6 billion people in the developing countries, almost one-sixth or one-third are rural consumers. The companies know that this much population cannot be ignored and they have to find ways to approach them. I did see different strategies, for example, with P&G. But there’s also a lot of work that needs to be done to develop these markets. Some [companies] are doing better than others, but they are all fully aware that there is a huge market that cannot be ignored.
Knowledge at Wharton: In addition to companies like Unilever and P&G, which other companies are furthest along in understanding the potential of rural markets?
Mahajan: Mobile companies and entertainment companies have done well in understanding rural markets. [For example, in the entertainment sector] there is now a big wave to develop television shows based on rural centers and small towns, which also appeal to the urban population. There is a realization that there are a lot of aspirations in rural areas and we have to develop content around that. This point about aspirations in fact influenced the title of my book. Rural aspirations are very much the same as in urban areas. When you talk to the young people like drivers in Mumbai or construction workers in Shanghai, they are fully aware of the brands, which is a good brand, cost-wise, they are aware of all that. They send that information back home, thanks to mobile phones, Skype, FaceTime, etc.
“Rural migrants are becoming major influencers in their villages and towns.”
The information flow is very fast between urban and rural consumers. Also, there is satellite television — some countries are ahead of others in this area. I think they are different maybe because of their electricity [availability]. The Chinese are 100% electrified, which gives them a big advantage. Vietnam is trying to do the same. In India, electricity is an issue. Ethiopia has a major issue, Nigeria has a major issue.
Knowledge at Wharton: You have a chapter on how technology can seed innovation that transforms rural markets. Could you offer some examples of how companies like FINO [a banking technology platform ] and financial services companies are using technology to gain access to rural consumers?
Mahajan: In fact, this topic became so fascinating to me that I am now putting together my thoughts for my next book, which focuses only on this subject — digital leapfrogging and strategy in developing countries. Over the past two months I have been talking to a lot of people and everyone advised me to first go to the Western world — to first visit Estonia — because these people are actually providing everything digitally. What I saw there was that many of them are taking advantage of the lack of infrastructure — for instance, the radio channel created by Unilever. And there’s a story of an American girl from Stanford [University], who noticed the ‘missed call’ behavior in India and came up with the idea of pushing promotions [via missed calls]. Her firm was acquired by Twitter.
There are also examples from health care. For instance, there’s a former professor from Arizona State [University] who has developed a testing kit via mobile technology for use in rural areas. There are also education initiatives, like the Stata Center at MIT which is doing work in Northeast India. In the cyber cities in China, what amazed me was how they are linked with Alibaba and others, and how through their platform a small farmer who has a very unique product is able to sell it to everybody. In entertainment, people can get songs, music, etc. on their mobile phones. So I think technology is going all across, in terms of promotions, providing services and providing information.
Knowledge at Wharton: You also found that innovation and technology are being used to overcome social problems in rural markets. Could you share some examples of these?
Mahajan: Absolutely. Some NGOs for instance are developing content for farmers — what to harvest, when to sell, what to buy and so on. Interestingly, they are spreading this information through entertainment — through movies that are very much like Bollywood movies but the subject is about using technology [to improve farming techniques]. There are actually several [movies] on social issues, all the way from women empowerment to hygiene. For example, on how important it is for women to wash their hands before they breastfeed their babies.
In Ethiopia, the Gates Foundation has done an amazing job in linking farmers online through mobile. The farmers can get information about coffee prices, how the market is moving, about harvesting and so on. There are several social organizations that are using technology very creatively.
Knowledge at Wharton: You end the book with a section on the five major barriers to the last mile. Could you identify what the barriers are to companies being able to tap into the potential of rural markets and how can they overcome these?
“There’s a lot about consumer behavior, like family relationships, that needs to be understood.”
Mahajan: I identified these barriers by reflecting on all the countries that I have listed [and then looking at issues like] why China is steps ahead of somebody else, why Vietnam is ahead of somebody else, why Thailand is ahead of somebody else. In China, for example, it was infrastructure that really hit me. So that became my one barrier for the rest of the countries — that they need to overcome their infrastructure problems.
In the book, I focused on electricity because while these countries have many [infrastructure] issues, I was totally convinced that if they have to really pick one thing to solve, it has to be electricity. That’s because these days, you can talk about mobile phones and whatnot, but the fact of the matter is they have to be charged. You can talk about providing children education, but in the evenings if they don’t have electricity, they are going to be held back. You can talk about how the satellite TVs are available but if there is no electricity nothing is going to happen in these areas. So infrastructure became one barrier that I wanted to identify.
Another thing that I noticed was social issues. There are many, many social issues but the one that really hit me was women empowerment. For example, in Vietnam, during surveys when women are asked, “What is your profession?” they don’t say “housewife.” They always have something to do. In Nigeria, you will find market ladies everywhere, the small entrepreneurs. In China, I saw the contribution that women are making, not only in education, but in every sector. So it was very obvious to me that women empowerment is very important.
I started reflecting on what is going on in one country that is not going on in another country and how can they collectively move forward. That was the reason I suggested, that just like we have BRIC, we should also have a block of these 10 countries. And they should have a conference every year, like the global Consumer Electronics Show [in Las Vegas], where entrepreneurs from all over the world can come and showcase the innovations they have developed that can benefit developing countries and more specifically, the rural areas. The event could include firms from industries such as banking, education, entertainment, infrastructure, etc.
We also have issues around health and education in rural areas. I think if these 10 countries can collectively focus on these five issues, they can really uplift the life of almost two-thirds of the world population.
Knowledge at Wharton: What does the future look like for rural markets and rural consumers?
Mahajan: If you talk to experts on urbanization, they all say that you cannot stop urbanization because it’s going to happen. Beijing, for example, is not the Beijing that I went to for the first time because it has simply expanded — they have a whole bunch of these areas developed around Beijing into a mega-city. So I think that urbanization probably would happen, and that is important to me.
I think it is impacting consumer behavior. For example, in one of the very tiny villages that I visited in India I asked a farmer, “Do you have a TV?” He said, “Of course I have a TV.” I asked, “Do you have a car?” He said, “No, I have a truck.” “Do you have mobile phones?” “Of course, we have three mobile phones.” And then I asked, “Do you have a toilet?” He said, “Of course we have a toilet, what do you mean we don’t have a toilet?” And he pointed out the toilet to me.
And then, after about 10 minutes, the conversation changed and he said, “I love my lifestyle here. It’s so free. I get up in the morning when everybody is asleep, I go to the farm, I relieve myself there, I talk to nature, then I come back home.” So then, I caught him. I said, “Sir, you just told me that you have a toilet and now you’re telling me that you don’t use that toilet, and that you go to the farm in the morning?” He knew that I had caught him. He said, “No, I can’t do that at home because it smells and it’s only for the ladies.” So I think there’s a lot about consumer behavior, like family relationships, that needs to be understood.
Take the importance of the religious holidays or the importance of the harvest time. Many of the farm workers in Pakistan, for example, take off after the harvest season because that’s when they have the money. I think so long as there is some component of the agriculture sector, the entire lifestyle in rural areas will be around the harvest, the seasons, and many of the religious and social holidays. I don’t think that’s going to go away.
In China, too, when I asked a construction company [head], “When do you lose most of your workers? He said, “First, during the Chinese New Year. Second, during the harvest time.” Many of these people just go back home. It doesn’t matter how small the fields are. So I don’t think that component is going to disappear — just like in the U.S., when you see the difference between the rural areas and the urban areas.
Knowledge at Wharton: You also see this a lot in India. Domestic workers take off during the harvest season and go back to their villages.
Mahajan: Absolutely. I saw this in every country. I saw that in China, I saw that in Bangkok. In Bangkok — many of these people come to Bangkok during the off season and become taxi drivers. And then, when it comes to harvest season, they all go back to help their families. The most interesting was in Indonesia. During the harvest season and also during Ramadan, they all go home. And the rich people move into hotels because there is no help.
I could be wrong, but I don’t think that this lifestyle and consumer behavior will disappear. I think there’s always going to be some component of that. And even when you look at the numbers — for example, the Chinese are where the U.S. was in the 1920s, India is in 1880s — it’s hard for me to believe that they are going to be urbanized like the U.S., at least in my lifetime. I don’t think that’s going to happen.