A Huge Opportunity – Key trends and challenges in rural marketing

The keynote address was delivered by Ajay Bhattacharya, administrator, USO Fund, who spoke about the government’s initiatives and upcoming schemes to push rural telephony. The keynote session provided the operators’ perspective on the opportunities in the rural telecom market and the road ahead.S.P. Shukla, president, wireless business, Reliance Communications (RCOM), addressed this session and gave his views on the potential of the rural market and the key issues that needed to be addressed.

We bring you a series of excerpts from various presentations and panel discussions at the conference…

Rural markets offer the next growth opportunity for several key verticals of the economy including the telecom sector.Looking at the sector’s development and the challenges it faces, the best example that comes to mind in recent times is mobile telephony.

In the first wave, it has been seen in most sectors and in telecom that new products typically make a beginning in the metros. This was the case with colour TVs, plasma TVs, microwaves, mobile phones, etc. Even day-to-day items like shampoos and bread made a beginning in the urban areas before spreading to the rural regions. Determining the reason for this trend will lead to effective marketing in the rural areas. This trend is governed by several factors:

Early adopter: It is the early adopter who makes a difference in the launch of a product in the metros. As largely witnessed, it is the displaced people (those who have migrated from their hometowns) who are the early adopters. This fact has its genesis in the socio-economic development of a society and is a factor over which marketers have no control.

Distribution: The second factor is distribution, which is totally under the control of a marketer. A marketing company often begins with the metros and then moves to the rural regions.

High initial product price: The high initial price for a product delays its adoption in rural areas. In the second wave, as the price of the product reduces, it moves into other cities and towns. This factor is semi-controllable by a marketing organisation because economies of scale are built when critical mass has been reached and this is usually in the second phase of the product’s life cycle (Wave 2). In the case of mobility, in Wave 2, the mobile phone went beyond the metros to cover all the state capitals and major cities. This is typically a stage at which the price of the product has dropped by nearly 50 per cent. For instance, when the metros launched mobility, the price of a phone was about Rs 40,000 and the tariff was about Rs 16.80 per minute. In Wave 2, the price of the handset had dropped to Rs 20,000 and talktime had reduced to Rs 8 per minute. Typically, 50 per cent of the district headquarters is reached by marketers in Wave 2 of the product.

In Wave 3, the product moves beyond the urban areas to the rural areas. This is a vast market which comprises 60 per cent of the country, accounts for nearly half of the economy and offers huge potential for consumer durables, consumer electronics and recently, telecom.

There are several challenges in rural area marketing. Sales and distribution in these areas are in general more expensive as individual villages or small towns do not offer a critical mass. Very often an extra tier of distribution, also referred to as super distribution, is put in place to serve the rural areas, which adds to the cost. The cost can be incremental and varies from 2 per cent to 5 per cent, depending on transportation, logistics and other issues.

The other key challenges are the propagation of ideas in rural areas and after-sales service. The method of provision of after-sales service is the key to business. Like any customer, a rural customer also wants to put a face to the company and needs an interface point to address issues and concerns relating to phone bills, handset devices, etc. While local language call centres can help in rural areas, a physical interface is the best option. Different companies have taken different routes. For instance, while some companies have engaged distributors, others have engaged large priority retailers to undertake this responsibility. Some companies have opted for a third party to handle the interface in rural markets.

Beyond a certain critical mass, it helps to have the company’s management as a physical interface as it is cheaper. But till a critical mass has been reached, it is more cost efficient to outsource after-sales service to a third party.