How to set up shop and reach consumers in rural South Asia

By Sourajit Aiyer

Following up on my article on the 10 faces of South Asia’s rural consumer, let’s take a look at the best strategies to reach these clients and unlock the potential they represent for your business.

The “Asset-light” vs. “Asset-intensive” operating model is a dilemma most businesses face while expanding into rural terrain.

The Asset-light model (using mobile-showrooms) can be useful where potential throughput is lower. But one needs to invest in a local presence where products have long gestation, as prospects may want to examine them before buying, as they do comparisons to find comfort.

“Hub-and-spoke” vs. “HQ-to-direct” model is another dilemma that businesses face when going rural. It may be best to dissect regions into reasonably homogeneous “clusters” based on which profile dominates there, and then use hub-and-spoke for delivery into each cluster.

One may also expand as per the network of gold-loan or microfinance companies, since they enable local access to funds and income, respectively.

“Location, location, location” matters in permanent Point-of-Sales. A microfinance borrower running her grocery store in Barisal (Bangladesh) told me her target location would be near the bus-stops where locals gathered or near the spot in the village used for village meetings.

Similarly, in many Indian villages, the nearest bank can be a fair distance away, which means half a day for travelling and back. Higher-priced products that require more time for examining can base stores near such banks, so that people can utilize the same half-day for this while doing their bank work, since they may be unable to devote that much time to travel and examine products on other days.

“Below the line marketing” may work better where the product’s benefits have to be conveyed to push the consumer into taking the final decision. It is like what village plays did in the old days to deliver social messages. BTL marketing can customize the message as per the region’s cultural specifics, in a low-cost manner.

One should remember that rural populations are also quite smart, and they do understand that celebrity endorsement is just celeb-talk, nothing more. It may work for aspirational products, but not for necessity comforts where buyers demand benefits.

Hiring locals (son of the soil) is useful to garner local support while entering a region. They understand local nuances better, and the employment creates local incomes, which can benefit that business eventually.

Locals are more comfortable dealing with fellow-locals, which bodes better when product-benefits have to be pitched. This also means one has to institutionalize trainings, since the workforce would be heterogeneous across regions.

Charging “premium-pricing” depends on the product’s novelty and on the presence of competing brands. Since that product was not accessible earlier, buyers may pay a slightly higher price. That works well for products that involve higher operating costs for delivery, as a slightly higher price partially covers the incremental operational expenses.

Different influencers for different products are a reality. Traditional, collective decision-making is no longer the norm. Individualism is seen for products that serve instant gratification, improve status perception or are used only by that user. Spouses now decide, rather than being compelled to listen to elders.

This is pertinent for products that are new evolutions (to which elders may not be able to relate) and for products that impact their future well-being (given that the security of ancestral land is no longer a comfort for their old-age).

Future well-being could include flats or children education. Children education makes their children employable, and this is critical in a society where social-security benefits are minimal and most parents still depend on their children in old age.

Governments in the region are also looking at the rural segment. In India itself, the new federal government has increased its budgetary allocation to the state governments, which expands the state’s ability to fund projects.

Those states/districts that see an increase in public spending will give an indication of where local incomes are likely to grow, albeit depending on whether the workers are locals or migrants. This push towards public spending would help “deepen” the market.

Also, the change in the government’s method of subsidy distribution using direct benefit transfer means equitable distribution of benefits to the rightful owners. Earlier, leakages in the subsidy distribution system meant it was misused. Wherever this new method is implemented successfully, the rural market can “widen” significantly.

Lastly, rural is seeing both a supply-push and demand-pull. As the urban market evolves in its preference for high-end products with rising affordability, the urban opportunity for many existent products hits saturation. Those products have to find new markets, creating a “supply-push” into rural areas.

While the global urbanization rate reached 50%, it is still only 30-35% in India, Pakistan and Bangladesh. This means the “catchment size” of the rural market in proportion to the urban market is much larger here than elsewhere.

But volume is not enough. What also matters are incomes and purchasing power, as that determines the value of that market. In other words, this means a “demand-pull”.

A “demand-pull” from rural population occurs with public-spending projects by local governments, increases in support prices of agriculture produce, sale of land for infrastructure/factory projects, increases in remittance flows, and the rapid penetration of media and mobiles fast bridging the urban-rural information gap and impacting desires.

Look out of those factors if you have a business selling to rural consumers in South Asia to maximise your chances of success.

Sourajit Aiyer works with a leading capital markets company in Mumbai.