Month: May 2020

Marketing activities are influenced by several factors inside and outside a business firm. These factors or forces influencing marketing decision-making are collectively called marketing environment. It comprises all those forces which have an impact on market and marketing efforts of the enterprise. According to Philip Kotler, marketing environment refers to “external factors and forces that affect the company’s ability to develop and maintain successful transactions and relationships with its target customers”.

The marketing programme of a firm is influenced and shaped by a firm’s inwardly need to begin its business planning by looking outwardly at what its customers require, rather than inwardly at what it would prefer to produce. The firm must be aware of what is going on in its marketing environment and appreciate how change in its environment can lead to changing patterns of demand for its products.

It also needs to assess marketing opportunities and threats present in the surroundings. An environment can be defined as everything which surrounds and impinges on a system. Systems of many kinds have environments with which they interact. Marketing can be seen as a system which must respond to environmental change.

Just as the human body may have problems, it fails to adjust to environmental change. Similarly, businesses may fail if they do not adapt to external changes such as new sources of competition or changes in consumers’ preferences.

Scanning the Environment:

Marketing activities do not take place in a vacuum, isolated from all external forces. In fact all marketing operations are conducted in a highly complex, dynamic and changing environment. According to Philip Kotler, “A company’s marketing environment consists of the factors and forces outside marketing that affect management’s ability to build and maintain successful relationships with target customers”.

The marketing environment offers both opportunities and threats. Successful companies know the vital importance of constantly watching and adapting to the changing environment. A company’s marketers take the major responsibility for identifying significant changes in the environment.

More than any other groups in the company, marketers must be the trend trackers and opportunity seekers. Although every manager in an organisation needs to observe the outside environment, marketers have two special aptitudes. They have disciplined methods – marketing intelligence and marketing research – for collection of information about the marketing environment.

They also spend time in the customer and competitor environment. By conducting systematic environmental scanning, marketers are able to revise and adapt marketing strategies to meet new challenges and opportunities in the market place.

Marketing as a function is basically all about matching the offerings of the organisation to the outside world, in particular, the market-place. Not surprisingly, many functions within marketing, such as selling, product development and market research, concern themselves with issues, problems and opportunities outside the organisation, and focus on responding to outside events and circumstances. Kotler identifies in this external role the need for marketers to develop an ‘outside- in’ perspective, an ability to work on external cues and stimuli to the profit of the whole organisation.

Environment scanning is a constant, important activity of successful companies. This process includes gathering, filtering and analyzing information related to the marketing environment. It also includes monitoring the changes taking place in the environment and forecasting future status of each factor.

Such analysis helps to spot opportunities and threats in the environment, and pinpoints the ones that are specifically relevant to the company. The company’s marketing people have the responsibility for scanning and identifying significant changes or trends in the marketing environment.

As we know that marketing research and marketing intelligence system are the methods used by companies for environment scanning and gathering vital information about changes. Customers’ behaviour and competitors’ activities are also important factors to be watched in the environment. Successful companies know the vital importance of constantly scanning and adapting to the changing environment. The environment continues to change at a rapid pace.

Importance of Environment Analysis:

The following are the benefits of environment analysis:

1. It helps in marketing analysis.
2. It can assess the impact of opportunities and threats on the business.
3. It facilitates the company to increase general awareness of environmental changes.
4. It is possible to develop effective marketing strategies on the basis of analysis.
5. It helps to capitalize the opportunities rather than losing out to competitors.
6. It facilitates to understand the elements of the environment.
7. It helps to develop best strategies, in the light of analyzing “what is going around the company”.

Need for Environment analysis:

Environmental analysis attempts to give an extensive insight as to the current market conditions as well as of impact of external factors that are uncontrollable by the marketers. These variables play an important role in convincing potential customers regarding changes in market trends, market conditions etc.

Facilitating the corporation’s strategic response to the changes taking place in environmental factors is the ultimate purpose of environment analysis. The firm has to come up with alternative programmes and strategies in line with environmental realities. This is possible only with proper environment analysis.

It helps strategic response by highlighting opportunities, the pursuit of which will help the firm to attain its objectives. It helps to assess the attractiveness and probability position of these opportunities, and helps to prepare a shortlist of those which are relevant to the firm and which can be pursued by it

Spotting the opportunities and threats is the central purpose here. It is in the environment that the firm finds its opportunities; it is in the environment that it finds the treats it has to encounter, and, it is by tapping the opportunities present and countering the threats embedded therein that the firm achieves its growth objective. The starting point is thus to spot the opportunities and threats.

Concept of Micro and Macro Environment:

A marketing oriented company looks outside its premises to take advantage of the emerging opportunities, and to monitor and minimize the potential threats face by it in its businesses. The environment consists of various forces that affect the company’s ability to deliver products and services to its customers.

The marketing environment is made up of:

1. Micro-environment and
2. Macro-environment.

We discuss them in detail:

1. Micro-environment:

The micro-environment of the company consists of various forces in its immediate environment that affect its ability to operate effectively in its chosen markets.

This includes the following:

(a) The company

(b) Company’s Suppliers

(c) Marketing Intermediaries

(d) Customers

(e) Competitors

(f) Public

A brief explanations are given below:

The Company:

In designing marketing plans, marketing management takes other company groups into account – Finance, Research and Development, Purchasing, Manufacturing, Accounting, Top Management etc. Marketing manager must also work closely with other company departments. Finance in concerned with funds and using funds to carry out the marketing plans.

The R&D Department focuses on designing safe and attractive product. Purchasing Department is concerned with supplies of materials whereas manufacturing is responsible for producing the desired quality and quantity of products. Accounts department has to measure revenues and costs to help marketing know-how. Together, all of these departments have impact on the marketing plans and action.

Internal Environment (Within the Co.):

The marketing management, in formulating plans, takes the other groups into account:

1. Top Management
2. Finance
3. R&D
4. Manufacturing
5. Purchasing
6. Sales Promotion
7. Advertisement etc.

Environmental forces are dynamic and any change in them brings uncertainties, threats and opportunities for the marketers. Changes in the environmental forces can be monitored through environmental scanning, that is, observation of secondary sources such as business, trade and Government, and environmental analysis, that is, interpretation of the information gathered through environmental scanning.

Marketers try to predict what may happen in the future with the help of tools like marketing research and marketing information or marketing intelligence system, and continue to modify their marketing efforts and build future marketing strategies. The company should think about the consumer and work in harmony to provide customer value and satisfaction.

Company’s Suppliers:

Suppliers provide the resources needed by the company to product its goods and services. They are important links in the company’s overall customer “value delivery system”. Supplier developments can seriously affect marketing. Marketing managers must watch supply availability – supply shortages or delays, labour strikes and other events can cost sales in the short run and damage customer satisfaction in the long run. Marketing Managers also monitor the price trends of their key inputs. Rising supply costs may force price increases that can harm the company’s sales volume.

In business-to-business marketing, one company’s supplier is likely to be another company’s customer and it is important to understand how suppliers, manufacturers and intermediaries work together to create value. Buyers and sellers are increasingly co-operating in their dealings with each other, rather than bargaining each transaction in a confrontational manner in order to make supply chain management most effective and value-added products are sold to the target markets.

Marketing Intermediaries:

Intermediaries or distribution channel members often provide a valuable link between an organisation and its customers. Large-scale manufacturing firms usually find it difficult to deal with each one of their final customers individually in the target markets. So they chose intermediaries to sell their products.

Marketing intermediaries include resellers, physical distribution firms, marketing service agencies, and financial intermediaries. They help the company to promote, sell, and distribute its goods to final buyers. Resellers are distribution channel firms that help the company to find customers for goods. These include whole-sellers and retailers who buy and resell merchandise. Selecting and working with resellers is not easy. These organisations frequently have enough power to dictate terms or even shut the manufacturer out of large markets.

Physical distribution:

Firms help the company to stock and move goods from their points of origin to their destinations. Working with warehouse and transportation firms, a company must determine the best ways to store and ship goods, and safety marketing services agencies are the marketing research firms, advertising agencies, media firms, and marketing consulting firms that help the company target and promote its products to the right markets.

When the company decides to use one of these agencies, it must choose carefully because those firms vary in creativity, quality, service and price. Financial intermediaries include banks, credit companies, insurance companies, and other businesses that help finance transactions or insure against the risks associated with the buying and selling of goods. Most firms and customers depend on financial intermediaries to finance their transactions.

Customers:

Consumer markets consists of individuals and households that they buy goods and services for personal consumption. Business markets buy goods and services for further processing or for use in their production process, whereas reseller markets buy goods and services to resell at a profit.

Government markets are made up of government agencies that buy goods and services to produce public services or transfer the goods and services to others who need them. Finally, international markets consist of the buyers in other countries, including consumers, producers, resellers and governments. Each market type has special characteristics that call for careful study by the seller.

Competitors:

No single competitive marketing strategy is best for all companies. The company’s marketing system is surrounded and affected by a host of competitors. Each firm should consider its own size and industry position compared to those of its competitors. These competitors have to be identified, monitored and outmanouvered to gain and maintain customer loyalty.

Industry and competition constitute a major component of the micro-environment. Development of marketing plans and strategy is based on knowledge about competitors’ activities. Competitive advantage also depends on understanding the status, strength and weakness of competitors in the market.

Large firms with dominant positions in an industry can use certain strategies that smaller firms cannot afford. But being large is not enough. There are winning strategies for large firms, but there are also losing ones. And small firms can develop strategies that give them better rate of return than large firms enjoy.

Public:

General public do take interest in the business undertaking. The company has a duty to satisfy the people at large along with competitors and the consumers. A public is defined as “any group that has an actual or potential interest in or impact on a company’s ability to achieve its objectives.

Public relations is certainly a broad marketing operation which must be fully taken care of Goodwill, favourable reactions, donations and hidden potential fixture buyers are a few of the responses which a company expects from the public. Kotler in this regard has viewed that “companies must put their primary energy into effectively managing their relationships with their customers, distributors, and the suppliers, their overall success will be affected by how other publics in the society view their activity. Companies would be wise to spend time monitoring all their publics understanding their needs and opinions and dealing with them constructively”.

Every company is surrounded by seven types of public, as shown below:

1. Financial—banks, stock-brokers, financial institutions.
2. Media—Newspaper, magazines, TV.
3. Government—Government departments.
4. Citizen—Consumer Organisations; environment groups.
5. Local—neighbourhood residents, community groups.
6. General—General Public, public opinions.
7. Internal—Workers, officers, Board of Directors.

Macro Environment:

The macro-environment consists of broader forces that not only affect the company and the industry, but also other factors in the micro-environment.

The components of a macro-environment are:

(a) Demographic Environment

(b) Economic Environment

(c) Physical Environment

(d) Technological Environment

(e) Political Environment

(f) Legal Environment

(g) Social and Cultural Environment

1. Demographic Environment:

Demography is the study of population characteristics that are used to describe consumers. Demographics tell marketers who are the current and potential customers, where are they, how many are likely to buy and what the market is selling. Demography is the study of human populations in terms of size, density, location, age, sex, race, occupation and other statistics.

Marketers are keenly interested in studying the demography ethnic mix, educational level and standard of living of different cities, regions and nations because changes in demographic characteristics have a bearing on the way people live, spend their money and consume.

For example, one of the demographic characteristic is the size of family. With the number of small families increasing in India, the demand for smaller houses and household items has increased significantly. Similarly, the number of children in a family has reduced significantly over the years. So, per child spending in a family has increased significantly.

According to the World Health Organisation, young people in the age group of 10-24 years comprise 33% of the population and 42% of our population consists of age group, 0-24 years. Teen-agers in the age group below 19 years comprise 23%. The senior citizen age group above 65 years comprise only 8% of total population. About 58% of the working population is engaged in agricultural activities, with highest, that is 78% in Bihar and Chattisgarh and lowest 22% in Kerala.

Since human population consists of different kinds of people with different tastes and preferences, they cannot be satisfied with any one of the products. Moreover they need to be divided in homogeneous groups with similar wants and demands. For this we need to understand the demographic variables which are traditionally used by marketers, to segment the markets.

Income:

Income determines purchasing power and status. Higher the income, higher is the purchasing power. Though education and occupation shapes one’s tastes and preferences, income provides the means to acquire that.

Life-style:

It is the pattern of living expressed through their activities, interests and opinion. Life-style is affected by other factors of demography as well. Life-style affects a lot on the purchase decision and brand preferences.

Sex:

Gender has always remained a very important factor for distinction. There are many companies which produce products and services separately for male and female.

Education:

Education implies the status. Education also determines the income and occupation. With increase in education, the information is wider with the customers and hence their purchase decision process is also different. So the marketers group people on the basis of education.

Social Class:

It is defined as the hierarchical division of the society into relatively distinct and homogeneous groups whose members have similar attitudes, values and lifestyle.

Occupation:

This is very strongly associated with income and education. The type of work one does and the tastes of individuals influence one’s values, life-style etc. Media preferences, hobbies and shopping patterns are also influenced by occupational class.

Age:

Demographic variables help in distinguishing buyers, that is, people having homogenous needs according to their specific wants, preferences and usages. For instance, teenagers usually have similar needs. Therefore, marketers develop products to target specific age groups.

The youth are being targeted through advertisements and promotional campaigns, stores are being designed with ‘youthful’ features, youth events are being sponsored, and even new technology is developed with their tastes in mind.

The age groups that attract the attention of marketers can be classified as:

(i) Infants:

The population of India is growing at an alarming rate. The rate of infant deaths has declined considerably due to the advancement in medicine. Although infants are consumers of products, their parents are the decision makers. The size of a family is decreasing and the average income of family is increasing.

(ii) School going teens:

In this segment, there is a great demand for school uniforms, bags, shoes, books, stationary, confectioneries, food, albums, bicycles and other similar products.

(iii) Young Adults:

Marketers target the young adults in the age group 18-30 years with products like motorbikes, music systems, clothes, sports cars etc. Two-wheeler manufacturers in India target this segment of people. In the last five years, various companies like, Bajaj, Hero-Honda, Kinetic, TVS etc. have introduced a large number of models to attract young adults.

(iv) Adults (35-45):

Consumers, in this age group, are more health conscious and look for stability and financial independence. The industries that are benefited by them are: Pharmaceuticals, personal products, fitness products, gym equipment’s, cars, home appliances, consumer durables, banks, insurance companies, etc. Marketers push products specifically designed for this age group.

(v) Senior Citizens:

This consumer group boosts the demand for health care services, select skin care products, financial planning etc.

(vi) Women:

Women constitute nearly 50% of India’s population. They are actively taking up professions. This shift in their role has generated a greater demand for childcare and convenience products that save time in cooking, cleaning and shopping.

Marketers are trying to come up with products that are easier to handle, less heavy, convenient to use etc. The change in the role of women is paving the way for a change in the role of men. Advertisements portray men cleaning, cooking and caring for their children, which was unthinkable in the past.

1. Economic Environment:

Economic environment is the most significant component of the marketing environment. It affects the success of a business organisation as well as its survival. The economic policy of the Government, needless to say, has a very great impact on business. Some categories of business are favourably affected by the Government policy, some adversely affected while some others remain unaffected. The economic system is a very important determinant of the scope of private business and is therefore a very important external constraint on business.

The economical environmental forces can be studied under the following categories:

(i) General Economic Conditions:

General Economic Conditions in a country are influenced by various factors. They are:

1. Agricultural trends
2. Industrial output trends
3. Per capita income trends
4. Pattern of income distribution
5. Pattern of savings and expenditures
6. Price levels
7. Employment trends
8. Impact of Government policy
9. Economic systems.

(ii) Industrial Conditions:

Economic environment of a country is influenced by the prevalent industrial conditions as well as industrial policies of a country.

A marketer needs to pay attention to the following aspects:

1. Market growth
2. Demand patterns of the industry
3. Its stage in product life cycle.

(iii) Supply sources for production:

Supply sources required for production determines inputs which are available required for production.

They are:

1. Land
2. Labour
3. Capital
4. Machinery and equipment etc.

Economic environment describes the overall economic situation in a country and helps in analysis GNP per capita rate of economic growth, inflation rate, unemployment problems etc.

1. Physical Environment:

The physical environment or natural environment involves the natural resources that are needed as inputs by marketers or those that are affected by marketing activities. Environmental concerns have grown steadily in recent years. Marketers should be aware of trends like shortages of raw materials, increased pollution, and increased governmental intervention in natural resources management. Companies will have to understand their environmental responsibility and commit themselves to the ‘green movement’.

Potential shortages of certain raw materials, for examples, oil, coal, minerals, unstable cost of energy, increased levels of pollution; changing role of Government in environment protection are a few of the dangers the world is facing on physical environment forces. Other aspects of the natural environment which may increasingly affect marketing include the availability and cost of raw materials, energy and other resources, particularly if those resources and energy come from non-renewable sources.

1. Technological Environment:

The technological environment is the most dramatic force now facing our destiny. Technological discoveries and developments create opportunities and threats in the market. The marketer should watch the trends in technology. The biggest impact that the society has been undergoing in the last few years is the technological advancement, product changes and its effects on consumers.

Technology has brought innumerable changes in human lives, be it in the field of science, medicine, entertainment, communication, and travel or office equipment. Name any field, and one can see changes in product or efficiency and faster services.

One of the most dramatic forces shaping people’s lives in technology. Technology has released such wonders as penicillin, open-heart surgery and birth control pill. It has released such horrors as the hydrogen bomb, nerve gas, and the sub-machine gun. Every new technology is a force for “creative destruction”. Transistors hurt the vacuum tube industry, xerography hurt the carbon paper business, autos hurt the railroads, and television hurt the newspapers.

Instead of moving into the new technologies, many old industries fought or ignored them and their business declined. Yet it is the essence of market capitalism to be dynamic and tolerate the creative destructiveness of technology as the price of progress.

Technology essentially refers to our level of knowledge about ‘how things are done’. That is understanding this aspect of the marketing environment is much more than simply being familiar with the latest hi-tech innovations. Technology affects not only the type of products available but also the ways in which people organize their lives and the ways in which goods and services can be marketed.

Computer-aided design (CAD) and computer-aided manufacturer (CAM) have shortened the time required for new products to reach the market and increased the variety of products that can be produced cost effectively. The benefits of CAD/CAM are clearly evident in the car industry. Mass production is in standardized models. Computer systems have also contributed substantially to the growth of various forms of direct marketing such as direct mail, direct response marketing etc.

1. Political Environment:

The political environment consists of factors related to the management of public affairs and their impact on the business of an organisation. Political environment has a close relationship with the economic system and the economic policy. Some Governments specify certain standards for the products including packaging.

Some other Governments prohibit the marketing of certain products. In most nations, promotional activities are subject to various types of controls. India is a democratic country having a stable political system where the Government plays an active role as a planner, promoter and regulator of economic activity.

Businessmen, therefore, are conscious of the political environment that their organisation face. Most Governmental decisions related to business are based on political considerations in line with the political philosophy following by the ruling party at the Centre and the State level.

Substantial number of laws have been enacted to regulate business and marketing to protect companies from each other, to protect consumers from unfair trade practices, to protect the larger interests of society against unbridled business behaviour. Changing Government agency enforcement and growth of public interest groups also bring in threats and challenges.

1. Legal Environment:

Marketing decisions are strongly affected by laws pertaining to competition, price-setting, distribution arrangement, advertising etc. It is necessary for a marketer to understand the legal environment of the country and the jurisdiction of its courts.

The following laws affected business in India:

1. Indian Contract Act 1872
2. Factories Act 1948
3. Minimum Wages Act 1948
4. Essential Commodities Act 1955
5. Securities Contracts Regulation Act 1956 (SEBI Act)
6. The Companies Act 1956
7. Trade and Merchandise Act 1958
8. Monopolies and Restrictive Trade Practice Act 1969
9. The water (Prevention and Control of Pollution) Act 1974
10. The Air (Prevention and Control of Pollution) Act 1981
11. Sick Industrial Companies (Special Provisions) Act 1985
12. Environment Protection Act 1986
13. Consumer Protection Act 1986
14. Securities and Exchange Board of India Act 1992
15. Different Taxation Laws.
16. Social and Cultural Environment:

Socio-cultural forces refer to the attitudes, beliefs, norms, values, lifestyles of individuals in a society. These forces can change the market dynamics and marketers can face both opportunities and threats from them. Some of the important factors and influences operating in the social environment are the buying and consumption habits of people, their languages, beliefs and values, customs and traditions, tastes and preferences, education and all factors that affect the business.

Understanding consumer needs is central to any marketing activity and those needs will often be heavily influenced by social and cultural factors. These cover a range of values, beliefs, attitudes and customs which characterize societies or social groups. Changes in lifestyle of people affect the marketing environment.

As health problems in people have increased because of significant changes in their lifestyle, they have become concerned about their food. They prefer to eat low fat, low or no cholesterol food. This is specially true for people above 40 years. To a great extent, social forces determine what customers buy, how they buy, where they buy, when they buy, and how they use the products.

In India, social environment is continuously changing. One of the most profound social changes in recent years is the large number of women entering the job market. They have also created or greatly expended the demand for a wide range of products and services necessitated by their absence from the home. There is a lot of change in quality-of-lifestyles and people are willing to have many durable consumer goods like TV., fridge, washing machines etc. even when they cannot afford them because of their availability on hire-purchase or instalment basis.

Culture influences every aspect of marketing. Marketing decisions are based on recognition of needs and wants of the customer, a function of customer perceptions. These help in understanding of lifestyles and behaviour patterns as they have grown in the society’s culture in which the individual has been groomed. Thus a person’s perspective is generated, groomed and conditioned by culture.

Marketing environment can also be classified as:

(i) Controllable Forces and

(ii) Uncontrollable Forces.

(i) Controllable forces:

Controllable forces consist of marketing policies and marketing strategies. Marketing policies are framed by the firm depending on its marketing philosophy. The top management is responsible for framing broad policies. Marketing strategies are developed by middle level management.

Internal forces are inherent to the firm and can be controlled by the management. Marketing mix elements are the tools often used to harmonies the internal variables with that of external variables. The controllable factors are well within the grip of the firm and comparably easy to adjust them to suit the changes.

These factors are combined into what we have referred to earlier as Marketing Mix. For instance, if the price appears to be on the higher side a decision to reduce it for a short term or even a long term is possible and could be implemented as quickly as possible. Off-season prices or discounts are examples in this connection.

(ii) Uncontrollable forces:

Various elements called uncontrollable variables affect an organisation and its marketing efforts. It is now recognized by all that even a well conceived marketing plan may fail if adversely influenced by uncontrollable factors. The offering of the firm and the impact of the uncontrollable environment interact to determine the firm’s level of success or failure in reaching its objectives.

The external forces are divided into micro-environment and macro-environment. The micro-environment consists of the suppliers, marketing intermediaries, customers etc. while the macro-environment consists of the demography, socio- cultural, political, economical, technical, legal environments etc.

Examples of Threats are:

1. Electronic type-writer with memory replaces manual type-writer.
2. Twin blade shaving system replaces razor shaving system.
3. Fuel efficient small cars against old model cars.
4. Entry of MNCs into Indian market increased competition.

Examples of opportunities are:

1. Marketing opportunities to produce cheap small cars.
2. Marketing opportunities to introduce fully automatic washing machines in the areas where husbands and wife’s are working.
3. Marketing opportunities to start business in low cholesterol food items.
4. Dismantling of price controls and introduction of market-driven price policy.

Labour force is defined as those able-bodied workers in the age group of 15 to 59.

The proportion of working population to total population is called work participation rate. In Underdeveloped Countries (UDC’s) the work participation rate of labour force is low.

According to 1981 census, the work participation rate in India was 36.7 percent. In 1991, it increases to 37.7%. According to 2001 census, the work participation rate increased to 39.2 percent. It means out of our total population of 102.7 crore, about 40 crore people constitute the work force.

Similarly in 1991, out of total population of 84.6 crore, about 32 crore people constituted the labour force. We will observe how many of our labour force were employed in agriculture and how many engaged in industrial and service sector. The following table presents the comparative analysis of occupational pattern since 1901.

Occupational Classification of Workers
Economic Activity	1901	1951	1961	1971	1981	1991	1999- 2000
Primary Sector (Agriculture and Allied activities	71.7	72.1	71.8	72.2	68.8	66.8	56.7
Secondary Sector (Mining, Manufacturing, Construction, Gas, Electricity and water supply))	12.6	10.7	12.2	11.2	13.5	12.7	17.5
Service sector (Trade, transport, communication, banking, insurance etc.	15.7	17.2	16.0	16.7	17.7	20.5	25.8
	100	100	100	100	100	100	100

An in depth analysis of the table indicates that occupational distribution of India’s work force shows the backwardness of the Indian economy. From 1901 to 1970, there was no change in the occupational pattern especially in primary sector agriculture and allied activities. In 1901, 71.7% of the labour force was engaged in primary sector.

In 1971, almost the same proportion (72.2%) of the labour force was in agriculture only in 1981 there has been small decrease in the proportion of work force engaged in agriculture. In 1991, 66.8% of the labour force was employed in agriculture. A recent estimate shows that 56.7 percent of our labour forces are employed in agriculture. This slow decrease in the proportion of work force employed in agriculture in the reference of increasing population growth shows large disguised unemployment in Indian agriculture.

Another feature of the occupational structure in India is the constant stagnancy in the ratio of labour force employed in secondary and tertiary sector. 27.9 percent of the labour force was employed in secondary and tertiary sector till 1971. In 1951, 10.7 percent was engaged in industrial sector which slightly increased to 12.7 percent in 1991. NSS estimate shows that in 1999-2000, 17.5% was engaged in secondary sector. In second plan huge investment was made to industrialize economy. This had put a small effect on the occupation structure of the country.

While analyzing the rate of labour employment in tertiary sector, it is found that 17.2 percent was engaged in this sector in 1951. During the period of 1st six plans the situation remained unchanged. In 1981, 17.7% was employed in tertiary sector. Only in 1991, this ratio has gone up to 20.5 percent and in 1999-2000, it increased to 25.8 percent.

After the satisfaction of basic needs like food, clothing and shelter which directly come from agriculture and industry, people demand various kinds of services like health education, travel, transport, banking and insurance etc. With the development of a large middle class in India, the share of service sector to GDP and ratio of work force engaged in tertiary sector are supposed to increase.

Concluding we can say that there is no visible shift in the labour force from the primary to the secondary and tertiary sectors in our country during twentieth century. If we accept this hypothesis that economic development of a country is associated by a shift of the working population from the primary to the secondary and then to the tertiary sector, then it indicates the economic progress is not favourable in India.

There has been a general understanding in recent years that the retail sector has been proportionally losing sales and its share of consumers’ disposable income to the leisure sector. Whether or not this paints an accurate picture of the true state of consumer spend is the topic of the latest KPMG/Ipsos Retail Think Tank (RTT) white paper.

The impact that any change in spend has had on retailers is explored, together with the reality that many retailers find themselves in today, and whether any shift in spend towards leisure operators is a key driver holding back the sector’s current stuttering performance.

Goods v experience data sets

The RTT members acknowledge that there are a range of different data sources available in order to ascertain evidence of a shift in spend away from the retail sector.

Consumer Price Index (CPI) data from the Office of National Statistics (ONS) shows that households are spending less on goods, and more services, but the majority of this spending shift is attributed to property rentals, vehicle leasing and professional services. James Knightley, ING chief international economist delved deeper into consumer spending behaviour: “Back in 1988, goods accounted for 71% of the basket, now it is down to 52%”. James explained that this shift largely reflects the rising proportion of spending on household rentals and ‘miscellaneous services’, which include personal, legal, financial and social services. The index is based on approximately 180,000 price quotations a month for a sample of 800 goods and services, which are reviewed annually to reflect changes in consumers’ spending patterns.

Dr Tim Denison, director of retail intelligence at Ipsos Retail Performance adds weight to the argument saying that whilst there were shifts in spending habits, total retail spend as a whole hadn’t really changed in the last two decades according to official data: “Total consumer expenditure at current prices seasonally adjusted for the period 1998 to 2018 shows very little change in the amount households spend on retail (food and non-food combined). Back in 1998 I calculate it stood at 29.2% and twenty years later it is 30.0%.” This analysis on household final consumer expenditure (HHFCE) data is compiled from the ONS’s Living Costs and Food Survey, drawn from a UK sample of just under 6,000 households annually.

However, RTT members also seek counsel from alternative sources in exploring where the ‘consensus’ that a shift in spend taking place has come from. ONS data suggest the trend towards experiences appears to be marginal, but the reality we find ourselves in today tells a different story. “It’s no secret that the way money is being spent has changed, with people electing to spend increasingly on experiences, and more frequently of late, opting to forego material objects.” said James Sawley, head of retail & leisure at HSBC UK. These comments were backed up by multiple sets of spending data issued by credit card companies. Tim Denison added: “In a 2017 release, Barclaycard declare ‘spending on physical goods continued to slow, with expenditure on household items dropping 1.2% year-on-year.’ It identified that entertainment growth was running at 6.8% year-on-year and pub and restaurant spending was climbing by 13.6% and 11.4% respectively.”

The RTT concluded that there seem to be conflicts in the different data sources, and members questioned whether the conflict in narratives is exacerbated by the way that spending is classified. Paul Martin, UK head of retail at KPMG and co-chair of the RTT, said: “It is clear to say that consumer spend has evolved over the last decades and is becoming increasingly diversified. This is reflected by the plethora of data sources available, which in my opinion at times deliver increasingly conflicting messages, as ultimately the changing consumer landscape means we are not really comparing like-for-like. Retail as a service, retail experience alongside product-centric retailers and of course brands that blur the lines of a traditional offering are all commonplace today. What is pivotal though and the route to success is understanding the size and shape of each consumers wallet and how the spend is being allocated and what factors are driving this spend.”

RTT members also referenced the structural changes in the retail sector, an ever-evolving society and improving technology as key factors that are driving this apparent shift in credit card spending towards experiences and away from retailers.

Different parts of the retail sector are impacted in different ways by this apparent shift. Maureen Hinton, group research director at Global Data, said: “It is non-food that is bearing the brunt of this shift in spending – it is markedly underperforming with just 7% growth over the decade.”

As regards specific categories, James Knightley highlights ‘food, alcohol and tobacco’; ‘audio visual’ and ‘furniture and household equipment’ as showing slight reductions as a percentage of overall spend, whilst surprisingly ‘clothing and footwear’ has seen a marginal increase.

In terms of leisure operators that are benefiting from this shift, those providing ‘transport’, ‘package holidays’ and ‘accommodation services’ are all shown to have seen increases in consumer spend. The RTT adds that there are opportunities within this shift in spend and Maureen Hinton suggests that “retailers have good reason to invest in ways to add entertainment and experience to their propositions and to exploit trends such as travel retail and duty free, just as WH Smith has done at one end of the market and luxury retailers have at the other.”

The shift to online

A number of different structural and societal factors are impacting on the sale of goods, and as such, have contributed heavily to the apparent diversion of consumer spend. Firstly, the RTT comments on the increased popularity of online shopping, which as a service is improving in line with technology at an almost constant rate. This has in no doubt impacted the size of the retailers’ share of the available spend.

“Online shopping is generally bad for existing retailers given the costs of delivery and returns frequently outstripping the benefit of the additional sales,” commented Martin Hayward, founder of Hayward Strategy and Futures.

Much like the rising popularity of travel has opened up retail opportunities at travel hubs, the ever-growing use of the internet has meant retailers are seeing the store as having uses beyond just selling. Retailers are actively looking at ways to enhance their in-store offering, to provide consumers with the experiential shopping experience they believe this generation desires.

Jonathan De Mello, head of retail consultancy at Harper Dennis Hobbs, points out that: “Given the rise of online retailing, the high street is markedly different from what it was 10 years ago, with shoppers increasingly demanding experiences as part of their shopping trip – as a point of difference against online shopping. Not only has this exacerbated the decline of certain centres, which have lost out through retail business failures – or lack of retailer demand – it has also led to an increase in the presence of ‘experience’ stores, where the store is seen as an additional marketing channel.”

However, RTT members do question the actual benefits retailers are reaping by this switch to a more experiential offering, and if investment in this area is actually holding the retail sector back. Nick Bubb, independent retail consultant, argues that consumers might not be buying into this investment: “Department stores in particular have rushed on to the ‘experiences retailing’ bandwagon, in the belief that consumers want more than just the usual products and services, but there is little evidence of these moves having any real impact. The monthly Coffer Peach Tracker survey of pub and restaurant sales shows that this sector is not exactly booming either, notwithstanding continued new restaurant openings.”

Social changes

RTT members concur that, alongside the improving technology, changes within society, and the values consumers hold, contribute to the apparent shift in spend.

Focusing on the millennial market, Martin Newman, The Customer Experience Champion, said: “Success in the millennial’s mind is not about how much money you make, more it’s about how much freedom you have and the experiences you can share. Previous generations didn’t have the opportunity or ability to travel as much as us or to start a new business the way we do today, therefore they invested in homes, cars and other things that were a reflection of the times we lived in”. It is apparent that today’s younger consumers are more environmentally aware and have more of a sharing and recycling mindset in terms of physical goods – they seem less focused, and place less value, on the ownership of possessions.

Martin Hayward adds: “It is likely that younger families will spend more on communications such as telephony and data, and are more likely to stream music, films and other content. These services are not cheap and place pressure on disposable income for shopping. This will particularly impact on fashion retailing.”

This shift in mindset, and the improvements to technology that assist it, are clear when looking at how people spend their money. The RTT highlight in particular the abundance in choice in terms of services now available to consumers, with Maureen Hinton adding: “Life is changing – a decade ago we were not paying subscriptions to Amazon Prime Video and Netflix which currently have around 20 million paying subscribers in the UK.”

Whether or not the different spending habits of the younger consumer audience is driven more by the new products available to them, or because of a wider societal change remains unclear. Dr Tim Denison points out: “Different consumer segments are found to have different spending priorities and it is here that the two conflicting stories (of shrinking versus stable spend on retailing) converge. All the evidence shows, for example, that younger people spend less on ‘things’. Whether this is a long-term change in cohort behaviour, or the consequence of other events, such as more young people staying at parental homes longer and therefore not needing to buy so many goods, is difficult to gauge.”

Whatever the reason for the change in the way young people spend their money, the RTT agree that more of ‘the pie’ is finding its way to the leisure sector, which can provide these consumers with the more experiential, and less tangible, gratification they are after.

There is little doubt that there have been changes in the way that UK shoppers spend their disposable income, moving from the purchasing of ‘things’ towards ‘experiences’ – with the younger millennial market leading the charge in this shift in spend.

Mike Watkins concludes: “So traditional retail, compared to other sectors of consumer spend, faces more headwinds. Sentiment is intrinsically rooted in changing economic circumstances, but spend is now driven by a desire for more consumer experiences. Due to changing priorities and aspirations, or as a result of external factors such as cost of living increases, shoppers are adapting their over wallet allocation for discretionary spend. This is resulting in less money being spent on goods or services which have low involvement or minimal investment.”

The magnitude of this shift however, and the actual impact it is having on retailers is trickier to dissect. The RTT accept that different data sources that track consumer spending reveal conflicting arguments on where shifts in consumer spending are moving. The issue is compounded by the traditional ‘data buckets’ in which we classify spend. Factors such as the rise in internet shopping and increasingly popular subscription services are making it harder to distinguish the actual impact that changing consumer spending habits are having on retailers.

It is clear though that any shift in spend away from retailers, has of course, impacted negatively on the sector. However, the RTT members hold that this alone is not to blame for the fragile position that many operators find themselves in today. External economic factors, political uncertainty, rising costs, a changing consumer mindset, an increased use of technology and the rise of the discounters, alongside this shift in spend towards the leisure sector are all working together to challenge the status quo of what it takes for a retailer to succeed in 2019.

Every business requires an infrastructure to support its customers and operations. This includes facilities, equipment, and processes for all functional areas. Choosing the correct infrastructure to match your business strategies enables your operations to run efficiently. Conversely, if an element of your infrastructure is out of sync with your strategies, you will likely feel the pain in every aspect of your business.

If your value proposition is to provide the lowest prices every day, your infrastructure should reflect that goal. You can accomplish this in various ways. But the cost of goods sold and overhead expenses which include infrastructure items should be as low as possible.

Typically, ecommerce businesses try to maintain a high degree of flexibility in their infrastructure to keep fixed costs low, to react quickly to market changes or competitive pressures. A key infrastructure decision is whether to outsource or manage operations in-house.

Most ecommerce businesses are small, with fewer than 25 employees. If you look at all the functional areas of the business that must be managed on a daily basis, it will be hard to find and afford an in-house staff with all the skills required to be successful. When deciding on your business infrastructure and operations, be sure to evaluate what your core strengths are. Know what you do well and know what you do not do well. They are equally important. Look to outsource part-time activities or ones that require high levels of skill or specialization.

7 Key Ecommerce Infrastructure Decisions

1. Marketing

Of all the infrastructure elements, marketing may be the most important. To succeed, your website must be found. Once visitors are on your site, you need to keep them there and compel them to buy from you. That’s the job of your marketing team. Whether it’s website design, social media, search marketing, merchandising, email, or other forms of advertising, it’s all about marketing.

Managing marketing activities in-house is very challenging. Most small ecommerce businesses outsource at least part of it.

2. Facilities

A key competitive advantage that ecommerce businesses have over brick-and-mortar stores is not having to invest in physical facilities. In many cases, you can run your business out of a home office, basement, or garage. If you drop ship or outsource fulfillment, you may be able to do that for a long period of time. Even with many employees, you can set up your offices in class B or C space, as you have no need for a fancy store in a high-traffic location.

A word of advice is to keep your options flexible. Try to find an office park with a variety of spaces of different sizes. You may be able to start in a smaller space and move up to a larger one (without penalty), as your needs change.

3. Customer service

There are many choices today for delivering high-quality customer service. You can manage those activities in-house or outsource to a third party. Basic customer service for sales and post-sales activities can be handled using email and, for more extensive needs, phone support. A customer-management system will make those activities easier, but for smaller companies, it is not a requirement.

Live chat will impact your operations someone needs to be available during specified hours of operation. Be sure to gauge the impact of that on your organization, if you decide to handle those activities in-house.

4. Information Technology

Choosing an ecommerce platform is one of the most important decisions you will make in your business. Do you want to build and host your own system, outsource the development and then manage the system going forward, or use a hosted, software-as-a-service platform that is turn-key and externally managed?

If you build and host your own system, you may need more cash upfront and skilled administrators and developers on your staff. By using a SaaS platform, you will not need to host or manage the system in-house, but you may still need web developers on staff. Choosing to outsource the development and hosting will reduce your staffing costs, but you will incur higher costs for any future enhancements or changes to your websites.

There are pros and cons to any approach. Think through the impacts on your staffing, cash flow, and bottom line before you move forward.

5. Fulfillment

Another key decision is whether you will manage your own inventory or outsource those activities to a fulfillment house or through drop shipping arrangements with your suppliers.

Managing your own inventory will provide a high level of control, but you will tie up cash in warehouse space and fulfillment staff. In some industries such as the jewelry supply industry that my previous business was in managing your own inventory was the most logical choice. We had no alternative for drop shipping, and most items were purchased in bulk and were very small. We did not trust preparation and fulfillment to an outside service.

Select the best fulfillment option to meet your needs. Be sure to understand the costs involved and analyze the other options before moving forward.

6. Finance and administration

You can manage your finance and administration activities in-house, outsource them, or use a hybrid of the two. If your ecommerce platform is tightly integrated into your accounting system, you may have very little need for an in-house bookkeeper. If you use separate systems for your website, order management, and accounting, you may need more help for data entry and making sure that the information is properly managed.

Many ecommerce companies use outside services for vendor payments, payroll, and other basic accounting activities. They decide to focus on the sales, marketing, and customer service. This allows them to maintain a focus on growing their businesses, instead of paying an internal accountant or doing that work yourself as the business owner.

On the administration side, you need a leadership team. Good communication is important, whether you have three or 100 employees. Be authoritative or democratic in your management style — it is up to you. But choose a style and stay consistent. Be sure that everyone understands their roles, as well as the overall business strategies. You may need to adjust your approach as your business evolves.

7. Human Resources

Many small-business owners avoid the human resources function. Recruiting, setting up compensation, maintaining compliance, and other HR activities are specialized and time-consuming. You may choose to bring the resources in-house. But, should you outsource, there are many individuals and agencies well equipped to do the job.

Rural consumers go to their nearest cities when they have to buy products like tractors, televisions, motorcycles, etc. For most villages, the nearest cities can be as far as 50 kms away. Most of these cities are district towns. Rural consumers go to the ‘local market’ which is normally around 5-10 km. from their villages to buy the daily household requirements like sugar, tea, vegetable oil, etc.

Some family member, more likely the eldest male member, may be going to this local market even daily and buying requirements of the family. Rural families buy their products as they get exhausted and do not buy all their requirements once a month or fortnight as urban consumers do. There is no scheduled, periodic purchasing of household requirements in rural markets.

A product is bought when it is required. So when a product is not available to a rural consumer when it is required, he will do without it and the company loses the sale of the product that the rural consumer would have consumed.

It is important that the products are available locally so that the rural consumer can buy them conveniently when need for them arises. It is not uncommon to send a youngster to buy tea, sugar and biscuits when a guest arrives. It is not even uncommon to rush a child to buy cooking oil when the lady of the house discovers that she has run out of cooking oil after she has put the vegetables in the frying pan.

These incidents are not embarrassing for rural consumers. They just postpone purchasing for as long as they can. To be able to cater to this sort of unpredictable but urgent demand, products have to be made available at the village level. It is not enough to make products available at the local market.

Most companies feel that it is not economically viable to have a retailer in each village. Interested companies will have to promote a common retailer in one village. The chosen retailer will stock practically everything that the rural consumer of the village may require. He will stock fast moving consumer goods, fertilizers, cement, diesel, products needed for marriage and other ceremonies, all types of food items, gas cylinders, etc.

The idea is that if all these products are sold by one retailer, it will have sufficient volumes and the retailer would be interested in making adequate investments. Running a rural retail operation is not very costly. The retailer is a resident of the village and his house is the shop. He need not build any extra space for the shop.

Since the shop is in the house, all the family members help in running the shop as and when they are available. The shop can be open for long hours without causing much stress to the retailer. And since the retailer is based in the village, he will not seek higher margins as he may be having some other means of income too. But the companies whose products will be sold will have to manage the back-end of the rural retail operations.

Rural retailing has so far failed because the rural retailer bought goods from the local market and sold them in the shop in his village. Therefore he had to sell the products at a price higher than what they were being sold in the local markets. And since the local market was easily accessible to the rural consumers, they preferred to buy from the local market than from the retailer in the village. This perception of the products sold at rural retail shop as being costly has to be removed.

The companies will have to combine their supplies and transport them in a common vehicle to a rural retailer and make him competitive in comparison to retailers in the local market. If companies co-operate among themselves to supply their items to the rural retailer efficiently, rural retailing will be economically viable and will be a very important tool to get rural consumers to buy more frequently, and more variety of products. Rural retailing is imperative if companies want to create a consumerist rural society.

There is an alternative to rural retailing. Door-to-door selling or some version of it can be employed. Retailers at the local market can employ door-to-door salespeople. These salespeople can move on bicycles and should agree to accept payment in grains. Door-to-door selling is very effective in overcoming consumers’ reluctance to buy. Consumers keep postponing going to a retail store because they do not want to spend money but when a door-to-door salesperson arrives, they are likely to succumb to his offerings.

Characteristics of rural consumer

1. Reference Group

Typically, in a rural area the reference groups are primary health workers, doctors, teachers and panchayat members, the village trader or the grocer, commonly called ‘Baniya’ or ‘Mahajan’ are an important influencer in the decision making of rural customer. A marketer needs to be aware of these influences that can effect changes in the rural customer’s consumption patterns.

2. Occupation

Consumption patterns differ according to income levels. Typically, in a rural area the principal occupation is farming, trading, crafts, plumbing, electric works, primary health workers and teachers.

Agriculture and related activities continue to be the main occupation for majority of the rural population. Land is the major source of income for about 77% of the population.

3. Media Habits

Rural people are fond of music and folklore. In rural areas a popular form of entertainment is the ‘Tamasha’ and ‘Nautanki’. And then there are television, radio and video films.

4. Rural Electrification

The main objective is to provide electricity for agricultural operations and for small industries in rural areas. About 5 lakh villages (77%) have electric supply and this has increased the demand for electric supply and this has increased the demand for electric motors, pumps and agricultural machinery.

5. Other Variables

Culture, language, religion, caste and social customs are some other important variables for profiling a rural customer. Rural consumers have a lot of inhibitions and tend to be rigid in their behavior. A company has to take intense care while targeting them.

India in last twenty years showed a remarkable shift in its economic, social and technological environment. By the liberalization and privatization policies and the subsequent phenomenon of globalization have led to huge inflow of foreign investments and entry of large MNCs in India.

Many domestic Indian organizations of the field those in ICT, automobile, textile and engineering products have expanded their operations into overseas markets. As products and markets are turning global, organizations are facing competition both in the domestic as well as in the international markets.

Task of marketers has become more challenging due to shift in the demographic profile and demands of consumers. Organizations of industries such as FMCG, telecom, insurance, financial services, consumer durable and automobiles are nowadays employing innovative marketing practices for their survival and also to increase their market share.

These organizations are now shifting their focus from the saturated metros and tier-I cities to the rural and semi urban towns, to increase their revenues and market. But rural areas have their own limitations in terms of number of villages with low population density, accessibility, infrastructure, telecommunication network, illiteracy, social and cultural backwardness and low income.

Besides this almost seventy percent of Indian population stays in the rural areas and the revenue generated by the agricultural sector in the total GDP is less than seventeen percent. The maximum of rural population has comparatively low income as well as consumption rate compared to their urban areas. Still yet they have aspirations and wants for most of the urban products.

The factors that have created rising demands among rural buyers are increase in literacy levels, migration to urban sectors, growth in media and telecommunication, availability of bank credit schemes, globalization of market, low price technology products (such as television, mobile, fridge, camera, etc.), government sponsored employment generation, and tax concessions and loan waivers.

Rural people nowadays are no longer ignorant and resigned to their fate. Today a rural buyer not only has purchasing power but he is also better informed about the price and demand of the products for which the money is being spent. They are looking for better quality, durability and multi utility of the products and services offered in the market to them.

Socio-cultural Factors

Socio-cultural environment is an important part of environment — culture, traditions, beliefs, values and lifestyle of the people within a limitation of society constitute the socio-cultural environment.

The following elements play a big role in the decision making stage to a large extent as to what the people will buy and how they will consume.

Culture

Culture is the combination of factors like religion, language, education and upbringing. Accurate information on the consumption habits, lifestyle and buying behavior of the rural people can be obtained through a survey of the socio-cultural environment.

Cultural shifts carry the marketing opportunity as well as threats and also carry the cultural dynamics, the needs and feelings of rural people which need to be understood.

Social Class

Social class is one of the main concepts in socio-cultural environment. A society consists of different social classes and all social classes are determined by income, occupation, literacy level etc. of its members. Each class has its own class values according to lifestyle, behavior etc. These values have a strong consumption pattern and paying behavior of the member of the class.

Social and Cultural Environment

The society and polity across the country varies between different religions, castes and linguistic groups. Common socio-cultural behavior has been mapped as distinct sociocultural regions, which may be spread across political boundaries. The influence of social practices shows itself in consumer preference for product features, product size, shape and color.

The source of information also gets influenced by social practices. Along with cultural dynamics, the needs feelings of rural people also need to be understood. Marketers would first understand this and then design and launch products accordingly. For example, Cadbury’s has launched Chocobix, a chocolate- flavored biscuit, on the basis of research theory and understanding that rural mothers will always opt for biscuits instead chocolates for their children.

Caste System

Indian Society had a scheme of social gradation, with the Brahmins at the head of the hierarchy, followed by the Kshatriyas, the Vaishya’s and the Shudras at the bottom. The castes in themselves have sub-castes which are claiming social supremacy over the other.

Marketers have to be sensitive towards the caste systems and accordingly products in rural areas. While developing advertisements, brand communication and promotion plans, marketers should have to be sensitive to ensure relevance of characters and message which doesn’t affect any caste system.

Occupation

Occupational pattern of rural people also has an impact on the nature of income generation, which will in turn affect the expenditure pattern. Purchase behavior of the rural consumers depends upon the nature of occupation and the consistency in the generation of income.

Literacy Level

The literacy level of rural people has a considerable impact on the marketing strategies to be adopted by the marketing team especially in communication with the rural people. Higher the level of literacy, the easier it becomes for companies to penetrate into rural areas.

Land Distribution & Use

One of the main obstacles for marketers to exploit the rural market potential has been the largeness of rural markets in terms of the areas it covered. It is much easier to divide it according to the needs of the urban population because of concentration, but it is very difficult in the case of rural market because of their widespread nature.

One of the key endeavours of the Modi government has been to double farm incomes by 2022. In that direction, the government announced a farmer friendly budget in 2017 which assured minimum support prices (MSP) at 150% of cost. The intent was twofold. Firstly, this would increase farm incomes and secondly, it would create demand for seeds, fertilizers, tractors and agrochemicals, triggering a major demand cycle in the rural areas. However, farmer stress appears to have continued and rural consumption has fallen.

The importance of rural and semi-urban consumption was highlighted when the CFO of Parle hinted that the company may have to cut nearly 8,000 jobs due to weak demand. Now, Parle sells biscuits at the market entry point and has a strong presence in the rural and semi-urban areas. This was a clear indication that rural demand was faltering to the extent that even a biscuit packet at Rs5 was not finding willing buyers. That brings us to a much bigger question; why is rural demand so critical for India?

Rural India is all about jobs and consumption

Agriculture, which is the predominant occupation of rural India, is still restricted to just 15% of GDP in terms of overall contribution. But it directly and indirectly employs more than 70% of the all-India workface. That share would be a lot higher in rural areas. In other words, the rural household economy and demand generation is largely farm dependent.

Why has rural demand slowed in the last few years?

The slowdown in rural demand has seen a gradual aggravation in the last five years and that has been driven by a variety of reasons.

In the last five years, only 2016 was a year of above average monsoons. The remaining years saw average or below-average monsoons. Years like 2019 may have seen adequate rainfall but the onset of monsoons was delayed impacting the sowing season.

Demonetization was one of the major reasons for the slowdown in rural consumption. Rural India is still largely cash driven and that took its toll on rural businesses, rural transactions and rural spending power. However, with currency levels coming back to pre-demonetization levels, that should get sorted out.

GST implementation in July 2017 also played its part in slowing rural consumption. The stringent compliance requirements put tremendous pressure on small and medium sized businesses putting many of them out of business. That did impact demand.

Why rural demand matters to Indian economy?

In an interesting study conducted by CSFB, it was found that the willingness of the Indian consumer to postpone purchases of consumer durables had touched a high of 1 year. Effectively, consumers were willing to put off purchase of durables like white goods, two wheelers, entry level cars, etc. by up to one year as they were not confident of the economic conditions. The liquidity crunch in the aftermath of the NBFC crisis has also created problems for rural demand as NBFCs and MFIs were virtually acting as the last mile delivery agents for banks. That has hit fund flows into rural areas in a big way.

There are 3 principal reasons why this rural slowdown impacts consumption in general.

1. Rural India accounts for 37% of overall FMCG spend and, according to Nielsen, this is likely to get closer to 50% in the next 5 years. That is a very large chunk of the consumption market and that explains why consumption stories are under strain.
2. Rural sector consumption demand for FMCG products has traditionally grown at 3-5% more than the urban demand growth and that differential has been the key to creating alpha for the FMCG companies
3. Finally, the high marginally propensity to consume among the rural population makes it an important and lucrative consumption market.

Rural Marketing:

The main reason why the companies are focusing on rural market and developing effective strategies is to tap the market potential, that can be identified as follows:

1. Large and scattered population:

According to the 2001 census, 740 million Indians forming 70 per cent of India’s population live in rural areas. The rate of increase in rural population is also greater than that of urban population. The rural population is scattered in over 6 lakhs villages. The rural population is highly scattered, but holds a big promise for the marketers.

2. Higher purchasing capacity:

Purchasing power of the rural people is on rise. Marketers have real­ized the potential of rural markets, and thus are expanding their operations in rural India. In recent years, rural markets have acquired significance in countries like China and India, as the overall growth of the economy has resulted into substantial increase in purchasing power of rural communities.

3. Market growth:

The rural market is growing steadily over the years. Demand for traditional products such as bicycles, mopeds and agricultural inputs; branded products such as toothpaste, tea, soaps and other FMCGs; and consumer durables such as refrigerators, TV and washing machines has also grown over the years.

4. Development of infrastructure:

There is development of infrastructure facilities such as con­struction of roads and transportation, communication network, rural electrification and public service projects in rural India, which has increased the scope of rural marketing.

5. Low standard of living:

The standard of living of rural areas is low and rural consumers have diverse socio-economic backwardness. This is different in different parts of the country. A con­sumer in a village area has a low standard of living because of low literacy, low per capita income, social backwardness and low savings.

6. Traditional outlook:

The rural consumer values old customs and traditions. They do not prefer changes. Gradually, the rural population is changing its demand pattern, and there is demand for branded products in villages.

7. Marketing mix:

The urban products cannot be dumped on rural population; separate sets of prod­ucts are designed for rural consumers to suit the rural demands. The marketing mix elements are to be adjusted according to the requirements of the rural consumers.

Rural marketing in Indian economy can be classified mostly under the following two categories:

• The markets for consumer durables consists of both durable and non-durable goods
• The markets for agricultural products which include fertilizers, pesticides, seeds, and so on.

Rural marketing in India is sometimes mistaken by people who think rural marketing is all only about agricultural marketing. Rural marketing determines the carrier of business activities from urban sectors to the rural regions as well as the marketing of various products manufactured by the non-agricultural workers from rural to urban areas.

The following are the characteristics of rural markets:

• Here agriculture is first and also the main source of income.
• This income is seasonal in nature and fluctuates as it depends on crop production.
• Though it is large, the rural market is geographically scattered.
• It shows religious, cultural and economic disparities.
• The market is not much developed, because the people here exercise adequate purchasing power.
• These markets have their orientation in agriculture, with poor standard of living, low per capital income and backwardness.
• It shows sharper and different regional preferences with distinct predictions, habit patterns and behavioral aspects.
• Rural marketing process is an outcome of the general rural development process initiation and management of social and economic change in the rural sector is the core of the rural marketing process.

Challenges in Rural Market

There are various challenges that hinder the progress of rural market. Marketers face a number of problems like physical distribution, logistics, no proper and effective sales force and no effective marketing communication when they enter into the business of rural markets.

The following are the major problems faced in the rural markets:

1. Standard of Living

A large part of the population in rural areas lies below poverty line. Thus the rural market is also underdeveloped and the marketing strategies have to be different from the strategies used in urban marketing.

2. Low literacy levels

The low literacy levels in rural areas leads to problem in communication with the market and the print media has less utility as compared to the other media of communication.

3. Low per Capita Income

In rural market, agriculture is the main source of income and hence expense capacity depends upon the agricultural produce. Demand may or may not be stable.

4. Transportation and Warehousing

Transportation and supply chain management are the biggest challenges in rural markets. As far as by road transportation is concerned, about 50% of Indian villages are connected by roads to the nearest big cities. The rest of the rural markets do not have proper road linkage to other cities which causes problems in physical distribution.

Many villages are located in hilly remote areas which is difficult to connect with them through roads. Warehousing is another major problem in rural areas, as there you will hardly get any organized agency to look after the storage issue. The services given by central warehousing corporation and state warehousing corporations are limited only to urban and suburban areas.

5. Ineffective Distribution Channels

The distribution chain is not organized and also requires a large number of intermediates, which in return increases the cost. Due to lack of appropriate infrastructure, manufacturers are giving back steps to open outlets in these areas. That is why they need to dependent on dealers, who are rarely available for rural area which increases the challenges for marketers.

6. Many Languages and Diversity in Culture

Factors like different behavior and language of every respective area increases difficulties to handle the customers. The sales force is required to match the various requirements of the specific areas according to their culture.

7. Lack of Communication System

Quick communications facilities like computer, internet and telecommunication systems etc. are the need of rural market which is a biggest problem due to lack of availability. The literacy level in the rural areas is quite low and consumer’s behavior is kind of traditional, which is a cause of problem for effective communication.

8. Dummy Brands

Cost is an important factor for rural consumers which determine purchasing decision in rural areas. A lot of fake brands or products that look similar to the original one are available, providing low cost options to the rural consumers. Most of the time, the rural consumers may not be aware of the difference due to illiteracy.

9. Seasonal Demand

Demand may be seasonal in rural market due to dependency on seasonal production of agricultural products and the income due to those products. Harvest season might see an increase in disposable income and hence more purchasing power.

Opportunities in Rural Market

To solve the problems of rural market and rural marketing in India, the following points need to be considered by marketers:

1. Physical Distribution and transportation

Regarding the problems of physical distribution, the marketers may have stockiest/ clearing-cum-forwarding (C&F) agents at strategic location for facilitate the physical distribution for its products in the rural market. The important advantage of this scheme is that the costs of physical distribution can be shared between the companies and stockiest.

The different modes of transportation based on availability of tracks should also be beneficial to the companies. Even to this day, bullock-cart plays a very vital role in physical distribution where the roads are not available. Some of the leading MNCs use delivery vans in rural areas. These delivery vans take the products to the retail shops in every corner of the rural market and enable the companies to establish direct sales contact with majority of the rural consumers. This in turn helps in sales promotion.

In rural market, agriculture is the main source of income and hence expense capacity depends upon the agricultural produce. Demand may or may not be stable.

2. Rural Market and Retail Sales Outlets

The rural market consists of a number of retail sales outlets along with low price shops under the public distribution system. The government should take initiatives to encourage private shopkeepers and cooperative stores to come forward and establish their business in rural areas.

Fertilizer companies should open their outlets for proper distribution of fertilizer to the farmers. In addition, the companies dealing in consumer goods can also apply this model and appoint a number of retailers in rural market and attach them to the stockiest who distributes the goods to the retailers as per the potential demand of the market. This approach will help the companies penetrate into the interior areas of the rural markets.

3. Sales Force Management

To solve the problems of sales force management, the company takes due care in the recruitment and selection of sales people because the traits they require are different from that of the urban sales persons. These sales people must be fluent in the local/regional language and also have patience to deal with rural consumers.

Controlling and operating of such a large and scattered sales force, supervising them in sales calls, guiding and attending to their official and personal problems, and motivating them for getting better results should be an exciting and challenging task for the sales manager. Thus, the people operating in rural areas should have an inherent zeal to serve the rural peoples and to connect with them.

4. Marketing Communication

For marketing communication in rural areas, the companies should use organized forms of media like TV, Radio, cinema and POP (point of purchase) advertising. In recent times, television is gaining popularity in rural areas but due to lack of supply of electricity, radio is performing quite better.

The rural people need demonstration, short-feature films and direct advertisement films that combine knowledge and perform as better rural marketing communication. The companies now also use audiovisual publicity vans that sell the products with promotion campaign directly. Companies can also organize village fairs, drama shows, and group meetings to convince the rural consumers about the products and services.

For the rural markets, those sales people are preferred for selection who are willing to work in rural areas like Sarpanch, Pradhan’s and other elderly persons. Marketers can also approach them to propagate their messages, because these persons could be effective communicators within the rural peoples.

5. Demand Base and Size

Indian rural market has a vast demand base and size. Rural marketing involves the process of developing, promoting, distributing rural area specific products and service exchange between rural and urban market which satisfies customer demand and also achieves organizational goals. As a part of development program economic development is concern, government is making continuous efforts towards rural development.

Markets are defined by their boundaries, what is in and what is outside the market, and markets may be found within markets. In understanding your market, a whole set of nested markets may be analyzed to ensure these are appropriate and to make decisions about the contents of each market.

1. Population

The largest possible market is the entire population of the world. Of course no company can serve everyone (although some, such as Coca-Cola, make a pretty good effort at this).

2. Potential market

The potential market is everyone who could use the products and services that you provide. If you sell food and drink, this market is close to the population. If you sell specialist machine tools, then your potential market is much smaller, although still global.

A common problem in identifying markets is that companies miss the potential market, for example in not considering customers overseas or people who may put the products to different uses as compared with traditional customers.

3. Available market

The available market is that which you can reach, or where it is cost-effective to reach. A typical example of non-available markets are those in foreign countries where different languages and customs barriers make these too difficult to serve. Retail stores are usually constrained to local people and passing traffic.

Other factors can limit market availability for example fresh food which does not travel well will limit the geography which can be served.

Small companies have traditionally had very limited available markets, due simply to limited marketing budgets. The advent of the internet has been very helpful here as any website is available around the world.

4. Target market

The target market is that which a company seeks to serve and is a subset of the available market. Selection of this market is a key task as there can be significant costs in reaching potential customers.

A good target market is one which will be sufficiently profitable, and where:

• Potential customers will want to buy our products and services.
• They will spend enough money to cover our marketing costs to them as well as production and shipment costs.
• The overall profit margin makes it worth our while to market to them.
• There is not a preferable target market elsewhere.

5. Served market

Within the target market, there is a served market of actual customers who have already bought products and services. With real customers, you can get to understand them far more than the target market, getting feedback on their experience of learning and using the product as well as any associated experience, from buying to disposal.

When you have actual customers you can conduct a more detailed research process, asking them all kinds of questions and even going out to watch them use your products in their natural environments. Such close observation can be extremely valuable for improving future products and services.

6. Core market

When a customer has bought from you, this hopefully results in them buying the same thing again, buying other things and recommending you to their friends.

Understanding these factors can help you identify your core market of valuable customers who are most profitable and who should probably be nurtured more than the occasional buyer.

Rural Market Index

Rural Market Ratings (MRMR)

The MRMR is a useful marketing tool and a multimedia guide to rural India. It has been devel­oped by the Mudra Institute of Communications Ahmedabad (MICA) in association with ML Infomap Pvt. Ltd., New Delhi. The rural market index indicates the rural market potential of all the districts of India, analyzed on 42 variables. Using digital mapping technology, it pre­sents maps of all districts, shaded to indicate the level of market potential.

Managers can thus graphically see areas with different patterns of market potential, along with related data such as bank loans, demographics, infrastructure, and so on. The tool also gives location of ‘haats’, or actual rural markets. By clicking on a haat, one gets to know the days of the week the market takes place. Routing can be done through the road and railway map of India, which is incorporated in the software.

Income and Savings

 The 68th round survey on level and pattern of consumption expenditure was conducted between July 2011 and June 2012 by the NSSO. The household MPCE shows that the average MPCE was around Rs. 1,430 for rural India and about Rs. 2,630 for urban India. Thus, the average urban MPCE was about 84 percent higher than the average rural MPCE for the country as a whole, although there were wide variations in this differential across states.

An analysis in Mint (2014) shows that:

(i) Low Levels of Consumption

For rural India, the median MPCE was Rs. 1,198. Only about 10 percent of the rural population reported household MPCE above Rs. 2,296 and only 5 percent reported MPCE above Rs. 2,886. While average MPCE was Rs. 1,054, the median rural MPCE was Rs. 895, signifying half the rural population belonged to house­holds with consumption expenditure below Rs. 30 per day. For urban India, the median MPCE was Rs. 2,019. Only about 10 percent of the urban population reported household MPCE above Rs. 4,610 and only 5 percent reported MPCE above Rs. 6,383.

(ii) Food Accounts for Half the Expenditure

For the average rural Indian, food accounted for 52.9 percent of the value of consumption during 2011-12. This included 10.8 percent for cereals and cereal substitutes, 8 percent for milk and milk products, 7.9 percent on beverages, refreshments and processed food and 6.6 percent on vegeta­bles. Among non-food item categories, fuel and light for household purposes accounted for 8 percent, clothing and footwear for 7 percent, medical expenses for 6.7 percent, education for 3.5 percent, conveyance for 4.2 percent, other consumer services for 4 percent and consumer durables for 4.5 percent. For the average urban Indian, 42.6 percent of the value of household consumption was accounted for by food.

(iii) Inequalities have Risen:

The data shows that the per capita expenditure level of the urban consumer is now 91 percent higher than his rural counterpart, compared with 80 percent in the earlier 61st round of the survey conducted in 2004-05.

(iv) Consumption Expenditures are Rising

The survey shows an increase in consump­tion power across the country. The rural per capita consumption has grown 6 percent in 2009-10 against 1.2 percent in 2004-05. Similarly, urban per capita consumption has risen 6.8 percent compared to 2.9 percent in the earlier survey.

The study shows that average rural MPCE during 2011-12 stood at around Rs. 1,430 for rural India, a 35.7 percent increase compared to the 2009-10. Of the total expenditure, rural households spent less than half on food items, suggesting rise in wages. The average urban MPCE was 84 percent higher than rural areas. The share of expenditure on food declined substantially from 53.6 percent to 48.6 percent in rural areas and from 40.7 percent to 38.5 percent in the urban areas. The faster rise in the share of non-food expenditure in rural areas suggests a rise in wages. The rural wages went up from Rs. 231.59 a day in 2009-10 to Rs. 299 a day in 2011-12, a 29 percent increase.

The Economic Times (2013) reports that as MGNREGA has led to increase in wages, people in rural areas are spending more on non-food items. Within food, the share of protein-based items went up in the consumption basket. The share of milk and milk products went up from 8.6 percent in 2009-10 to 9.1 percent. Among non-food items, the share of durable goods in the consumption basket of rural areas went up from 4.8 percent to 6.1 percent.

The highest score for rural areas in India is from Kerala where monthly per capita consumer expenditure is almost one-third more than the national average. Nine out of India’s 17 large states do better than the national average for rural areas. Among the northern states, he three states doing better than the national average are Haryana, Punjab and Rajasthan.

Segmentation on incomes show a wide variation in consumer behaviour as described below:

1. High Income

Those belonging to upper strata—landlords, large farmers, businessmen and traders—exhibit distinct buying and consuming patterns. Much of their buying is done from nearby towns since they have large vehicles like jeeps and tractor trolleys. A trip to the town means buying goods for the whole month; most of the buying is done in bulk. In this way, their buying behaviour is closest to consumers in developed coun­tries, who stock goods in their basements. Only a few daily consumables are bought from the local market. The high income group is also most likely to be influenced by brands and advertising.

2. Middle Income

Large middle income families also buy many products in bulk. Food items like grains are purchased in bulk while fresh produce is bought on a daily or weekly basis. Small middle class families are likely to buy most of their needs from the local market. The middle income group is likely to be more dependent on local stores than the high income group. Rather than buying brands, people in the middle income group are likely to get their clothes stitched locally.

3. Lower Income

People in the lower income group depend on local stores and markets for all their needs. Local shopkeepers provide them credit, advice and easy delivery, which suits these consumers. Purchasing is done more often, though in lesser quanti­ties. People in the lower income group are also likely to buy smaller packs.

1. Deprived people and deprived markets

The number of people below the poverty line has not decreased in any appreciable manner. Thus, poor people and consequently underdevel­oped markets characterize rural markets. A vast majority of rural people is tradition bound, and they also face problems such as inconsistent electrical power, scarce infrastructure and unreliable telephone system, and politico-business associations that hinder development efforts.

2. Lack of communication facilities

Even today, most villages in the country are inaccessible dur­ing the monsoons. A large number of villages in the country have no access to telephones. Other communication infrastructure is also highly underdeveloped.

3. Transport

Many rural areas are not connected by rail transport. Many roads have been poorly surfaced and got severely damaged during monsoons. The use of bullock carts is inevitable even today. Camel carts are used in Rajasthan and Gujarat in both rural and urban sectors.

4. Many languages and dialects

The languages and dialects vary from state to state, region to region and probably from district to district. Since messages have to be delivered in the local language, it is difficult for the marketers to design promotional strategies for each of these areas. Facilities such as phone, telegram and fax are less developed in villages adding to the communica­tion problems faced by the marketers.

5. Dispersed markets

Rural population is scattered over a large land area. And it is almost impos­sible to ensure the availability of a brand all over the country. District fairs are periodic and occa­sional in nature. Manufacturers and retailers prefer such occasions, as they allow greater visibility and capture the attention of the target audience for larger spans of time. Advertising in such a highly heterogeneous market is also very expensive.

6. Low per capita Income

The per capita income of rural people is low as compared to the urban people. Moreover, demand in rural markets depends on the agricultural situation, which in turn depends on the monsoons. Therefore, the demand is not stable or regular. Hence, the per-capita income is low in villages compared with urban areas.

7. Low levels of literacy

The level of literacy is lower compared with urban areas. This again leads to a problem of communication in these rural areas. Print medium becomes ineffective and to an extent irrelevant, since its reach is poor.

8. Prevalence of spurious brands and seasonal demand

For any branded product, there are a multitude of local variants, which are cheaper and hence more desirable. Also, due to illiteracy, the consumer can hardly make out a spurious brand from an original one. Rural consumers are cautious in buying and their decisions are slow, they generally give a product a trial and only after complete satisfaction they buy it again.

9. Different way of thinking

There is a vast difference in the lifestyles of the people. The choice of brands that an urban customer enjoys is not available to the rural customer, who usually has two to three choices. As such, the rural customer has a fairly simple thinking and their decisions are still governed by customs and traditions. It is difficult to make them adopt new practices.

10. Warehousing problem

Warehousing facilities in the form of godowns are not available in rural India. The available godowns are not properly maintained to keep goods in proper conditions. This is a major problem because of which the warehousing cost increases in rural India.

11. Problems in sales force management

Sales force is generally reluctant to work in rural areas. The languages and dialects vary from state to state, region to region, and probably from district to district. Since messages have to be delivered in the local language, it is difficult for sales force to communicate with the rural consumers. Sales force finds it difficult to adjust to the rural environ­ment and inadequate facilities available in rural areas.

12. Distribution problem

Effective distribution requires village-level shopkeeper, toluka-level wholesaler/dealer, district-level stockist/distributor, and company-owned depot at state level. These many tiers increase the cost of distribution.

Rural markets typically signify complex logistical challenges that directly translate into high distribution costs. Bad roads, inadequate warehousing and lack of good distributors pose as major problems to the marketers.