Hierarchy of Markets and Rural Market Index

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.