With a population of more than 750 million and a vehicle density of 2.3%, the Indian rural market is suddenly the cynosure of all eyes. It is the global economic meltdown that is forcing auto companies to take a real hard look at this market. Overall, the rural market contributes less than 10% to the total sales of the industry currently. It is expected to see double digit growth this year, higher than overall category growth.
"The future is in the rural market. It has great potential for perennial favourites including small cars and two-wheelers; even C segment cars are making inroads into the market," says, Abdul Majeed, auto analyst, PricewaterhouseCoopers.
Unlike the urban market, its rural counterpart is unique both in the way a buying decision is made and the way products are marketed. It is not about air-conditioned dealerships or spunky sales executives stationed there; it's about involvement of a whole community in helping a few make the buying decision. Endorsement of opinion makers including sarpanch, doctors, teachers in the government institutions and rural bank officers, among others, is a decisive factor in chalking out the path for a brand in the rural market, eventually leading to sales. This is in addition to establishing a cost-effective distribution network to maximise coverage.
"Building up volume in the rural market takes a couple of years. It took several years for Maruti Suzuki to establish its base in the rural market," explains Rakesh Batra, automotive sector leader, Ernst and Young India.
Today, many brands are treading the path dug out by Maruti and Hero Honda. Close to 10% of Maruti Suzuki's sales come from the rural market, which it plans to increase to 15% this year. Hero Honda, on its part, had 50% of its sales coming from rural market in FY'09, which it hopes to take to 55% in FY'10. It was due to their relatively strong presence in the rural market, that helped the two companies avert greater damage as the Indian auto sector skidded off track earlier this year.
Says Maruti Suzuki India executive officer (marketing) Mayank Pareek, "Rural presence gives us an edge over the others. We started pushing our rural strategy in a big way from July last year. One must remember rural does not mean poor and it also does not mean farmers. There's a lot of demand of our cars like the Alto, the WagonR and the Estilo from rural markets."
Realising the importance of opinion makers, companies such as Maruti Suzuki, Hyundai Motor India and General Motors India run special panchayat schemes in these markets.
GM India, for instance, runs a panchayat scheme wherein it gives Rs 2,000 as incentive on every buy of a Spark, says, Ankush Arora, vice-president (sales and marketing). GM India has appointed a marketing firm, RCandM, to help it formulate its strategy for rural marketing. The company has around 45 outlets in B category towns. GM's Arora says since availability of finance is limited and the income pattern is seasonal, the number of cash purchases in rural areas is higher compared to urban areas, and therefore, this market has been relatively less affected by the credit crisis.
Last year, Hyundai launched Ghar Ghar Ki Pehchaan, a scheme targeted at government employees in rural areas and members of gram panchayats. The company also has a marketing initiative, Hyundai Utsav, running in tier III cities and rural areas of Punjab and Andhra Pradesh. It looks to build the brand's visibility and creating awareness about the loans and schemes offered by the company.
Hyundai aims to penetrate in 58% of the Indian villages with a population of 500 or more, says an EandY report on the market.
Maintenance and after sales service are two big factors influencing the buying decision of the rural customer, who prefer to cross check with their local mechanic before striking a deal. Price, an important factor, comes one step below these in importance. Further, since the awareness of brands and new technology is low, the rural customer is seen unwilling to pay a premium for these. "They do not like sudden changes in the existing products and prefer value for money and ease of use," says Sanjay Tripathi, division head for product planning, and brand management, Yamaha Motors.
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