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March 30, 2009

Rural to the Rescue?

Business Today has a cover story on how marketers are hoping to tap the relatively buoyant rural economy for their companies' growth.
It’s probably this resilience that’s prompting companies such as Airtel, facing slower urban sales following the global financial meltdown, to make a dash for the hinterland despite the lack of basic infrastructure. “We started focussing on the rural markets about a year-and-a-half ago, and today 60 per cent of all our new consumers are from the rural areas,” says Sanjay Kapoor, Deputy CEO, Bharti Airtel. That means 1.68 million new rural customers a month. Airtel has been adding some 2.8 million subscribers every month since the past one year.

...“Earlier, we had a lot of decentralised rural marketing efforts, which were largely dealer-driven. Now, they are more centralised. This includes a 500-strong sales force on the full-time rolls of our dealers to target rural sales specifically,” points out Anil Dua, Senior Vice President, Marketing, Sales and Customer Care, Hero Honda. The company, in end-2007, also launched a rural vertical Har Gaon, Har Aangan (Every village, every house). According to soft data, its share of rural sales has gone up from 38 per cent in 2007-08 to 40 per cent in 2008-09.

Maruti Suzuki’s foray into the heartland was a direct consequence of the slowdown. “We started it as a test case in 2007—driven by the slowdown, which impinged on the urban consumer’s propensity to opt for vehicular loans,” says Mayank Pareek, Executive Officer, Marketing & Sales, Maruti Suzuki. He says that in contrast to the urban market, where 80 per cent of the vehicle’s cost is financed, rural consumers pay cash for up to 60 per cent of the price tag. (A rural consumer does not share two big headaches of his urban counterpart—house loan EMI and transportation costs).

For the companies, the initial results have been encouraging. While Maruti Suzuki has seen the share of its rural sales jump from 3.5 per cent of the total in 2007-08 to 8.5 per cent in 2008-09, Bharti Airtel’s rural penetration has increased from 6 per cent in 2007-08 to 12.6 per cent, according to data available till February 2009. Airtel’s average revenue per user (ARPU) in the rural regions has increased from Rs 100 to Rs 150 in the same period.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in