The rural consumption opportunity (including the non-metro towns) has been a common topic of discussion in several investor conferences recently. Why the rural people buy as they do, and how they behave for buying, are questions that on-ground observations can help understand better. Using my own experiences from visits made into the interiors of Bangladesh and India (Uttar Pradesh, Punjab, Gujarat, Tamil Nadu, Himachal Pradesh, J&K, Kerala, etc), I have my own understanding of local people in these places, and I feel these 10 segments below may be useful to categorise the rural consumers across heterogeneous regions. The 10 segments are: New Money; Entrepreneurial; Migrants; Climbers; Influencers; Workers; Aspirational-Earning; Aspirational-Dependant; Elite; Idle.
New Money people are best for one-time large ticket expenditures, like automobiles, etc. A common source of New Money is from the sale of ancestral land for infrastructure/factory projects, which is a windfall the family got without working for it themselves. Most new-monies prefer products which have a 'flashy' perception, that create a 'wow' image of them in the community. Their ability to become repeat buyers is limited since the windfall was one-time. Importantly, most of them do not want to do the work their earlier generations did, as they see it as 'below-their-status'. But also, most have not acquired new skills which can gainfully employ them in future. Their purchasing power in future may be constrained since they are not capable of earning regular incomes. Hence, one has to constantly acquire new clients, rather than depend on repeat sales from existing clientele.
Entrepreneurial stems from my own experience with Bangladesh's Grameen Bank. Microfinance is creating incomes and purchasing power where traditional jobs were scarce. People are cautious in spending habits since loan repayment is in their own interest. Their hunt for 'value-for-money' while buying, is in line with the way they manage their own small businesses. They are willing to invest the effort to hunt for the 'best value' option, rather than just buy what is available for the sake of speed. Products that typically address an 'unmet need' or 'benefit to their existent way of life' are often in demand. Most entrepreneurs who are not part of microfinance loans also show similar traits, since capital to do a business is always precious and dear. Businesses cannot afford to ignore this segment, since their entrepreneurial activity is creating purchasing power on a recurring basis, which means increased scope for repeat purchases.
Migrants send chunky remittances, which creates purchasing power in his home-region despite no economic activity occurring in that place. Products demanded depend on the quantum of remittance. As flow of remittance money increases, demand will move from necessities to aspirations.
Climbers are salaried, who want to improve their existing way of life with what is 'doable', and then steadily progressing to discretionaries. Their focus is not on excesses, rather for necessity comforts. Wives have a key role, as they steadily coax the husbands for practical products which address their realities. Businesses also have to consider the specific situations these people face in their daily working-lives as it impacts their ability to shop. It is also important to note how rural people specifically use technology. While many talk of how 'e-wallets' can revolutionise the payment process, there is a limitation of 'low English-literacy'. Rural people are not averse to technology, but are often low on English-literacy. However, money is about 'trust', and trust can overcome literacy challenges. Creating trust by using people, who are tech-smart and well-known locally, as intermediaries can open up e-commerce, until the locals develop the comfort of using the technology.
Influencers are typically the ones who hold power in chauvinistic village communities, like village chiefs, village elders, rich land-owners, local politicians, or even husbands. Influencers may not be the direct-customers for that business, but they have the power to negate the consumer from buying the product. Hence, it is critical to win them over through steady engagement to make them see the benefits the business can bring. This engagement can take time; hence a lot of gestation is needed before the first outlet is set up. It may often mean using psychological tactics to make them see the rationale. In conservative villages, there are two challenges a business like microfinance would face. Since it largely lends to women, one has to win over the husbands, who become insecure as wives become economically independent. Also, many conservative villages are controlled by powerful elite who fear that socio-economic prosperity of the common people would reduce their own hold. The husbands hold influence inside the house, and the powerful elite hold influence outside. A Grameen Bank officer I met in Narsinghdi village (Bangladesh) said they talk with husbands for months before opening the branch.
Workers are similar to migrants, except they work in the home-region itself, an indicator of which could be the regional development plans of the state governments. Workers are not landed class typically, and may not even rank high on skills. This impacts their purchasing power. They would be an opportunity for low-ticket/high-frequency products that helps improve their lives. Workers may also sound similar to Climbers. But the main difference is that Climbers foresee an improvement in their incomes and hence, a steady uptick in the profile of their purchases, while Workers may not see such a high growth in incomes due to lower skill sets. Importantly, many workers will determine their buying-decision on the routine of their work, even if they have the income and the desire.
Aspirational-Dependant and Aspirational-Earning are self-explanatory. While media and connectivity have raised the awareness and aspirations of new products in the hinterland, the ability to pay for it is not always in the hand of that consumer. Hence, it is critical to understand where the money to pay for it comes from? Targeting the source of the money in case of aspirational-dependants, rather than targeting just the end-consumer, may hasten the conversion to buy. So there are two levels that have to be won over. The process is simpler in the case of aspirational-earning, since the same person is only paying for it. While travelling from Batala to Gurdaspur (Punjab), I interacted with a Mother-Daughter duo. Mother worked in a shawl factory, and was keen to get her teen-daughter into a vocational college. This aspiration would have been unheard of earlier. But it is in her thoughts now, as she can afford it due to her good job. The daughter was more interested in latest Western-clothes brands that she had seen girls wearing in Amritsar city. This was an aspiration for her. However, she had no money to pay for that aspiration, and was constantly pushing her Mother to visit Amritsar to buy them. Thus, both aspirational-earning and aspirational-dependent were living in the same house. The Western-clothes brand cannot hope to convert a sale by just winning over the daughter. It also needs to win over the mother.
Elite are the local monied. They are mostly the land owners or local business owners. They have experience in shopping, including for high-end items. Flashy sales pitches may not work on them easily, as it did on new-money consumers who were buying big for the first time. Elite also have the resources to visit nearby large towns to examine the product themselves before buying. This means the need to set up physical stores in close proximity, with the 'full-works' in place.
Idle comprise a large portion. These are not just those who are jobless or lack the will to work. It also includes people working under 'disguised unemployment', who often get less than fair wages. While Idle have a lot of time at their disposal, the lack of income constraints their purchasing ability, hence they are confirmed 'window-shoppers'. While window-shoppers are not direct consumers for the business, they can be invaluable 'indirect salesmen'. They can experience the product first-hand and, in turn, advocate it strongly to their known people who can then be induced to buy it. Businesses can even use them as an 'eye-opener' to identify areas of gaps and improvement in their product, since Idle often spends a lot of time to check out the product and asking questions and making comparisons.
SETTING UP SHOP: Asset-light model (using 'mobile-showrooms') can be useful where potential throughput is lower. But where products have long gestation, one needs to invest in 'asset-heavy' local presence. Rather than dissecting into clusters based on demographics, clusters based on the dominance of these 10 categories may work better. 'Location' matters in permanent Point-of-Sale. A microfinance borrower running her grocery store in Barisal (Bangladesh) told me her target location would be near the bus-stops where locals collected or near the spot in the village used for village meetings. In many Indian villages, the nearest bank can be a fair distance away which means half-day for travelling and back. Higher-priced products that require more time for examining can base stores near such banks so that people can utilise the same half-day for this while doing their bank work, since they may be unable to devote that much time on other days.
'Hiring locals' (son-of-the-soil) is useful to garner local support while entering a region. They understand local nuances better, and the employment creates local incomes. Locals are more comfortable dealing with them, which bodes better when product-benefits have to be pitched. This means one has to institutionalise training.
Different influencers for different products are a reality. Traditional collective decision-making is no longer the norm. Individualism is seen for products that serve 'instant-gratification', improve 'status-perception' or are used 'only by that user'. Spouses now decide rather than elders. This is pertinent for products that are 'new-evolutions' (which elders may not be able to relate to) and for products which impact their 'future well-being' (given the security of ancestral land is no longer a comfort for their old-age).
Lastly, rural market is seeing both a supply-push and demand-pull. As the urban market evolves in its preference for high-end products with rising affordability, the urban opportunity for many existent products hits saturation. Those products have to find new markets, creating a 'supply-push' into rural. While the global urbanisation rate reached 50 pert cent, it is still only 30-35 per cent in India, Pakistan and Bangladesh. This means the 'catchment-size' of rural market in proportion to the urban market is much larger here than elsewhere. But volume is not enough. What also matters is purchasing power, as that determines the 'value'. In other means, this means a 'demand-pull'. A 'demand-pull' from rural population is occurring with public-spending projects by local governments, increases in agriculture support prices, sale of land for infrastructure/ factory projects, increases in remittances, and the rapid penetration of media and mobiles. [The article has been abridged.]
The writer is a finance professional based in Mumbai, India.
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