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[Music]
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Professor Raju thank you so much for
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joining us today thank you mul thanks
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for inviting me so we're going to talk
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today about multinationals in rural
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India and I wonder if we could start by
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just talking about which ones do you
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think have been most successful and
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why I think we have several more recent
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examples LG Nokia but I think to look at
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it from a historical perspective the
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ones really successful for many many
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years have been companies like Colgate
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Hindustan uni labor Phillips I think all
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these companies invested right from the
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beginning in rural India saw the value
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of the market developed product products
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that were useful for the rural Market
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went into the rural markets with their
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Distribution Systems and and uh really
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uh were very successful in fact the
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rural Market always provided them with a
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nice buffer uh that they could Bank on
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and a significant part of their sales
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came from the rural markets and these
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companies have been in rural markets for
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uh over 50 years now uh you know it's
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becoming more fashionable to talk about
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with these these days but these people
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have been doing it for
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years I think you know I know you talked
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about mnc's but
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uh I would consider some Indian
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companies to be also mnc's who have done
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very well in the rural Market they are
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mnc's in their own right so for example
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for example a company like Hiro Honda
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has uh you know over 50% share of the
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motorcycle Market in India and nearly
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40% of their sales come from the rural
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market and then you have godre
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has historically been very strong in the
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rural markets uh and of course uh we
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don't think of ITC as a multinational
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today but at one point in time it was a
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multinational it's now an Indian company
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but has a very strong presence in rural
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markets uh and has done uh wonders there
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uh what about the flip side of the
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equation U if you were to look at
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multinationals that have tried to enter
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the rural Market but have failed any
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examples of that sort
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I I wouldn't say fail but I think they
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had uh sort of weak starts let me put it
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that way and some of them then probably
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decided not to pursue that any further I
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think Kellogg had
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a somewhat of a you
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know I would say a very weak start in
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the rural Market um PNG never sort of
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really went into the rural markets uh
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you know this may be sort of hard to
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accept but many of the other than
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Colgate many of the the US
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multinationals have not done as well in
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rural markets in India whereas all the
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successful examples at least most of
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them come from the European
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multinationals so you're looking at the
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old ITC uh you know the old
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Unilever I think Colgate has been
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successful Phillips was very successful
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again another European
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multinational of all the US
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multinationals I think the name that
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comes to mind is called gate having done
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very well so so so let's drill a little
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into detail on that is there are the
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reasons why Colgate did well and what
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were some of the reasons why the other
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us multinationals didn't do well and
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what can be learned from their
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experience I think uh the first thing is
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it the rural Market requires
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Investments it is not uh a Dumping
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Ground for things that you couldn't sell
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elsewhere if you think of this as you
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know look I have some products let me go
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take it there this is a marginal market
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I'll take advantage of it that does not
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work I think the classic principles of
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marketing apply just as well there you
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know try to make what you can sell there
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rather than just sell what you already
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make uh that doesn't work I think
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another mistake people sort of make is
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uh they kind of try to equate
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uh price Consciousness to Value
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consciousness which I think is a very
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important
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distinction uh rural Market is not price
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conscious it's much more value
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conscious the reason it's more value
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conscious is you know spending a dollar
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for them pinches a lot more than
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spending a dollar for somebody who earns
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hundreds of thousands of dollars so in
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some sense they can't afford to go wrong
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in whatever they
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buy uh I think that's an important uh
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thing to keep in mind
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the other thing to keep in mind is that
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their frequency of use may be a lot
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lower than the frequency of use for the
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same product in urban markets uh for
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them some of them it may be occasional
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used product as opposed to a regular
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used
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product and I think another factor that
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people Miss is uh that the rural
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consumer is buying many things for for
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emotional
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value uh you know if you are
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very rich uh you show your wealth by
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giving away to good
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causes and uh but if you're are not if
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you are a rural poor you kind of show
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that you care for your family by buying
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a branded
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soap so there is an emotional value
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attached to
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brands that I think mnc's should should
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recognize and take advantage of
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that so could you give any examples of
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the way in which they come companies
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like uh Colgate have analyzed and
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understood consumers in rural India to
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to build their
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success I think the first thing you have
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to do is rather than read the statistics
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and uh notes from either some un
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organization or a consulting company
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actually observe these customers see
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what their problems are see what
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they what their challenges are how they
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use their
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products uh how they you know uh work
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with these things what their daily
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issues are and how you have to then
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tailor make your products to meet their
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needs so for example you know uh let's
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say a soap uh we might have one soap for
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uh bathing and one for something else
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and one for something else but if you're
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going to buy one soap you probably want
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a multi-purpose soap and and that
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multi-purpose soap will be used for
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bathing will be used for you know
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bathing children as well as adults but
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also recognize that you know the
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environment may not be as clean so it
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has some properties that you know should
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should satisfy those needs so you have a
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single you know multi-purpose soap but
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it's one soap and and you recognize that
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you also recognize that there's not
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place to keep multiple soaps so it has
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to be one so you build to that need you
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you recognize that people carry a cell
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phone and use it at night when there's
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no power maybe there has to be a
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flashlight with the phone all right so
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you are you are observing people's
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behavior you see what they want what
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they don't want and then build to it I
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think it it helps uh so I would urge all
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companies to actually uh rather than
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reading books and statistics go visit
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and see what people do how they live
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their lives and what their challenges
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are or have people in their companies go
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do that I think it's a very useful
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learning experience that's exactly right
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uh how do you suggest multinationals
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identify new business opportunities in
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rural
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India I think what I said would help is
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you know observe Behavior but also
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recognize that uh I think not all rural
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people are the same there are very rich
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people in rural areas who live the same
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lives as people uh live in New York uh
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but they're also very poor people
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there's more heterogeneity but also
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recognize that uh you know to understand
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the consumer rural is not really where
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you live but it's more of a
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mindset and uh it's the way of thinking
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it's the way of approaching
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problems so many have argued that there
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are as many rural people in cities as
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there are in uh in rural areas that's
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very fascinating so what's the
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difference between the urban and the
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rural
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mindset well I think uh a rural mindset
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would be one that is a little bit more
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appreciative as well as fearing of
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nature all right so a lot of Rural Life
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in India still depends on rain so you
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respect it as well as fear it you love
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water but you fear it too because there
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are floods
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uh there is a little bit more
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spirituality in in rural India uh
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there's a little bit more concern for
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family uh so the fraction on education
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is still very high uh how much people
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are willing to spend on that uh so I
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think it's I I would
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argue rural is more I mean maybe we
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could say it's more of a mindset rather
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than just where you live and if we sort
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of recognize that there similar people
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in in urban areas too uh and and some
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Urban mindset exists in rural India
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right obviously not recognizing this
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distinction would be a major barrier for
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multinationals trying to enter rural
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India and I wonder what you would uh say
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are some of the principal barriers uh
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that multinationals should expect to
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face and how can they overcome
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them I think the the first first barrier
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is the appropriate product design I
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think we should be willing to design
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products to meet people's
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needs if we don't do that I think it's
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not going to work the second thing you
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have to recognize is the distribution
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system the the Distribution Systems in
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rural India are different than
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Distribution Systems that exist in urban
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India now rural India the distribution
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Outlets are small
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that's good news as well as bad news bad
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news
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is you know they won't carry too many
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things but the good news is if you are
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the one they'll carry you so in some
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sense we always as as marketing
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professionals study the relationship
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between uh market share and distribution
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share and if you look at large outlets
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in in the westernized world pretty much
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your distribution share is proportional
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to your market
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share so you know if you have 50% share
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of the market the person gives you 50%
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shell
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space if you have 20% share you get 20%
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if you get want more than 20% you pay
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for it in in rural areas the person who
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has the highest market share gets 100%
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distribution share because think of a
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person who's traveling on a bicycle
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going to a village carrying a soap to
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sell they're going to carry one brand of
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soap and which is the one that they're
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going to carry they're going to car
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carry the one that is the most uh
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popular brand but once you capture that
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it's yours so there is a there is you
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create a barrier to entry but to invest
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in that so you invest in your brand uh
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try to build Market Shar so that or
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popularity so that they carry your brand
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so that's the second one I think the the
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third is the frequency of use you have
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to recognize that frequency of use may
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vary quite a bit uh across urban and
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rural areas some products that are
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regularly used are infrequently used so
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one might argue one one strategy that
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some companies have adopted is to go to
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smaller sizes another strategy some
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companies have adopted is to try to
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increase the frequency of use try to
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make one product the product of choice
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uh then there are other issues also so
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for example uh because of uh location
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because of
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distances it's not just making a cheaper
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product it's also recognizing that you
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know products may have to have different
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capabilities if I'm making a television
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for rural areas it's not just sufficient
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to say I'll have the cheapest television
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it's also important to recognize that
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the signal strength may be weaker uh in
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rural area so I have to provide certain
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unique sort of benefits which may be
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totally Irrelevant in you know when you
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connect a cable uh to a TV the signal
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strength is determined by the fire
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whereas if you are you know in in a far
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away location it's mostly through the
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air and you need to recognize that so at
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a lower price and yet higher not
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necessarily uh you know certain features
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could be taken out but that one feature
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has to be clearly managed because if you
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if if you don't see the picture you're
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not going to like it this goes back to
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the point you made earlier about
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designing your products specifically for
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the rural Indian market and I think it
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is this is a principle that is not just
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true for Rural India when we say go to
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any Market try to design a product that
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the person their needs so but the same
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principle applies but I think what what
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happens is it's often forgotten there
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and what is remembered is these people
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can't pay enough so let's just give them
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cheap products in fact this is a part of
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the mindset if if a person who value
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conscious is given the cheapest product
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they says look this is just for you they
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will not buy that because in some sense
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it's a show of
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disrespect that's a very interesting
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point to your uh to your mind which
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company has been most successful in
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designing products for the rural Indian
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market and what's the most striking
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example that comes to your
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mind I think I would of the of the
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multinationals I would probably put
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Unilever at the Forefront amongst people
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who companies that have been there a
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long time I think what was their
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strategy so for example a soap all right
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so they have a a simple carbolic soap
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that works across many applications uh
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bathing washing and they realize that
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and I think it did well this is uh a
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good example of uh a company recognizing
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that need company also recognizing that
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uh to sell you also need to create
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buying power so if you you want to sell
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your products uh amongst people why
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don't we create some incomes there so
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create jobs for women uh bring them into
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the distribution system and it increases
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the family income and it increases their
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purchasing power so I think you grow
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with them rather than you grow at their
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expense uh I think people respect that
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and that's a a better long-term strategy
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is be a part of the milu as opposed to
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try to extract consumer surplus as
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quickly as you can and then get out
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that's not uh a viable long-term
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strategy in that market so I would I'm
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sure people would say that's not viable
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in almost any Market that's true but I
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think it's it's more important here that
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you you create wealth as you uh as you
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try to you know absorb wealth also and
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it has to happen
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simultaneously and companies that have
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become a part of of the part of the
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society there uh have have done better
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and I think un is a good example of that
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uh where they've integrated themselves
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well into the system and have gained
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from it and more recently Now LG is
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doing a good job with their phones in
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India you know they have taken great
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care to develop phones that are suitable
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for the rural Market that are
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inexpensive have certain characteristics
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that uh
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that are needed there and uh and and
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done a good job with that so any final
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words of advice for CEOs of
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multinationals that want to enter rural
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India I would probably say two
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things distinction between value
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Consciousness and price Consciousness I
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think it's important to remember that
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people in rural areas care about value
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more than the
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price second grow with them rather than
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grow at their
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expense I think if we keep these two
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things in mind you'll generally be
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better off Professor thank you so much
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for your time thank you mugul thanks for
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inviting me so
