Tata Motors bets big on India's booming rural market

Marketers often comment: more than 700 million Indians live in villages (about 70 per cent of India’s population) and that translates into a large marketing opportunity. Like most oft-repeated statements, this is true, but it does not necessarily offer an accurate perspective. From many consumer segments, including automobiles, India is an under-penetrated market.

For instance, we are still talking of about 18 cars per thousand people in India as opposed to other BRIC nations, which is 50 in China, 147 in Brazil and 259 in Russia, 404 in US, until few years back. Still, India is a microcosm of the global market — large, developed automobile markets drive profitability, just like India’s better penetrated urban markets, but just as emerging global markets drive volumes, so also do India’s rural markets.

Therefore, winning in India’s rural markets is crucial for companies that want to capitalise on the Indian opportunity. For carmakers, and most consumer companies, rural India is significant, though metros are critical growth engines.

India’s rural market is not a single, homogenous market that is looking for “cheap” products. Rural India is not necessarily characterised by poverty — not only are there pockets of significant prosperity (we have all heard about the paying in hard cash for Louis Vuitton trousseaux in some northern rural belts), but each market has different segments and preferences.

Influence shopkeeper
Every village has an “influencer” shopkeeper, who is usually affluent and influences what other villagers buy. Marketers must understand these subtle nuances in buying behaviour when they sell in such markets.

Sometimes, a marketer may have to educate a prospective customer. For instance, it may not be as much about what car to buy as answering the question: ‘Why do I need a car?’ It would then be important to help the prospective customer understand about how a car would enhance his or her lifestyle.

The company must simultaneously work towards expanding its dealer network so that once a prospective customer is convinced about buying a car, the decision is easily implemented.

Making a wise decision
The distribution network must be backed by strong after-sales service. That is because the next most important question influencing a buying decision is likely to be, ‘Where do I service my car if I do buy one’? Besides, after having spent a large sum of money on a product, a buyer must feel good about the decision.

Consequently, we are working with a differentiated strategy to sell in rural areas, based on customer-outreach programmes, backed by strong distribution and support.

Other marketers have realised the potential of rural markets — steadily rising prosperity and improved road connectivity have helped to raise aspirations, due to which, more people are buying small cars for personal use.

Carmakers have noted this and are taking different routes to expansion. Some companies ask their dealers to identify probable semi-urban and rural sites for selling a car near their outlets, while others engage salespersons with mobile vans to offer demonstrations.

Tax exemptions
Many companies have set up manufacturing facilities in rural areas to benefit from government concessions like tax exemptions.

The results are beginning to show. India is the world’s sixth-largest car market — Indians bought 2.7 million cars in 2010 against only 700,000, a decade earlier.

Carmakers’ expansion is expected to help to make India the third largest car market by 2020, with sales of 4-5 million. Analysts believe car sales will grow to at least 10-11 per cent a year, over the next five years.

Rural areas account for 30 per cent of the market, but rural markets for passenger vehicles have the potential to contribute 35-40 per cent of sales to the industry in the coming years. While nearly a third of people living in metros own personal transport, only 15 percent of the rural population own their own vehicle.

Therefore, industry observers believe a large chunk of growth will come from the rural market.

For carmakers, tier II, III and IV cities are increasing in significance. Early entrants into such markets are likely to make big gains.

They are most likely to focus on effective distribution through efficient channels, product pricing and convincing customers to buy the product — rural marketing strategy is normally based on the availability of a product, its affordability and acceptance. Besides, in Indian small towns and villages, owning a car is a matter of prestige.

By 2021, India’s emerging and middle-class segments will comprise nearly 900 million people, opening up new business opportunities. The automobile industry is likely to benefit from this growth as with the spread of prosperity, mobility will not be a luxury, but a necessity.

(The author is Tata Motors President Passenger Vehicle Business Unit)