Important Questions and Answers: Business Science - Rural Marketing

RURAL MARKETING

1.           Rural marketing can be defined as a function that manages all the activities involved in assessing, stimulating, and converting the purchasing power of rural consumers into an effective demand for specific products and services and moving these products and services to the people in rural areas to create satisfaction and a better standard of living and thereby achieving organizational goals.

2.        Product bundle pricing is combining several products and offering the bundle at a reduced price.

3.           Role of hats in villages :

(1) Contact point for villagers with the market.

(2) Means of distributing local products and exchanges rural surplus.

(3) An opportunity for buying daily necessities.

(4) A place for political, social, cultural contact.

4.        Opinion leaders are highly credible source of product related information, because they are neutral concerning the information they provide.

5.        Undifferentiated marketing takes into consideration what is common among the consumers and tries to include it in the offer.

6.        Brand Loyalty can be defined as the degree of consistency in buying the particular brands as a function of cognition, emotion, satisfaction, commitment, habit and attitude towards the brand.

7.        Positioning is the act of designing th occupies a distinctive place in the mind of the target segment.

8.        The purchase is made spontaneously by taking a decision on the spot without verifying the rationality of the purchase.

9.        Four   C’s : of   pricing

(1) Customer value

(2) Competitors price

(3) Cost to the company

(4) Strategic and pricing objectives of the company

10.      Challenges in rural marketing :

(1) Distribution

(2) Understanding the psyche of the rural consumer

(3) Limited knowledge

(4) Communication

(5) Cost per contact.

(6) Sale of sake and spurious products.

11. Evolution of rural Market:

The term ―ruralwhichwas earliermarketing‖usedasanumbrella term to refer to all commercial transactions of rural people, acquired a separate meaning of great significance in the 1990s.

Phase I (Before the 1960s):

Agricultural products like food grains and industrial inputs like cotton, sugarcane etc., were the primary products marketed during this period.

Phase II (1960s –1990s):

The green revolution changed the face of rural India, ushering in scientific farming practices with the advent of agricultural inputs and implements. Poverty – stricken villages turned into cash –rich centers.

Phase III (1990s to the present) :

The existing rural markets for these products were not sizeable enough to attract the attention of urban marketers. The growth of urban markets during this period kept marketers busy. Consequently, rural markets were conveniently ignored, as they were seen as extension of urban markets.

12. Factors influencing rural consumer behavior

Consumer purchases are influenced strongly by or there are four factors.

01. Cultural Factor

02. Social Factor

03. Personal Factor

04. Psychological Factor.

1.     Cultural Factor:-

·        Cultural factor divided into three sub factors (i) Culture (ii) Sub Culture (iii) Social Class

·        Culture:-

The set of basic values perceptions, wants, and behaviors learned by a member of society from family and other important institutions. Culture is the most basic cause of a person's wants and behavior. Every group or society has a culture, and cultural influences on buying behavior may vary greatly from country to country.

o    Sub Culture :-

o A group of people with shared value systems based on common life experiences and situations.

^§    Each culture contains smaller sub cultures a group of people with shared value system based on common life experiences and situations. Sub

culture includes nationalities, religions, racial group and geographic regions. Many sub culture make up important market segments and marketers often design products.

o  Social Class:-

o   Almost every society has some form of social structure; social classes are society's relatively permanent and ordered divisions whose members share similar values, interests and behavior.

2.     Social Factors:-

·        A consumer's behavior also is influenced by social factors, such as the (i) Groups

(ii) Family (iii) Roles and status

·        Groups :-

o   Two or more people who interact to accomplish individual or mutual goals.

^§    A person's behaviors are influenced by many small groups. Groups that have a direct influence and to which a person belongs are

called membership groups.

^§    Some are primary groups includes family, friends, neighbours and coworkers. Some are secondary groups, which are more formal

and have less regular interaction. These include organizations like

religious groups, professional association and trade unions.

·     Family:-

Family members can strongly influence buyer behaviour. The family is the most important consumer buying organization society and it has been researched extensively. Marketers are interested in the roles, and influence of the husband, wife and children on the purchase of different products and services.

o       Roles and Status :-

o   A person belongs to many groups, family, clubs, organizations.

^§    The person's position in each group can be defined in terms of both role and status.

^§    For example. M & "X" plays the role of father, in his family he plays the role of husband, in his company, he plays the role of

manager, etc. A Role consists of the activities people are expected to perform according to the persons around them.

3.     Personal Factors:-

·        It includes

·        i) Age and life cycle stage (ii) Occupation (iii) Economic situation (iv) Life Style

(v) Personality and self concept.

·        Age and Life cycle Stage:-

o   People changes the goods and services they buy over their lifetimes. Tastes in food, clothes, furniture, and recreation are often age related. Buying is also shaped by the stage of the family life cycle.

o  Occupation :-

o   A person's occupation affects the goods and services bought. Blue collar workers tend to buy more rugged work clothes, whereas white-collar workers buy more business suits. A Co. can even specialize in making products needed by a given occupational group. Thus, computer software

companies will design different products for brand managers, accountants, engineers, lawyers, and doctors.

o  Economic situation :-

o A person's economic situation will affect product choice o Life Style :-

o   *** Life Style is a person's Pattern of living, understanding these forces involves measuring consumer's major AIO dimensions.

^§    i.e.  activities  (Work,  hobbies,  shopping,  support  etc)  interest

(Food, fashion, family recreation) and opinions (about themselves,

Business, Products)

o  Personality and Self concept :-

o   Each person's distinct personality influence his or her buying behaviour. Personality refers to the unique psychological characteristics that lead to relatively consistent and lasting responses to one's own environment.

4.     Psychological Factors:-

It includes these Factors.

·  i) Motivation (ii) Perception (iii) Learning (iv) Beliefs and attitudes

Motivation:-

Motive (drive) a need that is sufficiently pressing to direct the person to seek satisfaction of the need

Perception:-

The process by which people select, Organize, and interpret information to form a meaningful picture of the world.

Learning:-

Changes in an individual‘s behaviour arising from experience.

Beliefs and attitudes:-

o Belief is a descriptive thought that a person holds about something

o Attitude, a Person's consistently favorable or unfavorable evaluations, feelings, and tendencies towards an object or idea

13.            Changing pattern of rural demand:

The profile of rural demand includes:

1.     Market for consumer goods.

2.     Market for agricultural inputs and machinery.

3.     Market for services.

4.     Market for construction materials for farms and village level industries.

5.     Transportation equipments.

6.     Market for agricultural products like grains, pulses, vegetables and fruits.

14.            Problems faced by companies in rural market:

Some common problems in rural markets are:

1.     Scattered Markets.

2.     Physical distribution.

3.     Channel Management

4.     Sales force management

5.     Sales promotion

6.     Underdeveloped people and market etc.,

15.            Infrastructural facilities in rural India:

The rural infrastructure involves:

1.     Transport and connectivity.

2.     Road connectivity

3.     Post offices

4.     Network

5.     Radio

6.     Television

7.     Process and print media.

8.     Telecom services

9.     Mobile services

10.                        Social Infrastructure

11.                        Agricultural Infrastructure.

12.                        Marketing Infrastructure etc.,

16.            Various steps in new product development :

1.     Idea Generation is often called the "fuzzy front end" of the NPD process

o   Ideas for new products can be obtained from basic research using a  SWOT analysis (Strengths, Weaknesses, Opportunities & Threats), Market and consumer trends, company's R&D department, competitors, focus groups, employees, salespeople, corporate spies, trade shows, or Ethnographic discovery methods (searching for user patterns and habits) may also be used to get an insight into new product lines or product features.

o   Idea Generation or Brainstorming of new product, service, or store concepts - idea generation techniques can begin when you have done your OPPORTUNITY ANALYSIS to support your ideas in the Idea Screening Phase (shown in the next development step).

2.     Idea Screening

o   The object is to eliminate unsound concepts prior to devoting resources to

them.

o   The screeners should ask several questions:

^§    Will the customer in the  target market benefit from the product?

^§    What is the size and growth forecasts of the market segment/target market?

^§    What is the current or expected competitive pressure for the product idea?

^§    What are the industry sales and market trends the product idea is based on?

^§    Is it technically feasible to manufacture the product?

^§    Will the product be profitable when manufactured and delivered to the customer at the target price?

3.     Concept Development and Testing

o   Develop the marketing and engineering details

^§    Investigate  intellectual property issues and search  patent data bases

^§    Who is the target market and who is the decision maker in the purchasing process?

^§    What product features must the product incorporate?

^§    What benefits will the product provide?

^§    How will consumers react to the product?

^§    How will the product be produced most cost effectively?

^§    Prove feasibility through virtual computer aided rendering, and rapid prototyping

^§    What will it cost to produce it?

o    Testing the Concept by asking a sample of prospective customers what they think of the idea. Usually via  Choice Modelling.

4.     Business Analysis

o   Estimate  likely  selling  price  based  upon  competition  and  customer

feedback

o  Estimate sales volume based upon size of market and such tools as the  Fourt-Woodlock equation

o   Estimate profitability and breakeven point

5.     Beta Testing and Market Testing

o   Produce a physical prototype or mock-up

o  Test the product (and its  packaging) in typical usage situations

o Conduct focus group customer interviews or introduce at trade show o Make adjustments where necessary

o   Produce an initial run of the product and sell it in a test market area to determine customer acceptance

6.     Technical Implementation

o   New program initiation

p   Finalize  Quality management system

 Resource estimation

o  Requirement publication

o Publish  technical communications such as  data sheets o  Engineering operations planning

o Department scheduling o Supplier collaboration o  Logistics plan

o  Resource plan publication

o Program review and monitoring o Contingencies - what-if planning

7.     Commercialization (often considered post-NPD) o Launch the product

o Produce and place  advertisements and other  promotions o Fill the  distribution pipeline with product

o   Critical path analysis is most useful at this stage

8.     New Product Pricing

o Impact of new product on the entire product portfolio o Value Analysis (internal & external)

o Competition and alternative competitive technologies o Differing value segments (price, value, and need)

o  Product Costs (fixed & variable)

o  Forecast of unit volumes, revenue, and profit.

17.                        Challenges in rural communication:

1. Spread and diversity.

2. Understanding the rural audience.

3. Illiteracy.

4. Rural customers do not recognize perceptions

5. Interpersonal communication accounts a lot among rural population

6. Traditions and values vary from state to state

7.   High degree of involvement.

18.                        Pricing strategies followed by consumer goods companies:

Steps in Setting Price:

Following are the steps in setting price for a product:

1. Selecting the pricing objectives;

2. Determining the consumers' demand;

3. Estimating costs;

4. Analyzing the competitors' costs, prices and offers;

5. Selecting a pricing method; and

6. Selecting the final price.

1. Selecting the pricing objectives: Before selecting a suitable price for a product, the

marketer is needed to review the company's objectives. The more clearer the company's objectives, the more easier to set a price. Following are the possible pricing objectives:

a) Survival,

b) Maximum current profit,

c) maximum market share,

d) maximum market skimming, and

e) product quality leadership.

The decision whether to select high price or low price depends on various factors:

(i) Price susceptibility of market,

(ii) Number of competitors in the market, and

(iii) Production cost per unit.

The price level also depends on the type of marketing strategy adopted for the product.

The possible marketing strategies are listed below:

(a) Rapid Skimming: It refers to launching a new product at a high level of price with high level of sales promotion. It refers to the product which is of high quality, but not known to the buyers. As soon as the product is known to the buyers, the buyers are willing to purchase them even at a higher price. It may also refer to the market where there are

strong potential competitors.

(b)Slow Skimming: It refers to launching a new product at a high price with low level of promotion. It also refers to the situation where the company's brand is known to the buyers and they are willing to purchase them even at a higher price. It may also refer to the market where there are few competitors.

(c) Rapid Penetration: It refers to launching a new product at a low price with high level of promotion. This marketing strategy is adopted where the company's brand is unknown in

the market and where there are strong potential competitors.

(d)Slow Penetration: Under the slow penetration market strategy, the company launches a new product at a low level price with low level of promotion. The brand of the company is known and there are few competitors in the market.

2.     Determining the consumer's demand: The next step is determining the consumer's demand. At this stage, marketer analyses the different level of demand at different prices. Therefore, it leads to the study of law of demand, elasticity of demand, demand curve, etc. In normal case, the demand and price are inversely related, i.e, the higher the price, the lower the demand, and vice versa. But some goods have 'elastic' or 'inelastic' demand. For example, demand for automobiles, perfumes, etc. are elastic; whereas the demand for rice, flour, eggs, etc. are inelastic.

3.  Estimating costs: Demand sets a ceiling on the price and the costs set the floor. The company wants to charge a suitable price covering the cost of production, selling and distribution, and administration. Costs taken into two forms, i.e, variable costs and fixed costs. Variable costs vary directly with the variation in production, but remain

fixed per unit of production. However, the fixed cost does not vary with the change in production units, but it does not remain fixed per unit, as the production units varies. In other words, the fixed cost remain fixed in total and decreases in Rs. per unit with the increase in the production units or increases in Rs. per unit with the decrease in the production units.

4. Analyzing the competitors' costs, prices and offers: For a marketer, the next step in setting a price for a product is to analyse the costs and prices of the product and after-sales services and different other services offered by the competitors of the company. A deep analysis may enable a marketer to discover the strengths and weaknesses of the competitor and the tastes or the purchasing trends of buyers.

5.  Selecting a pricing method: The company has to select an appropriate method for Pricing its products. Following are the suggested pricing methods:

(a)  Mark-up Pricing: Under mark-up pricing, the price is equal to cost plus percentage mark-up on cost. For example, the cost of constructing one residential flat for a constructor / developer is Rs. 500,000 and the constructor / developer charges 25% above cost, the selling price of 1 residential flat will be equal to Rs. 625,000, i.e, [500,000 + (500,000 × 25%)]. This kind of pricing method is common among the contractors, lawyers, chartered accountants, different practitioners and manufacturing companies for pricing job orders, custom products, etc.

(b)Target Return Pricing: Under target return pricing, the price of a product is equal to cost plus required rate of return on investment. For example, the shareholders / owners of a product-selling company is expecting a return of 20% on net assets that amounts to, let say, Rs. 200,000, the marketer would select a price which would scratch a net profit of Rs. 200,000. This sort of pricing method is adopted in public investment companies, large-scale manufacturing companies, etc.

(c)  Perceived Value Pricing: The market price of a product is calculated on the basis of customers' perceptions about a product. It is extensively used in non-durable consumer goods manufacturing companies. Non-durable or soft goods may be defined either as goods that are used up when used once, or that have a lifespan of less than 3 years. Examples of non-durable goods include cosmetics, food, cleaning products, fuel, office supplies, packaging and containers, paper and paper products, personal products, rubber, plastics, textiles, clothing and footwear, etc.

(d)  Value Pricing: It refers to pricing high quality products at fairly level. This sort of

pricing  method  is  extensively  used  in  personal  computer  manufacturing  industry,

electronic goods manufacturing industry, etc.

(e) Going Rate Pricing: Under this pricing method, the price of a product is based on prices of existing products in the market. The going rate pricing method is used in pricing paper, cement, fertilizers, steel, petrol and chemical industries.

(f)  Sealed Bid Pricing: It also refers to 'competitive-oriented pricing'. It is common where firms submit scaled bids for jobs / contracts. For example, pricing for scraps, wastages of factory, etc.

6. Selecting a final price: The final and the last step in setting prices is, of course, selecting a final price from a number of alternative prices, which would match the company's short term and long term objectives.

Price Adaptation Strategies:

Following are the price adaptation strategies:

1.  Geographical  Pricing:  Geographical  pricing  refers  to  the  product  pricing  for  the Customers in different locations, cities and countries. It also accounts for various tariffs, taxes and shipping costs. In foreign trade, another term is extensively used, i.e, counter-trade. It has taken 15-25% of the total world trade and may have the following forms:

(a)Barter: Exchange of goods with no money and third party.

(b)Compensation deal: The seller receives partial cash payment and the rest in Products by the buyer.

(c)  Buyback arrangement: The seller receives cash, as partial payment for the plant or machinery or any other technology being sold. And the rest of payment is made in the products manufactured on that machinery.

(d)Offset: The seller receives the full amount, but he will have to spent a part of it in the country or the location of buyer.

Price Discounts and Allowances: To promote the sales, the seller has to allow price discounts and allowances. Following are the forms of price discounts and allowances:

(a)Cash Discounts: Cash discounts are allowed by suppliers on early payments within the stipulated time, e.g, 2/10, net 30, 3/7 EOM, 2/15, net 40 ROG, etc. which are extensively used in trading and merchandising. 2/10, net 30 means the buyer must pay within 30 days of the invoice date, but will receive a 2% discount if they pay within 10 days of the invoice date.. 3/7 EOM - this means the buyer will receive a cash discount of 3% if the bill is paid within 7 days after the end of the month indicated on the invoice date. It should be noted that if an invoice is received on or before the 25th day of the month, payment is due on the 7th day of the next calendar month. If a proper invoice is received after the 25th day of the month, payment is due on the 7th day of the second calendar month. 2/15 net 40 ROG this means the buyer must pay within 40 days of receipt of goods, but will receive a 2% discount if paid in 15 days of the receipt of goods by the purchaser.

(b) Quantity Discounts: Quantity discounts are the price reductions generally allowed on bulk purchases, for example, 1% on less than 1000 units, 2% on 1000 units or more than 1000 units. The rationale behind them is to obtain economies of scale and pass some (or all) of these savings on to the customer. In some industries, buyer groups and co-ops have formed to take advantage of these discounts. Quantity discounts are, generally, of two types, i.e, cumulative quantity discounts and non-cumulative quantity discounts.

(i)  Cumulative quantity discounts: also known as accumulation discounts. These are price reductions based on the quantity purchased over a set period of time. The expectation is that they will impose an implied switching cost and thereby bond the purchaser to the seller.

(ii) Non-cumulative quantity discounts: are price reductions based on the quantity of a single order. The expectation is that they will encourage larger orders, thus reducing

billing, order filling, shipping, and sales personal expenses.

(c)  Functional Discounts: Functional discounts are allowed to channel members if they perform various functions like distribution, storing, shelf-stocking and record keeping. Also known as 'trade discounts'. Trade discounts are often combined to include a series of functions, for example 20/12/5 could indicate a 20% discount for warehousing the product, an additional 12% discount for shipping the product, and an additional 5% discount for keeping the shelves stocked. Trade discounts are most frequent in industries where retailers hold the majority of the power in the distribution channel.

(d)Seasonal  Discounts:  Seasonal  Discounts  are  allowed  on  off-seasoned  Forbuying‘

example, warm-wear in June-July, cold drinks in December-January, etc.

(e)  Allowances: Allowances are extra-payments designed to gain reseller participation in special programmes, e.g, trade allowances, promotional allowances, brokerage

allowances, etc.

3. Promotional Pricing: The promotional pricing strategies are:

(a) Loss-Leader Pricing: Super markets and departmental stores often drop prices on branded products to promote their stores' sales. But it dilutes the company's brand image and may lead to complaints from other retailers who charge the normal list price.

(b)Special Event Pricing: Special event pricing are for special events, e.g, Eid sale, Christmas sale, back-to-school sale, Eid Mela, etc.

(c)Cash Rebates: Cash rebates allowed by auto manufacturers and some consumer goods manufacturers within a specified time period.

(d)Low Interest Financing: Low interest financing is provided on certain consumer goods like automobile, motorcycle, television, refrigerators, air conditioners, etc.

(e) Longer Payment Terms: Sellers, especially mortgage banks and auto companies, stretch loans to their customers over longer periods and thus lower the monthly payments.