Leveraging Rural Market Potential Indian Pharmaceutical Market

Some facts about rural India

1% increase in rural income

Buying Power ofRs.10,000 Crore

~ Two-third of Middle-income

households

Live in ruralIndia

~ 50% India’sBuying Potential

Lies in Villages

ZENITH International Journal of Multidisciplinary Research Vol.1 Issue 6, October 2011, ISSN 2231 5780

Gigantic market size of rural India

73% of population lives in rural India ~ 720 million customers

Rural population accounts for 12% of the world's population – as large as the market of USA or Russia

25% of all villages account for 65% of the total rural population

60% of India's US$15 billion annual consumption of gold and gold jewelry is from rural and semi-urban areas

•Government initiatives and schemes•Infrastructure development•Industry projects across the country•Emphasis on local-employability

Growth Propellers

Company % Contribution in sales

Asian Paints 60%

Dabur 40%

Videocon 40%

Colgate 50%

HLL > 50%

FMCGs have successfully leveraged the opportunity

Disposable household income levels set to rise significantly in rural markets

Source: Mckinsey Global Institute- The Bird of Gold: The Rise of India’s Consumer Market

Changing income pyramid in rural IndiaPercent

Annual per capita disposable household income in rural regionsUSD

411

516

631

+54%

Disposable Income = The amount of money that households have available for spending and saving after income taxes have been accounted for.

Driving accessibility in untapped extra urban markets can have significant impact on growth of pharmaceuticals

Health coverage (Rashtriya Swasthya Bima Yojana+) will

further enhance the affordability for healthcare

Health coverage (Rashtriya Swasthya Bima Yojana+) will

further enhance the affordability for healthcare

High levels of healthcare spend in extra urban markets

High levels of healthcare spend in extra urban markets

Increased Pharma spend * /household income

(+ 140%– 200%)

Increased Pharma spend * /household income

(+ 140%– 200%)

2009 -20

Growth Drivers

Acceptability

Accessibility

Affordability

Epidemiologicalfactors

More than 28 Million households (~20%) will climb out of the deprived income growth

+

Source: McKinsey Global Institute-The Bird of Gold: The Rise of India’s Consumer Market

* Based on share of wallet spend on healthcare in each income class and average spend of 16% on Pharma within healthcare across classes

+ The empanelled list includes Private hospitals

Extra urban = Tier 2 + Rural

Rural markets contribute to one fourth of Indian pharmaceutical market

Improving Socio-economic profile of rural India will provide further impetus for growing rural pharmaceutical market

2

3 3.4 3.9 4.45.4

2.3

2.72.8

3.2

MAT 04/2006 MAT 04/2007 MAT 04/2008 MAT 04/2009 MAT 04/2010

Metro + Class I ($ bn) Class II to VI and Rural ($ bn)

(16%)

(4%)

(15%)

*Source : ORG ims SSA Audit MAT April 2010

(17%)

( ) value growth for Class II to VI

and Rural

For Class II to VI and Rural

CAGR 5 yrs : 13%

1 USD : 49.5 INR

Market with a size of > $ 3 BillionExtra urban = Tier 2 + Rural Rural Market

Apr MAT 2011:

18.8%

Players have adopted varied strategies to leverage the rural opportunity

Products, pricing and packaging

Re-Engineering

1. Godrej has introduced chotukool refrigerator

2. Vortex has launched low cost ATMs

3. Nokia has developed Life tools - a mobile application that provides access to agricultural, educational and entertainment content.

SBI deployed 545 ATMs across semi-urban and rural India

Sold by Village girls For Rs.150/- margin

Reported user base

1.5 million

Players have adopted varied strategies to leverage the rural opportunity

Communication and distribution channels

Re-Engineering

1. Tata Tea's 'Gaon Chalo'

2. HUL's Project Shakti;

3. ITC e-choupal

In One year added 20,000 retailers, 500 new rural distributors in 10,000 villages in UP

Rural Women became direct-to-consumer sales distributors for Hindustan Lever’s soaps and shampoos. More than 45 000 Shakti entrepreneurs covering 3 million homes in 100 000 villages in 15 states .

What differentiates Rural Markets from Urban markets?

1.Reach

2.Living Standards

3.Economic gap

4.Product awareness

5.Education

6.Channel of Communication

7.Channel of distribution

8.High importance to “Value for money” than Brand

9.Heterogenic market nature

Strategies must address the differences between urban and rural market to succeed

Aspect Urban Rural

1 PhilosophyMarketing & Social Concept

Development & Relationship marketing

2 Competition Organized Sector Unorganized Sector

3 Literacy High Low

4 Income High Low

5 Adoption Faster Slow

6 Quality Good Moderate

7 Transportation Good Average

8 AdvertisingPrint, audio visual, outdoors.

TV, Radio, print media in many languages

Success in rural markets need to add 4 A to Product mix

4 AAVAILABILITY AFFORDABILITY ACCEPTABILITY AWARENESS

4 PPRODUCTPACKINGPLACEPRICE

Rural

Markets

THANK YOU

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For any further discussion on this topic, author can be reached at malepatirk@yahoo.com