PERF RMANCE 04 - The Performance Portal - Ernst & Young

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In demographic terms, rural India is more advantageously placed, with the number of working population there outnumbering the total urban population (see Table 3). Table 3. Age distribution of rural population in India Age group Population (rural) mn Greater than 70 22 61 to 70 33 51 to 60 56 41 to 50 77 31 to 40 107 21 to 30 127 Less than 20 311 Total working population A clear demonstration of the importance of rural India is shown by looking at the number of organizations which derive a significant proportion of their overall sales from outside of the country’s largest towns and cities (see Table 4). Table 4. Company presence in rural markets concentrated. For example, there are 4,700 towns and over 600,000 villages spread across the length and breadth of India. Yet more than half of the population and approximately 60% of the total rural wealth is concentrated in just 17% of these same villages. Given these characteristics, deploying an optimal distribution structure for such a market becomes a challenge for any company, especially those which have been geared toward managing a distribution chain predominantly in urban markets. For instance, decisions on distribution networks have to take into account both the size of the potential market as well as the cost required to service the dispersed demand that rural India represents. <strong>The</strong> two maps (see Map 1 and Map 2) demonstrate this point. Map 1 is an evaluation of all districts in a particular state MP (Madhya Pradesh) on the basis of market potential and the second is based on cost-to-serve. It is clear that both present very different outcomes for any district. Company Category % sales from rural markets 4 Hindustan Household 45% Unilever products Hero Honda Two wheelers 60% Dabur Personal 40% products Dish TV Media 33% TVS Two wheelers 50% However, while rural India has tremendous market potential, there are some inherent characteristics which make it significantly different from urban India. In particular, the way in which the population is simultaneously dispersed and yet “ Distribution equity refers to the maturity and flexibility of a business’s distribution network.” 4 Publically available information
Competing for market share in rural India Map 1. Assessment of districts in Madhya Pradesh based on market potential Ujjain Market potential 14.35 Income 3.84 Consumption 4.63 Awareness 5.12 Mkt. support 0.76 Panna Market potential 1.47 Income 0.39 Consumption 0.44 Awareness 0.55 Mkt. support 0.08 Chhindwara Market potential 4.60 Income 1.07 Consumption 1.39 Awareness 1.86 Mkt. support 0.27 Excellent Good Decent Poor Map 2. Assessment of districts in Madhya Pradesh based on market potential and ease-to-serve Market unattractive based on ease-to-serve approach Excellent Good Decent Poor 61
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