Business Model 101: The flip side of going Rural: A look at the challenges in cracking the Indian rural market

There has been a considerable amount of discussion on rural India of late (and not just on Pluggd.In) and the opportunity it presents and one almost gets tired of the rate at which CK Prahlad is being quoted these days. Rural India definitely does present immense opportunity but for everyone trying to make millions out of it, there are a few words of caution on the challenges that the landscape presents.
I will draw upon my experience of having worked on three projects in the last 8 years targeting consumers in rural India with internet technologies, MVAS and general ICT infrastructure at Media Labs, IIT Kanpur, Intuit and the Hewlett Packard I-community to highlight some of the challenges involved.

  1. Distribution and logistics: Infrastructure continues to be a challenge in rural India. Moreover, the lack of an efficient distribution network prevents penetration of products/services into rural India. One of the most innovative models in recent times has been the usage of the postal service by mobile operators to penetrate scratch cards to the villages. The Indian Postal Service with 155000 post offices is the largest distribution network in the world, and has all of 120000 outlets in India’s villages.
  2. Payment collection: The majority of the rural population is still unbanked. Clearly, non-cash collection becomes rather unlikely. Cash collections, on the other hand, are messy and difficult to monitor, especially since cash cards or technology-enabled centralized POS (like Suvidha or ItzWorld) have still not reached rural areas. The time-tested manufacturer-distributor-retailer network has been the only real success so far but setting up such a structure is rarely feasible. Partnering with MFIs comes to mind but often, the MFIs don’t cater to the relatively more privileged/affluent segments of the rural economy who are likely to be early adopters.
  3. Rural India - Challenges and Opportunities
    Rural India - Challenges and Opportunities
  4. Pricing: While Sachet pricing may have worked very well for Chik shampoo, the overheads involved in payment collection do not always allow easy execution of sachet pricing. It is easier to collect in larger amounts as every instance of collection and carrying of cash has associated costs. Disposable income, though, isn’t always high since the bulk of rural India is agricultural and income cycles in agricultural are very erratic and not as predictable as in the case of us salaried individuals.
  5. Scaling across geographies: If India is a land of many cultures, the contrast becomes that much starker in the case of rural India. Setting up operations on a pan-India level presents different types of hurdles in different states ranging from political juggling to downright local factors. Any model where scalability involves scaling on-ground operations (and not merely an increase in downloads) is bound to run into myriad issues as we move from one state to the next. Add to that the greater differences in consumer tastes and behavior across geographies than in the relatively more cosmopolitan urban population.
  6. Developing inorganic scale: Developing synthetic scale through partnerships typically results in larger overheads in the rural context. Finding the right partner with reach and presence in villages is difficult to start with. More importantly, there are very few players who are strong on these counts across multiple geographies. Hence, a pan-India rollout typically requires multiple partnerships resulting in higher partner management overheads.
  7. Social and cultural challenges: The cyber café (or kiosk) model has not worked in many parts of rural India due to socio-cultural issues. One of the reasons for the failure of the kiosk model in Kuppam (HP’s i-community) was the lack of usage by women which was largely due to their discomfort in going to kiosks run by men.

I don’t at any point intend to play down the potential that exists. Most of my points just go back to the assumption that rural is a volume market and requires scale and achieving that scale organically or inorganically is a major challenge. Those who succeed in cracking these problems definitely will change the world around us.

What’s your opinion?

(The author, when not going trippy with other guitarists or reading random literature, heads New Ventures and M&A at Intuit India and is rather intolerant of poorly-cooked chicken, well-cooked spinach, too little focus on business model and too much focus on powerpoint.)
Author: Sangeet Paul Choudary

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