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TV firms gear up for rural market

Partha Ghosh and Payal Verma | November 22, 2003

When Oscar Television made it to ORG-Gfk's list of 10 top-selling colour television brands earlier this year, there was one person who wasn't satisfied.

Arpita Khurana, Oscar's youthful director, insisted that the ORG-Gfk survey didn't tell half the story because it collected figures only in the metropolitan areas.

Oscar, she said, was flying off the shop-shelves in semi-urban and rural India. What's more, Khurana predicted that semi-urban and rural demand would zoom by around 80 per cent this year.

That, say her rivals, may be an overestimate. But the other colour television and consumer electronics manufacturers aren't disagreeing loudly. In fact, they are also gearing for a buying spree in rural and semi-urban India.

The industry association too is bullish about sales this year. Cetma (the Consumer Electronics and TV Manufacturers Association) has projected sales of 10 million sets in 2004 compared to around 8 million to 8.25 million TVs likely to be sold this year. That's compared to 6.7 million sets sold in 2002.

  • Cetma believes that between 8 million and 8.25 million TV sets will be sold this year compared to 6.7 million last year
  • In 2002 63.1 per cent of sales came from cities and smaller regions with a population of less than 1 million
  • Companies like LG and Philips are almost doubling distribution networks in the rural areas
  • To attract rural buyers 14-inch televisions are being sold for as little as Rs 3,500

Most amazingly, about 70 per cent of this will come from the semi-urban and rural market. "This means the rural market will grow by as much as 25 per cent compared to 5 per cent growth in the urban markets," says an association executive.

What's fuelling the rural optimism? There's a growth in awareness, say the manufacturers. Also, they have boosted penetration in semi-urban and rural areas.

And this year there have been good monsoons followed by good harvests. Diwali sales have been robust and the feel-good factor in the economy is boosting buying.

It's important to keep one thing in mind. This isn't the first year when rural demand has climbed sharply. Market research firm Francis Kanoi recently said in a report (on consumer electronic market growth and projections) that the top seven metros contributed 24.1 per cent of total sales in 2002.

That was followed by towns with a population of over 1 million where 12.0 per cent of the sets were bought. The remaining 63.1 per cent of sales in 2002 came from cities and smaller regions with a population of less than 1 million.

The tilt towards the smaller towns and rural areas is becoming more pronounced with each passing year. This year, for instance, it has been reckoned that buying in the top seven metros will contribute only 22.6 per cent a fall from last year. Smaller towns and regions will be 64.3 per cent of total sales.

"Barely five years ago, the contribution from semi-urban and rural markets for us was 20 per cent. Today we get 70 per cent of our volumes from these markets," says Chandramani Singh, product group head (consumer electronics) at LG Electronics India.

But another subtle change is taking place this year, according to industry analysts. Until now, the market transformation has happened primarily because owners of radios and B&W televisions were upgrading to colour televisions. As per Francis Kanoi data, the upgrades from B&W to the colour TV segment forms over 60 per cent of total CTV purchases.

But now the industry is talking of other factors, which will drive growth like the booming rural economy. Also, they feel consumers will be making up for lost time: the feel-good factor has been distinctly missing for the last two years so rural consumers have held back on big ticket purchases.

But there's an additional factor that's likely to fuel growth. Loans for products like televisions have become easier in the rural areas because the public sector banks are moving in with offers of easy credit.

Add to that the fact that prices of televisions have fallen steeply and companies are taking extra initiatives to promote sales.

"Rural consumption is linked with agricultural output and the availability of cash. Untill very recently, financing was available to the rural people at very high interest rates and that too, not made available by any financing agents or banks but by the village sahukars (money lender). Thus, the trend in the rural areas still is to make cash purchases, which links to good harvests and ready availability of cash," says Ravinder Zutshi, director (sales) of Samsung India Electronics Ltd.

Zutshi is convinced that buying will climb even more sharply in coming years because of cheap financing. Banks such as the State Bank of India are pushing their loan schemes in the rural areas and so are financing companies like Bajaj Finance.

"The manufacturers too are expanding both their penetration as well as the products for the rural markets, all of which should help boost rural sales," he says.

Says LG's Singh, "Electrification of villages and an increase in awareness among the people, a good harvest and a booming economy will help drive growth. The rural market should see a growth that is three to four times that in the urban markets."

"The potential is high as the penetration levels are low, and hence our efforts towards creating a bigger market here," adds Devender Saini, senior product manager (television), Philips India Ltd.

"If we look at the penetration levels in rural markets, it is less than 10 per cent. This is lower than the all-India average of 21 per cent and the urban markets which are at 35 per cent to 40 per cent."

The increase in penetration levels in the rural markets has also shown the way to the Oscars and Belteks of the world, which are carving out a niche by positioning themselves as price warriors.

And their cut-price tactics have forced LG, Samsung and Philips, among others, to launch products targeted only at these markets.

These products have fewer frills, and are hence, cheaper. As a result, the rural masses are being tempted by the lower prices offered by all manufacturers.

The entry of the bigger players in these market segments has forced the smaller ones to squeeze margins and reduce prices further.

R K Caprihan, an old industry hand and the chief executive of The Kelon Corporation, claims he is selling 14-inch for as low as Rs 3,600 and a 20-inch for only Rs 5,500.

In fact, the success of the smaller brands and the entry of the bigger players have started a war on many fronts. It's not restricted to pricing, but it's also about visibility and value for money.

Oscar, for instance, which derives 40 per cent of its sales from the semi-urban and rural sectors, has launched a battery-operated television model in the 14" segment to cater to parts of Eastern UP and Bihar.

This has boosted the company's sales by 5 per cent to 7 per cent. It is planning to come out with a similar 21" model this month. Says Arpita Khurana: "Since electricity is a problem in these areas we felt the model would be a success."

LG is putting more emphasis on dealership network. The company had only one distributor in Jaipur. But it now has distributors in Jodhpur, Jaisalmer, Udaipur and several other places. Over the past year, the company's direct dealers have risen from 1,000 to 1,500 and the number of sub-dealers has climbed from 2,800 to 5,000.

The company, which is the market leader in the colour television segment, has focused on decentralising its operations to increase its rural penetration this year. It has increased its 'remote area offices', which function at district levels, from 27 earlier to 62 this year.

Similarly, Philips is planning to double its retail presence. From an existing network of 6,000, the company plans to have 12,000 retailers. About 75 per cent of this increase will take place in the rural areas.

Companies are also spending on huge sums on advertising, especially in local vernacular newspapers. Philips has fallen back on some unconventional advertising media like wall-writing and radio advertising.

Says D Shivakumar, vice-president, consumer electronics, Philips India: "We have a strong base of loyal consumers of transistor sets as well as B/W TVs who are now ready to upgrade. We will try and tap these consumers for our rural scheme."

Companies are also organising rural melas and haats and use mobile hoardings to reach potential customers in villages and semi-urban markets. And, if the rural customers are switching on in larger numbers the picture can only get brighter for all the companies.

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