India as an emerging market leader has precipitously uncovered its capability by growing at reasonable rate when the global GDP growth was faltering and panting for support. But, even in developing nations, urban areas are reaching saturation points, and smart companies are quickly moving to un-captured rural areas, which are at a promising stage and provide robust market potential.
Many companies have also initiated manufacturing facilities in rural areas to benefit from government concessions like tax exemption. Some look up to the rural market to promote volume growth, while others have intended to reap benefits of low cost and higher profit margin. But the idea is simple. If growth is the only option to survive, rural market is the only way to grow moving forward. And the companies that have taken the initial leaps have not only benefitted from the first mover advantage, but also gained brand loyalty and better business growth momentum.
BMW and Mercedes have been quick enough to recognize this target market and are reportedly expecting a 30-35% sales boost in 2012 from rural markets. India’s largest car maker, Maruti Suzuki, registered sales of 12.70,000 vehicles in 2010-11, with earnings of Rs. 37,522 crore and a net profit to the tune of Rs. 2,289 crore.
In 2011, the auto industry of India witnessed accumulative sales of 2,973,900 passenger vehicles that comprised cars, sport utility vehicles (SUVs) and multi purpose vehicles (MPVs). Out of the total figure, 2,520,421 vehicles were sold within India while the rest 453,479 units were disseminated outside the country.
Market conditions are extremely slow-moving. High interest rates are dampening the consumer sentiment and this is leading to the entry-level buyers deferring purchases. Responding to this situation, most of the car companies are opening regional car centres which keep one or two cars on display.
Although India is the world’s 2nd fastest growing car market after China, passenger vehicle ownership here is among the lowest in the world, at 12 vehicles for every 1,000 people. While nearly a third of people living in metros own personal transport, the penetration in rural areas is half, at 15 %. This has led industry observers to believe a major proportion of growth would come from rural market.
Hyundai, one among many trying to penetrate the rural market has asked its dealers to identify 5 probable semi-urban and rural sites for selling its latest offering ‘EON (800cc)’ around their outlets. At some places they have set up a practice where a team of salespersons with mobile vans offer demonstrations and test drives. At other places, Hyundai either put up small sales branches which could display up to two cars or two-way sales and service workshops.
Tier II, III and IV cities are increasingly becoming more and more significant. Early entrants into this market are likely to be huge gainers and a classic example of this is Ford India’s FIGO which draws 60 % of its sales from Semi urban areas.