Friday, June 05, 2009

Why sachets are popular in Rural India?

Rural people consume most products such as shampoo, biscuits, tooth powder, etc in micro units. This is majorly linked to the fact that they earn in daily or weekly wages. The following discussion is to reason out why do they prefer daily/weekly wages in turn to explain the popularity of shampoo sachets (and not a shampoo bottle).

If you visit any rural household or a surrounding retail stores please observe what kind of things they have. Tooth powder in sachet, Coconut oil in sachet, Fail & Lovely in sachet, only one soap bar (though they might be using multiple soaps in a month), small biscuit packet (Do you know the very popular Britannia Tiger?? it just contains 3 pieces instead of regular 10 pieces), the telephone usage with a 1 Re coin box, mobile phone usage in small top-ups (10/- or so), chota pepsi, etc. Basically consumption world is a miniature here.

Basic reason for this micro-units of consumption is to use them for a day or for at most a week. Their consumption budget is just about a week or less. That is because their earnings fall under in similar periods. Typically in rural locations, the work contract period is about a week or less. In fact, it is day-contracts which rules here.

Before proceeding further discussion on these consumption patterns, let me talk about an interesting topic and it is about you (Yes, I am talking about you, the reader). Assume, after a shopping exercise, you came out of a shop to return your home. As you are with some luggage, you wanted to return home with a auto-rickshaw. You found 3 autos standing on the road and you know it takes about 45/- to reach your home. When you asked each auto driver, you were told 3 prices, first guy – 100/-, second guy – 50/- third guy – 10/-. Then which one will you take to reach home? and why? Think for a while before reading further.

Coming back to our original discussion, rural people plan weekly budgets unlike the Indian government which does 5-year budgets. As we have seen before that is because rural people earn in similar periods. And surprisingly, it is their choice to earn in daily but not monthly. Yes, you read it right, it is their preference. Why is that so? It is because, their logical capability to think is very limited. Just like birds, they can do additions up to 10, beyond which it is difficult for them to count. To understand things for a year period, you need to foresee a lot of things, and plan accordingly. This requires arithmetic skill-set. So it is skill-set deficiency that makes an issue with them. Again, what exactly is the issue??

By the way, did you find out which auto you would prefer? I am damn sure that it is not the one which charges 100/-. Moreover, it is not the auto that charges 10/- either. Second guy who charges 50/-, which is a little more than the usual charge of 45/-, is the one you prefer. Why is that so? Why do you wish to pay higher, when there is a guy who would take you as cheap as 10/- (and in fact, you are willing to pay more than the usual charge)? The reason is simple. You know that it is not economically feasible for him to run at 10/-. Because you know if the usual charge is 45/-, then any auto must be making 10-15/- (or 25%-40% margin). This means actual cost is about 30/-. Then you would start doubting the guy who just charges 10/- instead of some price more than the actual cost of transportation, that is 30/-. You would believe that he would make money in another fashion perhaps by robbing you or so and not by direct charge. That’s what is known as fear of uncertainty. No one likes to take unknown risk.

Rural Indians can’t take decisions beyond a week or more is due to their incapability of logical thinking or arithmetic calculations. Beyond anyone’s capability falls under uncertainty. Rural people don’t wish take those unknown risks. This is the reason for their earnings in short periods, and so, they spend on micro-units of consumable goods.

As you see, arithmetic or logical skill-sets are so much important in life.


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Anonymous said...

Good detailed post. This comment is for your entire blog. You cover the issues of rural India in a effective manner. Keep up the good work.


Vinay Kothari said...

i disagree with the assumption that rural customers cant think beyond a day's consumption.
How do you justify purchasing of staples for the entire year like sugar,oil, pulses, wheat etc
Rural consumers are more value conscious if not more compared to thier urban counterparts.
Sachets offer more value for money, more volume at lesser price.
Farmers are so shrewd that they calculate ROI for the smallest of investments....

subodh said...

Good Post I am very happy n i thing this is write. i am workng in rural market last 3 years n i m agree with u
Thank's for good work

abhi said...

i admit that i cant yet judge the entrepreneural capabilities of the rural masses. i agree with vinay's point about bulk purchase of staples. at the same time, i feel the rural people buy things like biscuits, shampoos etc.; which are of secondary significance in their lifestyle, in small quantities because they don't wish to spend much money on them once and they do make good use of whatever less they buy.

as opposed to vinay, i've always observed that as commodities get smaller, their proportionate volume/utility goes below in comparison to what they are supposed to be. i consider this as a reason of both logistics (increased cost of packaging, printing, occupation of volume etc;) on one hand and the company's strategy by making people want to buy more at once, which is a big investment.

pls share more (corrections, additions, etc.;).

Madarapu said...

Abhi... well explained..
Rajashekhar...really its a nice post...Auto incident is 100% true, but i donno why did u discuss auto rickshaw topic with rural people..
may i know bit clear..

workhard said...

That is a very very interesting perspective.. initially i thought ppl would buy sachets just to 'try out' cause they dont want to invest in a larger quantity straight away.. just as a trial..

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kavithaponmalar said...

Microfinance helps to improve?

A) Rural Development

B) Self Employment

C) Self Help Training

D) Service for Poor People

E) Women Empowerment


simplyoptimistic said...

Just wondering... if the rickshaw dude wants to charge 10 rs for the trip why do you need to worry if its economically feasible for him or not??? There may be a reason he asked for onlhy dat much ... who knows....

viplove said...

Hi Mr.Rajasekhar,
I just came across this beautiful blog, while I googled , for rural stories from India.
Very commendable job.
I can see that you have Love for the rural life than many people who actually do just jobs.
I just checked your profile and feeling good to know that You love movies like Pather Panchali and Sagara sangamam I think I can share some of my aspirations with you.
As of now, I am trying to make a video film with rural backdrop and urbanization happening there , with an intent to explore lives which are ignored on telugu celluloid these days . (though mine is just a video film ,this is just like a practise for celluloid ambitions), so if you think you can help me in directign towards any specific area or matter...please give me a mail at kiddybank at gmail dot com.. I am not a blogger now (was once )

iamyuva said...

I am not sure that's true and i always think that's very big generalization. they storage & consumption patterns for cash, food & FMCGproducts are very different. and you can noticed big long term consumption during festival(big pay-off) explanation doesn't fit there.

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Anonymous said...

If you have no stability in your life and no guaranteed income, then you cannot invest in a large bottle of shampoo. If you are a daily wage earner like many Indians all you can afford is a sachet. Sachets are a way of making your brand affordable to the masses. I disagree with your comments saying that rural people cannot budget- I find it patronising and short sighted.

ashutosh said...

ya i do totally agree with ur blog & i found reading it quite intresting.
There r both types of individual who resides in rural india i.e. poor labour & the rich farmer or land lord, both of them do prefer to in small scale.....

HaRMaN said...

Good Work!

shital said...

Nicely explained the concept with an common example, it is very effective way of explaining the things. Good Keep it up.

Anonymous said...

A really interesting and thought provoking article. However, like Vinay Kothari I find it hard to accept that rural people are inherently limited in their capacity to plan longer term than a week ahead. Obviously if they buy certain products for a whole year they have the ability to ration and plan. I am sure that it is the nature of the products and the importance they are attributed that explains the sachet buying technique.
I have seen an article dealing with Rural Development in India and the difference between Private and Public programs. Might be useful.

Anonymous said...

fantastic.Your explanation has increased my belief in business education.keep posting more such explanations.


Ramu said...

Rural people have a trend to minimise inventory in everyday usage products.Their earnings are not systematic and there can be ups and downs.They have access to small shops in their vicinity and not big stores or supermarket.Hence they buy minimum packing and would not mind the price for sachets.Surprising that Fair & lovely sachets find a mention as I thought rural community are more exposed to herbal home made products.Before sachets packing days they would take a small vessel to fetch their requirement which would not cost them packing.Rural folks are not incapable of long term planning or budget.The women there are strong in savings and miserly in spendings to run the household and face any eventuality.Marriage and associated customs unfortunately rob them of their life's earnings.Their field produce they would store for a year and items like Tamarind.They never say no to guests and any stranger visiting their household can be assured of drinking water first and a tea if visitor can afford to wait.They are an innocent lot but are not found wanting in mental capabilities.There is no pretension like city dwellers.Their lives revolve around a friendly teashop where they get access to sachets of coconut oil,pickle,supari,biscuits,shampoo,detergent,cough syrup and what not.Rural folk go for well accepted brands rather than try a new introduction.Let us not spoil the rural folk with speculation in commodities,shares as Rural India is our backbone for self sufficiency.

Rashi Arora said...

An informative post there.
Reading through your post, I completely agree on the fact that rural people mostly get daily wages &seasonal earnings (farmers),they are not in a position to afford commodities in bulk.
Vinay Kothari has stated that rural people purchase staples for an entire year, I'm afraid I do not agree with this, for the fact that they do not have any place to store that much quantity & even if they do, rats & other pests might just ruin it.
Rural folks, however, do have the capability of thinking beyond a day's consumption. With increasing number of micro-credit institutions, rural people can now even think of bigger purchases such as consumer durables etc.
Looking forward to more such insightful posts.

AP said...

this is really good ..impressed with ur observations

AP said...

this is really good ..impressed with ur observations

Indian Politicians said...

Very interesting subject, I enjoyed reading it. That was amazing. Your thought processing is wonderful. The way you tell the thing is awesome. You are really a master.