Marketing of Rural Products - Strategy for Ensuring Remunerative Prices to Producer Role of Middleman - Problems and Possible Solutions
Development of Small Scale Industries in India is being pursued since the beginning of the planning era in 1950-51. The main objectives of the comprehensive plan of small industries is the creation of widespread employment opportunities, reduction of inequities, addressing regional imbalances and creation of a base for entrepreneurial development. In the 1950s, when the various programmes for promotion of small industries were formulated, the emphasis was to gear up production with a view to cater to domestic requirements. As a result of the policy of planned economic and industrial development followed during the last fifty years, village and small industries have made a phenomenal progress in different parts of the country including rural, semi-urban and even hilly and remote areas and are now making a significant contribution towards the National Economy, including export earnings.
Significance in National Economy
The share of village and small industries in 2005-06 has been estimated at about 49% of gross value of industrial output. This sector offers employment opportunities to about 28 million persons. In the field of exports, this sector accounted for 36% of the total export of the country.
The VSI Sector consists broadly of :
i) Traditional industries (e.g. handlooms, khadi and village industries and handicrafts, etc.) and
ii) Modem small scale industries
Development of modem small industries has been one of the most significant and characteristic features of industrial development in the country. These industries now account for more than 60% of the output in the VSI Sector. In 1985-86 small industries produced goods worth about Rs. 40,000 million and provided employment to about 9 million persons. The following table shows the trends in growth of small scale industries in recent years:
Trends in Growth of Small Industries
No. of units (in million)
Production (Rs. million)
Employment (million Nos.)
Export (Rs. million)
Small industries now produce a large number of products ranging from simple consumer goods like readymade garments, leather footwear, stationery items, soaps and detergents, domestic utensils, safety matches, preserved fruits and vegetables, etc. to sophisticated items like car radios, radios, electro-medical equipments, automobile parts and collapsible tubes etc.
In spite of phenomenal growth in the small scale and village industries sector, there has been relatively high rate of mortality due to various factors. Apart from the other factors which have caused a high mortality rate, the most important aspect of sickness has been identified by several studies as arising due to basic weakness in the marketing function of the small enterprise as they exist today. While the technical financial and managerial support provided to the small industry is controllable internally by the organisation, marketing is the only function which is considerably influenced by external factors affecting the business. While all the other activities concerned with a business enterprise involve spending of money, marketing is the most significant activity which leads to inflow of funds which is essential for financial viability of the business.
Basic to the whole activity of an enterprise is the marketing of products. If the enterprise is not able to sell what is produced, it will go out of existence.
General Problems of the Small Scale Sector as revealed in various studies
An important factor contributing towards sickness of the unit is low quality of product. A small manufacturer with limited finance, technical knowledge and information about the market trends to knowingly or unknowingly sacrifies quality. There is a credibility gap between the purchasing organisation, both in private and public sector and the small scale suppliers regarding quality, delivery schedule, packaging, price, after-sales-service, etc. The increasing awareness of the consumer about his expectations in regard to quality and performance is either being ignored or not given the importance it deserves by small scale units.
The small scale producers have inadequate knowledge about the market trends, changes in tastes and consumer preference. The pricing concepts are not aligned with consumer want and goods are produced without a proper market surveyor ascertaining before hand whether there is a demand for a particular product.
Small Scale and Ancillary ~units suffer considerably from inadequate supply of raw materials and/or high cost. As a result, the cost of production becomes disproportionately high, undermining the competitive edge. For numerous raw material, the small scale units have to depend upon the large scale industries or multinationals which for obvious reasons do not look after the former's interest.
Exploitation by middle man
The small scale units have to depend upon the existing distribution channels, need middle man or wholesalers/distributors/retailers. The middlemen exploit the small scale units. They are only interested in maximum commission. They invariably shift their loyalties based on their profitability. On many occasions, they expect the manufacturer to receive their payments on consignment sales. This affects the viability of the units as their cash flow is affected.
Government Policy and Support Services
Marketing has been recognised, even by the Government of India as a vital area, where extension of institutional assistance is necessary to sustain the small scale industry in general and contain sickness in the sector in particular.
Catalytic role of Promotional Agencies -
Government Support Services
The Government has launched marketing support programmes for the benefit of the Small Scale Sector as enumerated below :-
1.Assistance to the small scale units for participation under the Government Purchase Programme - Govt. being the single largest buyer in the country both Central and State Government and Govt. undertakings buy over Rs. 2000 crore annually.
Promotional Agencies like Handicrafts and Handloom Development Corporation, Cottage Industries Emporium, TDA, NSIC, SSIDC, Handloom Weaving Cooperative Societies, Super Bazars have been playing catalytic role in extending support services in promoting the products of Small Scale & Village Sector.
To illustrate an example, the Handicrafts and Handloom Corporation have inducted the products of tiny sector into the European market. They had arranged a tie-up with major Departmental Stores in the USA. The brand image has helped in creating quality image of the product. European designs have been introduced and the product of tiny sector is finding a regular market in the export markets. The master weavers have been trained in foreign fashion trends.
In a similar manner, the growth of Garment Industry, Hosiery Knitwear Industry and Silk Industry are other examples.
Marketing is a primary function of an entrepreneur. The concept of marketing is relevant throughout the functioning of an enterprise, including the areas such as quality control and not merely at the stage of selling and distribution. The primary responsibility for marketing shall invariably rest on the entrepreneur or the Manager at the helm of the enterprise. The Government through its policy measures can only provide facilities and organisational support. As already enumerated, some of the major problems in marketing of small industries products can be resolved through well-planned marketing research activity for small industries.
The SIET Institute had conducted interviews with the successful entrepreneurs who have almost had no problems in developing their industries. Contacts were made with 685 successful small industrialists and their success stories recorded. These success stories were classified under certain broad categories. In every category, involvement of entrepreneur is significant. This gave rise to the terminology "Involvemental Marketing". Involvemental Marketing means the involvement of entrepreneur in his own organisation and also with the clients organisation with a limited purpose to achieve market for his products.
Know the product well. About 15-20% success stories can be attributed to the entrepreneur's knowledge of his products, its alternate uses, its salient characteristics, its substitute uses etc.
An instance is that of a chalk piece manufacturer in Karnataka who could not market his chalk pieces. He studied the market of chalk pieces and then approached a big pharmaceutical company to use his chalk in one cubic inch form in evaporating tower in the granulation department. He gave the comparative economics of using silicon jelly and chalk pieces in the 1" cubic form. He proved that the use of chalk pieces in evaporating tower instead of silicon jelly reduces expenditure by about 50%. Now this group of pharmaceutical concerns is using chalk instead of chemical moisture absorbents.
Know thy marketing seasons well - A well-known engine valve manufacturer in small sector wanted to become the original equipment supplier to a large automobile company. He tried his best but could not succeed. He was a patient entrepreneur and had been following up with the organisation regularly. He found that at the end of the financial year, the organisation was keen to reach the production targets. The entrepreneur at this time again approached the organisation and helped them out at a crucial time by supplying the required number of organic valves which he had deliberately kept in stock.
Govt. purchases are generally made in the months of February/March. Most of the small scale units have understood this aspect and keep their material ready at the year ending i.e. February and March to cater to the Government Departments who are anxious to see that the budget is not lapsed.
Know thy sales promotion methods - In the first stage, the entrepreneurs make a survey of the persons connected with the purchase. They collect information about the strong and weak points of concerned persons. It is surprising to note that the entrepreneurs from western region, particularly Maharashtra have a knack of using health factors as a carrier of motivation. We have come across more than 20 entrepreneurs using health factor to motivate customers.
In short, the entrepreneur will have to adopt all involvemental marketing techniques to promote his business. In our opinion, there is lack of awareness of complete support programmes and the methodology to avail of the existing benefits.
Besides, time has come when the market intelligence should percolate down the grass-root level. The existing facilities like the opening of Market Development Centres, Super Bazars and other sales outlets should expand to the interiors. This requires speedy expansion. This will provide platform to the tiny sector for sale of their products and ensure remunerative price. With involvemental marketing the units could grow.
Prepared by Shri L.K.Baweja, Regional Manager, National Small Industries Corporation
Revised by Shri E.V.Murray, Member of Faculty, CAB
H O No. 1227
Marketing of Rural Products , By: E.V.Murray