Distribution Strategies: Rural

Marketing
Distribution….
 ….

Making it Available
Generating awareness pays dividends
only when steps are taken to ensure
constant availability of products.
 In rural India particularly, availability
determines volumes and market
share, because the consumer usually
purchases what is available at the
outlet, influenced very largely by the
retailer.
 Reaching your product to remote
locations spread over 600,000
villages and poor infrastructure -
roads, telecommunication etc
Pepsi Food
 For Soft Drinks: It opted `hub and spoke' format of
distribution. The spoke is typically closest to the retail
outlets and is serviced by a hub distributor who is
supplied directly from the plant or the company's
warehouse. This format allows for large loads
traveling longer distances and short loads doing short
distances, which is cost-effective.

 Coca-Cola also has a hub and spoke distribution

format. all possible means of transport that range
from trucks, auto rickshaws, cycle rickshaws and
hand carts to even camel carts in Rajasthan and
mules in the hilly areas, to cart our products from the
nearest hub.
 Both Samsung India and LG are positioning their
semi-automatic washing machines and direct cool
refrigerators in rural areas due to erratic electricity
supply. Both the companies have introduced mobile
vans that showcase their products and make the
rural consumer aware of their brand.
 For the rural segment, instead of having a company-
dealer-customer distribution chain (as in the urban
areas), LGEIL has introduced a distributor (who is
invariably into FMCGs) to facilitate wider
penetration. Samsung participates in local fairs to
spread brand awareness.
 In 1998, Tata Chemicals set up the Tata
Kisan Kendra (TKK), a one-stop shop for
the Indian farmer, supplying all
requirements, from seed sowing to post-
harvest. TKKs enabled farmers to purchase
the products they needed as well as gain
from expert information. Four years later,
the company decided to shift the focus to
offering services as well, and re-branded
the rural initiative. Now named Tata Kisan
Sansar (TKS), it offers farmers a range of
agri-services and agri-products.
 TKS operates in northern and eastern India – Punjab,
Haryana, Uttar Pradesh, Bihar and West Bengal. It is
franchised, working on a hub-and-spoke model. The
hub acts as a resource centre to a number of TKS
outlets, and each TKS services a number of
surrounding villages. With 25 resource centres and
497 TKSs, the initiative reaches more than 35 lakh
farmers in 16,000 villages.
 The Kisan Sahyog Parivar is yet another initiative.
Farmers are encouraged to form self-help groups
(SHGs) that provide a platform for facilitation of credit
as well as learning and sharing among themselves
 The TKS is a business development
initiative – an alternate delivery mechanism
to provide products and services in a more
reliable manner, so that the farmer feels
confident about them. Both the farmer and
the company benefit from the initiative. In
2005-06, TKSs did business worth Rs 307
crore ($66 million), growing from Rs 38
crore ($8 million) in 2002-03.
Tata BP
 The company distributes and sells its
products through dealers, who also create
awareness and educate the end-customer
on the products' functionality. "We ensure
that our products are sold in areas that are
easily accessible, not more than one night's
bus ride away. Service technicians must be
trained by us". Training also provides a
much-needed source of employment for the
local people.
 A partnership with the Ramakrishna
Mission, which is active across the
country, has been successful. Other
channels under consideration are
self-help groups and TV dealers,
as TV has a very wide penetration.
The company is also talking to Tata
Chemicals' Tata Kisan Sansars in
north India, as they interact directly
with farmers.
Tata Rallis
 Rallis is present in every district in
the country, and reaches the farmer
through its own personnel as well
as through retailers, distributors
and preferred dealers. During the
agricultural season, as many as 1,200
technical field assistants (TFA) along
with agronomists visit India's villages,
interacting with the farmers.
Tata Motors
 As markets continue to move towards
semi-urban and rural areas, the company is
extending its reach through a unique
concept called 1S outlets, that handle only
sales. At over 300 such outlets across
India, customers can see and buy the
product within 50 to 100 km of their
village. Apart from its dealers, Tata Motors
has tied up with local garages for
servicing, and enhanced their service skills
through training. A mobile service van
supplements their reach.
Tata Teleservices Ltd.
 The company has set up a three-tier network with a
main distributor who looks after a large area,
generally an SDCA, and has feeders (on his pay roll)
which feed into 'runners' – people appointed and
trained by TTSL – who visit villages on a bicycle or a
two-wheeler at defined times on defined days of the
week, selling recharge vouchers and servicing
equipment; each runner covers between 200 to 300
customers. The company has also joined hands with
Tata Chemicals' Tata Kisan Sansar network,
disseminating information through these centres and
using them as local distributors.
 Tata AIG encouraged the women to form
partnerships in groups of five and called
them CRIGs (Rural Community Insurance
Groups). They travel around in branded
vans owned by Tata AIG, which also double
as collection and policy servicing units.
Over four three-day capacity building
modules, women learn soft skills, develop
insurance skills and learn data
management through computers.
 The model has been replicated in other
parts of the country with some changes.
It's not been easy in states like UP and
Rajasthan, where the men don't allow
womenfolk to go out of the house for work.
Here, the company approached NGO field
workers and volunteers. Today, of the 460
rural agents selling micro insurance, 60 per
cent are women. A woman agent is
typically a cluster leader or an office bearer
of a rural self-help group (SHG).
 In rural India particularly, availability determines
volumes and market share, because the consumer
usually purchases what is available at the outlet,
influenced very largely by the retailer.
 Therefore, over the decades, Hindustan Unilever
has progressively strengthened its distribution reach
in rural India, which today has about 33 lakh outlets.
Direct rural distribution in Hindustan Unilever began
with the coverage of villages adjacent to small towns.
The company's stockists in these towns were made to
use their infrastructure to distribute products to
outlets in these villages. But this distribution mode
could only be extended to villages connected with
motorable roads, and it could cover about 25% of the
rural population by 1995.
 Therefore in 1998, Hindustan Unilever launched Project
Streamline to further extend its distribution reach.
 Under this initiative, the company identifies sub-stockists
in a large village, connected by motorable road to a small
town.
 This sub-stockist in turn distributes the company's products
to outlets in adjacent smaller villages using transportation
suitable to interconnecting roads, like cycles, scooters or the
age-old bullock cart. Hindustan Unilever is thus trying to
circumvent the barrier of motorable roads.
 As a result, the distribution network, as of now, directly
covers about 50,000 villages, reaching about 250 million
consumers. The company simultaneously uses the wholesale
channel, suitably incentivising them to distribute company
products.
 Hero Honda Motors: Its 360 dealers all
over the country have reported the  
emergence of an unofficial channel of
distribution -- village mechanics, local real
estate agents, shopkeepers who sell non-
durables and so on. These people are taking
motorcycles from the official dealers --
usually in twos and threes -- displaying them
outside their premises and closing a sale. The
paperwork, though, is left to the dealer to
complete. Such instances are forcing
companies to review their distribution set-ups
to ensure that they are present even in the
smallest villages.
 Maharaja Appliances, which
launched Bonus, a range of
appliances specially for the rural
market last year, plans on setting up
a distribution chain almost exclusively
for the rural customer.
 TTK Prestige reflects a case of how
the company achieved some success
in retrieving market share in the
South by tying up with women's self-
help groups and NGOs in Andhra
Pradesh to market its pressure
cookers.
 Distribution Model of Durable
Goods Companies

LG

New Rural District Office

Depot
Warehouse

C&F Agents

Exclusive Dealers Multiple Dealers

Consumer
 A Comparison of the Different
Distribution Systems
Parameter Cavinkare Everead HLL Britania Nirma Ghari Priyagol
s y d
No. of 6 7 7 6 3 3 3
channel
partners

Different Yes Yes Yes Yes No No No

channel for
rural &
urban
Margin U: 6 U:5 U:4.75 U:5 Not Not Not
structure R: 3+5 R:5+1+V R:6-7 R:6 applicab applica applicable
diff. for an le ble
rural & subsidy
urban (%)
Coverage Order Ready Order Order Ready Ready Order
pattern Booking Stock Booking Booking Stock Stock Booking

Mode of Advance Advance Advance Advance Advance Cash/D Advance

payment to cheques cheques cheques cheques cheques raft on cheques
company deliver
y
 A Comparison of the Different
Distribution Systems
Parameter Cavinkare Everead HLL Britania Nirma Ghari Priyagol
s y d
No. of 2-3 (also 1 Van Urban 2-3 1 1 1
distributor depends operator 2-3;
s per on the + 2-3 Rural 1-
district market retail 2
size) stockists
No. of Distributor Dist.:150 Urban: 250-300 400-500 350- NA
outlets per :160- 0-1600; Dist.:-350- 450
400;Whole
distributor 180(<50K Retail seller:- 30-
pop); Sub- stockist: 40
Dist.-180- 800-900 Rural:Dis
250 (>50K t.:- 25-30
SS, SS-
pop) 60-100
retailers

No. of High Low Very High Medium Low High

assortment High
s

Regional / National National National National National Region Regional

national al
operations
The Challenge and the Dilemma
Marketers encounter the following problems in rural
distribution:

 Large number of small markets.

 Dispersed population and trade.
 Poor road connectivity.
 Multiple tiers.
 Poor availability of suitable dealers.
 Low density of shops per village and high variation in their
concentration.
 Inadequate bank and credit facilities for rural retailers.
 Poor storage system leading to inadequate stocking of products.
 Highly credit driven market and low investment capacity of retailers.
 Poor visibility and display of product on rural shop shelves.
 Poor communication of offers and schemes due to poor reach of
media.
Distribution of Villages

Population No. of Villages % of Villages / %

of Population
Less than 200 96,855 15.7 / 1.2

200-500 1,36,454 21.4 / 5.9

501-1000 1,56,737 24.6 / 14.5

1001-2000 1,40,751 22.0 / 25.9

2001-5000 87,206 13.7 / 37.5

5001-10000 20,363 3.2 / 15.0

Rural vs Urban Shops

Urban Rural
1.68 mn outlets 3.5 mn outlets
Spread over 5000 Spread over 6
towns and cities lakhs villages

Village No. of Shops

s
Pop. Strata None 1-4 5-15 16+
Up to 500 26 56 15 3

501-2000 7 41 41 10

2000+ 2 8 43 46
Rural Retail Spread

Universe and Outlet Density

Urban Rural Total

No. of 16.8 35.0 51.8

outlets
(lakhs)
Outlet density 168 211 198
(per lakh
population)
Retail Premises
Shop Size
Size of shop Rural Urban
([Link].)
Up to 100 71 64
101-250 25 28
251-1000 4 7
>1000 0 1
Rural Retail Stocking Pattern
No. of Rural Urban
product
categories
Up to 10 18 20
11-20 23 15
21-30 25 14
31-40 18 15
41-50 9 12
51-70 6 14
>70 2 11
Channels of Distribution

CCompany

Wholesaler

Retailer

Consumer
Channels of Distribution in Rural Markets

Company

Level A

Level B

Level C

Level D

Level E

Consumer
Level Channel Identity Location

A Company Depot/ Warehouse Region/ State

B Wholesaler, distributor, C & F District HQ

agent, Stockist

C Semi-wholesaler, Retailer Tehsil HQ, Industrial

Township
D Semi-wholesaler, retailers, petro Mandi town, large
bunks, cooperative societies village, Haat
E Retailers, vans, salesmen, Village
NGOs, Government agencies
Existing Channel members
 Wholesalers
 Retailers
 Paan-beedi shops
 Mobile Vans
 Weekly haats
 Melas
 Cooperative societies
 PDS shops
 Agricultural input dealers
 NGOs
Emerging formats

 Organized retail outlets (Shubh-Labh,

Tata Kisan Sansar, Hariyali etc.)
 Self-help groups
 Online shopping (Extremely
Negligible)
 Direct selling
Issues in Distribution & Trade Management
 Multiple tier structure
 Poor infrastructure
 Price & margin- the key factors
 Counterfeits
 Poor viability of retail outlets
 Problems of liquidity, seasonality & credit
availability
 Need for syndicated distribution
 Need to combine ‘in’ & ‘Out’ operations
 Innovative formats
Factors affecting choice of Transportation
mode

 Infrastructure
 Cost
 Speed
 Reliability
 Suitability
 Availability
Multi-modal Transportation
(Containerization)

 Piggyback
 Fishy back
 Train ship
 Air-truck
Modes of Transportation
 Land
-Pathways (Head load, Bicycle, Animal
back)
-Roads (Rickshaw, Bullock-cart,
Tractor-trolley, Trucks, buses)
-Railways
Modes of Transportation-II
 Water
-Inland waterways
-Oceans
 Air
-Airplane
-Helicopter
Challenge
 When it comes to demand, there is a big mismatch
between the rural consumer's expectations and
the viability of a local retail point. In the supply
aspect, company policy conflicts with making a
product available closer to a rural consumer. It was
cheaper for a rural/semi-urban consumer to buy
durables in a city because the margins given to a big
retailer there were better than those given to a
distributor closer to home, he said. Also, converting a
big dealer into a distributor was fraught with problems
as the former was tuned to improving volumes and
getting incentives on that basis whereas they should
be based on parameters such as reach and
distribution to new outlets and markets,
 Another opportunity lies in making
effective use of the infrastructure:
3.8 lakh public distribution shops,
1.38 lakh post offices, 42,000 haats,
32,000 bank branches, 25,000 melas
(exhibitions) and 7,000 mandis
(agricultural markets).
PDS Network
Orders for procurement
Central Government
Food Corporation of India
Commission on agricultural
1. Procurement
costs and prices
2. Storage
3. Transportation
23 Zone Offices
4. Bulk allocation Recommends
minimum support price
173 District Offices

1560 Depots

Fair Price Shops

A Case of Insurance
Effective distribution channel
planning
 Effective insurance marketing depend
on the effectiveness of distribution
channel employed.
 Various delivery systems in rural
market include individual agents
(‘barefoot’), Primary co-operative
societies, regional rural banks, post
offices, and NGOs.
Effective distribution channel
planning
 Individual agents have been the most
effective medium in selling life
products

 But.. Finding the right type of

candidates and in good number for
rural markets and arranging
insurance training is a difficult task.
AP Govt. has been helping insurers.
Effective distribution channel planning

 Life insurer in rural regions need to

have effective systems to keep watch
on the performance of these agents.
 An early difficulty in completing
proposal documents- the possibility of
lack of age proof.
 Insurer has to find spot solutions -
Age certified by village headman
Effective distribution channel planning

 The growing involvement of rural

institutions such as Gramin banks
and co-operative banks to take up
insurance distribution as a fee-
based activity is also helping
insurance companies to find
innovative channels.
Distribution Channel
of
Available Channels
Distribution Channels
Banks
Cooperatives Evaluation Criteria

Panchayats
Reach Feasible Channels
Agents
Influence on target segment Coop Banks
Post Offices Trust & reliability Cooperatives
Cybermediaries Business acquisition capability
Panchayats
Industrial Fin Support requirements
Inst. Financial transaction handling Agents
Eco Exchange Pts Operational discipline
Customer servicing E-Bima
Brokers
NGO’s &
New Channel
SHG’s
 Suggested Strategy Model
DISTRICT COORDINATOR (1)
Insurer’s
Resources
BLOCK COORDINATOR (14)

E-Bima Agents Cooperatives Panchayats Coop Bank

1 20 5 8 3

No of Channel Units per Block

District Muzaffarnagar - Span of a Block

District 1
Per Block
Tehsils 5
Blocks 14 8
Panchayats 112 74
Villages 1031
 Complementary Delivery Systems
Name of the Accessibility/ coverage of Rural presence/
institution/ each branch penetration
instrument
Regional Rural Bank 15-20 villages 5000+ pop size
village
Commercial bank 5000 account holders 5000+ pop size
(Rural Branch) spread over (35-40 village
villages)
Post office 5-6 villages 2000+ pop size
village
Cooperative society 10,000 members spread 5000+ pop size
over 20-25 villages village

*ITC E choupal 5 to 7 villages Prosperous village

District cooperative 7500 accounts Block head quarter

bank
Kissan Credit Card 12% of total no. of farmers Farmer of any village
in rural area