Distribution Strategy

DISTRIBUTION STRATEGY

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

Inadequate banks and credit facilities Poor storage system

Low investment capacity of retailers

Poor visibility and display of products on rural shop shelves. Poor communication of offers

1.Distribution Strategy

Ensuring Reach & Visibility –The thing which is critical, is to get the Stock Keeping

Unit right, as rural retailer can‘t affo environment, being first on the shelf in the product category and developed a privileged  relationship with the retailer is a source of competitive advantage to consumer good companies.

Reaching upto Mandis, Towns, Semiurban centres –Organizations can cater to rural needs for consumer durables, clothes, kitchen equipment and agri-input by making their products available upto feeder towns, semi-urban centers or mandis.

Targetting larger villages –There are only 85000 large villages out of more than 6,38,000 villages. But they have 40% of the rural population and 60% of total consumption.

Understanding of Peak seasons –Peak season times in rural parts are Festivals, harvest and marriage seasons. Bulk of the demand for the consumer durables concentrated during these times. The rural consumers are in shopping mood and have the cash for the same at this time. Organizations have to ensure that their products are available at these times.

Delivery vans –Company delivery vans which can serve two purposes; they can take the products to the customers in select rural areas and also enable the firm to establish direct contact with them and thereby provide an opportunity for promotion.

Collaboration for Distribution – Various organizations with comparatively lesser distribution reach can collaborate with organizations that already have achieved high penetration levels in rural areas. For eg. P&G had tie-ups with Godrej, Marico Industries and now its planning one with Nirma for distribution of Camay soaps.

Converting unorganised sector manufacturers into distributors – Small scale manufacturers have good knowledge of the territory and have good sales network. Organizations like Exide are attempting to convert these small scale manufacturers to

become their dealers.

Company’s   own   Distribution–ProjectShaktiofHUL isNetworkonsuchexample

2.Distribution Channels in Rural India

Use of cooperative societies–There are over 4 lakh co-operatives operating for different purposes like marketing, credit and dairy cooperative in rural areas. For eg. Farmers

Service Co-operative Societies function like a mini super market for rural consumers where they sell soaps, detergents, cloth, seeds, fertilizers, pesticides etc. at economical and reasonable prices. Since these societies have necessary infrastructure for storage and distribution, companies may contact these societies to sell their products.

Use of Public Distribution System –In India, the Public Distribution System is well organized. There are about 4.37 lakh fair price shops operating in the country. Since the PDS outlets cover the entire country they can be utilized for marketing consumable items and low value durables in rural areas.

Utilization of Petrol Pumps –These petrol pumps, in addition to petrol/diesel, oil and lubricants are also selling consumables such as soaps, detergents, biscuits etc, particularly on the highways. These bunks may also think of stocking certain consumable agricultural inputs like fertilizers, seeds and pesticides.

Agricultural input dealers –There are about 2,62,000 fertilizer dealers in the country.

During off season most of the dealers don‘ to motivate them so that they can sell other products also during their free time.

Shandies/ Haats/ Jathras/ Melas –Shandies are periodic markets which operate in a weekly cycle. They offer a ready distribution network and are steady, cheap and appropriate. Haats can be used effectively for distribution, demonstration and sampling of daily need products. Melas work best for introducing new brands and building brands through the organization of events at the venue.

3.Accessing Rural markets: Coverage Status in Rural Markets

Marketers have to ensure the reach of their product to retail outlets, and they also need to motivate retailers to stock their product or brand.

50% of the rural population resides in the 1 lakh odd large villages. These villages are connected by all-weather roads and they account for 60% of rural wealth.

HUL, Eveready, ITC etc are the companies that have the most deeply penetrated rural distribution system just about cover the retail network up to the 2000+ population villages.

4.Rural distribution Channels

Five layers of distribution channels for the movement of products from the company depot to the interior village markets.

5. Evolution of Rural Distribution Systems

Historically, the rural distribution system has included wholesalers, retailers, mobile traders, vans and weekly haats.

In the feeder markets, retailers act as wholesalers and vice versa to sell to small retailers who come from surrounding villages.

Some town retailers send their salesmen to villages to book orders and supply goods to these small retailers.

Wholesaling

50% of rural consumption is still routed through wholesalers because they are located in nearby feeder markets, which are frequented by village retailers to replenish stocks.

Indian wholesaler is a trader rather than a distributor and therefore tends to support a brand during periods of boom and withdraws support during periods of slump.

Rural markets were neglected by most companies due to the low density of retail outlets and the small off-take per retailer. Wholesalers based in feeder towns took advantage of this situation as village retailers found it convenient to buy from these places. This resulted in the hold of the market by these wholesalers, who often indulged in trade malpractices in the channel.

Rural Retail System

Rural India accounts for 65% of retail outlets in the country. The logistics of feeding the 35 lakh retail outlets spread over 6 lakh villages is a tough task.

The high distribution costs due to geographical spread and low volumes per outlet act as a barrier to the entry of products in rural markets.

The average monthly sale per village shop is less than Rs. 5000, which restricts the variety and range of the products stocked.

Since a significant portion of the sale is on credit, it puts most village shops in a self-limiting sales cycle.

Despite the same product being available in the village shop, 58% of villagers prefer to buy these from a haat because of better price, quality and variety.

Stock Turnover

Average value of stock per product category in interior villages is about a third of that in feeder villages.

Off-take of packaged food stuff and tobacco is higher in interior villages, whereas toiletries have a higher take-off in feeder villages in comparison to other products.

The cash outlay of rural retail outlets is extremely low and most of it is invested in fast moving brands and high margin commodities.

The low off-take, low stocks and lower stock turnover ratio together pose a challenge to the marketer of a new product that how to occupy retail shelf space in rural markets.

Rural retail shelf space can be occupied by offering consumers a combination of attractive margins, credit facility and servicing that is superior to that offered by the

competition.

Rural retail Shelves Unlike urban retail shelves, rural retail shelves are flooded with local and regional brands as these promise the retailer higher margins and longer credit periods.

The number of product categories stocked by rural and urban stores does not vary significantly. But what does vary is the number of companies/brands. This difference in stocking pattern is because of poor reach and difficulty in servicing stores.

The first task is making brands available, but simultaneously marketers also need to make efforts to ensure their visibility on rural retail shelves. Products are stocked in a cluttered and disorganized way.

Slow-moving products covered with dust accumulated over a period of time are a common sight. The visibility of brands is very poor due to the absence of proper racks and display boxes and stands.

 Brands that are advantageous to the retailer‘s business are displayed prominently.

Therefore marketers need to devise strategies to occupy rural retail shelf space by providing display and storage systems. (wall mounted display strips for fairness creams and ice boxes for soft drinks.)

Vans

Mobile vans have an important place in the distribution and promotion of products in villages.

In this system, the salesman loads the van with stocks from the nearest stockist or company stock point and works the surrounding markets.

Once he has covered all such markets, he moves to the next stock point and starts covering the villages surrounding that stock point.

Eveready batteries and torches are market leaders. It established an extensive distribution network that includes 1000 vans, 4000+ distributors and 44 warehouses. These vans reach 6 lakh retail outlets directly, each van making 50 to 60 calls per day. The company ensures that the van revisits a retailer every 15 days. The stock for these vans is supplied by the small town distributors.

Rural Mobile Traders –The Last-Mile distribution

Mobile trading is an age-old, direct to home, unorganized distribution system in rural India.

     Sell  a  variety  of  daily-need  products,  mostly  local  brands  ranging  from  detergent,

cosmetics, and personal care products to garments and footwear.

They carry their product on bicycles, mopeds, handcarts or on foot.

Mobile traders have a deep reach since they target small villages to avoid competitions from shops in bigger villages. Their direct selling approach ensures high involvement on the part of consumers and since they have a fixed and committed consumer base, mobile traders enjoy a good rapport with their clients.

Mostly sell fakes and local brands.

Haats / Shandies

Haats are the periodic markets and the oldest marketing channel in India.

These markets provide people an opportunity not only to purchase consumer goods, but also to sell surplus agricultural and allied products.

They provide a first-contact point for villagers with the market, a means for distributing local products and exchanging rural surplus, an opportunity for buying daily necessities

as well as farm supplies and equipment and a place for social, political and cultural contact.

Each haat caters to the need of a minimum of 10 to a maximum of 50 villages, drawing around 4000 persons who come to buy and sell a range of daily necessities and services.

Public Distribution System (PDS)

PDS is a system of distribution for essential commodities to a large number of people through a network of FPS (Fair Price shops, often referred to as ‗ration shops‘).

The commodities are wheat, rice, sugar, edible oil and kerosene. PDS has been evolved to reach the urban as well as the rural population in order to protect consumers from the fluctuating and escalating price syndrome.

It has emerged as a major instrument of t ensuring availability of food grains to the public at affordable prices as well as for enhancing food security for the poor.

PDS with a network of about 4.76 lakh FPS is the largest distribution network of its type in the world.