Sourav Sinha

Rural Distribution
Issues & Challenges

Defining Rural India

Organization


Definition
Population density < 400 / Sq Km 75 percent of the male working population is engaged in agriculture No Municipal corporation / board   

Limitations
rural not defined

NSSO (Census)

Planning Commission LG Electronics

Towns up to 15,000 population are considered rural

Town characteristics not defined Only clarifies what are the cities Village & town characteristics not defined Population characteristics unknown

All places other than the 7 metros

NABARD

All locations with a population up to 10, 000 considered rural Commercial establishments located in areas servicing less than 1000 population

Sahara

Source: The Rural Marketing Book- Text & Practice, Kashyap. P and Raut. S ( 2007)

Rural India The Market Size

12.2% of the world's consumers live in rural India.
Distribution of National Population
Distribution Persons Population Males 531,277,078 Females 495,738,169 100.00 Population %

Total

1,027,015,247

Rural

741,660,293

381,141,184

360,519,109

72.22

Urban

285,354,954

150,135,894

135,219,060

27.78

Source : Census of India 2001

Rural India Changing Economics

Rural India Changing Economics

(Contd.)

Rural India The Changing Face

The culture of non-indulgence and abstinence in consumption is well and truly over Rural India buys 46% of all soft drinks sold [Coca-Cola is growing at 37% in rural
markets with only 25% penetration, compared with 24% in urban areas]

49% of motorcycles and 59% of cigarettes

Source: MART

The Rural Lure

The Rural Lure and its Implications



It is no wonder that there is an impulse to go rural among the marketers particularly FMCG and Consumer Durable companies. But the urban marketing strategy does not fit into the rural marketing structure and it needs a reorientation by looking at the competitive landscape and challenges of the rural market. They have tried tinkering with all the four 'P's of the marketing mix i.e. Product, Pricing, Promotion and Place [ E.g. HUL has been a pioneer in reaching out to the smallest of villages with innovative products such as single-use packets of shampoo] To sell in villages, products must be priced low, profit margins must be kept to the minimum and the marketing message must be kept simple.

However, the area where innovation has moved to center stage is in the fourth P -- place (or distribution). Distribution channels can make or break a company's rural marketing efforts. Companies know it far too well that unless they come up with some innovative distribution channels that grasp the rural nuances well, all their rural efforts will come a cropper. Some of the examples of how India Inc has moved on a pathbreaking manner to tap this market are  ITCs Choupal Sagar  HLLs Project Shakti  DCM Shrirams Hariyali Kisaan Bazaar  Godrejs Aadhaar Stores  Mahindras ShubhLabh Stores  Oil major IOCs Kisan Seva Kendras

The Distribution Challenge

Large and Scattered Markets
 

Dispersed population and trade Low density of shops/village and high variation in their concentration

Inadequate Transport Facilities Lack of Retail Infrastructure

  

Poor visibility and display of product on rural shop shelves Highly credit driven market and low investment capacity of retailers Inadequate bank and credit facilities for rural retailers

Lack of proper warehousing facility Multiple Tiers (large no. of intermediaries) leading to higher costs
*[ Though it depends on Cost/Benefit ratio of the individual organization]

Poor Communication of due to Poor Reach of Media

Response to the Issues

Large and Scattered Markets Inadequate Transport Facilities
  Marico and HLL have started using delivery vans to cater to rural markets. Coca Cola has opted for a hub and spoke distribution system.
[Coke bottles were transported from the bottling plants to the hubs (large distributors)
and from hubs to spokes (smaller distributors) situated in small towns. Further distribution is done from there.]

Response to the Issues [contd.]

Large and Scattered Markets Inadequate Transport Facilities
 Companies with relatively fewer resources can come together through syndicated distribution through co-partnering with noncompetitive marketers for the same market.

E.g.  Samsung has tied up with IFFCO.  Motorola and Nokia have partnered with ITC e-choupal  Aviva life Insurance has tied up with BASIX, an NGO

Response to the Issues [contd.]

Large and Scattered Markets Inadequate Transport Facilities
 Companies follow a strategy called "co-opetition", in which they come together to synergize their resources in rural markets for benefit of both the partners and yet, can compete in the urban markets for market share.

E.g.


Procter & Gamble has tied up with Godrej and Marico industries and now it is planning one with Nirma for distribution of Camay soaps. ICICI collaborating with P & T to open ATMs

Response to the Issues [contd.]

Lack of Retail Infrastructure Lack of proper warehousing facility

The concept of rural mall, first introduced by ITC as Choupal Sagar is proving to be an effective way out. Along with ITCs Choupal Sagar, few more companies have taken initiative in same direction. To name a few are TATA Kissan Sansar, Delhi Shrirams Kissan Haryali Bazaar, Godrejs Aadhar and Manthan.

Response to the Issues [contd.]

Multiple Tiers Poor Communication of due to Poor Reach of Media
    ITCs e-Choupal is an innovative, technology based way to address this issue where Intermediaries are avoided Direct contact with the consumer is established HLLs Project Shakti showed another smart way of reaching 10 lakh homes directly in the villages through the use of Self Help Groups where traditional communication/distribution system is neither efficient nor cost-effective.

Rural Distribution: The Economic Logic

Conclusion
Proper distribution in rural markets is indeed a great challenge but at the same time, once a reasonably viable model is worked out, it becomes a sustainable competitive advantage. Marketers can overcome these barriers and achieve organizational goal by  Innovative, out of the box thinking,  Designing and adopting effective strategies and  Proper use of resources ITC and HLL have shown us the way.

Rural Distribution: A Model