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RURAL DISTRIBUTION MODELS

POSTED BY NISHA KUMAR KULKARNI ON APRIL 7, 2011

This story originally appeared in our April 7, 2011 e-magazine. Click here to subscribe. Rural distribution at the Bottom of Pyramid (BoP) level is challenging, but a new IFMR report analyzes different distribution channels and their potential.

At least 400 million people in India earn US$1 (INR 45) per day. Of the countrys 1.2 billion population, only 50 million people earn more than US$5 per day. However, according to a 2011publication by the Centre for Development Finance at IFMR calledThe Base of the Pyramid Distribution Challenge, the year 2020 will bring a host of income distribution changes. By then, the number of people earning US$1 a day will decrease to 250 million and approximately 150 million will have a daily income over US$5. Sachin Shukla and Sreyamsa Bairiganjan, authors of the new publication, note that the revenue opportunity at the rural BoP level is on par with opportunities in urban markets.

The report suggests that development policies, farm loan waivers and better rural infrastructure will translate into a stronger rural consumer culture in India. The irony for BoP consumers though is that they often pay higher prices for goods than their wealthier compatriots. This so-called BoP Penalty can be partially attributed to distribution issues of serving the near 700 million living in Indias villages. The key challenges to rural distribution are the heterogeneous BoP customer profile, overcoming product challenges such as lack of availability or understanding local needs, as well as the regulatory, geographic and infrastructure frameworks of a given rural location. Instead of discussing a one-size-fits-all approach to rural market distribution, Shukla and Bairiganjan identify and evaluate different distribution channels by presenting case studies of different Indian energy sector enterprises working in India. For example, the enterprise d.light partners with local NGOs to promote its solar lanterns and also sells its product through a network of retailers, while Prakti Design uses SELCO networks to sell its cooking stoves, and to provide bank loans to end users so that they may buy stoves. The case studies illustrate that there are numerous models that can work in reaching rural markets, and that enterprises wanting to tap into these markets need to experiment and research the best channels to reach the rural consumer. Photo credit: Flickr user Pranav Singh