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LAST MILE DISTRIBUTION

Dr. G. Sridhar
Indian Institute of Management, Kozhikode

Dr. G. Sridhar, IIM Kozhikode

Last Mile Distribution Decision Process

Scale up
Adapt/
Standardize
Identify Voids

Dr. G. Sridhar, IIM Kozhikode

Political Voids
Does government provide support or restrict to do business in
rural markets?
What are these benefits; funds, infrastructure, tax benefits?
How is the support of local self governing institutions like village
revenue offices?
How are the local informal institutional mechanisms like SHGs
organised? Are there any political motives behind such informal
groups? Can they be leveraged?

Dr. G. Sridhar, IIM Kozhikode

Industry Voids
How is the competition in these markets?
How are industry associations at national and regional
level encouraging the market penetration?
How such institutions are indulging in advocacy to central
and local governments for growing business?

Dr. G. Sridhar, IIM Kozhikode

Market Voids
Are the sources of data on BoP consumer behaviors adequate and
reliable?
Can BoP consumers obtain information on the quality of the goods
and services they want to buy?
How good is the marketing infrastructure like retail penetration,
size of retail outlets, channels to rural markets?
How good is the physical infrastructure like roads, rail connectivity,
power supply, telephone connectivity?
Do consumers trust goods from private organisations?

Dr. G. Sridhar, IIM Kozhikode

Market Voids
How different is the consumers income, per-capita and
occupational structures in these markets?
Is there a predominance of religious bias, caste and creed
imbalance, gender discrimination and family structure?
How different are the norms, values and consumer
aspirations?

Dr. G. Sridhar, IIM Kozhikode

Market Voids - Examples

Large no. of small markets


Dispersed population and trade
Poor road connectivity and lack of all weather roads
Multiple tiers in channels
Poor availability of suitable dealers
Low density of shops per village and high variation in their concentration
Inadequate banking and credit facilities hence poor viability of retail
counters
Poor storage system hence inadequate stocking
Highly credit driven market and low investment capacity of retailers
Visibility and display in rural counters is poor
Poor communication of offers thanks to media and other sources
Dr. G. Sridhar, IIM Kozhikode

Physical Infrastructure
Only 33 percent of the villages are connected with good
road facilities while 1.2 percent villages are connected by
rail.
Teledensity in rural areas is only about 3 per cent which
implies that out of the over 700 million people who live in
our villages, only 20 30 million have a phone (Sethi,
2007).
Availability and consumption of power is also significantly
different (Mishra and Pal, 2002).
Dr. G. Sridhar, IIM Kozhikode

Coverage Status in Rural Markets


An IMRB survey identified that big villages are more
developed than small villages
Its easy and cost effective to sell a truck load of stock in
urban when compared to rural
1.68 million outlets in urban are spread over 5000 towns and cities
3.5 million outlets in rural are spread over 6 lakh villages
Villages

No. of Shops

Pop. Strata

None

1-4

5-15

16+

Upto 500

26

56

15

501 2000

41

41

10

2000 +

43

46

Source: IMRB, Note: Figs


Percentages
Dr. G.inSridhar,
IIM Kozhikode

Distribution of villages
Population
Less than 200
200 500
501 1000
1001 2000
2001 5000
5001 - 10000

No. of
% of Villages/% of
Villages
Population
96855
15.7 / 1.2
136454
21.4 / 5.9
156737
24.6 / 14.5
140751
22.0 / 25.9
87206
13.7 / 37.5
20263
3.2 / 15.0

Source: Census, 2001


Dr. G. Sridhar, IIM Kozhikode

Hardly any shops in


2.3 lakh villages

17% of villages, 50%


Of rural population
And 60% of rural
wealth

Distribution of Towns
Class of Town

Population

No. of Towns

% of Towns

Class I

More than 1
Lakh

423

8.6

Class II

50000 99999

498

9.6

Class III

20000 49999

1386

26.9

Class IV

10000 19999

1560

30.2

Class V

5000 9999

1057

20.5

Class VI

Less than 5000

237

4.6

5,161

100

Total
Source: Census, 2001

Dr. G. Sridhar, IIM Kozhikode

90% of durables
Purchased by
Rural people are
From these
1,900 towns
i.e. class II and III
towns

Retail Network
Fig in %

Average number of shops per village


stands at 5.85.
Highly skewed distribution of retail
counters. Seven Indian states account
for 76 percent of the countrys rural
retail outlets, the total number of
which is placed at around 3.7 million.
There are 5000 wholesale assembly
markets, 25,000 haats and shandies,
over 20 lakh retail outlets in India
(Jha, 2003, Prem Kumar and Sweety,
1985)

Shops
Villages with
Population

None

1 to 4

5 to 15

16 +

<500

26

56

15

500
1999

41

42 10

2000 +

44 46

Source: IMRB
Dr. G. Sridhar, IIM Kozhikode

Bottom Line
In case the voids are higher
The transaction costs for the buyer and seller is going to be
very higher
Information Asymmetry between buyers and sellers is going to
be higher thus results in loss of trust.
The ease with which the buyers and sellers come together in is
also going to be far less thus increasing difficult to serve
Results into poor money flows in the channels

Hence, if voids are not bigger, the organization can


standardize their strategy. Else adapt.
Dr. G. Sridhar, IIM Kozhikode

Bottom Line
Tinkering with price or product may provide value to
consumers but delivery is also important.
Adapting the channels and products synchronously is the
key to success in last mile!!
Last mile distribution decisions should always consider
the efficient flow of information, product and money.

Dr. G. Sridhar, IIM Kozhikode

Last Mile Distribution Framework for Adaptation


Channel Adaptation
Altering the existing channels
of distribution (design, levels,
nature & types of
intermediaries) to bring in
more efficiency and
effectiveness in delivery of
value

Product Adaptation
Altering the existing
product to meet local
conditions or consumer
preferences. Broadly, these
are related to design,
quality and features,
packaging and labelling

Dr. G. Sridhar, IIM Kozhikode

Last Mile Distribution Framework for Adaptation

Adaptation - Approaches
Mainstream: No direct or overt involvement in the
wellbeing of society/consumers to offer or deliver value
Developmental: Organization engage overtly in catalyzing
the social wellbeing/capacity building and thus offer and
deliver value.
Note: Adaptation of channels, products and approaches are not dichotomous
but can be placed on a continuum

Dr. G. Sridhar, IIM Kozhikode

Last Mile Distribution Framework for Adaptation


Product

Same

STANDARDIZATION
Mainstream: Tata Nano
Developmental: ICICI Pru
PKAP

CHANNEL ADAPTATION
Mainstream: Colgate Palmolive
Cycle Salesmen
Developmental: HUL Shakti

PRODUCT ADAPTATION
Mainstream: Mahindra Maxx
Developmental: P&G Pur

ADAPTATION
Mainstream: Movirtu Cloud
Phone
Developmental: Novartis Arogya
Parivar

Different
Same

Channel

Different

Sources: Few Journal/conference articles and several popular media like newspapers, magazines and internet (For details contact author)

Dr. G. Sridhar, IIM Kozhikode

Last Mile Distribution Framework for Adaptation


Product

Same

STANDARDIZATION
Mainstream: Tata Nano
Developmental: ICICI Pru
PKAP

Different
Same

Channel

Different

Sources: Few Journal/conference articles and several popular media like newspapers, magazines and internet (For details contact author)

Dr. G. Sridhar, IIM Kozhikode

Let us see a small presentation about Tata Nano.. http://www.tatanano.com/home.htm (Press the Nano Story ikon)
Dr. G. Sridhar, IIM Kozhikode

Tata Nano
After the initial euphoria as worlds cheapest car, the
company had to face a steep decline in sales
Recently company reported increased sales in rural
markets, primarily owing to an expansive distribution and
financing network for customers
Using the conventional channels the same product is sold
by expanding into rural markets to boost sales volumes of
Nano
Source: http://www.motorbeam.com/cars/tata-motors/tata-motors-to-expand-to-rural-areas/
Dr. G. Sridhar, IIM Kozhikode

ICICI Pragati Ka Anokhi Paathshala


(Unique School for Progress)

Source: Rohit Raheja and Atul Kumar (2011), ICICI Prudential Life Insurance: Selling Insurance in Rural India, Case Studies in Marketing Effectiveness, SPJIMR, 23 -47.
Dr. G. Sridhar, IIM Kozhikode

Why PKAP?
First mover advantage and almost
sarkari image by Life Insurance
Corporation of India (LIC)
Difficulty in selling insurance to
rural is not about numbers or
geography but mindset
Given their limited earnings, savings
though are important, is limited
Lack of knowledge about several
instruments also builds this mindset
Several NBFCs and shahukars have
deceived them in the past

Private players are treated with


suspicion ICICI wanted to
overcome this
PKAP is a unique learning
opportunity for rural children who
are talented by lack exposure and
guidance
Attempted as a workshop to
provide tangible educational value
and alter engage with parents to
gain their commitment for
education

Dr. G. Sridhar, IIM Kozhikode

Opportunity

In rural areas, education of children ranked as


second important priorityimmediately after
having a good crop (A C Neilson, 2010)
A Villager wants his son to study and work in
the citybut is ignorant on what it takes to
make him successful in future (Indica Research for ICICI Pru)
Can ICICI Pru seize this opportunity and sell
the Childrens Education Policy
Should they make the parents to think about
the financial planning, understand the level of
preparedness requiredmay be..
Dr. G. Sridhar, IIM Kozhikode

Objectives and Delivery


Objectives

Increase overall sales by 50% in


activation locations
Impact and improve brand
preference and brand
consideration scores

Delivery

Expose children to education


similar to their urban
counterparts
Show the parents the
opportunities available for the
children

Dr. G. Sridhar, IIM Kozhikode

PKAP Architecture
Communication Skills
D
A
Y
1

D
A
Y

Memory Enhancement Skills


Vedic Maths and Logical
Reasoning
Arthyudh

2
Dr. G. Sridhar, IIM Kozhikode

400000
350000
300000

345140
319180

250000
200000

242398
209872

188738

210236

196436

150000
120558

100000

115000

126570

50000
0
Aug, 2009

Sept, 2009

Oct, 2009
Non PKAP

Nov, 2009

Dec, 2009

PKAP

Rolled out in Aug, 09


Covered above 68,000 children, 23,000 parents by 09-10
and generated 60,000 leads
Successful in sales and brand impact
Dr. G. Sridhar, IIM Kozhikode

Last Mile Distribution Framework for Adaptation


Same

Product

CHANNEL ADAPTATION
Mainstream: Colgate Palmolive
Cycle Salesmen
Developmental: HUL Shakti

Different
Same

Channel

Different

Sources: Few Journal/conference articles and several popular media like newspapers, magazines and internet (For details contact author)

Dr. G. Sridhar, IIM Kozhikode

Colgate Palmolive Mobile Traders


Existing Channel Structure

Source: Benjamin Mathew, Amit Mookerjee (2008), "Evolution of a Sustainable PPP Model in the BoP Market", Internal MART document, August

Dr. G. Sridhar, IIM Kozhikode

Access to population below 2000


Toothpaste Toothpowder
All

48.6

34.7

Urban

74.9

30.6

India Rural

37.6

36.5

North

47.8

37.1

South

61.8

35.7

East

40

30

44.4

36.1

Zones West

Oral Care Penetration in India

Traditional models are not cost


effective for small villages
Ideal channel partner is one
who promotes the brand,
communicates brand
messages, sells the product
and, thereby, earns a
reasonable living
Catch them young and train
enough is the motto

Source: MART Internal Report


Dr. G. Sridhar, IIM Kozhikode

Colgate Mobile Traders Model


Identify educated, unemployed youth in villages
as potential channel partners for Colgate
products
Select youth who act as entrepreneurs, paying
cash for stock and earning from sale of products
To keep costs low, youth will travel by bicycle with
a stock box attached for product storage.
Makeshift stall, using a branded umbrella,
erected at venue to attract buyers.
Branding of channel partner through company
logos on T-shirt, bicycle and box will increase
visibility and ensure authenticity
Dr. G. Sridhar, IIM Kozhikode

Colgate Mobile Traders Model


Map the uncovered territory of the rural
Colgate stockists.
Select a cluster of 20-30 uncovered
villages within a 10 km radius. Ensure
Haats are present.
Allocate territories and develop a
permanent journey cycle plan to cover
these markets.
In one day, the entrepreneur covers 2
village retailers and one Haat. On non
Haat days, the entrepreneur covers 4
villages
Dr. G. Sridhar, IIM Kozhikode

Colgate Mobile Traders Model


The youth is linked to the nearest company stockist
and buys stock on cash, usually weekly
The entrepreneur margins are approximately 3%
selling to village retailers and approximately 8%
selling directly to consumers at Haats, creating a
weighted average margin of 7%.
Initially CP gives a monthly stipend of Rs.1500/- pm
Later reduces it as mobile trader gets more revenue
Dr. G. Sridhar, IIM Kozhikode

Benefits for CP

Dr. G. Sridhar, IIM Kozhikode

Hindustan Unilver Limited - Project Shakti


Direct reach of HUL is only 16%
of rural markets
Distribution nightmare for
villages with population below
2000
Achieve a holistic marketing
objective of business and social
development
Extend reach to untapped
markets and develop brands via
local influencers
Provide livelihood options for
underprivileged rural women

Dr. G. Sridhar, IIM Kozhikode

Challenge To Reach:
90% of villages smaller than 2000
population
Over 500,000 villages not reached by
conventional models

Challenge To Communicate:
Low literacy hampers effectiveness of
print
Poor media-reach: 500 million Indians
lack TV.

Challenge To Influence:
Traditional habits
Low category penetration,
consumption, brand awareness
Dr. G. Sridhar, IIM Kozhikode

Process

The principal customer of HUL is an


individual woman member from the SHG
group
She works as a HUL distributor and is
known as a Shakti Entrepreneur
Receives stocks against cash payment at
her doorstep from the HUL rural
distributor
Sells direct to consumers as well as to
retailers in the village
Each Shakti Entrepreneur services 4-6
villages in < 2000 population locations
Sells $300 -$500 per month; makes net
profit of $25 -$35 per month (~7% average
margin)

Dr. G. Sridhar, IIM Kozhikode

Impact
34,000 entrepreneurs across 15 states

SEs sell to homes and outlets in clusters of 3-5 villages

Impact on entrepreneurs

Economic - average income of $15 per month doubles household


income, supplements other income
Social women empowered to set up and run their own businesses

Corporate

Penetration into markets


Brand communication
Project Shakti turnover in 2004 was 4 times that of 2003; thus
increasing rural share to about 13 %
Image of socially responsible company
Dr. G. Sridhar, IIM Kozhikode

Last Mile Distribution Framework for Adaptation


Product

Same

Different

PRODUCT ADAPTATION
Mainstream: Mahindra Maxx
Developmental: Novartis Arogya
Parivar
Same

Channel

Different

Sources: Few Journal/conference articles and several popular media like newspapers, magazines and internet (For details contact author)

Dr. G. Sridhar, IIM Kozhikode

Mahindra Maxx
- Transport Vehicle

Dr. G. Sridhar, IIM Kozhikode

Why Maxx?

The rural consumer usually travels in a group. He is used to


wide open spaces.
Therefore he seeks the same attributes in his vehicle.

Also seeks space for luggage


He needs a vehicle that is rough & rugged, yet comfortable
Personal vehicles are also hired out when not being used or
in demand
Incidence of hiring of vehicles is greater than ownership
City & urban is aspirational
Optimization is a way of life but image & show is very critical
Dr. G. Sridhar, IIM Kozhikode

Hence Rural needs a vehicle that has

MORE Space
A vehicle that is MORE Rugged & Tough
Least Cost of Ownership, MORE value
MORE aspirational image
More means Maxx

Dr. G. Sridhar, IIM Kozhikode

Mahindra launched Maxx


Variants
MaXX Standard 10 seater for value conscious
MaXX TX for Taxi Operator
MaXX Festiva for Image seeker who was the tourist taxi
operator
Fuel consumption (14 - 15 Km/Litre)
Competitors - 10 - 12 Km/Litre
Maxx had good space inside also
Distribution by the traditional channels only
Thus Maxx happiness for owners and passengers
Dr. G. Sridhar, IIM Kozhikode

Water Crisis
1.1 billion people i.e. 1/6th in the world do not have
access to safe drinking water.
50 percent of people on earth lack adequate
sanitation.
20 percent of freshwater fish species have been
pushed to the edge of extinction from contaminated
water.
Half of the worlds 500 major rivers are seriously
depleted or polluted.
The water we drink today is the same water the
dinosaurs drankthere is no new water.

Dr. G. Sridhar, IIM Kozhikode

Problems
80 percent of diseases in the developing world are caused by
contaminated water
2.2 million people in developing countries, most of them
children, die every year from water related diseases.
Waterborne diseases cost the Indian economy 73 million
working days per year.
Nigeria loses $9 billion (20% of its Gross Domestic Product)
Half of the world's hospital beds are filled with people
suffering from water related illnesses.
In the past 10 years, diarrhea has killed more children than
all the people lost to armed conflict since World War II.
In China, India and Indonesia, twice as many people are
dying from diarrheal diseases as from HIV/AIDS.

Dr. G. Sridhar, IIM Kozhikode

Problems
If we did nothing other than provide access to clean
water, without any other medical intervention, we
could save 2 million lives a year.
The average distance that women in Africa and Asia
walk to collect water is six kilometers.

More than 40 million hours are wasted each year in Africa


alone from women and children gathering water.

Tens of millions of children cannot go to school as


they must fetch water every day.
Drop out rates for adolescent girls, who even make it
that far, skyrocket once they hit puberty as there are
no private sanitation facilities at their schools.
Dr. G. Sridhar, IIM Kozhikode

Consumption
We have the same water what Dinosaurs drank
Only 2.5% of total water is fresh which is about 28 acre foot.
Of this only 7 acre foot water is usable directly rest is in some
other forms like glaciers, humidity etc.
The average person consumes water to the extent of
in the developing world - 2.64 gallons a day.
United Kingdom - 35.66 gallons a day.
United States - between 100 and 175 gallons a day.

Almost 70 percent of the available fresh water gets used for


irrigation in agriculture.
More than half of the water used for irrigation leaks, evaporates or
runs off

Dr. G. Sridhar, IIM Kozhikode

Liters it takes to make your meal size


Barista Coffee

137

Bread

148

Glass of Wine

244

Mixed Salad

481

Glass of Milk

981

Pork Chop

1961

Hamburger (abt 100 gms)

10730
0

2000

4000

6000

Source: Blue Planet Network and data confers to what UN also states
Dr. G. Sridhar, IIM Kozhikode

8000

10000

12000

Economics
Every $1 spent on water and sanitation generates a return
of $9 in saved time, increased productivity and reduced
health costs in Africa.
The UN estimates it would cost an additional $30 billion
to provide access to safe water to the entire planet. Thats
a third of what the world spends in a year on bottled
water.
Despite the size of the problem, we have made little
progress against it.
Major water borne diseases receive just one percent of
total public and private funds devoted to health research.
Dr. G. Sridhar, IIM Kozhikode

Can Corporate Marketing Solve the Problem?


Water is a $400 billion dollar global industry; the third largest
behind electricity and oil.
Much of this business is in the Bottled Water.
Are there solutions that are provided for grassroot citizens?
What benefit will corporate get?

Dr. G. Sridhar, IIM Kozhikode

50

Provided over 3 Billion Liters of


Clean Drinking Water in the
Developing World
Let us see a video

Dr. G. Sridhar, IIM Kozhikode

Last Mile Distribution Framework for Adaptation


Product

Same

ADAPTATION
Mainstream: Movirtu Cloud
Phone
Developmental: Patrimonio Hoy

Different
Same

Channel

Different

Sources: Few Journal/conference articles and several popular media like newspapers, magazines and internet (For details contact author)

Dr. G. Sridhar, IIM Kozhikode

Dr. G. Sridhar, IIM Kozhikode

Cloud Phone

Dr. G. Sridhar, IIM Kozhikode

Cloud Phone

Dr. G. Sridhar, IIM Kozhikode

Service Model

VPO: Village Phone Operator

Dr. G. Sridhar, IIM Kozhikode

Revenue Model

Dr. G. Sridhar, IIM Kozhikode

Novartis is a forerunner in poverty alleviation by improving health of the poor, thus enabling better
income capabilities
To improve healthcare access for the under-served poor located at bottom-of-the-pyramid using
social-business approach

Source: http://www.novartis.com/corporate-responsibility/access-to-healthcare/our-key-initiatives/social-business.shtml
Dr. G. Sridhar, IIM Kozhikode

Background
Rural India market 65% lack
access to medication [WHO]
80% are daily wage-earners & 40%
earn < $1.25 / day
Key healthcare issues: water
purification, sanitation, undernourishment, iron deficiency,
vaccinations, TB, & diabetes
Low ability to pay: healthcare
entirely out of pocket; low
affordability for large packs
Key obstacle : lack of awareness
and weak health-infra
Dr. G. Sridhar, IIM Kozhikode

Approach
A complete healthcare solution and not just access to medicines
Supports development of poor healthcare infrastructure : Micro
Credit initiative
Complete health value chain : patient awareness to drug compliance
Awareness
Patient Awareness: Disease and therapy awareness local Health Educators
Physician Education: Disease and Novartis portfolio education Cell

Community address

Patient awareness & education

Supervisors

Adaptability

Customized Portfolio and Marketing: TB, antibiotics, supplements, GI, pain,

Calcium in local languages

Local faces in team

Accessibility

Physician education

Enhanced Distribution: Through setup of Arogya local sub-distributors &

health camps by doctors

Affordability

Custom small packs with smaller price points


Dr. G. Sridhar, IIM Kozhikode

Social Business Model


SOCIAL

BUSINESS
AVAILABILITY

HEALTH EDUCATION
Referral Cards
Collection

Distribution

Community
Meetings

Health Camps
with city doctors

Drug compliance
Dr. G. Sridhar, IIM Kozhikode

Doctors
Education & loans
from MFIs

Medicine supplies &


loans from MFIs to
pharmacies

RESULTS (by June 2010)


270 cells * in 11 states
530 Educators & Supervisors
29000 villages with 42 million
people
22000 doctors & 18000
pharmacies

cell = 100 villages over 35 sq. kilometers with avg. 180,000 people

61IIM Kozhikode
Dr. G. Sridhar,

Key Learning
Learning : Consumer behavior
Poor also spend on health if counseled
Villagers prefer strong, fast-acting drugs to avoid loss of
daily earnings
Small purchase size but more often due to limited out of
pocket
Equitably priced smaller packs for BoP facilitate customer
acquisition
Learning : Marketing efficiency analysis
Very strong interest in and recall of education programs & health camps
A few local parameters drive success: pop. density, pop. purchasing power, density
of roads, efficiency of free government programs
Trust needs time to be built & word of mouth Influence works better
Locals play more role than mass media
Local faces in Arogya field team [from NGO background] A must for credibility

Managing patient flow, from awareness to compliance, is essential


Dr. G. Sridhar, IIM Kozhikode

different market different approach


Sustainable CC & Market Access

Outcomes

Reconfigure way-to-market and supply


chain solutions
Price alone is not the key barrier to medicine
access in BoP
Ignorance and Infrastructure are bigger
challenges
Health alliances and partnerships are needed
for total healthcare solutions and not just pills

Medicine access improved for 42 million


people in 28,000 villages
Health education to 4* million villagers each
year
*Percent of patients reached in community meetings who then visit doctors

Upfront social investments before business


growth
Participate with government and regulatory
Long term market development investments
for future middle class
Dr. G. Sridhar, IIM Kozhikode