JAIPURIA INSTITUTE OF MANAGEMENT, JAIPUR

“RURAL DISTRIBUTION STRATEGIES OF TWO MAJOR COMPANIES” PGDM 2008-10

PROJECT REPORT

Submitted to

Prof. S. P. Garg

Submitted by: Swati Saxena ,Vartika Soni ,Vikram Singh

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Index
Topic Page

Introduction

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Rural Distribution Channels

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Rural Distribution Strategies

5-6

Distribution strategies of two major companies Conclusion 7-9 10

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INTRODUCTION For quite some time now, the lure of rural India has been the subject of animated discussion in corporate suites. And there is a good reason too. With urban markets getting saturated for several categories of consumer goods and with rising rural incomes, marketing executives are fanning out and discovering the strengths of the large rural markets as they try to enlarge their markets. Today, the idea has grown out of its infancy and dominates discussions in any corporate boardroom strategy session. It is a myth that rural consumers are not brand and quality conscious. A survey by the National Council for Applied Economic Research (NCAER), India's premier economic research entity, recently confirmed that rise in rural incomes is keeping pace with urban incomes. From 55 to 58 per cent of the average urban income in 1994-95, the average rural income has gone up to 63 to 64 per cent by 2001-02 and touched almost 66 per cent in 2004-05. The rural middle class is growing at 12 per cent against the 13 per cent growth of its urban counterpart. Even better, the upper income class those with household incomes of over Rs one million [$22,700] per annum is projected to go up to 21 million by 2009-10 from four million in 2001-02. It will have a 22 to 23 per cent rural component. Higher rural incomes have meant larger markets. Already, the rural tilt is beginning to show. It is no wonder that even MNCs have cottoned on to the idea of a resurgent rural India waiting to happen. With such an emphasis on rural marketing, consumption patterns are changing and it signals a change in the regulatory environment. Vertical integration of the food market from farm to firm to fork becomes the best way to achieve efficiency and serve the interest of every stakeholder in the chain the farmer, the processor, the retailer and the consumer. All this potential has got India's big business houses rushing to enter and expand rural businesses. No wonder even MNCs have cottoned on to the idea of a resurgent rural India. DISTRIBUTION CHANNELS IN RURAL MARKETS Distribution strategy A one of the ways could be using company delivery vans which can serve two purposes – it can take the products to the customers in every corner of the market and it also enables the firm to establish direct contact with them and thereby facilitates sales promotion. The mediocre companies with sizable resources may chip in for syndicated distribution. Haats and Melas could also be a great platform to display merchandise. Also, every region consisting of several villages is generally served by one satellite town termed as Mandi where people prefer to go to buy their durable commodities. If marketing companies use these feeder towns they can have a vast coverage of rural arena. Delivery Vans Companies can use their own delivery vans to reach the rural consumers. There are certain advantages of using delivery vans. They take the products to customers and retail outlets in every corner of selected rural markets and enable the company to establish direct contact with the consumers which helps in sales promotion. For example HLLs distribution strategy in rural market. In 1998, HLL landed "Operation Harvest" with an objective to increase penetration, increase brand awareness, encouraging trials and identification of key distribution points and retail points. Around 30,000 villages having high growth potential, having a population of at
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least 2000, and well connected by roads, were selected. The vans were retrofitted with a public address system and their audio visual equipment. These vans covered six villages a day for six days in a week. The cycle was repeated couple of times in the same villages. On reaching the villages, they would play audio cassette and video-films. These cassettes and films had songs and sequences from popular films with advertisement of HLL coming at some intervals. Company representatives distributed free samples. Small shops of villages were provided with HLL products like Lifebuoy and Wheel. This helped company to understand the potential of the market. Joint Distribution by Non-Competing Companies Companies having lesser distribution reach in rural areas can collaborate with companies already having wide network in rural market. This type of tie-up can prove to be beneficial as one can reach to large number of retail outlets by utilising the network and the other one can earn better revenue. Also, this type of joint collaboration can help both companies to reduce distribution costs and can convert operation which seems to be unviable into financially viable operation. Some examples of effective distribution tie-ups in rural market: - Samsung has tied-up with the Indian Farmers Fertilizer Cooperative (IFFCO). Thus, Samsung will use IFFCO's cooperative network for marketing the hand-sets to rural consumers over a wide area. - Nokia has entered into a partnership with HCL for distribution of its hand-sets. - Motorola and Nokia have partnered with ITC e-Choupal which gave them wider reach in rural market. - Procter & Gamble had tie-up with Godrej and Marico Industries, and now it is planning one with Nirma as well for distribution of Camay Soaps. - Godrej has tie-up with Jyothi Labs to use its extensive distribution network for marketing Godrej Tea across the country. Distribution up to Feeder Towns / Mandis Companies can cater to the needs of rural consumers by making their products available upto feeder towns or mandis. Feeder markets or mandis provide excellent scope for distribution of products like consumer durables, clothes, kitchen equipment, agri-inputs and tools. The rural consumers visit these towns at regular intervals not only for selling their agricultural produce but also to purchase clothes, jewelry, hardware, radio, and other consumer durable products. Haats Along with permanent retail outlets, haats can also be utilised to make the products available to rural consumers. Haats are held on a particular day of every week. Typically, an average haat has 300 stalls. A haat usually serves around 5000 visitors. Large number of retailers also buys products from haats for their village stores. About 90% of sales on haats are on cash basis. The participation fees at haats are a flat Re. 1 to Rs. 5 per stall which is very low.

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Melas Over 25,000 melas are held every year all over the country. Out of these, 5000 are commercial melas, 2,000 are cultural melas and 18,000 religious melas. The following facts regarding melas will help us to understand their importance to marketers: - Number of visitors per mela is approximately 7.5 lakh. - On an average, 850 outlets are set-up in every mela. - Average sale per day in a mela is Rs. 25 Lakh. - Visitor turn-out in a mela is very high. - A large part of the visitors in these melas are women and children, which is significant because rural women are restricted to leave village often. Melas are generally used to sell durables, high-priced items and new products launched. Hub & Spoke Method of Distribution The urban model of distribution in which the products are transported directly from the bottling plant to retailers is not very effective in rural markets as taking stock directly to retail point would be costly due to the long distance to be covered.

RURAL DISTRIBUTION STRATEGIES: By communicating and changing quality perception Companies are coming up with new technology and they are properly communicating it to the customer. There is a trade-off between Quality a customer perceives and a company wants to communicate. Thus, this positioning of technology is very crucial. The perception of the Indian about the desired product is changing. Now they know the difference between the products and the utilities derived out of it. As a rural Indian customer always wanted value for money with the changed perception, one can notice difference in current market scenario. By proper communication in Indian Language The companies have realized the importance of proper communication in local language for promoting their products. They have started selling the concept of quality with proper communication. Their main focus is to change the Indian customer outlook about quality. With their promotion, rural customer started asking for value for money. By understanding cultural and social values Companies have recognized that social and cultural values have a very strong hold on the people. Cultural values play major role in deciding what to buy. Moreover, rural people are emotional and sensitive. Thus, to promote their brands, they are exploiting social and cultural values. By providing what customer wants The customers want value for money. They do not see any value in frills associated with the products. They aim for the basic functionality. However, if the seller provides frills free of cost they are happy with that. They are happy with such a high technology that can fulfill their need.

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By promoting products with Indian Models and actors Companies are picking up Indian models, actors for advertisements as this helps them to show themselves as an Indian company. By associating themselves with India MNCs are associating themselves with India by talking about India, by explicitly saying that they are Indian. M-TV during Independence Day and Republic daytime make their logo with Indian tri-color. Nokia has designed a new cellular phone 5110, with the India tri-colour and a ringing tone of "Sare Jahan se achcha". By talking about a normal indian Companies are now talking about normal India. It is a normal tendency of an Indian to try to associate himself/herself with the product. If he/she can visualize himself/herself with the product, he /she becomes loyal to it By developing rural-specific products Many companies are developing rural-specific products. Keeping into consideration the requirements, a firm develops these products. By giving indian words for brands Companies use Indian words for brands. Like LG has used India brand name "Sampoorna" for its newly launched TV. The word is a part of the Bengali, Hindi, Marathi and Tamil tongue. In the past one year, LG has sold one lakh 20-inch Sampoorna TVs, all in towns with a population of around 10,000. By the end of 1999, roughly 12Thats Rs 114 crore worth of TV sets sold in the villages in a year. By acquiring indian brands As Indian brands are operating in India for a long time and they enjoy a good reputation in India. MNCs have found that it is much easier for them to operate in India if they acquire an Established Indian Brand. Electrolux has acquired two Indian brands Kelvinator and Allwyn this has gave them the well-established distribution channel. As well as trust of people, as people believe these brands. Similarly Coke has acquired Thumps up, Gold Spot, Citra and Limca so that they can kill these brands, but later on they realized that to survive in the market and to compete with their competitor they have to rejuvenate these brands. By effective media communication Media Rural marketing is being used by companies. They can either go for the traditional media or the modern media. The traditional media include melas, puppetry, folk theatre etc. while the modern media includes TV, radio, e-chaupal. LIC uses puppets to educate rural masses about its insurance policies. Govt of India uses puppetry in its campaigns to press ahead social issues.

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RURAL

DISTRIBUTION

STRATEGY

OF

TWO

MAJOR

COMPANIES:

1.HANDSETMANUFACTURER:NOKIA 2. FMCG: MARICO HANDSET Strategy: Ride to Rural India Indian handset manufacturers are all set to expand their footprint in the rural region, fighting challenges of meeting the specific requirements of rural India. The great Indian mobile revolution is all set to move to the rural part of the country, with handset manufacturers gearing up to come out with market-specific products to acquire maximum share. The next big opportunity for telcos will be in the hinterland where two-thirds of the country's 1.17 bn population lives. There are many factors driving handset manufacturers and operators to the rural market. Though India is emerging as one of the biggest telecom markets, metros and tier-2 cities are already reaching saturation point. Hence, companies have no option but to explore newer markets to sustain the growth. As of now, India is adding around 8 mn subscribers a month, and in July 2008 the country added 9 mn subscribers. Falling handset prices along with services available at extremely competitive prices have made mobility accessible to the lower strata of the society, which has mostly remained untapped. Handsets are available for as less as Rs 1,000, and affordable prepaid packages are making mobility very tempting for the mass market. Another driver for this market is that the Department of Telecom is planning to launch the second phase of mobile phone expansion covering around 2 lakh villages. About 11,000 additional towers will be installed under the scheme to cover habitats with population of 500. The details of the scheme are being worked out and locations of the towers are being identified. Under phase-I of the scheme, about 7,900 towers will be installed in 500 districts spread over 27 states. The stateowned BSNL will be installing over 6,000 towers. The setting up and managing of these infrastructure services started in June 2007, with subsidy support from the Universal Service Obligation Fund (USOF) of DoT. It is believed that of the next 250 mn users who will go mobile in the future, as many as 100 mn are likely to come from the rural parts of the country. As of now, rural mobile subscribers account for close to 25% of the total mobile user base in the country. However, there are many challenges associated with expansion in the rural segment as well. It is an extremely price-sensitive market and the requirements are going to be vastly different from the urban market. Possibly, the most crucial element in catering to the rural market is pricing. The rural market is believed to be extremely price conscious. Thus, affordability is a major plank for handset manufacturers, most of whom believe that pricing is going to be crucial to tap first-time buyers in the rural segment. "Affordability is one of the key factors, and our effort will be in the direction of making our products more accessible to rural consumers, be it easier finance or pricing itself," says Sunil Dutt, country head, Samsung Mobile Business. However, it is not just pricing, handset manufacturers would also have to come out with features that would appeal to the rural segment. "One of the major challenges for handset companies is that they have to have an understanding of a model that responds to user needs. It is not just pricing. RURAL DISTRIBUTION STRATEGIES OF NOKIA
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Handset major Nokia is eying rural India to further increase its market share in FY 2009-10. The company is working on several innovative business models to reach rural areas in an effective manner. India has been an astonishing success story for Nokia. The company has made significant progress and emerged as a major gainsayer in Indian handset market. The company is excited about 3G services and planning for significant sum of investment in FY2009-10. They have expended their distribution channel by over 40 per cent last year and have more plans to increase the same. They are expecting a double-digit growth in this sector and the key focus will be to cover villages with a population of 3000 and above. At present, Nokia is leading the market and introducing new Internet services and affordable devices specifically tailored for Indian customers. It has also partnered with key operators to deploy mobile vans in rural villages. These co-branded vans are to educate consumers on the impact of mobility on their lives, new bundled offers and product features/experiences, In addition, it is also planning to introduce Nokia Life tools in more handsets from this financial year. The pilot program of Nokia Life Tools in India was launched in December 2008, with services in agriculture, learn English, general knowledge and astrology. During the pilot phase, the services were available in the Nokia 2600 classic and the Nokia 1680 mobile phones. The services are targeted towards rural and small-town communities, providing timely and relevant information as per the needs. The best distribution networks in the world. Nokia can certainly capture back share in the vital high-end devices market with new products such as its 5800 Xpress Music (a lower priced iPhone like touchscreen phone) and making more consumer oriented phones. Planning Internet based services for the rural Indian market to position itself effectively in the non-urban markets. Services include micro-finance, distribution, agricultural services and after sales and support services. Nokia's large distribution - nine language support in India gain in the rural market. Mobile penetration stands at 6% in 2007. Nokia has head start on other mobile device providers with its programs for farmers in India - providing solutions from information on market prices for agricultural products, weather updates to financing options. Rural India is also looking for features that are specific to their needs. For instance, Nokia 1100, one of the best selling Nokia model was specifically targeted at the rural segment with long battery life and came with a torch. Hence, it is imperative that manufacturers have to understand the needs of the rural segment There is another issue facing handset manufacturers-features that appeal to an urban user are not likely to appeal to the rural India. "Contrary to popular belief, price is not the only driver for rural users. They seek a value for money proposition. In most cases the demand emerging from the rural market is of sturdy handsets that have strong battery life. Also, voice and easy text messaging are other essential and important features in an entry-level phone, Nokia's Strategy in New & Emerging Markets, Increase mobile usage in rural areas ,Reduce the mobile phone ownership and operating costs, Bring the benefits of mobile telephony to people in emerging markets , Bring the power of the Internet to these markets .

FMCG Strategy:
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FMCG majors are extending their distribution network and product portfolio to woo rural consumers across the country in order to pump up volumes. Encouraged by growth in sales from rural India in the second quarter, fast moving consumer goods (FMCG) companies are devising ways to tap this segment over the next few quarters. They plan new marketing strategies and extending their distribution reach, by increasing the number of stockists and even participating in rural markets and melas. The FMCG sector in India is the fourth largest in the economy, with a market size of over Rs 110,000 crore (around $22 billion) and is estimated to grow to over Rs 185,000 crore (around $37 billion) by 2014. A recent study by the Rural Marketing Association of India (RMAI) confirms that rural income levels are on the rise, driven largely by continuous growth in agriculture for four continuous years. Though rural markets are growing from a smaller base, the numbers can be stark in some categories. Mass products like soaps, hair oil and biscuits have good sales, and almost all companies are now relooking their strategy. Dabur India, for instance, is sharpening its marketing focus on consumer promotion in rural belts. Godrej Consumer Products Ltd (GCPL), on the other hand, is driving distribution in rural India via various activities. Amul too is planning to expand its distribution network to reach out to a wider target audience in the country. The company is also planning to introduce smaller stock keeping units to drive volumes in rural India. Rural markets are relatively free from the turmoil related to the economic slowdown, as compared to urban India. Recognizing the growth potential of rural markets, FMCG companies are now beefing up their operations. Given the increasing focus on agriculture, rural incomes are likely to go up. This will be beneficial to the FMCG companies. Innovative Channels are being experimented by F.M.C.G. In recent years the various innovative channels that are being experimented by FMCG majors in India are: •- Partnering with Self Help Groups in Rural India. •- Internet based Rural Kiosks/Hubs •- Direct Selling RURAL DISTRIBUTION STRATEGIES OF MARICO Marico is a leading Indian Group in Consumer Products & Services in the Global Beauty and Wellness space. Marico's Products and Services in Hair care, Skin Care and Healthy Foods generated a Turnover of about Rs. 23.9 billion (about USD 478 Million). Marico's distribution width and penetration is acknowledged as one of the best in the industry and is a leverageable strength. Every month, 56 million consumer packs are sold to about 1.8 million households through 1.6 million retail outlets spread across the country. Marico's distribution network covers almost every Indian town with a population of over 20,000. The chart below depicts Marico's distribution network in the urban & rural markets. Marico's parallel rural sales and distribution network ranks among the top three in the industry and contributes 24% to the company's topline. Their infrastructure comprises 882 direct distributors, 153 super distributors, catering to 2393 small stockists and 4523 van markets. A dedicated team of Territory Sales Executives and Pilot Sales Representatives distribute Marico's as well as alliance brands through this vibrant network. In order to reap maximum benefits from its sales and distribution network, Marico embarked on an internet-enabled application - MI-Net to establish a network between Marico and its
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distributors through a web interface. This project is aimed at providing real time information on the status of various business operations between Marico and its distributors. This initiative is expected to provide business benefits in the form of increased penetration by the sales force, reduced communication costs, reduced working capital requirements, etc. The project went live on April 1, 2002 with connectivity to 330 urban distributors, who together account for about 3/4th of Marico's domestic turnover. The business benefits are expected to accrue over a period of time.

CONCLUSION The essence of marketing lies in the exchange process and channels of distribution facilitate this exchange process by providing the linkage between the producer and the consumer. In rural areas the population density is low and spread out, and customers have low-purchasing capacities. Distribution structure in rural areas has been conceptualised as being influenced by three broad sets of issues related to the environment, the distribution strategy and the rural retailer. The external environment geographically is about reaching the villages, which are spread-out, diverse, and with sparse population. The geographic dimension of rural markets has been such an overwhelming problem, that for decades many organizations did not operate in these areas only because of the lack of access to these markets. But with the improvement in the status of roads and connectivity to villages the situation has improved but geographical aspect of the external environment still remains a formidable barrier which needs to be overcome.

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