Hello! My name is Priyam Prakash and I’m from Patna, Bihar.

I have earned my graduation

degree in B.com (Hons.) from Delhi University and currently enrolled in PGDM course from
ISB&M, Pune in Marketing and Media specialization.
I am here to present on a Marketing Fundamental topic, i.e. Non-conventional distribution
model of rural marketing.
Before going deep into the topic let’s first understand what Non-conventional Distribution
is.
Non-Conventional or integrated channels are those networks that work with full
coordination and co-operation rather than in a loose manner.
These are of two types:

(1) Vertical Distribution Channel

(2)  Horizontal Distribution Channel

Coming to the first, i.e. Vertical Distribution

In the conventional channels of distribution like direct and indirect channels, none of the
channel members had total or substantial control of the other members and thus operated
mostly in autonomy. In a vertical marketing system, all the members of the channel act in a
unified manner and are not autonomous. All the channel members perform the marketing
functions without any function taking more importance over the other. Vertical Distribution
Channels are rationalised and capital intensive network. These are so designed so as to
achieve various managerial promotional and technical economies. This is done by
integrating and coordinating various marketing activities and flows from point of production
to consumption.

These vertical channels are of three types- administered, contractual and corporate.

a. Corporate vertical distribution channel: In this Vertical Channel, a firm at one level
of the channel may own successive levels or the entire channel. Such type of Vertical
Distribution renders control to the manufacturer. The successive levels of production
and distribution are brought under single ownership.

For example, Bata uses corporate vertical marketing systems by controlling the
entire production and distribution line to reach their customers.

b. Administered vertical distribution channel: In this type of Vertical Channel, the

distribution activities are coordinated throughout the market and the channel gains
its economic power from one member of the channel or from the shared power of
two members.

For example, the companies like Hindustan Unilever Limited (HUL) enjoy perks from
the retailers in terms of display and shelf spaces as the company enjoys high degree
of brand equity.
 c. Contractual vertical distribution channel: Under this system, all the channel
members operate on contractual basis to try to improve the effectiveness and
efficiency of the distribution channel.

For example, McDonalds operate through contractual vertical marketing systems

wherein the retailers operate as franchisees (contractual agreements) on the behalf
of the company to reach the customers across countries.

Benefits of Vertical Distribution Channel are: Achieving economies through their size,
bargaining power, and elimination of duplicated services and channel conflicts.

Next is Horizontal Distribution, Horizontal channel is one in which two or more companies
jointly distribute their products in market either themselves or they create an independent
unit. This helps in better gain from the marketing opportunities. Horizontal channels are
used because of stiff competition, constantly changing market, rapid changes in technology,
cyclical changes and such other factors affecting the market.

Example– Associated cement company, sugar syndicate of India, Maruti Udyog and HDFC
bank. Maruti Udyog is manufacturer of cars. Car financing is not their business .But, Maruti
has joined hands with HDFC bank who has specialised knowledge about financing. Both
have 45% stake each with 10% being held by Maruti Udyog.

Benefit of Horizontal Distribution channel is the Economy of effort. A channel may become
viable and attractive.

Now I would like to talk about Rural Marketing:

Rural marketing is a process of developing, pricing, promoting, and distributing rural

specific goods and services leading to desired exchange with rural customers to satisfy
their needs and wants, and also to achieve organizational objectives.

The emergence of rural markets as highly untapped potential emphasizes the need to
explore them. Marketers over the past few decades, with innovative approaches, have
attempted to understand and tap rural markets. Some of their efforts paid off and many
markets still an enigma. Rural marketing is an evolving concept, and as a part of any
economy, has untapped potential; marketers have realized the opportunity recently.
Improvement in infrastructure and reach, promise a bright future for those intending to go
rural. Rural consumers are keen on branded goods nowadays, so the market size for
products and services seems to have burgeoned.
Rural per capita consumption expenditure grew by 11.5 per cent while the urban
expenditure grew by 9.6 per cent. There is a tremendous potential for consumer durables
like two-wheelers, small cars, television sets, refrigerators, air-conditioners and household
appliances in rural markets.

The rural market in India generates bigger revenues in the country as the rural regions
comprise of the maximum consumers in this country. The rural market in Indian economy
generates almost more than half of the country’s income. Rural marketing in Indian
economy can be classified under two broad categories.

These are:

i. The market for consumer goods that comprise of both durable and non-durable goods

ii. The market for agricultural inputs that include fertilizers, pesticides, seeds, and so on.

DESIGNING DISTRIBUTION CHANNEL

The steps in designing a distribution channel can be summarized in four components:

1. Specifying the role of distribution channel: The channel strategy should be consistent
with the manufacturing company’s marketing mix policies, mission statements and
company’s marketing objectives. A company must decide its distribution channel by taking
into account its strategy towards its competitors – it may choose a similar distribution
channel as that of its competitors (defensive strategy) or a better and efficient distribution
channel as compared to its competitor (offensive strategy).

2. Selecting the type of distribution channel: Depending on the various factors affecting
choice of distribution channels, a company must find the right fit for its product from the
options of – direct channel, indirect channel, vertical marketing system, horizontal
marketing system and multi-channel marketing system.

3. Determining intensity of distribution: The next decision to be taken is regarding the

intensity of distribution or the number/ levels of channel intermediaries.

4. Choosing specific channel members: Finally, the company will need to choose specific
channel members as there are several options of companies to choose from in each channel
level. For this, the company can either contact the existing channel members it has been
associated with in the past or send out advertisements inviting enquiring into become
channel members.

DISTRIBUTION CHANNELS IN RURAL MARKET

1. Segment villages before expanding: With numerous villages in India, it is

impossible for an organization to hit the rural market all at once. Ideally, coverage of
villages with up to 2000 and above population could be the break-even point for a
distribution set-up. By doing so the percentage of villages covered comes to only
10%, however the percentage of all the rural population covered will be substantial.

2. Use of co-operative societies: There are over 3 lacks co-operative societies

operating in rural areas for different purposes like marketing cooperatives, farmers
service cooperatives and other multi-purpose cooperatives. These cooperatives have
an arrangement for centralized procurement and distribution through their
respective state level federation. Such state level federation can be motivated to
procure and distribute consumables items and low value durable items to the
members to the society for serving to the rural consumers.

3. Utilization of public distributory system: The PDS in the country is fairly well
organised. The revamped PDS places more emphasis on reaching remote rural areas
like the hills and tribals. The purpose of PDS is to make available essential
commodities like food grains, sugar, kerosene, edible oils and others to the
consumers at a reasonable price. The shops that distribute these commodities are
called fair price shops. These shops are run by the state civil Supplies Corporation,
co-operatives as well as private entrepreneurs. Here again there is an arrangement
for centralized procurement and distribution. The manufacturing and marketing men
should explore effective utilization of PDS.

4. Utilisation of multi-purpose distribution centres by petroleum/oil companies: In

order to cater to the rural areas the petroleum/oil companies have evolved a
concept of multi-purpose distribution centres in rural areas. In addition to
petrol/diesel, lubricants, these outlets also stock consumables agricultural inputs like
fertilizers, pesticides and seeds. It is estimated that there are about 450 such outlets
in operation in the country. The rural consumer who has tractors, oil-engine pump
sets and mopeds frequent these outlets for their requirement. These outlets can be
profitably utilized for selling consumables and durable items also. 5. Distribution
upto feeder markets/mandi towns: Keeping in view the hierarchy of markets for the
rural consumers, the feeder markets and mandi towns offer excellent scope for
distribution. The rural customers visit these towns at regular intervals not only for
selling the agricultural produce but also for purchasing cloth, jewellery, hardware,
radios, torch cells and other durables and consumer products. From the feeder
markets and mandi towns the stockist or wholesaler can arrange for distribution to
the village shops in the interior places. This distribution can be done by mopeds,
cycles, bullock-carts, camel-backs etc. depending upon the township.

6. Shandies/Haaths/Jathras/Melas: These are places where the rural consumers

congregate as a rule. While shandies/heaths are held a particular day every week,
Jathras and melas are held once or twice a year for longer durations. They are
normally timed with religious festivals. Such places attract large number of itinerant
merchants. Only temporary shops come up selling goods of all kinds. It can be
beneficial for companies to organize sales of their product at such places. Promotion
can be taken, as there will be ready captive audience. For convincing the
manufacturing and marketing man with regard to the importance of these places
from rural marketing point of view a visit to such places is necessary
7. Agricultural Input Dealers: Fertilizers should be made available to the farmers
within the range of 4-5 km from their residence, as per the essential commodities
act. This is why there are about 2 lakh fertilizer dealers in the country, both in
cooperative & private sector. Example of Varana Nagar in Maharashtra proved an
eye opener in this regard where the sugar and milk co-operatives have totally
changed the life style of people. The supermarket in Varana Nagar caters exclusively
to rural consumers.

NON CONVENTIONAL DISTRIBUTION MODEL OF RURAL MARKET

 VERTICAL DISTRIBUTION MODEL

In Vertical Distribution Model, the main members of a distribution

channel - producer, wholesaler, and retailer work together as a
unified group in order to meet consumer needs.
This model has 3 components:
 The producer = the manufacturer who physically makes a
product
 The wholesaler purchases products from the producer and
manages the distribution to retailers
 Retailers in turn mark up the price and sell products to
consumers
The concept behind vertical distribution systems is similar to vertical
integration. In vertical integration, a company expands its operations by
assuming the activities of the next link in the chain of distribution. For
example, a farmer might practice forward integration by purchasing a
retail outlet to sell its food, fruits and vegetables. Similarly, a product
supplier might practice backward integration by purchasing a plant to
obtain the raw materials needed to manufacture products.
The main advantage of VMS is that a company can control all of the
elements of producing and selling a product. In this way, they are able to
see the whole picture, anticipate problems, make changes as they
become necessary, and thus increase your efficiency. However, being
involved in all stages of distribution can make it difficult for a small
business owner to keep track of what is happening. In addition, the
arrangement can fail if the personalities managing of the different areas
do not fit together well."
Vertical Distribution Model holds the promise to overcome the unproductive
conflicts which results when the above agencies work independently instead of
an unified manner. It can achieve economies of scale through their size,
bargaining power and elimination of duplicated services.

 HORIZONTAL DISTRIBUTION MODEL

A horizontal distribution system is a distribution channel arrangement
whereby two or more organizations at the same level join together
for marketing purposes to capitalize on a new opportunity. For example: a
bank and a supermarket agree to have the bank’s ATMs located at the
supermarket’s locations; two manufacturers combining to achieve economies
of scale otherwise not possible with each acting alone to meet the needs and
demands of a very large retailer; or two wholesalers joining together to serve a
particular region at a certain time of year.
A horizontal marketing system is a merger of firms on the same level in order
to pursue marketing opportunities. The firms combine their resources, such as
production capabilities and distribution, in order to maximize their earnings
potential.
Generally, this type of marketing system is followed by companies who lack in
capital, human resources, production techniques, marketing programs and are
afraid of incurring the huge losses. In order to overcome these limitations, the
companies join hands with other companies who are big in size either in the
form of joint venture –that can be temporary or permanent, or mergers to
sustain in the business.

Horizontal marketing system has gained popularity in the recent times due to
an immense competition in the market where everybody is striving to gain a
good position in the market along with huge profits.

In this marketing system, the collaboration can be between:

 Two or more Manufacturers- With an objective of making optimum

utilization of scarce resources.
 Two or more Wholesalers-With the objective of covering a larger area of
the distribution of goods and services.
 Two or more Retailers- With the objective of providing bulk quantities in
a particular area.
ITC Ltd. s partnership with the Khadi & Village Industries Commission to source
and distribute the later’s agarbatis signifies a successful working of a Horizontal
Marketing System. It is a lot more than the lofty ideal of a private enterprise
supporting predominantly rural enterprise. It is a sound business sense
wherein a manufacturer and a corporate with all India distribution network
come together to derive better value for both. A better appreciation of this
emerging paradigm is necessary to take India’s promising manufacturing
prospect forward.

CONCLUSION
So, I would like to conclude my presentation by stating that
Non – Conventional or integrated channels of distribution are
the networks in which channel components participate in a
full co-ordination and cohesion manner rather than working
in a loose manner.

It is used when the customers of all class has to be covered.

Also the customer knowledge about the product can
increase.

Price is the primary consideration while using such channels.

Company has to keep price lower than the conventional
outlets.

Comapany has to spend heaily if they want to succeed

through this distribution model.

Thank you very much for your time. Have a Good Day !!