Rural Marketing: Challenges in Distribution & Channel Management

Introduction Tapping the rural market is one of the most important marketing strategies followed by various MNCs and Indian companies now-a-days. A number of companies in FMCG, consumer durables as well as telecom sector have adapted strategies to expand their base in rural market. Among those who have already taken remarkable initiative in rural market are HLL, Colgate, LG Electronics, Philips, BSNL, LIC, CavinKare, Britannia and Hero Honda. Rural Marketing in simple word is planning and implementation of marketing function for rural areas. Rural marketing has been defined as the process of developing, pricing, promoting, distributing rural specific products and services leading to exchange between urban and rural markets which satisfies consumer demands and also achieves organizational objective (Source: Iyer, S.R., "Marketing Strategies for Rural Market", www.alliancebschool.com). Importance of Rural Market The main reason why the companies are focusing on rural market and developing effective strategies to tap the market potential can be identified as: 1. Large Population: Approximately 75% of India's population resides in around 6,38,365 villages of India spread over 32 lakh square kilometer. 41% of India's middle class resides in rural areas. 2. Higher Purchasing Capacity: Purchasing power of rural people is on rise. 3. Market Growth: Market is growing at a rate of 3-4% per annum adding more than one million new customers every year. 4. Development of Infrastructure: Government is taking a number of initiatives and investing towards development of infrastructure facility and public service projects in rural India, which includes construction of roads, electricity connections, telephone connections, etc. Thus, more number of rural people will start enjoying facilities like television, internet access, electricity, improved roads and better public transport system. Some of the facts that will highlight the potentiality of rural market are: y According to a study by the Chennai-based Francis Kanoi Marketing Planning Services , estimated annual size of market is -

FMCG Consumer Durables Agri Inputs (e.g., Tractors) 2/4 Wheelers Total

Rs. 65,000 Crore Rs. 5000 Crore Rs. 45,000 Crore Rs. 8,000 crore Rs. 1,23,000 Crore

In 2001-02 * LIC sold 55% of its policies in rural India. * 50% of BSNL mobile connections sold were in small towns / villages. * 41 million Kisan Credit Cards issued were in rural areas (as against 22 million Credit Plus Debit Card in urban).

Challenges Faced by Marketers in Rural Market Marketers operating in rural market are facing a number of challenges which include: Low literacy rate. Traditional outlook of rural consumers due to which they are resistant to change. Their buying decision is low and delayed. y Demand in rural market depends on the agricultural situation as it is the main source of income. Again agriculture depends on monsoon. So buying capacity of rural consumers varies and it becomes difficult to predict demand. y Lack of infrastructure facilities. y Retailers pushing imitation or fake products in place of branded ones for better commission. y Communication problems. y Problems related to distribution and channel management.
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Distribution & Channel Management in Rural Market Proper distribution is a major area of concern for companies. Distribution can make or break a company. A good distribution system means that the company has a greater chance of selling its products as compared to competitors. A company that can make its product available over wide areas and at lower cost as compared to its competitors will capture larger market share. The importance of distribution for a company can be explained with an example of pharma marketing. For example, a Doctor prescribes a particular brand to a patient. But the company representative has failed to make the product available to a number of medical shops of the market prior to promoting the brand. The patient will try to purchase the product but due to non-availability of the product will face problems in acquiring it. The effect of this will be on the sale of the brand in the market as either the patient will give feedback to the doctor regarding non-availability to the product which will lead to the doctor prescribing competitors' brands, or otherwise, if the patient is not very literate, the chemist will try to push the competitors' brands. In both ways, the company will have to face negative impact on sales of its product. In rural India, the major road-blocks related to distribution and channel management are identified as: y y y y

Lack of retail infrastructure Lack of proper warehousing facility Transportation problem Large and scattered market

Lack of Retail Infrastructure Availability of retail infrastructure is directly related to the size of the village. Thus, many small villages may not even have a shop from which products can be made available. According to an Indian Market Research Bureau (IMPB) Study, 60,000 villages in India did not have a retail outlet of any kind. Thus, it is very difficult for marketers to make their product available to rural consumers. Also rural India is having 3 million retail outlets which are located in 6.3 lakh villages. Thus, marketers find it very difficult to make their products available in those retail outlets spread over such a vast area. Again, the average sale in these outlets is only Rs. 5000 and that too mostly on credit. Rural people also prefer to buy from haats or melasas compared to retail shops where there is less chance of bargaining. Some problems that are faced by rural retailers are: y He has to deal in a large number of products which results in large inventory and high inventory costs. y He cannot charge higher mark-up as the consumers can not afford to pay higher prices.

Major purchases are done by rural consumers on credit basis. Retailers have to travel frequently to feeder town / mandis to collect products. Due to this additional cost of traveling, their total expenditure towards collecting product increases.
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In rural market, the wholesalers play an important role in distribution structure. Wholesalers are based in feeder town / mandis. They pick up their stocks from nearest company stock point. Rural people and retailers purchase products from these wholesalers when they visit the mandis. The wholesalers usually operate on a cash and carry basis and at a very thin margin and manage a return on investment only by achieving a high inventory turnover. Though the wholesale channel is a low cost channel, there are certain problems with this model. Marketers have lack of control over their operation.

When it is the question of pushing one product between two substitutable products, the wholesaler generally pushes the one which will earn him higher margin. There is high chance that they will push fake or duplicate products as they attract high incentives as compared to those from reputed brands. Also, wholesalers are reluctant in pushing
new products due to risk factors associated with them. Lack of Proper Warehousing Facility Another problem related to distribution is inadequate storage facility. Warehousing facility is very limited in rural markets. There is hardly any organised agency to look after the storage facility. Without proper storage facility, distribution of product to remote areas becomes a challenge for marketers. Transportation Problem Lack of proper transportation facility is another road-block in rural market. Only about 50% of Indian villages are connected by road. Rest of the rural markets do not have proper road-linkages due to which physical distribution becomes a tough job. Large & Scattered Market India's rural market is large and scattered. Approximately 75 crore rural consumers live on approximately 6,38,365 villages spread over 32 lakh square kilometers area. About 1,45,098 villages or 23% of the total number of villages in India have population less than 200 and another 21% have population between 200 and 500. Covering such a large and scattered market raises the inventory and transportation cost for the company. Effective Distribution Strategies for Rural Market 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. We can take the example of 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 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: y 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. y Nokia has entered into a partnership with HCL for distribution of its hand-sets. y Motorola and Nokia have partnered with ITC e-Choupal which gave them wider reach in rural market. y 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. y 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 ormandis 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. So if we consider average population of an Indian village to be 1000, then one haat caters to the needs of 5 villages. There are almost 47,000 haats in India. The sale per haat per day is Rs. 2.25 Lakh (approximately) and average sale per outlet is Rs. 900 (approximately).

A large number of retail ers also buy 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.
These figures show that targeting haats for distribution purpose can prove to be beneficial for companies. Companies can tap the rural consumers for clothes, cosmetics, FMCGs, kitchen equipments and agricultural tools at these haats. Leading manufacturers are introducing sachets of tea, blues and washing powders in these haatsto create a demand and then meet the demand in affordable packages. 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.
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Melas are generally used to sell durables, high-priced items and new products launched. Examples of effective use of melas by marketers are: y Active participation of Maruti in rural melas like the kisan mela(Ludhiana), Sonepur mela (Bihar), Kila Raipur sports mela (Punjab) and Pushkar mela (Rajasthan). The melas provide both a platform for demonstration and improving product awareness, and also booking new sales. y In 2001, HLL ran a campaign at the Allahabad Kumbh Mela to demonstrate to the visitors the importance of usage of soap for better health and hygiene. Rural people in general believe that washing hands with water alone is enough, so there is no need to use soaps. HLL representatives educated them about use of soap for better health and hygiene. This awareness campaign has helped HLL to increase the sales of Lifebuoy in rural market.

Post & Telegraph Department Infrastructure India has the largest postal network in the world with 1,55,618 Post Offices at the end of the financial year ending 31.3.2003, including 1,39,081 Post Offices in rural areas (Source: www.indiapost.gov.in ). Marketers can use this postal network to make their products available to rural consumers. Let us highlight few examples of companies who have already taken the initiative to use postal network for rural marketing: y Finance companies like SBI Mutual Fund and ICICI have tied-up with postal department enabling investors to make their investments y y

through Post Offices. ICICI is even planning to set-up ATM counters in Post Offices. Selected Post Offices in Faizabad, Kunpur and Sultanpur in Uttar Pradesh are selling Assam Tea.

y Kolkata-based Emami has entered into a distribution arrangement with Department of Post to sell its products through Post Offices. They are currently doing a pilot project to sell the products in Maharastra region. After the success of this partnership, they will tie-up with Department of Post to use its Pan-India distribution network. y Similar deals are in process between Department of Post and Kodak to sell the camera and film rolls through Post offices.

Partnership with NGOs A number of Non-Government Organisations (NGOs) are working in the rural areas for the upliftment of rural people. They generally form personal level of relationship with rural people. Marketers can effectively use this network for making the products available to the rural consumers particularly for products which requires high level of personal relationship for selling like insurance products.

Examples of companies who have taken effort to tie-up with NGOs for marketing their product in rural areas: y Reliance Money is forging alliances with NGOs in 18 states to wider its reach in rural and semiurban markets. Reliance Money has tied-up with NGOs like SEWA, Sparsh and Rural Relations (a rural consumer focused organisation). y Aviva Life Insurance has identified NGOs as an effective medium to penetrate in rural India. The company has tied-up with BASIX, a rural livelihood promotion agency, to provide flexible insurance solutions to the rural consumers.

Alternate Distribution Channels Some alternate distribution channels that can be used by companies to make their products available to rural consumers are: y The milk man who delivers milk to urban house-holds can be employed to sell products when they return back to their respective villages. y Vegetable vendors. y Paan-beedi shops. y Telephone booths.

Ulilisation of Women's Self -Help Groups Women's Self Help Group (SHG) in rural India can be effectively used by marketers for making their products available to villagers. Usefulness of women's SHG in rural distribution can be better explained with the help of following example: HLL's Project Shakti Project Shakti is HLL's smart way of reaching 10 lakh homes directly in the villages where traditional distribution system cannot hope to enter through the use of Self Help Groups. The project was started in 2001 in 50 villages involving women belonging to micro-credit SHG in the Nalgoda District of Andhra Pradesh. 50 SHG were selected. These SHGs were covered by three Mutually Aided Cooperative Thrift Societies (MACTS). Each MACTS had 14 to 15 SHGs under them. HLL along with a social service organisation, Marketing & Research Team (MART), assisted the women in getting micro-credit to set-up an enterprise to distribute HLLs range of products. HLL selected a woman from an SHG as Shakti entrepreneur to start an enterprise with an initial loan from her SHG. After three month training, each woman began serving 6 to 10 villages having population of 1000 to 2000. HLL delivered stocks at her door-step. From there on, she had to supply to village retailer as well as sell directly to consumers. She would pocket different profit margin for each different sale. The company gained; earlier retailers used to stock only fast-moving items like Lifebuoy and Rexona; now by going from home to home, HLL could ensure a larger range of products was stocked. Hub & Spoke Method of D istribution 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. So Coca Cola has opted for a hub and spoke method of distribution system. It worked this way: Coke bottles were transported from the bottling plants to the hubs (large distributors) and from hubs to spokes (smaller distributors) situated in small towns. These spokes then distribute the stocks to village retailers who cater to the demand in rural market.

Use of Internet New information technology infrastructure, especially the wireless internet, provides an excellent opportunity to establish direct contact with rural consumers. It can provide inexpensive way to develop distribution channel in rural areas as has been demonstrated by the success of ITC's e-Choupal, TARAhaat, Ruralbazaar, Gyandoot, to name a few. ITC's e-Choupal ITC launched three web-based initiatives (e-Choupals) in the year 2000, namely: y y y

www.aquachoupal.com in Andhra Pradesh for shrimp farmers. www.soyachoupal.com in Madhya Pradesh for soya farmers. www.plantersnet.com in Karnataka for coffee farmers.

ITC has placed computers in the houses of Sanchalaks (lead-farmer). Each computer is linked to internet via telephone or by a VSAT connection. Proper training is provided by ITC to Sanchalaks about use of computer and internet. Each Sanchalak serves an average of 600 farmers in 10 surrounding villages within a radius of 5 km. Solar-charged batteries are provided by ITC for uninterrupted power supply to the computers. The following services are provided by the e-Choupals to the farmers: y y y

Information - Information on daily closing price of local mandis, weather forecasts. Knowledge - Knowledge about new farming techniques, soil-testing, expert advice. Purchase - To place order for seeds, fertilizers, pesticides, tractors, bicycles, and other products and services of ITC and its partners. y Sale - At harvest time, ITC offers to buy the crops from farmers at the previous day's closing price. The farmers then transport their crops to an ITC processing center where the crops are weighed electronically, and the farmer is then paid for the crop and transportation fee. In mid 2003, e-Choupal services reached more than 1 million farmers in nearly 11,000 villages and the system is expanding rapidly. TARAhaat

TARAhaat Information & Marketing Services Ltd. (TARAhaat) promoted by development alternatives group {an alliance between Hughes Escorts Communication, Hewlett Packard, Oracle, KLG Systel, Jaldi.com, Global Development Gateway (sponsored by World Bank and Gates Foundation), Excelsior Ventures Management, LLC and James Martin (one of the world's leading NGOs)}, is an organization that focuses on rural India for taking the benefits of technology to rural population. www.TARAhaat.com is an internet portal which was launched in the year 2000 in Bundelkhand near Jhansi in Madhya Pradesh, which aims to connect rural India to external world. Since then, it has expanded in UP, Punjab and Haryana, and had 38 centers by the end of 2005. The services provided by TARAhaat are: y

Literacy (TARAakshar) - A literacy program (in Hindi) to literate village people.

y Education (TARAgyan) - Education division of TARAhaat that develops educational courses for people of rural areas. The courses are delivered through ICT Centers in UP, MP, Haryana, Punjab, Bihar and Jharkhand. y Information - Wide range of information regarding health, nutrition, first-aid, diseases, government schemes, water, agriculture, entertainment, etc., are provided to rural people.

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Agri Advisory - Valuable advices related to farming are provided to village farmers.

y Rural Entrepreneurship - To provide entrepreneurship opportunities to rural youth, women and Self Help Groups through rapidly expanding network of TARAkendras, TARAhaat's rural business cum community centers. y Purchase & Sale of Products - TARAhaat provides opportunity to rural consumers to order a wide range of TARA approved products. TARA vans which are franchised to local people are used to deliver the products ordered by the villagers at their door-step. TARA cards are provided to regular users enabling them to make transactions without paying money in advance.

On the other hand, rural producers are also able to connect to global market and sale their products to distant clients through the sister portal called, TARAbazaar. Rural Malls The concept of rural malls, which was first introduced by ITC, is proving to be an effective distribution strategy in rural market. Along with ITC's Choupal Sagar, few more companies have taken initiative in this same direction. To name a few are TATA Kissan Sansar, Delhi Shriram's Kissan Haryali Bazaar, Godrej's Aadhar & Manthan. We will discuss briefly the Choupal Sagar Model of ITC to see the effectiveness of rural mall concept: Choupal Sagar The country's first rural mall known as Choupal Sagar was established in the year 2004 in Madhya Pradesh at Rafiqganj about 4 km from Sehore town. It is located on an eight-acre plot with a shopping area of 7000 sq. ft. The shopping area is only a part of vast Choupal Sagar. At the back of the mall is a godown where 10,000 tonne of grain can be stored.

It will also have entertainment area with video games and swings. A diesel pump, cafeteria, sale point of fertilizers and other farm inputs and a soi l testing lab, all will be a part of the mall. Choupal Sagar stocks a wide range of products, viz.,
toothpaste to television, luggage item to plastic furniture, hair oils to footwear, motorcycles to groceries, mixer grinder to water pump, televisions to microwave, and many more. Facilities provided at Choupal Sagar: y y y y y y

A wide range of products are available. Training facility for farmers on scientific farming practices. Information center for providing information on weather conditions and commodity prices. Parking space for 100 to 200 tractors. Godown for storage of farm products like wheat and soyabean. Continuous services from 6:00 am to 9:00 pm.

Both ITC as well as rural consumers are benefited by this 'mall' concept. Farmers are in a position to make purchase for their entire requirement from the same place where they sell their produce. The ready availability of cash after the sale and the transport facility in the form of emptied trolley or cart provide an opportunity to the farmers for bulk purchase for the coming season. Also, farmers can get information about price of various commodities, weather condition in this mall. On company's side, ITC were able to gather a large number of loyal customers. ITC got the opportunity to showcase and sell its range of products to a large number of customer base at a single point. So ITC also provides space and infrastructure facility of Choupal Sagar to other players to sell

their products and services, for which ITC charges a fee. This helped in increasing the earning of the company. Conclusion In the end, it can be concluded that though there are number of road-blocks in the path of proper distribution in rural markets, by designing and adopting effective strategies and proper use of resources, marketers can overcome these barriers and explore the opportunities lying untapped in rural market to achieve the organizational goal - profit maximization. References "Rural Marketing - Concepts and Practices" by Balram Dogra & Karminder Ghuman www.financialexpress.com/news/aviva-life-to-harness-ngos-for-rural-foray/61481/ www.thehindubusinessline.com Sri Lakshmi K. and Sri Rama Murthy D., "Rural Marketing in Indian Context", www.coolavenues.com y Barada Prasad Panigrahy, "ITC's Choupal Sagar - An Initiative Rural Mall", Marketing Mastermind, Feb, 2006 (ICFAI University Press) y Anil Chandhok, "Rural Marketing - Prospects & Growth", Marketing Mastermind, Feb, 2006 (ICFAI University Press) y www.hul.co.in y Rahul Mirchandani, "In Focus - Rural Marketing", www.scribd.com y www.expressindia.com/latest-news/reliance-,money-ties-up-with-ngos-for-rural-forays/238979/-48K y www.itcportal.com y www.tarahaat.com y http://timesofindia.indiatimes.com/articlesshow/2510633.cms
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