Channel Participants

Demand Side Factors

• Channels Facilitate the search of

the product or service (consumer
know where to go)
 Demand Side Factors

Adjustment of Assorted Discrepancy

 Demand Side Factors
Adjustment of Assorted Discrepancy

• Sorting out: Heterogeneous supply into into

homogeneous lots.eg.Eggs sorting by grades
and size

• Accumulation: Similar stocks from a large

number of sources into a large homogeneous
supply chain
 Demand Side Factors

Adjustment of Assorted Discrepancy

Allocation: Breaking bulk

• Assortment: Building up assortment of

goods for retailers and retailers for the
customer

• Assorting variety of products

 Supply Side Factors

• Routinization ( standardization) of transactions

– Purchase transaction involves ordering and paying

for goods and services
– Routinization leads to standardization
– Leads to efficiency: Encourages production of items
which are highly valued.
 Supply Side Factors

• Reduction in Number of Contacts

– Decentralised system of exchange less efficient than

centralised network using intermediaries
– Number of contacts increases with more wholesalers
– Cost and effectiveness of any contact may be different for
each contact
– Judicious use of intermediaries reduce number of contacts
– Use of intermediaries in the channel add value and help
reduce cost in the channel.
 Products and
Manufacturers

Wholesale
intermediaries

Intermediaries
Retail Yes
intermediarie
s
Consumers (Marketing Channel)
Member Participants

Final Users
Contactual Organisation

Industries

Transportation
firms
All Channel Participants

Storage firms
So they perform negotiatory functions

Advertising Agencies
No

Financial firms
Nonmember participants

Facilitating Agencies

Insurance firms
Classification of Channel Participants

Marketing Research
firms
 Service Outputs

• Bulk breaking
• Spatial convenience
• Waiting or delivery time
• Product variety
• Customer service
• Information provision
Channel Participants

• Producers and Manufacturers

• Intermediaries

• End Users
 Producers and Manufacturers
• Consist of firms that are involved in extracting, growing or making
products
• Range of producing and manufacturing firms is enormous
• All exist to offer products that satisfy the needs of customers
• Products must be made available to customers when, where and
how they want them.
• Expertise in manufacturing and production
• But lack of expertise and economies of scale hinders distribution
task
• High average costs for distribution if attempted to perform by
themselves
 Intermediaries

• Wholesale Intermediaries

– Merchant Wholesalers
– Agents, brokers and commission merchants
– Manufacturers’ Sales branches and offices
Distribution Tasks performed by
Merchant Wholesalers

• Market Coverage
• Sales Contacts
• Holding Inventory
• Order Processing
• Gathering Market Information
• Customer Support
 Distribution Tasks performed by
Merchant Wholesalers – for customers

• Product Availability
• Customer Service
• Extending Credit and Financial Assistance
• Offering Assortment Convenience
• Breaking Bulk
• Advice and Technical Support
• Information Provision
 Distribution Tasks performed by
Merchant Wholesalers – effect on marketing channels
Distribution task performed Distribution task performed
for manufacturers for customers

Market coverage Product availability

Merchant
wholesalers Customer service
Sales contact
perform all of
these distribu-
Inventory holding tion tasks Credit and financial
Assistance
Order Processing
Assortment convenience
Market Information
Breaking bulk
Customer Support
Result?
Advice and technical
support

More effective and

efficient marketing channels
(Reflected in margins
Earned by wholeslaers)
Distribution Tasks performed by
Agents Wholesalers

• Selling Agents
• Brokers
• Commission Merchants
Distribution Tasks performed by
Agents Wholesalers
• Selling Agents

– Provide market coverage

– Sales contact
– Order processing
– Marketing information
– Product availability
– Customer service
Distribution Tasks performed by
Agents Wholesalers
• Brokers

– A go-between bringing buyers and sellers together

– Provide market information, market coverage, sales
contact, order processing, customer support and
advice and product availability
– Help manage marketing funds
– Recommend and execute trade promotions
– Help create consumer promotion plans
Distribution Tasks performed by
Agents Wholesalers
• Commission Agents

– Receives and warehouses products

– Help locate buyers and make sales
– Extends personal credit
– Process orders
– Arrange for delivery
 Towns and Villages
• No. of Towns 3276
• Urban Population (‘97) 250 m
• Urban Outlets 4 million

• No. of Villages 627000

• Rural Population 686 m
• Rural Outlets 9 million

Source : Census of India, ORG Retail Audit

 Rural Population Dispersion
Population Size No. of Villages % rural
(‘000) population

< 200 120.1 2.4

200-499 150.7 10.1
500-999 135.9 19.1
1000-1999 94.5 25.9
2000-4999 46.9 27.1
5000-9999 7.2 9.3
10000 and above 1.8 6.1

Source : Census of India, 1991

 RURAL COVERAGE

• STREAMLINE
- Rural Distributor
- Star Seller
 RURAL COVERAGE
• Company demonstration van

• IDC coverage

• CIDC coverage
 Wholesale Trade

•No company can afford to ignore

•Not under the control of any distribution

company, however dominant they may be

•Determines it own customer, geography

and price

•Make goods available to rural consumers

at comparable prices
 Role of Wholesale Channel

•Extremely efficient operation with low overheads and total

cost

•Operate on wafer thin margins

•Provides great customer service

•Expertise in the field with huge domain knowledge

•Ease of transaction

•Ability to reach stocks with marginal markup to outlets

 Town Wholesaler - Some myths
• He runs after margins
– Most of the margins get passed on
– Usual retention is between 0.5% to 1.5%

• He extends credit to his rural customers

– Rural retailers get no credit
– Only rural wholesalers usually get credit

• He has a major role in pushing a brand

– 75% of purchases at wholesale have been found
to be by brand name
 Town Wholesaler
• 2-3 wholesalers usually contribute to 60-70% of the
market
• There is segmentation
– by product category - cosmetics, medicines etc.
– by customer type - rural, urban, marginal outlet
• There is a strong need to be recognized
• He abhors complexity
• He has a constraint of space
 Rural Wholesaler

• He is actually a semi-wholesaler
– is usually the largest retailer in his own market
– is a wholesaler for retailers in satellite markets
• He is situated in an accessible feeder market
– usually on the main road
– may not be in a large village
• He usually has a monopoly/duopoly
• He extends credit
 Rural Wholesaler

• Has money at specific times of the year

– We can utilize this
• Small Town Promotion Packages
• Pre Monsoon Loading
• Festival sales of Dalda
• Highly responsive to innovative promotions
• Responds well to initiative to reduce complexity
– 2 dozen inner pack of Lifebuoy 75g
 Rural Wholesaler

• Has a very strong need for recognition

• Responds better to promotions in kind and not in

cash
 Retail Sales Mirror - GDP

1994-95 to 2000-01 to 2003-04 to

1999-2000 2002-03 2006-07

Real GDP 6.6 4.7 8.7

Retail Sales 13.6 4.8 10.9

 Growth India Retail – Total vs
Organised
(Rs.bln) 2003- 2004- 2005- 2006- CAGR
04 05 06 07 2004-
07 - %
Total Retail 10591 11308 12023 14574 11.2

Tot Org.Retail 350 408 479 598 19.5

Share of org 3.3 3.6 4.0 4.1

ret. In tot.
retail (%)
 The Rural Pyramid
Fig in lacs
Pop Villages Outlets
Strata

Over 2,000 0.6 13.3

2.3 14.7
500 to 2,000

90% 59%

Below 3.4 4.9

500

Over 50% of the population lives in villages below 2K

 The Rural Pyramid
Business per
Pop
market Index
Strata

> 2K 100

0.5-2K 37

<0.5K 10

<2k presents a huge opportunity

Business viability an issue in these pop strata
 Retail Intermediaries

• Structure and Trends in Retailing

• Concentration in Retailing
Retailers’ Growing Power in
Marketing Channels

• Increase in size and buying power

• Application of Advanced Technologies

• Use of Modern Marketing Strategies

 Distribution Tasks Performed by
Retailers
• Offering manpower and physical facilities that enable producers / m
manufacturers and wholesalers to have many points of contact with
consumers close to their places of residence

• Providing personal selling, advertising and display aid in selling

Suppliers’ products

• Interpreting consumer demand and relaying this information back

through the channel

• Economies for suppliers and convenience for consumers

• Offering storage at low cost

• Removing substantial risk by accepting delivery in advance

 Rural Retailer

• 2-3 retailers per village

• Extends high credit to his customers
• Has a very high influence on purchase
• His biggest need is margins
• Has never experienced service and hence it
is not a current demand
– Therefore, can his demands be
redefined?
 Conclusion

• Rural Consumer is different

• Needs are different
• Influencers are different
• Beliefs are unique
 Conclusion

• Rural Retailer is different

• Market scenario is different
• Specific business needs
• Great influencing ability
 Facilitating Agencies

• Transportation Agencies
• Storage Agencies
• Order Processing Agencies
• Advertising Agencies
• Financial Agencies
• Insurance Companies
• Marketing Research Firms
 TRADITIONAL MODELS IN
INDIAN RETAIL
• Mandis
- owe their development to governmental
policies in agricultural markets
- Located in high production centres of
different crops, grain mandis, cotton
mandis,soya mandis etc
- More than 7000 regulated markets or
mandis governed by APMC act
 MANDIS
- Typically agricultural areas with population of
more than 10000 have mandis
- Mandis are primarily wholesale markets
located near important towns or centres of
production
- Every district has a mandi and mandis are
spread throughout the country
- Transactions take place between
commission agents and wholesalers
 HAATS
• Unregulated markets known as haats, angadi,
shandies etc which exist at village level
• Public gathering of buyers and sellers of
commodities, fruits, vegetables, household
goods etc
• Over 43000 haats and generate 3% of all
rural private consumption expenditure
• Often dubbed as India’s traditional
supermarket
 MELAS
• Another prominent feature of Indian rural
is a mela
• 25000 melas held annually
• Classified according to their nature into
commodity fairs, religious fairs etc