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DISTRIBUTION IN RURAL MARKETS

Introduction :
A key decision among the four P‟s of marketing managers is distribution. Distribution decides
the manner in which product and services are made available to the target customers. It involves
the bridging of place utility gaps between manufacturer and customers. The design of physical
distribution, referred to logistics and supply chain management and trade channels of
distribution are the major components in distribution.

Concept And Nature Of Distribution :

The link between manufacturers and customers is the channel of distribution. It consists of
producer, consumer, and any intermediary organizations that are aligned to provide a means of
transferring ownership (title) or possession of a product from producer to consumer. The
characteristic features of distribution are:

(i) Distribution is an ancient function.

It was found in a primitive economy in which people realized the need for specialization and
exchange. They understood that efficiency can be gained if one person specializes in a certain
activity, such as hunting, and another person specializes in a different activity, such as fishing or
farming. They exchanged one good for another to satisfy their needs. In a primitive economy,
distribution is straightforward; in today‟s global economy, it is far more complex. It is because of
the distances, variety of supporting trade services, and variety of needs of buyers.

(ii) Key external resource:

While manufacturing, research, engineering and field sales personnel represent internal
resources, distribution represents a key external resource. It is outcome of a significant corporate
commitment to a large numbers of independent organizations whose business is distribution.

(iii) Complex with flows:

Channels represent a set of interdependent relationships among intermediaries and producer. The
channel facilitates forward flows (physical goods, title of goods, and promotion offers) and back
ward flows (ordering and payment). Some of these flows are forward flows (physical
transportation, title, and promotion); others are backward flows (ordering and payment); and still
others move in both directions (information, finance, and risk taking).

Channel Functions
Distribution channel performs various tasks necessary to promote sales of products and services
to the ultimate customers. They may include some or all of the following:

Buying : every middleman must purchase products for resale or contract as an agent to receive
a supply of product.
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Selling : every middleman must contact potential customers, promote the product, and solicit
orders.

Assorting : the typical middleman brings together an assortment of merchandize, usually of

related items, from several sources to better serve his potential customers.

Financing : by investing in inventory and by extending credit to customers, the middleman

helps to finance the exchange process.

Storage : products must be assembled in a convenient location to assure availability and must
be protected to prevent deterioration and loss.

Sorting : in some situations, the middleman provides the important function of buying in
large quantities and breaking the bulk purchase into smaller quantities for resale.

Grading : it may be necessary for the middleman to inspect, test, or judge the products he
receives for quality and to assign distinct quality grades to them.

Transportation : this is the logistics function, managing the physical flow of the product.

Market Information : the middleman typically has some responsibility for providing market
information both to his customers and to his suppliers, including
information about availability, product quality, competitive conditions, customer needs, and so
on.
Risk-taking : risk is inherent in the ownership of an inventory of product that can deteriorate or
become obsolete.

The design of a marketing channel is an attempt to get each of these functions performed as
efficiently and effectively as possible.

Channel Structures :
Channel structures are evolved based on the type of company products, target market segments
and competition. Three different channel structures are briefly explained here. Table –1 shows
the different systems.

System Description Benefits

Vertical marketing Comprise producer, wholesaler Achieve economies through
system (s) and retailer (s) acting as a their size, bargaining power,
unified system. and elimination of duplicated
services and channel conflicts.
Horizontal marketing Readiness or willingness of two or Economy of effort. A channel
System more non-related companies to put may become viable and
together resources to exploit an attractive.
emerging market opportunity. Eg: Shakti groups
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Multi- channel marketing Simultaneous use of different Efficient reach wider

System channels. Telemarketing and coverage.
indirect distribution as in the
case of marketing of mobile
phones.

Channel types :
One key question in channel decisions is- whether to go for indirect or
direct marketing.
o Direct to customers
Producer –> Customer through
(i) own sales force without own branch network
(ii) own sales force with own branch net work
(iii) Telemarketing
(iv) E channels

o Indirect to customers
Because of the wide variety of channel arrangements that exist, it is difficult to generalize the
structure of channels across all industries.

However, distribution channels are usually of two types:

I. Direct Marketing Channel (or Zero level). This type of channel has no intermediaries. In
this distribution system, the goods go from the producer direct to the consumer, e.g., Eureka-
Forbes.

0 level

Producer Consumer

II. Indirect marketing Channel. This may further be classified in the following categories

1. One-Level Channel. In this type of channel there is only one intermediary between producer
and consumer. This intermediary may be a retailer or a distributor.

1 Level

Producer Retailer Consumer

If the intermediary is a distributor, this type of channel is used for specialty products like
washing machines, refrigerators or industrial products.

Producer ----------->Distributor ---------->Consumer

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2. Two-Level Channel. The type of channel has two intermediaries, namely wholesaler
distributor and retailer.

2 Level

Producer -------->Distributor ------->Retailer -------->Consumer

3. Three – Level Channel. This type of channel has three intermediaries namely distributor,
wholesaler and retailer. This pattern is also used for convenience products

Producer ------->Distributor ------->Wholesaler ------>Retailer ------->Consumer

4. Four – Level Channel. This type of channel has four intermediaries namely agent, distributor,
wholesaler and retailer. This channel is somehow similar to the previous two. This type of
channel is used for consumer durable products also.

Producer ------>Agent ------>Distributor ----->Wholesaler ----->Retailer ------>Consumer

Distinctions between direct and indirect marketing efforts

S. Aspect Direct Indirect

No
1. Type of market Vertical-few buyers Horizontal-Many buyers,
fragmented and widely
distributed
2. Market potential High volume Less volume
3. Market density High Thin
4. Buying habits Large volumes per order, Small volume per order,
less frequent buying, frequent buying, not particular
preference to direct contact about contact with supplier
5. Buying process Involves extensive Less negotiation
negotiation and bargaining
6. Product Customized solutions, Standardized
7. Pricing Volatile, need many Less volatile, few adjustments
adjustments
8. Promotion Strong need for information Less need for information
/communications service Service
9. Distribution Less emphasis on logistics Strong emphasis on logistics
services, need for deep services (like lot size, delivery
product knowledge and time, assortment and so on),
personal attention need for availability of products
and not brand specific
10. Quality Important concern for buyer Normal considerations
11. Own financial Strong. Can support Weak. Requires quick returns
Position branches
12. Marketing objective Long range – Better Short range – profit orientation.
relations with customers
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The internet is expected to cause disinter mediation (destruction of intermediary function) as

manufacturers bypass middlemen and deal directly with customers. However, channel members
continue to thrive in many industries. Surprisingly, internet is now being used to collaborate and
support the middlemen and to build customer loyalty.

One important point to be kept in mind while formulating specific strategies for distribution in
rural areas is the characteristic of the product – Consumable or Durable i.e. the shelf life of the
product. Perishable items need a robust logistics plan for effective distribution compared to non-
perishable items.

Below is how companies have succeeded in the reaching out to their audience in rural areas:

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
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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. It is estimated that
over 5,000 fairs are held in the country and the estimated attendance is about 100
million rural consumers. Biggest fair „Pushkar Mela‟ is estimated to attract over 10
million people. There are 50 such big rural fairs held in various parts of country,
which attract urbanite also like „Mankanavillaku‟ in Malappara in Kerela, Kumbh
Mela at Hardwar in U.P. „Periya Kirthigai‟ at Tiruparunkunaram in Tamil Nadu.

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.
Similarly a co-operative supermarket called „Chintamani‟ in Coimbatore (T.N)
arranges free transit of rural consumers to the supermarket of their purchases.
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The Evolution of Rural Distribution Channels

LEVEL Channel Partners Marketplace

1. Company Depots/CFAs, Super stockists National/State

2. CFAs/Redistribution stockists Cluster of districts

Retailers/Modern/Traditional
District Headquarters

3. Redistribution stockists Sub-district (Tehsil/Block)

Semi-wholesalers/Retailers Feeder town

4. Semi-wholesalers/Retailers Feeder town

Mobile traders in haats/vans Periodic market

5. Retailers/Vans/Barefoot agents (Shakti Large and small villages

dealers)/Cooperative societies/ Government
agencies (Fair price shops)

Rural Channel Members

1. CFAs : *Supplement company depots ,

*With investment in stocks and without investment in stocks.

2. Redistribution stockists : *Critical link covering 30% of the rural retailers ,

*Located at district headquarters .

3. Wholesalers : *Principally a food grain merchant ,

*Believes more in speculation rather than distribution ,
*Most wholesalers are also large retailers.

4. Retail outlets : *Permanent outlets,

*Mobile traders.

Modern Retail in Rural Areas :

1. ITC Choupal Saagar :

 First rural mall with shopping area of 7,000 square feet opened in 2004
 Located within “tractor-able” distance of 30 e-Choupals
 Also serve as procurement centres
 Product categories cover almost all consumer, consumer durables and agri-inputs
 Customer profile is farmers with large and medium land holdings
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 24 outlets at present; plan to expand to 700 by 2013.

2. DSCL Hariyali Kisaan Bazaar :

 Based on experience of marketing seeds and sugar, DSCL set up the first outlet in
2002
 Hub with 4 acre campus containing banking services, a fuel station and recreation
area
 Spoke format with small convenience stores of 4,000 to 5,000 sq. ft
 Product categories cover agri-inputs and consumer goods
 Customer profile is farmers, service class people and shop owners
 300 outlets at present; plan to expand to 600 by 2012

3. Tata Kisan Sansar :

 Started in 1998 as Tata Kisan Kendra (renamed TKS in 2002)
 One-stop farmer solution shop
 600 farm resource centres catering to 3.5 million farmers over 22,000 villages.
 Hub as resource centre to cater to needs of TKS outlets
 Each resource centre supports primarily 20 to 25 TKS franchisee outlets
 Product categories cover agri-inputs and consumer goods
 Recently added are financial services, IT-enabled market information and lifestyle
products.

4. Godrej Aadhaar :
 Started by Godrej Agrovet
 Future group picked up a 70% stake in 2008 to increase penetration of insurance,
micro-finance
 Product categories cover consumer goods, consumer durables agri-inputs and
animal feeds
 At present 66 Aadhaar outlets catering to 50.000 farmers spread across 2,000
villages of Punjab, Haryana, Maharashtra and Gujarat
 Plan to set up 1,000 stores in the next five years
 Tie-ups already with Eicher Motors and HDFC Bank
 In negotiations with Apollo Hospitals and BPCL outlets

Channel Behaviour in Rural Areas :

• Sourcing of stocks and purchasing cycle
 Normally from wholesalers and distributor agents. Visits to feeder towns
twice or thrice a week
• Stocking behaviour and seasonality
 Moves around the harvesting and sowing seasons
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• Credit pattern
 Ranging from 15 to 20% to as high as 60 to 70%
• Transfer of capital from store to farm
• Pricing by the channel some times even higher than MRP because of additional
costs
• Channel promotion not effective in interior villages but effective in feeder
villages.

FMCG Distribution Models in Rural Markets: DM1

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Distribution Practices Of Select Firms

Shakti model of HLL

HLL‟s new distribution model, named project Shakti, was piloted in Nalgonda district in 2001.It
has been scaled up and extended to over 5,000 villages in 52 districts in AP, Karnataka, Gujarat
and Madhya Pradesh with around 1,000 women entrepreneurs in its fold. The vision is
ambitious: to create by 2010 about 11,000 Shakti entrepreneurs covering one-lakh villages and
touching the lives of 100 million rural consumers. HLL has operated Project Shakti through the
self-help groups. AP was chosen for the pilot project as its has the most number and better
established SHGs – there are about 4.36 lakh SHGs in AP covering nearly 58.29 lakh rural
women. The objectives of Project Shakti, are to create “income-generating capabilities for
underprivileged rural women by providing a sustainable micro enterprise opportunity” and to
improve rural living standards through “health and hygiene awareness”. For HLL. it is
“enlightened self-interest”. Creating opportunities to increase rural family incomes puts more
money in their hands to purchase the range of daily consumption products – from soaps to
toothpastes that HLL makes. It also enables HLL access hitherto unexplored rural hinterlands.

For HLL greater penetration in rural areas is also an imperative – presently over 50 percent of its
incomes for several of its product categories like soaps and detergents come from rural India.
The challenge for HLL now is to take its products to towns with a smaller population – under
2,000 people. HLL‟s conventional hub-and-spoke distribution model which it uses to great effect
in both urban and semi-urban markets, wouldn‟t be cost-effective in penetrating the smaller
villages. Now, with this new distribution model, the smaller markets are now being referred to as
„Shakti markets‟.

Typically, a women from a SHG selected as a Shakti entrepreneur receives stocks at her doorstep
from the HLL rural distributor and sells direct to consumers as well as to retailers in the village.
Each Shakti entrepreneur services 6-10 villages in the population strata of 1,000 – 2,000 people.
Typically, a Shakti entrepreneur sets off with 4-5 chief brands from the HLL portfolio –
Lifebuoy, Wheel, Pepsodent, Annapurna salt and Clinic Plus. These brands apart, other brands,
which find favour with a rural audience, are: Lux, Ponds, Nihar and 3 Roses tea. Typically, unit
packs are small. All the brands are national and HLL is cool to the idea of creating a rural-
specific brand as it will only dissipate the advertising media effort for the brands.

Having perfected the model in Nalgonda, in 2003 HLL plans to extend Shakti to a 100 districts
in Madhya Pradesh, Gujarat and UP. There are other plans brewing. One is to allow other
companies which do not compete with HLL to get onto the Shakti network to sell their products.
Talks are on with battery companies like NIPPO, TVS Motor for mopeds, insurance companies
for LIC policies. “We wanted to first stabilize the project before we can look at other companies.
It requires somebody with scale and size to build a platform and then invite other companies onto
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this platform”, elaborates Sehgal. HLL is now in the process of piloting „I-Shakti‟, an IT-based
rural information service that will provide solutions to key rural needs in the areas of agriculture,
education, vocational training, health and hygiene. The project will be plotted in Nalgonda
district again, Based on a palm pilot, HLL is looking at sourcing appropriate low-cost hardware
from Hewlett-Packard while Unilever Research out of London is developing the consumer
interactivity software.

The Usha International Ltd. (UIL), the company which is known for the sewing machines,
also has the marketing arm of Rs. 1300 crore Siel Group selling the industrial and farm
equipments as well as appliances. The company has a wide distribution network which includes:
Divisional Officers (15)
Warehouses (26)
Company Owned retail outlets (50)
Exclusive sales and service centers and multi-brand outlets (5000).
Centralized spare parts facility centers for small appliances (8)

The UIL has a strong network of distribution channels and the products are made available to the
customer at the low cost with higher extent of satisfaction as compared to the other companies.
The distribution of 5000 sales and services centers of the company provides better access to the
retailers and customers.

Summary
Distribution is important from firm as well as economy point of view. A channel of distribution
links marketer and customers directly or through intermediaries. Distribution is an ancient
function, a key external resource, a link between seller and customer, a channel with flows and
complex in nature.
Channel structures present vertical, horizontal and multi-channel marketing systems. Vertical
marketing system is of three types – corporate, administered and contractual. One key question
in channel decision is whether to go for direct or indirect marketing. Direct marketing is
appropriate when buyers are few and buy large volumes per order, product is customized ,buying
requires negotiation, information needs are many and long range relationships are
important.
Indirect channels include wholesalers, retailers, dealers, cooperative agencies, self-help groups
etc. Direct marketing channels include branch houses, sales force, telemarketing service bureau
and internet info mediaries.
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References :

1. Philip Kotler(2002), Marketing Management, Prentice – Hall of India Pvt. Ltd., New Delhi,
2. William G. Zikmund and Michael d‟ Amico,(2002) Marketing, Thomson Asia Pvt. Ltd.,
Singapore,
3. Rajan Sexena, ( 2002), Marketing Management, Tata McGraw Hill Publishing Company, New
Delhi, 2002.
4. R. S. Davar(2000), Modern Marketing Management, Progressive Corporation Pvt. Ltd,
Bombay,
5. Rajagopal, Marketing Management, Vikas Publishing House Pvt. Ltd., New Delhi.
6. Krishnamacharyulu and Lalitha, (2006) Industrial Marketing, Jaico Publishing House,
Mumbai,