Sourav Sinha

Rural Distribution

Issues & Challenges

Defining Rural India
Organization Definition Limitations
 Population density < 400 / Sq Km  rural not defined
 75 percent of the male working population is
NSSO (Census) engaged in agriculture
 No Municipal corporation / board

Town characteristics not

Planning defined
Towns up to 15,000 population are considered rural
Commission
Only clarifies what are the
LG Electronics All places other than the 7 metros cities

Village & town characteristics

All locations with a population up to 10, 000 not defined
NABARD considered “ rural”

Population characteristics
Commercial establishments located in areas servicing unknown
Sahara less than 1000 population

Source: The Rural Marketing Book- Text & Practice, Kashyap. P and Raut. S ( 2007)
Rural India
The Market Size
12.2% of the world's consumers live in rural India.

Distribution of National Population

Distribution Population Population %

Persons Males Females

Total 1,027,015,247 531,277,078 495,738,169 100.00

Rural 741,660,293 381,141,184 360,519,109 72.22

Urban 285,354,954 150,135,894 135,219,060 27.78

Source : Census of India 2001

Rural India
Changing Economics
Rural India
Changing Economics (Contd.)
Rural India
The Changing Face
The “culture of non-indulgence” and
abstinence in consumption is well and
truly over

Rural India buys

 46% of all soft drinks sold

[Coca-Cola is growing at 37% in rural
markets with only 25% penetration,
compared with 24% in urban areas ]

 49% of motorcycles and

 59% of cigarettes
Source: MART
The ‘Rural Lure’
The ‘Rural Lure’
and it’s Implications
 It is no wonder that there is an impulse to go rural among the
marketers particularly FMCG and Consumer Durable companies.
 But the urban marketing strategy does not fit into the rural marketing
structure and it needs a reorientation by looking at the competitive
landscape and challenges of the rural market.
 They have tried tinkering with all the four 'P's of the marketing mix
i.e. Product, Pricing, Promotion and Place [ E.g. HUL has been a
pioneer in reaching out to the smallest of villages with innovative
products such as single-use packets of shampoo]
 To sell in villages, products must be priced low, profit margins must
be kept to the minimum and the marketing message must be kept
simple.
 However, the area where innovation has moved to center stage
is in the fourth P -- place (or distribution). Distribution channels
can make or break a company's rural marketing efforts.
 Companies know it far too well that unless they come up with
some innovative distribution channels that grasp the rural
nuances well, all their rural efforts will come a cropper.
 Some of the examples of how India Inc has moved on a path-
breaking manner to tap this market are
 ITC’s Choupal Sagar
 HLL’s Project Shakti
 DCM Shriram’s Hariyali Kisaan Bazaar
 Godrej’s Aadhaar Stores
 Mahindra’s ShubhLabh Stores
 Oil major IOC’s Kisan Seva Kendras
The Distribution Challenge
 Large and Scattered Markets
 Dispersed population and trade
 Low density of shops/village and high variation in their concentration
 Inadequate Transport Facilities
 Lack of Retail Infrastructure
 Poor visibility and display of product on rural shop shelves
 Highly credit driven market and low investment capacity of retailers
 Inadequate bank and credit facilities for rural retailers
 Lack of proper warehousing facility
 Multiple Tiers (large no. of intermediaries) leading to higher costs
*[ Though it depends on Cost/Benefit ratio of the individual organization]
 Poor Communication of due to Poor Reach of Media
Response to the Issues
 Large and Scattered Markets
 Inadequate Transport Facilities

 Marico and HLL have started using delivery vans to cater to rural
markets.

 Coca Cola has opted for a ‘hub and spoke’ distribution system.
[Coke bottles were transported from the bottling plants to the hubs (large distributors)
and from hubs to spokes (smaller distributors) situated in small towns. Further
distribution is done from there.]
Response to the Issues [contd.]

 Large and Scattered Markets

 Inadequate Transport Facilities

 Companies with relatively fewer resources can come together

through syndicated distribution through co-partnering with non-
competitive marketers for the same market.

E.g.
 Samsung has tied up with IFFCO.
 Motorola and Nokia have partnered with ITC e-choupal
 Aviva life Insurance has tied up with BASIX, an NGO
Response to the Issues [contd.]
 Large and Scattered Markets
 Inadequate Transport Facilities

 Companies follow a strategy called "co-opetition", in which they come

together to synergize their resources in rural markets for benefit of
both the partners and yet, can compete in the urban markets for
market share.

E.g.
 Procter & Gamble has tied up with Godrej and Marico industries and
now it is planning one with Nirma for distribution of Camay soaps.
 ICICI collaborating with P & T to open ATMs
Response to the Issues [contd.]
 Lack of Retail Infrastructure
 Lack of proper warehousing facility

The concept of ‘rural mall’, first introduced by ITC as Choupal Sagar is

proving to be an effective way out.

Along with ITC’s Choupal Sagar, few more companies have taken
initiative in same direction.
To name a few are TATA Kissan Sansar, Delhi Shriram’s Kissan
Haryali Bazaar, Godrej’s Aadhar and Manthan.
Response to the Issues [contd.]
 Multiple Tiers
 Poor Communication of due to Poor Reach of Media

 ITC’s e-Choupal is an innovative, technology based way to

address this issue where
 Intermediaries are avoided
 Direct contact with the consumer is established

 HLL’s Project Shakti showed another smart way of reaching 10

lakh homes directly in the villages through the use of Self Help
Groups where traditional communication/distribution system is
neither efficient nor cost-effective.
Rural Distribution:
The Economic Logic
 Conclusion
Proper distribution in rural markets is indeed a great challenge but at
the same time, once a reasonably viable model is worked out, it
becomes a sustainable competitive advantage.
Marketers can overcome these barriers and achieve organizational
goal by
 Innovative, ‘out of the box’ thinking,
 Designing and adopting effective strategies and 
 Proper use of resources
 

ITC and HLL have shown us the way.

Rural Distribution: A Model