2. Distribution’s Function
• The major purpose of marketing is to satisfy
human needs by delivering products of various
types to buyers when and where they want them
and at a reasonable cost.
• The “when and where” is the function of
Distribution
3. What is a Distribution Channel?
• A set of interdependent organizations
(intermediaries) involved in the process
of making a product or service available
for use or consumption by the consumer
or business user.
• Marketing Channel decisions are among
the most important decisions that
management faces and will directly
affect every other marketing decision.
4. Why are Marketing Intermediaries
Used?
• The use of intermediaries results from their
greater efficiency in making goods available
to target markets.
• Offer the firm more than it can achieve on it’s
own through the intermediaries:
– Contacts,
– Experience,
– Specialization,
– Scale of operation.
• Purpose: match supply from producers to
demand from consumers.
10. Conventional Distribution Channel vs.
Vertical Marketing Systems
VerticalVertical
marketingmarketing
channelchannel
Manufacturer
Retailer
ConventionalConventional
marketingmarketing
channelchannel
Consumer
Manufacturer
Consumer
Retailer
Wholesaler
Wholesaler
11. Types of Vertical Marketing SystemsTypes of Vertical Marketing Systems
Corporate
Common Ownership at Different
Levels of the Channel
Corporate
Common Ownership at Different
Levels of the Channel
Contractual
Contractual Agreement Among
Channel Members
Contractual
Contractual Agreement Among
Channel Members
Administered
Leadership is Assumed by One or
a Few Dominant Members
Administered
Leadership is Assumed by One or
a Few Dominant Members
12. Vertical Marketing Systems
• Corporate systems - total ownership
• Administered - strong leadership
• Contractual - legal relationships
13. Planning the Channel of
Distribution
• Determining the structure
– Marketing mix strategy
– Organizational resources
– External environmental factors
– Market characteristics
– Consumer preferences and behavior
– The nature and availability of Intermediaries
– Other environmental factors
18. Rural Market: A Snap Shot
742 million people, largest potential market in the world
Rural is bigger than urban
FMCGs 53%
Durables 59% Source: NCAER, IMDR 2002
Estimated annual size of the rural market
FMCG Rs 50,000 crore
Durables Rs 5,000 crore
Agri-inputs (incl tractors) Rs 45,000 crore
2 / 4 Wheelers Rs 8,000 crore
Total Rs1,08,000 crore Source: Francis Kanoi, 2002
19. Some impressive facts about the rural sector
In 2001-02, LIC sold 55 % of its policies in rural India
Of two million BSNL mobile connections, 50 % in small towns/villages
Billing per mobile in small towns in A P is higher than in Hyderabad
Rural Market: A Snap Shot
The 24 million Kisan Credit Cards (KCC) issued in rural exceed the
17.7 million credit-plus-debit cards issued in urban. A whopping
Rs 52,000 crore has been disbursed under the KCC scheme
Of 20 million Rediffmail signups, 60 % are from small towns. Similarly
the 1,00,000 who have transacted on Rediff online shopping site, 50
per cent are from small towns
20. Share of agriculture sector in electricity consumption has grown
From 17.6 % (1980-81) to 29.2% (1999-2000) of total consumption.
Industry share during same period is down from 58.4% to 34.8%
Rural Market: A Snap Shot
Growing rural incomes
Annual HH income
Urban Rs 1,02,963
Rural Rs 56,630
Source: NCAER, IMDR 2002
21. Changing Rural Aspirations
Changing lifestyle – restraint to release philosophy among youth
Youth and women are the demand generators
Buy value for money, not cheap products (branded consumption in FMCGs
accounts for 80% of sale, brands could be national or regional) Source: ORG-MARG
Land and gold (traditional symbols of security) being replaced with
modern financial savings instruments
1999-00 Urban Rural (million HHs)
Investments made 6.23 6.18
Of these, New Investors 2.53 (40%) 5.13 (80%) Source: NCAER
For marketers this means money liquidity and access to formal funds by rural customers
for purchase of high ticket items
22. What Constitutes Rural?
Census of India Definition
i. Revenue villages with clear surveyed boundaries not having a
Municipality, Corporation or Board
ii. Density of population not more than 400 per sq km; and
iii. At least 75% of the male working population is engaged in
agriculture and allied activities
But for most companies
In FMCG category up to 20,000 pop
For Durables up to 50,000 pop
23. Distribution of Villages in India
Population No of villages % of total villages
Less than 200 1,14,267 17.9
200-499 1,55,123 24.3
500-999 1,59,400 25.0
1,000-1,999 1,25,758 19.7
2,000- 4,999 69,135 10.8
5,000- 9,999 11,618 1.8
10,000 & above 3,064 0.5
Total no. of villages 6,38,365 100.00
Source: Census 2001
24. Distribution of Towns in India
Town Class Population No of towns % of total towns
Class I 1 lac and above 423* 8.4
Class II 50,000-99,999 498 9.9
Class III 20,000- 49,999 1386 27.5
Class IV 10,000- 19,999 1560 31.0
Class V 5,000- 9,999 1057 21.0
Class VI less than 5000 110 2.2
Total no of
towns
5034 100.0
*10 lac+ – 27
5-10 lac – 42
1- 5 lac - 354
Source: Census 2001
25. Issues in Rural Marketing
Inadequate data on rural markets
Lack of understanding of rural consumers
Reaching products / services to 6.4 lac villages
Poor infrastructure
Only 40% villages connected by all weather road
Though > 90 % villages electrified, only 1/3rd
rural homes have electric
connections
Poor availability of shops in smaller villages (figures in %) Source: IMRB
Shops
villages
None 1-4 5-15 16+
< 500 pop 26 56 15 3
500-1,999 pop 7 41 42 10
2000+ pop 2 8 44 46
26. Issues in Rural Marketing
Low levels of literacy
Rural Literacy 59.4%
Urban Literacy 80.3%
Source: Census 2001
Poor reach of mass media
Source: NRS
15 official languages and tremendous cultural diversity
23
26
36
57
Press Cinema TV All Media
%
27. Myth 2: Purchasing power is low
Number of middle class HHs (annual income Rs 45,000- 2,15,000)
Rural 15.6 million
Urban 16.4 million Source: NCAER
For same income level, disposable surplus in rural is much higher than
urban
Rural Myths
Myth 1: Rural market is a homogeneous mass
15 languages, 4 religions, cultural diversity, vastly varying rural
demographics
Literacy (Kerala 80%, Bihar 35%)
Population Below Poverty Line (Orissa 62%, Punjab 14%)
28. Myth 3: Reaching 6 lac+ villages is a distribution nightmare
Consumption in villages but purchase from towns
Durables: 95% bought from 20k+ towns ( 4,000 nos)
FMCGs: bought from 2,000+ pop villages ( only 84,000, or 13% of
total villages) where 50% of rural population lives, the more affluent.
Smaller villages very poor and lack shops
Rural Myths
Myth 4: Marketers/Ad agencies believe in TV for rural
TV reach 36% only, media dark area of 240 million in Bihar, Orissa,
East UP, MP and Rajasthan
During sowing and harvest time electricity for agriculture but no
time to watch TV, after harvest when farmers are free, electricity
is diverted to industry
29. Myth 5: Urban ads are equally suitable for rural audiences
Rural Myths
Myth 6: Individuals decide about purchases
Decision making process is often collective for expensive items
Purchase process- user, influencer, decider, buyer, one who
pays can all be different.
So marketers must address brand message at several levels
30. Myth 7: Western market research methodology suitable for rural too
Visuals/colors more effective than numerical scales for ranking/rating
Source: MART
Mother of All Myths : The rural boom is over
Market size has grown rapidly
Below normal monsoons and weak agricultural prices in last 2 years
Rural Myths
31. Rural Market: Macro Scenario
Flow of Institutional Credit to Agriculture
Ninth Plan (1997-02) Rs 2,33,700 crore
Tenth Plan (2002-07) Rs 7,36,570 crore
Kisan Credit Cards
Issued 24 million (cumm loan Rs 64,000 cr)
Target (2004-05) All Eligible Farmers (50+ million ?)
Source: NABARD
Road construction programme to connect 1,90,000 villages
during Tenth Plan, thus total villages connected will be 70%
Source: Planning Commission
35. Urban Rural All india
Hair Oil (ml) 211 47 93
Toilet Soap (gram) 887 266 439
Tooth Powder (gram) 51 15 25
Tooth Paste (gram) 191 32 76
Washing Powder (gram) 2523 872 1331
Detergent Cakes (gram) 2138 641 1057
Per Capita Consumption of key Categories
Period : 2002-03
Source : ORG
Enormous scope to increase consumption!
36. Opportunity in Rural India
Source: ORG
Value in Rs
Cr**
Contribution
to All India –
2003
Population in
Cr
Per Capita
Consumption
in Rs
URBAN 33100 69% 28.52 1161
RURAL 14700 31% ** 73.92 199
TOTAL 47800 102.44 467
** Value in packaged/branded
FMCG Market Size
1381282Rental
455101Education
211103Clothing
851414Health
22461175Other food items
929844Cereal
UrbanRuralHead
Fig in Rs
PER CAPITA ANNUAL EXPENDITURE
• Raising Disposable income
Low rental & Education cost
• No.of of Middle Income House Holds
Urban is 1.6 cr & Rural is 1.5 cr
(Middle income is annual house hold income
of Rs.45k to Rs.215k: Source NCAER)
50% of Rural consumption happens through whole sale coverage from
near by feeder markets
38. Emerging Rural Consumer: An Insight
• Not only economic indicators are encouraging, we have observed
significant changes in values and aspirations of rural consumers
• The earlier stereotypical picture of a rural consumer is giving way
to a new, ambitious and impatient consumer who clearly seems
to be in a hurry to get ahead in life.
• Values such as ‘satisfaction and contentment’ are becoming passé
and the emerging values seem to be:
Indulgence
Materialism
Ambition – urge to get ahead in life in a hurry
Transition to Partnership from Dominance (Especially with
women)
Source: Various Qualitative studies commissioned by Dabur
39. • The successful communication to rural consumers needs to be
simple, not necessarily stereotypical
• Functionality does dictate brand-choice; but there can be smart
use of emerging aspirations in communication and product
development to create better connect with rural consumers
• While rural consumers have a desire to use quality, branded
products, the task remains to deliver products that are in line with
their changing life-style aspirations at a price affordable to them
Emerging Rural Consumer: An Insight
41. Change & Continuity in Rural
• Increased Disposable income
Subsidy by the Government
Minimum Agriculture Price fixed
Agricultural committees (MSP)
• Increased literacy levels
Educational Policies ( Free & Mid day meals)
Rural Literacy rates jumped from 44.7% to
59.4% in 2001 over 1991
• Increased consumption
Rural Markets are prosperous & accessible for FMCG
42. • Better Transportation & infrastructure
Rail & Roads
More than Rs. 4600 cr allocated to Pradhan
Mantri Gram Sadak Yojna (PMGSY) : with a
vision to connect all villages above 500 pop
by 2007
• Better Communication (Project SARI*)
Telephone Internet
Teledensity per 100 people : 0.3 (1995-96) to
1.5 (2003-04)
Television through village panchayats
*Sustainable access in Rural India
Change & Continuity in Rural
Rural Markets are prosperous & accessible for FMCG
43. Growth in Rural Infrastructure
• 60 % villages - connected by all-weather roads
• 73 % villages - electrified
• >35000 branches of commercial banks
• 35 lac outlet for consumer goods
• 3,05,499 fair price shops
• 111.5 million Households
44. Challenges in Rural Distribution
• COST OF COVERAGE
Viability & Frequency
High whole sale dependence
Logistics in coverage
Cost of Infrastructure
• MAPPING ROUTE PLAN
Identifying the towns and routes
Digitized Maps
• AVAILABILITY OF RIGHT CHANNEL PARTNERS
Understanding the channel needs in Rural, like, ROI ,
Appropriate credit policy, etc
Thrust in STR & Coverage
• Synergy & Scale is critical for Rural Distribution
• Appropriate hygiene in terms of Market rates is equally vital
46. Source ORG
IN LACS
ZONE URBAN RURAL TOTAL OUTLETS
NORTH 4.8 10.4 15.2
EAST 3.5 10.3 13.8
WEST 4.2 7.2 11.4
SOUTH 4.4 7.1 11.5
TOTAL 16.8 35.0 51.8
OUTLETS PER LAC POP
ZONE URBAN RURAL TOTAL DENSITY
NORTH 171 218 203
EAST 137 208 190
WEST 193 209 203
SOUTH 172 209 195
Universe of Outlets
Outlet Density
Zonal Distribution Spread
47. FMCG companies also responding positively to exploit the potential
• Increased thrust on Direct coverage
Big Companies operate with two models
Van operation
Sub Stockist
• Making products more affordable
Emergence of Sachet SKUs
Rs.5/- & Rs10/- price segments to increase the penetration in
smaller markets
Reduced Unit selling price
The FMCG Thrust
48. Prevalent Rural Distribution Models
VAN/
SUB STOCKIST
RURAL MARKET
RETAIL
FEEDER TOWNS –
WHOLE SALE –
RETAIL
WHOLE SALE
Smaller companies adopt whole sale activation route owing to
lack of viability
49. Van Operation
• Stockist from near by Urban Market covers 4 to 5 rural markets per
day
• Distance covered per day will be max of 60 to 70 km (both ways)
• Operated mostly on cash as per the desired frequency
• It can be exclusively for the division or company as a whole
Sub Stockist Operation
• Gets stocks from Super Stockist’s appointed in the district
• Super Stockist covers typically 10 to 15 Sub Stockist’s in the
district
• Sub Stockist covers all outlets in his village like regular Stockist by
extending credit and services
• Local person in the Market results in Better Market information & Service to
outlets
• Sub Stockist can cover another 4 to 5 satellite markets near by.
• Better control on distribution
The Two Distribution Models
50. Designing Rural Distribution Network
PCS
MPV
The most prevalent Rural distribution models like Van & Super
Stockist operation can be adopted effectively only with the
above studies
Two Concepts:
51. Introducing the concept of P.C.S
PER CAPITA SALES = ___________
ANNUAL SALES
TOWN
POPULATION
52. HIGH LOW
MULTIPLE VAN SINGLE
VAN
SUBSTOCKIST
OPERATION
SUBSTOCKIST
OPERATION
WHOLE SALE
ACTIVATION/ FEEDER
MARKET
IDENTIFICATION
PER CAPITA SALES ( PCS)
POPULATIONDENSITY
HIGH
LOW
Ideal Distribution Model for RURAL with
PCS STUDY
53. Haryana – An Example
HISSAR
SIRSA
BHIWANI
KAITHAL
JIND
MAHENDERGARH
WHOLE SALE
ACTIVATION/FEEDER MARKET
IDENTIFICATION
ROHTAK
REWARI
JHAJJAR
SONIPAT
SUBSTOCKIST OPERATION
SUBSTOCKIST OPERATION
PANCHKULA
GURGAON
AMBALA
KARNAL
FARIDABAD
KURUKSHETRA
PANIPAT
YAMUNANAGAR
VAN OPERATION
Population DensityHIGH
HIGH
DISTRICTPCSLOW
LOW
HIGH LOW
POP
DENSITY
1020 0
DIST. PCS 23.65 0
54. MPV – A study by RK Swamy BBDO
MPI
(Market Potential Index)
Contributions of
Agriculture
+
Industry
+
Infrastructure
To the economic status of
the district is used to measure
Market potential
Adjusted to
population
MPV
(Market potential value)
Market Potential Value is the potential that the StateDistrict has
based on these parameters
55. MPI Parameter
• Agriculture
Value of output of major crop averaged over three year
No. of cultivator/ labor
No. of large landowner
• Industry
Bank advances to Industry
No. of workers employed in mining & quarrying
• Infrastructure to All India GDP
Bank Deposit
Bank credit to trade
Petrol & Diesel consumption
Literate Population
Urban Population
56. 0
500
1000
1500
2000
2500
MPV
ZONES
MPV
MPV 2393.77 1372.19 2352.42 1877.14
NORTH EAST WEST SOUTH
STATE UT MPV All India Rank
Uttar pradesh 800.41 2
Punjab 507.58 6
Delhi 498.37 7
Rajasthan 279.37 12
Haryana 230.74 13
Himachal Pradesh 42.97 18
Chandigarh 34.33 19
North 2393.77
West Bengal 724.2 3
Bihar 333.7 11
Orissa 154.77 15
Assam 108.04 16
Tripura 14.68 20
Meghalaya 8.23 22
Nagaland 7.64 23
Arunachal Pradesh 7.31 24
Manipur 7.2 25
Mizoram 4.08 26
Sikkim 2.34 28
East 1372.19
Maharastra 1532.09 1
Gujarat 412.84 8
Madhapradesh 357.31 10
Goa 47.4 17
Daman & Diu 1.6 30
Dadra & Nagar Haveli 1.18 31
West 2352.42
Andhra Pradesh 630.37 4
Tamilnadu 629.99 5
Karnartaka 381.21 9
Kerala 221.78 14
Pondichery 8.65 21
Lakshadweep 3.48 27
Andaman & Nicobar 1.66 29
South 1877.14
North and West have the highest MPV
Source RK SWAMY
58. Both PCS and MPV have high Correlation
HIGH LOW
PANCHKULA
GURGAON
AMBALA
KARNAL
FARIDABAD
KURUKSHETRA
PANIPAT
YAMUNANAGAR
VAN OPERATION SUBSTOCKIST OPERATION
ROHTAK HISSAR
REWARI SIRSA
JHAJJAR BHIWANI
SONIPAT KAITHAL
JIND
MAHENDERGARH
SUBSTOCKIST OPERATION W/S ACTIVATION &
Feeder markets
DISTRICTPCS
POPULATION DENSITY
HIGHLOW
MPV RANK
GURGAON (599.7)
AMBALA (544.5)
KARNAL (506.3)
FARIDABAD (1020.2)
ROHTAK (539.8)
SONIPAT (603.8)
VAN
OPERATION
KURUKSHETRA (541.11)
PANIPAT (763.13)
YAMUNANAGAR (541.11)
SUBSTOCKIST
OPERATIONS
HISSAR (386.1)
SIRSA (260.4)
SUBSTOKIST
OPERATION
REWARI (483.16)
BHIWANI (298.1)
KAITHAL (408.9)
JIND (440.12)
MAHENDERGARH
(437.15)
WHOLESALE
ACTIVATION
59. Key Challenges in the Future
Increasing occasions for use in FMCGs (consumption)
Reaching the product to remote rural locations and entering more rural
homes (penetration)
Increasing rural incomes (market growth)
Communicating with diverse rural audiences speaking diverse languages
Making effective use of the large available infrastructure
Post Offices 1,34,000
Haats (periodic markets) 47,000
Melas (exhibitions) 25,000
Mandis (agri markets) 7,000
Public Distribution Shops 3,50,000
60. Rural Markets: The Future
Technology will play a key role in transforming markets
ITC’s e-choupal and other IT initiatives (EID Parry, Amul Dairy
Information System Kiosk)
STD revolution/ mobile connectivity
Proliferation of large format rural retail stores
DSCL Haryali stores
M & M Shubh Labh stores
TATA/Rallis Kisan Kendras
Escorts rural stores
Warnabazaar, Maharashtra (annual sale Rs 40 crore)
61. Developing Distribution Tactics
Selecting Channel PartnersSelecting Channel Partners
Reward or
Coercive
Power
Reward or
Coercive
Power
Legitimate
Power
Legitimate
Power
Economic
Power
Economic
Power
Managing the Channel of Distribution
Channel Leader Power
Managing the Channel of Distribution
Channel Leader Power
Distribution Channels & the Marketing MixDistribution Channels & the Marketing Mix
63. Decision Making Framework
Prospects
of
Destructive
Conflict
Importance of threatened
channel in terms of current or
potential volume or profitability
High Low
High (FIRE) Act to avert or address
conflict
Allow threatened
channel to
decline
Low
(Smoke)
Look for opportunities
to reassure threatened
channel and leverage
your power
Do nothing
64. Channel Conflict: Identifying
Threats
• First, are the channels really attempting to
serve the same end users?
• Second, do channels mistakenly believe
they are competing when in fact they are
benefiting from each other's actions?
• Third, is the deteriorating profitability of a
griping player genuinely the result of
another channel's encroachment?
• Fourth, will a channel's decline
necessarily harm a manufacturer's
profits?
65. Managing Channel Conflict
WHEN TWO OR MORE CHANNELS TARGET
THE SAME CUSTOMER SEGMENT
• Differentiate the Channel offer.
• Define Exclusive Territories.
• Enhance or Change the Channels Value.
66. Managing Channel Conflict
CHANNEL ECONOMICS DETERIORATE
• Change the channels economic formula: (Grant rebates
if an intermediary fulfill certain requirements; Adjust
margins between products to support different channel
economics; and Treat channels fairly to create level
playing field)
• Create Segment Specific Programs (certain services
not available via direct channels)
• Complement value proposition of the existing channel
by introducing a new channel
• Foster consolidation among intermediaries in a
declining channel.
67. Managing Channel Conflict
THREATENED CHANNEL STOP
PERFORMING OR RETALIATE AGAINST
THE SUPPLIER
• Leverage Power (eg. Strong Brand) against
the channel to prevent retaliation
• Migrate volume to winning channel
• Back off