Sales Channel Management for Rural Markets

C.K. Prahalad in his book “The Fortune at the Bottom of the Pyramid,” described the profits that can be generated by selling products to “Bottom of the Pyramid” customers.[1] Rural markets constitute an important part of the emerging economies like India with majority of the population liv­ing in villages. Rural markets have attained lot of importance in the past decade as the growth of the Indian economy has resulted into considerable increase in the purchasing power of the rural customers. There are many reasons for companies to explore the rural markets. Increasing rural incomes driven by agricultural growth have augmented the propensity to buy branded and value-added products in rural markets. Many fast moving consumer goods companies (FMCG) are introducing customized products, especially for rural customers. This is further helping FMCG companies to record higher growth rates, sometimes even faster than that in urban markets. Selling products in the rural markets present unique challenges and huge opportunities for companies. For example, the rural consumers are dispersed over a wide geographic area, transportation infrastructure is not well developed, low per capita disposable incomes, seasonal consump­tion related to harvests and festivals, and lack of access to conventional advertising media.

The four challenges (also referred as 4As) in the rural marketing are: affordability, acceptability, awareness, and availability. With low disposable incomes, the rural customers need affordable products. Many companies have addressed the affordability issue by introducing small unit packs. Godrej introduced Cinthol soap and Fair Glow soap in 50 grams packs, priced at ‘4-5. HUL has launched a variant of Lifebuoy at ‘2 for 50 grams. Other examples are small packs of Parle-G biscuits priced at ‘2, sachets of Clinic Plus shampoo, Sunsilk shampoos sold at ‘1.[2] The second challenge is to gain acceptability of the products among the rural customers. LG devel­oped a customised TV “Sampoorna” for the rural market in India. Rural areas lack uninterrupted power supplyy so Coca Cola provided low-cost ice boxes for retailers. Also, insurance companies have made tailor-made products for the rural market and have done well in comparison to their competitors.[3]

With large parts of rural market unapproachable to conventional advertising media, building brand awareness is difficult in the rural markets. HUL majorly uses company-organized media, and there are promotional events organized by the channel partners. Godrej consumer products use radio to reach the local people in their language. Coca Cola uses a combi­nation of television and radio to reach rural consumers. On the other hand, LG uses local-level advertising and road shows to reach rural customers.[4]

Availability of products is most challenging because of the infra­structural issues and the low density of the population. Companies like Hindustan Unilever (HUL) have built a robust distribution system which helps its brands to reach the interiors of the rural market.[5] Coca Cola, which considers rural markets as a future growth driver, has evolved a hub- and-spoke distribution structure to reach the villages.[6] [7] The three factors to be considered in designing the rural distribution are:

Appropriate. Appropriateness of the distribution model with the prod­uct or services of the company is crucial for rural marketing. Distribution models with local inventories are suitable for products with high demand, especially if transportation is a large segment of the total cost. These mod­els suffer higher inventory cost, but lower transportation cost and provide a faster delivery and response time.11 FMCG companies like HUL, Godrej are going for intensive distribution and will have a different model than the electronic companies like LG and Philips India.

Aggregate. Low population density and presence of rural customers in wide geographical areas can increase the cost of distribution. Com­panies can aggregate consumer demand into central locations to reduce inventory and transportation costs. LG Electronics has set 45 area offices and 59 rural area offices to increase the sales in the rural markets.[8]

Appoint. Companies are appointing local rural entrepreneurs to increase the last-mile product delivery and sales. Colgate India appointed local entrepreneurial youth in the rural markets to distribute its products in villages. These local entrepreneurs purchase Colgate products from a local distributor, and then sold the products to villagers. Colgate paid a stipend to these rural entrepreneurs and saved on its inventory costs.

Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.

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