Rural Marketing-

Distribution strategy

Topics to be covered
Distribution strategy : Accessing Rural Markets, Coverage

Status in Rural markets, Channels of Distribution, Evolution

of Rural distribution Systems Wholesaling, Rural Retail
System, vans, Rural Mobile Traders The last mile
distribution, Haats/Shandies, Public Distribution System
Co-operative societies behavior of the channel, Prevalent
Rural Distribution Models Distribution Models of FMCG
Companies, distribution model of Durable companies,
Distribution of fake products, Emerging Distribution Models
Corporate-SHG Linkage, Satellite Distribution, Syndicated
distribution, ITCs Distribution Model, Petrol Pumps and
extension counters, barefoot agents, Agricultural agents,
Agricultural input dealers, Other channels, ideal distribution
model for Rural

Challenges in rural Distribution

Large number of small markets
Dispersed population and trade
Poor road connectivity
Multiple tiers
Poor availability of suitable dealers
Low density of shops per village
Inadequate banks and credit facilities
Poor storage system
Low investment capacity of retailers
Poor visibility and display of products on rural shop

shelves.
Poor communication of offers

Distribution Strategy
Ensuring Reach & Visibility The thing which is critical, is to get the

Stock Keeping Unit right, as rural retailer cant afford to keep many
different SKUs. In such an environment, being first on the shelf in the
product category and developed a privileged relationship with the retailer
is a source of competitive advantage to consumer good companies.
Reaching upto Mandis, Towns, Semiurban centres
Organizations can cater to rural needs for consumer durables, clothes,
kitchen equipment and agri-input by making their products available upto
feeder towns, semi-urban centers or mandis.
Targetting larger villages There are only 85000 large villages out of
more than 6,38,000 villages. But they have 40% of the rural population
and 60% of total consumption.
Understanding of Peak seasons Peak season times in rural parts
are Festivals, harvest and marriage seasons. Bulk of the demand for the
consumer durables concentrated during these times. The rural consumers
are in shopping mood and have the cash for the same at this time.
Organizations have to ensure that their products are available at these
times.

Delivery vans Company delivery vans which can serve two

purposes; they can take the products to the customers in select

rural areas and also enable the firm to establish direct contact
with them and thereby provide an opportunity for promotion.
Collaboration for Distribution Various organizations
with comparatively lesser distribution reach can collaborate
with organizations that already have achieved high penetration
levels in rural areas. For eg. P&G had tie-ups with Godrej,
Marico Industries and now its planning one with Nirma for
distribution of Camay soaps.
Converting unorganised sector manufacturers into
distributors Small scale manufacturers have good
knowledge of the territory and have good sales network.
Organizations like Exide are attempting to convert these small
scale manufacturers to become their dealers.
Companys own Distribution Network Project Shakti of
HUL is one such example.

Distribution Channels in Rural India

Use of cooperative societies There are over 4

lakh co-operatives operating for different purposes

like marketing, credit and dairy cooperative in rural
areas. For eg. Farmers Service Co-operative Societies
function like a mini super market for rural
consumers where they sell soaps, detergents, cloth,
seeds, fertilizers, pesticides etc. at economical and
reasonable prices. Since these societies have
necessary infrastructure for storage and distribution,
companies may contact these societies to sell their
products.

Use of Public Distribution System In India,

the Public Distribution System is well organized.

There are about 4.37 lakh fair price shops operating
in the country. Since the PDS outlets cover the entire
country they can be utilized for marketing
consumable items and low value durables in rural
areas.
Utilization of Petrol Pumps These petrol
pumps, in addition to petrol/diesel, oil and
lubricants are also selling consumables such as
soaps, detergents, biscuits etc, particularly on the
highways. These bunks may also think of stocking
certain consumable agricultural inputs like
fertilizers, seeds and pesticides.

Agricultural input dealers There are about

2,62,000 fertilizer dealers in the country. During off

season most of the dealers dont have business, hence
the companies may try to motivate them so that they
can sell other products also during their free time.
Shandies/ Haats/ Jathras/ Melas Shandies are
periodic markets which operate in a weekly cycle.
They offer a ready distribution network and are
steady, cheap and appropriate. Haats can be used
effectively for distribution, demonstration and
sampling of daily need products. Melas work best for
introducing new brands and building brands through
the organization of events at the venue.

Accessing Rural markets : Coverage Status in

Rural Markets
Marketers have to ensure the reach of their product to

retail outlets, and they also need to motivate retailers to

stock their product or brand.
50% of the rural population resides in the 1 lakh odd
large villages. These villages are connected by allweather roads and they account for 60% of rural wealth.
At the other end are 2.3 lakh tiny villages, which have
hardly any shops.
HUL, Eveready, ITC etc are the companies that have the
most deeply penetrated rural distribution system just
about cover the retail network up to the 2000+
population villages.

Rural distribution Channels

Five layers of distribution channels for the movement
of products from the company depot to the interior
village markets.
Layer

Channel partner

Location

Layer 1

Company depot / C&F A

National/state level

Layer 2

Distributor/van operator/
super stockist/ rural
distributor

District level

Layer 3

Sub-distributor/ retail
stockist/ sub-stockist/ star
seller / Shakti dealer

Tehsil HQ, towns and large

villages

Layer 4

Wholesaler

Feeder towns, large

villages, haats

Layer 5

Retailer

Villages, haats

Channels of Distribution
FMCG

Durables PDSGovernme
nt

Fake Goods

Cement

Bulbs &
Tubes

Company
manufacturi
ng plant

Company Food
manufactu Corporation
ring plant of India

Manufacturer
s

Company
manufact
uring
plant

Company
Manufactur
ing plant

Company
Depot
C&F A

Wholesaler
(city)
C&F A

Zonal
Offices

Distributor

District
office

Sub stockist

Depot

Wholesaler
(small town)

Depot
C&F A
Distributo Distributor
r

Retail
outlets

Exclusive
dealers/
dealers

Fair Price
Shop

Retailers
(village haats,
mobile
traders

Outlets

Exclusive
dealer/
retail
outlets

Consumer

Consumer

Consumer

Consumer

Consumer Consumer

Evolution of Rural Distribution Systems

Historically,

the rural distribution system has

included wholesalers, retailers, mobile traders, vans
and weekly haats.
In the feeder markets, retailers act as wholesalers
and vice versa to sell to small retailers who come
from surrounding villages.
Some town retailers send their salesmen to villages
to book orders and supply goods to these small
retailers.

Wholesaling
50%

of rural consumption is still routed through

wholesalers because they are located in nearby feeder
markets, which are frequented by village retailers to
replenish stocks.
Indian wholesaler is a trader rather than a distributor and
therefore tends to support a brand during periods of boom
and withdraws support during periods of slump.
Rural markets were neglected by most companies due to the
low density of retail outlets and the small off-take per
retailer. Wholesalers based in feeder towns took advantage
of this situation as village retailers found it convenient to
buy from these places. This resulted in the hold of the
market by these wholesalers, who often indulged in trade
malpractices in the channel.

Rural Retail System

Rural India accounts for 65% of retail outlets in the country.

The logistics of feeding the 35 lakh retail outlets spread over 6

lakh villages is a tough task.
The high distribution costs due to geographical spread and
low volumes per outlet act as a barrier to the entry of
products in rural markets.
The average monthly sale per village shop is less than Rs.
5000, which restricts the variety and range of the products
stocked.
Since a significant portion of the sale is on credit, it puts most
village shops in a self-limiting sales cycle.
Despite the same product being available in the village shop,
58% of villagers prefer to buy these from a haat because of
better price, quality and variety.

Stock Turnover
Average value of stock per product category in interior villages

is about a third of that in feeder villages.

Off-take of packaged food stuff and tobacco is higher in
interior villages, whereas toiletries have a higher take-off in
feeder villages in comparison to other products.
The cash outlay of rural retail outlets is extremely low and
most of it is invested in fast moving brands and high margin
commodities.
The low off-take, low stocks and lower stock turnover ratio
together pose a challenge to the marketer of a new product that
how to occupy retail shelf space in rural markets.
Rural retail shelf space can be occupied by offering consumers
a combination of attractive margins, credit facility and
servicing that is superior to that offered by the competition.

Rural retail Shelves

Unlike urban retail shelves, rural retail shelves are

flooded with local and regional brands as these

promise the retailer higher margins and longer credit
periods.
The number of product categories stocked by rural
and urban stores does not vary significantly. But
what does vary is the number of companies/brands.
This difference in stocking pattern is because of poor
reach and difficulty in servicing stores.

The

first task is making brands available, but

simultaneously marketers also need to make efforts to
ensure their visibility on rural retail shelves. Products
are stocked in a cluttered and disorganized way.
Slow-moving products covered with dust accumulated
over a period of time are a common sight. The visibility
of brands is very poor due to the absence of proper racks
and display boxes and stands.
Brands that are advantageous to the retailers business
are displayed prominently.
Therefore marketers need to devise strategies to occupy
rural retail shelf space by providing display and storage
systems. (wall mounted display strips for fairness
creams and ice boxes for soft drinks.)

Vans
Mobile vans have an important place in the distribution and

promotion of products in villages.

In this system, the salesman loads the van with stocks from the
nearest stockist or company stock point and works the
surrounding markets.
Once he has covered all such markets, he moves to the next
stock point and starts covering the villages surrounding that
stock point.
Eveready batteries and torches are market leaders. It
established an extensive distribution network that includes
1000 vans, 4000+ distributors and 44 warehouses. These vans
reach 6 lakh retail outlets directly, each van making 50 to 60
calls per day. The company ensures that the van revisits a
retailer every 15 days. The stock for these vans is supplied by
the small town distributors.

Rural Mobile Traders The Last-Mile distribution

Mobile trading is an age-old, direct to home, unorganized

distribution system in rural India.

Sell a variety of daily-need products, mostly local brands
ranging from detergent, cosmetics, and personal care
products to garments and footwear.
They carry their product on bicycles, mopeds, handcarts or
on foot.
Mobile traders have a deep reach since they target small
villages to avoid competitions from shops in bigger villages.
Their direct selling approach ensures high involvement on
the part of consumers and since they have a fixed and
committed consumer base, mobile traders enjoy a good
rapport with their clients.
Mostly sell fakes and local brands.

Haats / Shandies
Haats are the periodic markets and the oldest marketing

channel in India.
These markets provide people an opportunity not only to
purchase consumer goods, but also to sell surplus
agricultural and allied products.
They provide a first-contact point for villagers with the
market, a means for distributing local products and
exchanging rural surplus, an opportunity for buying daily
necessities as well as farm supplies and equipment and a
place for social, political and cultural contact.
Each haat caters to the need of a minimum of 10 to a
maximum of 50 villages, drawing around 4000 persons
who come to buy and sell a range of daily necessities and
services.

Public Distribution System (PDS)

PDS is a system of distribution for essential commodities

to a large number of people through a network of FPS

(Fair Price shops, often referred to as ration shops).
The commodities are wheat, rice, sugar, edible oil and
kerosene. PDS has been evolved to reach the urban as
well as the rural population in order to protect consumers
from the fluctuating and escalating price syndrome.
It has emerged as a major instrument of the
Governments economic policy aimed at ensuring
availability of food grains to the public at affordable
prices as well as for enhancing food security for the poor.
PDS with a network of about 4.76 lakh FPS is the largest
distribution network of its type in the world.

PDS Network
Central
Government

Orders
1.
2.
3.
4.

Procurement
Storage
Transportation
Bulk Allocation

Orders for
procurement
Commission on
agricultural costs
and prices

Recommends
minimum
support price

Food Corporation of India

23 Zonal offices

173 District offices

1560 Depots

Fair Price Shops

Behavior of the Channel

Credit facilities to customers In some districts, credit

sales account for as high as 60 to 70% of the total rural

business, while in others it is only 15 to 20%. Consumers
usually have a running account, a part of the outstanding dues
is cleared every month but the final settlement takes place at
the harvest time.
Pricing by the channel Sometimes retailers in interior
villages sell at a price higher than the maximum retail price.
They justify doing this on the ground that they spend time and
money to fetch the products from town wholesalers. A town
wholesaler may deliberately cut the price of a fast-moving
brand to increase his business.
Reason for stocking a product/brand Rural retailers
stock a particular item usually because consumers demand it
and to a lesser extent because of the wholesalers push or
because a competitor stocks the item too.

Seasonal pattern of stocking Seasonal pattern is probably

because the main buying season for rural consumers is during the
harvest and retail stocking of toiletries, cosmetics, ribbons, bangles,
clothes, fertilisers, seeds also follows this pattern.
Information source and influence Wholesaler is the most
important source of information and also most important influence on
the retailer.
Purchase source Retailers in interior areas are not visited by agents
of distributors; retailers go to the nearby town / large feeder village
once or twice a month to buy their stock.
Chanel credit Small retailers and retailers in the interior villages
must buy in cash, while large retailers in feeder markets are offered
credit.
Purchasing cycles In high turnover feeder villages, rural
shopkeepers often visit the neighbouring urban wholesale market for
their purchases, sometimes as frequently as three to four times a week.
In other areas, where rural shopkeepers depend only on counter sales
and not on wholesale purchases, they may buy once a week or once a
fortnight.

Prevalent Rural Distribution Models

Retail

Wholesale
Feeder Towns
Wholesale and
Retail

Van/
Sub-stockist

Rural Market

Rural distribution can broadly be categorized into two models:

Smaller companies adopt the wholesale activation route owing to
a lack of viability, whereas companies with sizeable product
baskets adopt the retail route to reach rural markets.
Van Operation :
Stockists from nearby urban markets cover four to five rural
markets per day.
A distance of 60-70 km is covered per day.
They operate mostly on cash basis as per the desired frequency.
They provide better control over distribution.
Sub-stockist Operation
Gets stock from super stockists appointed in the district.
Super stockists typically cover 10-15 sub stockists in the district.
The sub-stockist covers all the outlets in his rural market like the
regular stockist, by extending credit and services.

Distribution Model for FMCG Companies

Distribution Model 1
Company

C&F A
Distributor
(Rural)

Subdistributor

Retailer
(Rural)

Distributor
(Urban)

Wholesaler

Wholesaler

Retailer (Satellite
market)

Retailer
(Urban)

Retailer
(Urban)

Channel Structure
In Model 1, rural distribution has been separated from

urban distribution to create a specific focus on the rural

market.
Coverage area of rural distributors is clearly defined.
Company appoints a sub-distributor under the distributor
to penetrate deeper into rural areas upto the 5000
population villages.
The RD covers a large area with poor road network and a
low volume per outlet, which would make it unprofitable for
him to cover small locations. The RD services the wholesale
market in his area.
It has a large number of points appointed in the rural areas,
because the locations are many and scattered.
Model focuses more on distributors and sub-distributors
rather than the wholesale channel.

Distribution Models of FMCG Companies

Distribution Model 2

Company

C&F A/ Depot

Distributor

Wholesaler

Retailer (Local)

Retailer

Channel Structure
This is a simpler model compared to DM1. There is no

separate channel for rural distribution.

This model minimizes distribution costs, allowing the
company to offer better margins to the distributors and
other channel partners who then push the sales of such
products.
Wholesaler locations work as feeder markets, from where
the company caters to the requirements of nearby villages,
places not covered by the distributor.
It is mostly companies with a limited number of SKUs and
high sales volume that adopt this model.
Channel partners are few and the distributor is given a
large territory.

Nirma Distribution System

Nirma
(Ahmedabad)
Depot (Hyderabad,
Kolkata, Kanpur)
Direct Distributor (At the
district level)
Sub distributor / Big wholesalers
(At the tehsil level)
Wholesaler

Retailer

Nirma Distribution System

The

structure followed by Nirma consists of

minimum channel partners. Direct distributors
receive supplies from the depot. Market coverage is
mainly through the wholesalers network and hence
few distributors are required to handle bulk
despatches.
In some cases, a big wholesaler plays the role of a
sub-distributor, supplying to the retailers and
wholesalers.

Distribution Model of Durable Goods Companies

LG

Depot
New Rural District
Office
C&F Agents
Warehouse

Exclusive Dealers

Multiple Dealers
Consumer

Since durables are purchased largely from small and

large towns, the number of locations for distribution is a

few thousand only and these can be managed by a few
channel partners.
LGs manufacturing plant is located in Greater Noida,
near Delhi. The finished goods are transported from the
manufacturing plant to the company-owned depot,
which in turn passes down the line to C&F agents. There
is a specific area assigned to each C&F agent and
multiple dealers and exclusive dealers are tied to the
C&F agent by the companys field force. The orders are
generated by the companys sales field force, which in
turn is supplied by the C&F agent.

Distribution of Fake Products

Manufacturer
Wholesaler in Big
City

Wholesaler in small
town / Kasba

Haat Retailer

Village Retailer

Customer

Mobile Trader

Channels of Distribution for fake products

Manufacturers to wholesalers/retailer in big

city or small town, or directly to customer

Manufacturers take orders for fake products through
personal visits or over the telephone from big
wholesalers/retailers who deal in fakes. They also leave
sample of new fake products for test marketing. Delivery
is made to wholesalers/retailers through vans and
tempos authorized by the manufacturer.
Wholesaler in big city to wholesaler in small
town/kasba Wholesalers in kasbas source their
supply of fakes through daily rail commuters. These
passengers book orders from wholesalers and collect
supplies from the manufacturer of fake goods. These are
hand delivered the next day.

Wholesaler in small town/kasba to village

retailer/mobile trader/haat Salesmen of fake

products visit retailers in villages of 3000+
population category located 15-20 km. from the
nearest town to deliver products. Mobile traders get
their stock of fake goods for purchases above Rs. 500
from mandis in nearby towns, or from the nearest
kasba for smaller purchases.

Emerging Distribution Models

Corporate-SHG Linkage SHG is a group of 10-15 women

organized by government bodies or NGOs, who come together

to form a mutual thrift group, to inculcate savings discipline
and boost feelings of self-worth among women. Members of
SHGs get matching loans from rural banks to set up incomegenerating enterprises. Originally, SHGs were formed to
support poverty-alleviation programmes in rural areas after the
success of the model in Bangladesh, where this concept
originated.
HULs Project Shakti was targeted at strengthening the
companys FMCG rural distribution drive. Interested women
from SHGs were appointed as Shakti entrepreneurs, they
borrow money from their group corpus and provide services to
6-10 villages, covering a population of 6000-10000.They
receive stocks from HUL rural distributors and make sales to
both retailers and direct consumers in villages.

Satellite Distribution (the Hub-and Spoke System)

Stockists are appointed in major towns and feeder

towns. By and large, they discharge the following

functions : a) financing, b) warehousing and c) subdistribution.
Retailers in and around the feeder towns get attached
to these stockists. The manufacturer supplies goods to
the stockists either on a consignment basis or on a cash
or credit purchase basis.
The stockists take care of sub-distribution on the terms
and conditions determined by the manufacturer or as
agreed upon by the parties. Often, the stockists operate
their own delivery vans to take care of secondary
transport and local delivery jobs.

Coca Cola Hub & Spoke Model

Recently

modified its distribution channel by

shifting from a centralized model to a three-tier huband-spoke model. Invested in glass bottles and new
vehicles in consonance with the three tier
distribution structure. Large trucks were used to
move stocks from the bottling plant to the hubs,
medium commercial vehicles were used to move
stock from the hub to the spokes and after that auto
rickshaws and cycles were used to cater to the
requirements of rural markets.

Hub and Spoke System

A2
S2

S1

S1

S2
A1
Wholesal
er Town

A3

S3

S3
S4
S4

A4

A1 A4 Semi
wholesalers
S1-S4 Satellite
markets

Syndicated distribution
Syndicated distribution is a viable and novel approach to gain

entry into rural markets. Under this approach, two or more

companies come together to form a syndicated trading
organization, to jointly distribute a collective group of
household products in rural markets by sharing distribution
costs.
The solution for small companies is to tie up with a leading
company, that already has a presence in the rural market, in
order to distribute products through its distribution network.
The golden rule is that the small company should not deal in
the same products, that the leading company sells.
Eg. P&G uses the rural distribution network of Marico to sell
Ariel, Tide etc. CavinKare used the distribution network of
Amrutanjan pain balm for its Chik shampoo.

ITCs Distribution Model

ITC has taken the initiative to reach rural consumers

through its e-choupal model for backward and

forward linkages for its agri-related business, for
direct procurement of agri produce from farmers and
for selling a range of products through Choupal
Sagar.

Barefoot Agents
Few insurance companies have taken the initiative of

appointing barefoot insurance agents in order to

penetrate rural markets. Agents are recruited on the
basis of three parameters : 1) direct personal contact,
2) spreading information through group discussions
3) and motivating people to become life insurance
agents through counselling.

Other Channels
Hero Honda Motors has 400 dealers all over the

country. The company has reported the emergence of

an unofficial channel of distribution village
mechanics, local real estate agents and shopkeepers.
These people take the motorcycles, usually in twos
and threes, from company dealers after providing
adequate security deposits and display them outside
their premises for closing the sale. The paper work,
however, is left to the dealer to complete.

Ideal Distribution Model for Rural

On the basis of the equation Per Capita Sales (PCS) =

Annual Sales / Market Population, the ideal

distribution model for rural can be depicted as follows :
The Project Shakti type of model best serves the needs
of the Low PCS-Low population density segment
consumers.
The NSV model is more appropriate for the Low PCSHigh population density segment. PDS, cooperatives
and fertiliser dealers could also be integrated into this
model.

THANK YOU