Problems In Rural Distribution

Problems In Rural dispersalRural consumers send away around 13% of their income on fast moving consumer goods.The FMCG industry in India was worth around US$ 16.03 billion in August 2008 and the countryfied market place accounted for 57% sh are of the total FMCG market in India.Rural marketing aid transfer of goods and service from untaught producers to urban consumers at possible conviction with reasonable prices, and agriculture inputs/ consumer goods from urban to bucolic.The uncouth markets get under ones skin become a great opportunity for umpteen companies to expand sales. However, m all of them back out as they get word dispersal as a major puzzle. They try the same tricks in rural markets as they put one across tried in urban market e.g., extensive merchandising and sustained pull generation by means of mass media advertising. As a firmness they fail and blame the less developed infrastructure of the rural markets. Creative companies like HLL, have been e xperimenting to find innovative ways of gain the rural consumers. Problems in rural distribution (i) Difficulty in reaching rural consumersThe major problems areLack of adequate transport facilities,Large distances between resolutions,Lack of pucca roadstead connecting villages to nearest t bearships,Lack of proper retail out lets, andThe low density of population and inaccessibility makes the problem of servicing these villages individually difficult and often uneconomical. Direct de abidery of goods to sluice the top one per cent of villages cost twice as much as servicing urban markets. Therefore, in the initial stage, it whitethorn be better to concentrate only on the badr villages, and towns with large agricultural hinterlands that act as foci for distribution. The semi-wholesalers and retailers servicing smaller villages can obtain stocks from these places or the villagers themselves can buy the necessary items.Studies conducted by the merchandise Research Department of Hindustan Level showed that about 20 per cent of the farmers visit the nearest town at least once a month to sell their produce and purchase their requirements.(ii) Multiple Tiers, Higher be and Administrative ProblemsIn the first place, the rural distribution chain requires a larger number of tiers, compared to the urban one. The long distances to be covered from the product points and the scattered locations of the consuming househ matures cause this situation. At the minimum, the rural distribution chain needs the villagel evel shopkeeper, the mandi-level distributor and the wholesaler/stockiest in the town. And on top of them are the manufacturers own warehouses/ tell office operations at selected centers in the marketing territory. Such multiple tiers and scattered outfits push up costs and make channel management a major problem. The scope for manufacturers direct outlets much(prenominal)(prenominal)(prenominal)(prenominal) as show rooms or depots is quite limited in the ru ral market unlike in urban areas. (iii) Non-availability of DealersMany firms find that there are a limited number of suitable dealers. withal if the firm is willing to start from scratch and try out rank newcomers, the choice of candidates is really limited.(iv) ugly Viability of Retail OutletsRetail sales outlets in the rural market suffer from poor viability. A familiar paradox in rural distribution is that the manufacturer incurs sumal expenses on distribution still the retail outlets find that the business is un remunerative. The scattered nature of the market and the multiplicity of tiers in the chain use up the additional funds the manufacturer is prepared to part with. (v) Inadequate Credit FacilitiesInadequacy of institutional/ beach reference work is an separate(a) constraint. Rural outlets are unable to carry adequate stocks due to neglect of credit facilities. They are unable to extend credit to their customers. Thus there is a vicious circle of lack of credit faci lities leading to inadequate stocking and loss of business,finally resulting in poor viability of outlets.Need for an Intelligent Approach right ahead if one takes a closer look at the characteristic features of rural market, it will be trig that distribution in fact, is no problem at all. The perceived problem is only a misconception of the old timers who are not aware of the changing scenario in rural areas and the potential of the existing selling outlets. low the rural road construction programme, the Government plans to link villages with a population of 1,5000 or above withal-weather roads. carry on in this has been somewhat tardy.CokeTo reach out to rural India, Coke started out by force up a hit list of high potential villages from various districts. To ensure full loads, large distributors (Hubs) were appointed, and they were supplied from the companys depot in large towns and cities.Full load supplies were offered twice weekly against earnings by demand draft. On the ir part,the hubs appointed smaller distributors (Spokes) in adjoining areas.The smaller distributors undertook fixed journey plans on a weekly basis and supplied against cash. The distributors also hired rickshaws (cycle operated vans) that travelled to villages daily.ITC eChoupalsAnother innovator in rural distribution the $3.6 billion, Calcutta-based tobacco-to hotels conglomerate ITC has also been trying to build a platform that others can use. ITC is picture up eChoupals across the agricultural belt in India to offer the farmers of India all the information, products and services they need to get up farm productivity, improve farm-gate price realization and cut transaction costs. Farmers can access latest topical anesthetic and global information on weather, scientific farming practices as well as market prices at the village itself through this web portal all in Hindi. Choupal also facilitates supply of high smell farm inputs as well as purchase of commodities at their doorstep.This has been done in a phased sexual climaxIn Phase I, the business remainder was to create a physical infrastructure of eChoupals at the village level and create topical anaesthetic level ownerships through the identified Sanchalaks. At this stage the business goal was supported by creating a local language portal, which provided the required information to farmers such as local weather, market prices and best practices.In Phase II, the business goal was to get the farmer registered and transacting by selling right off to ITC Ltd. through the virtual market. This goal was supported by creating a B2B site, which integrated the legal proceeding directly to the back-end ERP and ensured that there was no latency in processing any of the procurement by the processing units.In Phase III, the business goal was to create a full fledged meta-market.In this phase, the market would facilitate other operators like inputs providers and rural distributors to work effectively throu gh the eChoupal to deliver and procure goods from e truly participating village.The engineering road map to support this phase was to have a secure,consolidated Farmers database with all information pertaining to their holdings and credit purity to be available online. This database, along with identification provided by smart cards would enable support for online transactions through the eChoupal leading to integration with participating financial institutions such as banks, insurance and credit agencies .Transaction costs are also minimized for the farmer by buying output at the farmers doorstep, and through unbiased pricing and weighing practices. A substantial quantity has already been procured through this channel, resulting in overall savings. The savings are shared between buyer (ITC) and seller (farmer).On the marketing front, ITC is able to maintain and grow the organized religion of its farmers by enhancing their productivity and wealth. ITC leverages this position of t rust among farmers, as well as its distribution capabilities, to market its own consumer good brands and those of partner companies offering products and services that ITC does not. Sales of consumer goods through the e-Choupals have been particularly successful because the cost-savings associated with traffic directly with the manufacturer allow Sanchalaks to offer goods at lower prices than other village-level traders or retailers can chip in to do.Empowering Women Consumers I-ShaktiHindustan Lever, whose 2006 revenues were $2.8 billion, has been learning these lessons for nearly a decade. The companys Project Shakti (its name means strength) was innate(p) out of this realization, and it has become a case study for business schools and evolved beyond its original goals. The objectives of Project Shakti are to create income-generating capabilities for underprivileged rural women by providing a small-scale enterprise opportunity, and to improve rural sustentation standards with g reater awareness of health and hygiene, says Dalip Sehgal, executive director of the Shakti initiative.Hindustan Levers drive into rural India was prompted in part by growing competition. When the Indian economy opened up in early 1990s, multinationals such as Procter Gamble stepped up their activities, forcing Hindustan Lever to seek higher revenues and growth by reaching into villages with 1,000 or fewer residents. Launched in 2001, Project Shakti was an important part of this schema. It involved working with rural self- second groups (SHGs) to educate rural women, while also making them part of the companys marketing network. Women from SHGs become Shakti entrepreneurs direct-to-home distributors of Hindustan Lever products in rural markets, says Sehgal. This micro-enterprise offers low risks and high returns. The products distributed include a range of mass-market items especially relevant to rural consumers, such as soap, toothpaste, shampoo and detergent.The Shakti website features a video profile of Rojamma, a young woman from the state of Andhra Pradesh in Southern India, as an example of a typical Shakti distributor. A mother of two who was left to fend for herself and two daughters afterward her husband abandoned the family, Rojamma initially made ends meet by working in her parents fields. She then joined the Shakti project and became a distributor of Hindustan Lever products, speaking in village after village to impoverished and often illiterate women about the need to bathe their children and wash their clothes regularly and also selling them soap and detergent. The commission Rojamma earned on her sales helped provide for her family. Today she is a proud entrepreneur and enjoys not only the money she earns from the project but also the respect of society, says Sehgal. The lives of thousands of women have changed because of Shakti.A typical Shakti distributor sells products worth Rs 10,000-15,000 (around $250) a month, which provides an inco me of Rs 700-1,000 (around $25) a month on a sustainable basis. While this may not seem to be a high income, it makes an enormous difference to women who live in remote villages in dire poverty. In many cases, earnings from Shakti help them double their phratry income. Much of the additional income goes to educating children, and also to purchasing consumer durables such as television sets, which further expands the rural market for such products. Some Shakti distributors whom the company calls entrepreneurs invest the extra money in buying vehicles such as motor scooters that allow them to go into more villages.Indeed, with help from Shakti distributors, Hindustan Lever has been able to reach rural consumers in thousands of remote Indian villages. According to media reports, Shakti distributors straightaway account for 15% of the companys sales in rural India. Meanwhile, the potential for growth is enormous, since studies have shown that just 15% of Indian consumers use product s such as shampoo. According to Whartons Raju, there are behavioural reasons wherefore rural consumers represent a sound bet for companies that are willing to invest in reaching them. Affluent consumers demonstrate that they have arrived by buying bigger houses or cars. People at lower income levels do so by buying premium brands. This means brand loyalty is very high among less affluent consumers. That is why the rural market is critical for companies. The first-mover advantage is significant.The Shakti flummox was piloted in 50 villages of the Nalgonda district in Andhra Pradesh. It has now spread to more than a dozen states, creating 26,000 women distributors covering 80,000 villages. By 2010, the goal is to recruit 100,000 Shakti distributors covering 500,000 of Indias more than 600,000 villages. This initiative has been extremely successful, says Ajay Gupta, CEO of www.ruralnaukri.com, a job site for the rural market.In addition to the distribution network, the Shakti project includes Shakti Vani (or voice), a social awareness program, and iShakti, a community portal. Desktop computers are set up in the homes of Shakti entrepreneurs, says a Hindustan Lever spokesperson. These computers are equipped with software developed by Unilever through which users can access content in categories including education, employment, agriculture, health and entertainment. They can also ask questions on any of these subjects and have them answered by experts.iShakti is in its early days it was launched in November 2004. The Vani project, however, is operational in more than 20,000 villages in states like Madhya Pradesh, Karnataka, Chattisgarh and Andhra Pradesh. Hindustan Lever has also tied up with partners such as Tata Consultancy Services, Indias largest software firm, which is actively involved with the iShakti portal, and ICICI, a financial services institution that is involved with providing micro-credit loans. With the network now in place, other companies want t o hop on to the Shakti bandwagon. One service that is likely to be added soon is insurance.Hub and spoke model ExMedicated soap which is 100 per cent handmade is exempt from tax and consumers especially in rural market is attracted by the medical qualities of the soap as natural products appeals to an average Indian.Medimix in this category is very popular due to all the above qualities and within the reach of a rural customer. There is no compromise on the packaging or appearance or the perfume or colour of the soap.Their strategy was first target small hotels all over India. A firm decision was taken that Medimix would crisply market to over 3,000 small hotels all over India, even in small towns. The outcome is even foreign tourists were impressed by the medicated quality of Medimix.Through the hub model, Medimix is offered in the villages and explaining the local influencer about Medimix as an ayurvedic product. When he is convinced, his customers got convinced. In fact penetrat ion of medimix in south is about 80% which is much higher than Hindustan unilevers Haman.Distribution network of coca cola is effective in reaching the rural market. It has a hub and spoke distribution system which helps in gaining access to the small places. Increasing the reach by providing inexpensive ice-boxes to small retailers and distributors in rural areas as it can be a substitute for electricity which is not available 24 hrs in rural areas.Improvements Future Scope Increasing urbanisation in reference to lifestyle, habits, etc. has habituated opportunity to the companies to enter into the rural market with a purpose to maximise the market reach and to get ahead the untapped potential.Making small size packets or sachets and popularizing the brand with the help of opinion leaders facilitate in serving the rural market. As people can afford these packets of small sizes having lesser price. This requires sales force to be trained to win the confidence of opinkion leaders. This strategy is already in use by a number of FMCG companies like HUL, Marico etc.Rural consumers can be reached through innovative media. asunder from radio and television which are the conventional media others like horse cart, bullock cart and wall penning can effectively convey the message.Some of the strategies to tap the opportunities in the rural market are reach fair price shops i.e. having tie ups with public distribution system.Develop rural shopping malls that act as a two way supply chain. While selling goods to the farmers and also buy their farm produce. subroutine mixture of retailers and wholesalers to reach every nook and cranny of rural market.Grow rural malls and self help groups to push product into core rural market.