Distribution Models of FMCG like HUL & ITC27/03/2021
Low unit packs were there since long; only denomination is different now. The pioneers in this category were tea and coffee marketers. Brooke Bond pack was available earlier in 5 paise, later in 10 paise, 25 paise and 50 paise and then with inflation it became Rs. 1 pack. Now it is the time of Rs. 5 pack.
The current craze for Rs. 5 positioning could be because of Coke’s success in promoting the pouch strategy. Colas helped to highlight the price point to the consumer and their medium weight really threw open the gates for other manufacturers to come and ride piggyback on the Rs. 5 price point. And what is different from the past is that large numbers of product categories are now available in small packs and it has taken the shape of mega trends.
The small packs increase user base, usage occasion and can thus explode the market. The consumer base of soft drink increased from 16 crores in 2002 to 24 crores in 2004. A two-year period for which the Rs. 5-price point remained in force.
The Colas started it but host of other branded products are now realising the importance of being present at Rs. 5 price point. Ready availability of five rupees coin has been an advantage and many consumers are not worried as much about grammage as price. They are used to ask for Rs. 2 or Rs. 5 worth of commodity.
Some of the brands that HUL sells for Rs. 5 are Pond’s Talc, Pond’s Cold Cream, Rin, Taaza, Fair & Lovely and Lux. The price point also helps branded FMCGs, which are battling fakes from unorganized sector. Rs. 5 price point leads to growth in user base of brands and increased category penetration for those who have introduced such packs.
Rural marketing problem is essentially a distribution problem. This is evident from an empirical study that though rural consumers are aware of substitutes but they are compelled to accept the product available in nearby retail outlets. Rural marketing depends on getting the distribution and pricing right. Even expensive brands such as Close-up and Marie biscuits were doing well because of deeper distribution.
HUL, ITC, Wimco, Eveready, Dabur, Nirma, Britannia, Arvind Mills are some of the select organisations who have done a great job of rural penetration and have managed to tap the rural markets successfully. But regional players have a stronger presence than national companies in rural markets because of the region specific strategies.
There are few corporates who have started establishing separate verticals in terms of sales and marketing teams devoted lo rural market and also have started allotting special rural budgets (though proportionately very low). The emphasis for the present seems to be on distribution to ensure availability of their brand even in smaller markets. The marketer can adopt any of the strategies given below to make their products available to the rural world.
A unique way to extend availability in rural market may be distribution through saleswomen network. The women can go to different homes, when their husbands are away, establish confidence and personally sell to other ladies many FMCG products they may not be exposed to. HUL has very successfully employed this strategy through its Project Shakti and TTK group has also developed an integrated strategy to promote its Prestige brand through the network of self-employed saleswomen.
Converting Unorganised Sector Manufacturers into Distributors:
Small or tiny scale manufacturers are finding it difficult in the times of intense competition from domestic and international products. They have good knowledge of the territory and have good sales network, credibility and relationship with the retailers and consumers. Organisations like Exide are attempting to convert these small manufacturers in the unorganised sector in Punjab and Haryana to become their dealers.
This can prove to be good strategy as these manufacturers have the knowledge of the industry and the consumer behavior and it is likely that they will be more professional and financially strong to create the distribution network in the rural areas. Not only the organisation has a knowledgeable dealer but this also reduces the competition offered by that local brand.
Company’s Own Distribution Network:
Some of the organisations are feeling that distributors and wholesalers in the traditional distribution channel areas. These organisations are contemplating and pilot testing their own direct distribution network in order to promote their brands directly to the retailers and consumers in the rural areas.
Rasna Enterprises was building such network to promote its soft drink concentrate in rural areas of Uttar Pradesh, Rajasthan, Maharashtra, Gujarat and Tamil Nadu. This strategy provides to an organisation valuable learning’s about the rural marketing as they have the direct feel of the market. An organisation’s own effort brings in financial strength and aggressiveness. They also get valuable information with regard to selling to the rural retailer as well as the consumer.
Collaboration for Distribution:
Various organisations with comparatively lesser distribution reach can collaborate with organisations that already have achieved high penetration levels in rural areas.
Cost of setting up a huge retail network on one’s own has seen many casualties, the notable being P&G, which abandoned its plan to fight the likes of Lever in rural segment on its own. Instead, it is aiming to piggyback on Marico Industries. Procter & Gamble had tie-ups with Godrej, Marico Industries and now it is planning one with Nirma for distribution of Camay Soaps. Godrej Tea has tied up with Jyothi Lab to use its extensive distribution network that is not only deep but is also serviced quite frequently too.
These tie-ups are of immense benefit for both the organisation as one gets an immediate reach to millions of retail outlets and the other can leverage its distribution network over larger range of products and get better returns on existing networks. This provides them with better return on their sales effort and can invest even more for achieving even deeper penetration.
Even the smaller non-competing organisations can collaborate with each other to develop a joint distribution infrastructure. This will reduce the cost of distribution per organisation and thus can make the seemingly unviable operation financially viable. JK Dairy employed this strategy for distributing milk powder sachets. It took along three companies, which were not competing with its products for selling their products.
In the same rural market for sharing the van cost. A sachet sale of Rs. 500 per day that is 77 sachets daily covered all expenses and fetched some profit on account of sharing of expenses of distribution.
Certainly, reaching out to 33 lakh retail outlets in rural areas is an uphill task. 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. However, only the bigwigs can adopt this channel.
The companies with relatively fewer resources can go in for syndicated distribution where a tie-up between non-competitive marketers can be established to facilitate distribution. In order to move products in rural areas in cost effective manner, the organisation and distributors can make use of rural makeshift transport vehicles known in different areas.
They are very cost effective as their acquiring cost is very low and is not a barrier. They are very rugged to handle the excessive wear and tear that happens on the rural roads. These vehicles are very popular in the rural areas of Uttar Pradesh, Haryana and Punjab and can be easily available to different organisations to transport their products in remote villages at a low cost. These vehicles were employed quite effectively by the rural sub-stockist of Coca Cola to distribute soft drinks in the rural market.
Targeting Larger Villages:
For FMCGs distribution becomes complex. The distributor in the towns needs to have a supply network of hundred plus outlets in 50 odd locations, which cover villages up to 200 plus population. There are only 85,000 larger villages out of more than 6,38,000 villages. But they have 40 per cent of the rural population and 60 per cent of total consumption.
Many of the established packaged goods companies reach more than 20 lakh retail outlets using trains, trucks, bullock drawn carts, camels, and bicycles and many companies claim to service each one of those Outlet once a week. As, only small percentage of consumables can reach the rural market automatically through the retailers and consumer coming to the town for the purchases.
This pain of reaching the rural consumer is worth taking as this direct contact with the retail in the rural world enables a closer relation with the trade, as retailer is a critical link in the overall chain for supplying products to the rural consumer. In a study, to measure the level of influence that the rural retailer has on the rural consumers, it was found that in about 35 purchase occasions, rural retailer was able to influence the sales to the rural consumers.
Therefore, rural retailer needs to be targeted effectively through various strategies so that he sides with the company’s products whenever he is in a position to do so.
Ensuring Reach and Visibility:
The rural marketing effort of the companies can be focused at growing the pie and not just fighting amongst themselves for the existing pie. Brands rarely fight with one another in the rural market, they just have to be present at the right place, ‘Joh Dikhta hai, woh Bikta hai’ (what is seen, sells) many of the brands are building stronger rural bases without much advertising support. The thing, which is critical, is to get the Stock Keeping Unit (SKU) right, as rural retailer cannot afford to keep many different SKUs.
In such an environment, being first on the shelf in the product category and developing a privilege relationship with the retailer is a source of competitive advantage to consumer good companies. And usually the brands that are first on the shelves become synonymous with product category and are difficult to dislodge, thereafter. For example Maggi noodles reached the rural shelves before anyone and remains the market leader ever since. The drive down the rugged countryside sans facilities is surely torturous but pains worth bearing.
The army of mobile traders that go from house to house in rural India to sell a variety of FMCG products could be motivated, to convert some of them to sell company brands. These are high involvement, touch, feel and demonstration channels that offer greater possibility of convincing ill-informed rural consumers lacking confidence to buy.
Continuous Availability of the Brand:
Habitually rural consumers do not like change and are wary of it. Therefore, they want to stick to one particular brand. This acts as a big barrier for the new brands. But the non-availability of their favorite brand especially in the case of FMCGs creates an opportunity for trial of competitive bandit. It is less likely for rural consumer to move to another shop for purchasing their favorite brand, as shop loyalty in rural areas is, more important than the brand loyalty. This is the result of large number of factors like relationship, credit availability, etc.
The retailer also has immense influence and can make the consumer opt for another brand if the favourite brand of consumer is not available. This trial may not be for just one time and the loyalty can shift to another brand if it provides satisfying experience. In oral culture of the rural areas the news of satisfaction and dissatisfaction spreads very fast. There can be wider demands for the new brand as the promotion spreads through word of mouth publicity.
This might encourage the retailer to stock new brand and as he has to stock only limited number of brands, he will drop one of the brands, which he was carrying earlier. Then it becomes difficult for the once established brand to regain the previous like position. Therefore, the organisations need to make sure that their brands are available at the retailer’s shelves by servicing the rural retailer on a regular basis.