CONSTRUCTING A SCALE TO MEASURE THE EFFECTIVENESS OF FMCG DISTRIBUTION CHANNELS IN RURAL MARKETS IN MAHARASHTRA Submitted by Pravin Kumar Bhoyar For the degree of Doctor of Philosophy (Faculty of Management) Symbiosis International (Deemed University) PUNE In October, 2010 Under the guidance of Dr (Mrs) Asha Nagendra Director Symbiosis Centre for Management Studies (UG) Noida
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CONSTRUCTING A SCALE TO MEASURE THE
EFFECTIVENESS OF FMCG DISTRIBUTION CHANNELS
IN RURAL MARKETS IN MAHARASHTRA
Submitted by
Pravin Kumar Bhoyar
For the degree of
Doctor of Philosophy
(Faculty of Management)
Symbiosis International (Deemed University)
PUNE
In
October, 2010
Under the guidance of
Dr (Mrs) Asha Nagendra
Director
Symbiosis Centre for Management Studies (UG)
Noida
Introduction
The rural market offers a big attraction to marketers, it would be naïve to think that any
company can enter the market without facing any problems and walk away with a sizable
share. Unfortunately, it is not possible to transplant successful urban marketing strategies
to rural markets, namely, deep and intensive retailing and continuous customer-pull
generation through advertising and promotions. Distribution is the most important
variable in the marketing plans of most consumer goods manufacturers. It is estimated
that there are over a million market intermediaries – distributors, super-stockists,
wholesalers, stockists, transporters and retailers – who are involved in the distribution of
a variety of consumer goods all over the country. Marketers use this network to access
nearly 5,100 cities and towns and over half a million villages. The distribution network in
India is characterized by a predominance of family-owned proprietary concerns. Urban
areas have a variety of distribution outlets, ranging from large supermarkets and
superstores to the smaller neighborhood retail stores. In contrast, in villages, small shops
alone are the backbone of the local retail network.
There is a need to access retailers in towns and larger villages and promote products
there, so that the products that are purchased locally can reach smaller retail outlets in
villages. Consumer royalty can be to the brand or to the retailer. It follows that the type of
consumer loyalty exhibited by the target group has implications for the marketer. The
influence of the retailer is perceived to be high in the rural market.
The aims and objectives of the present research
1. To identify conventional approaches to reach Rural Maharashtra.
2. To find the problems perceived by channel members in distribution of Fast
Moving Consumer Goods to Rural Market in Maharashtra.
3. To assess the level of satisfaction of rural consumers with regard to Fast Moving
Consumer Goods distribution system.
4. To construct a scale to measure the effectiveness of rural FMCG distribution
channels.
Review of Literature
Sastry et al18
have studied the pertinent issues in rural market such as uniqueness of the
rural consumer, uniqueness of the structure of rural markets and the peculiarities of
distribution infrastructure in rural areas. These are special to rural markets and hence,
require unique handling. Practically in every aspect of marketing, rural markets pose
certain special problems, but the following are found to be important form the marketing
point of view: Distribution logistics, storage, transport and handling, Location and degree
of concentration of demands, dealers’ attitude and motivation, consumer motivation and
buying behaviour, Transmission media, their reach and impact, & organizational
alternatives. Thus, the rural market bristles with many problems and to achieve a firm
footing, a marketer has to grasp these problems and provide innovative solutions to them.
The impact of spurious brands in rural market and how it chokes the market for authentic
items was studied by Bhattacharya2. The color and almost identical cover graphics are
used for passing off spurious products as original. Even the names may sound similar.
Many distinctive features between the original and fake versions can not usually be
detected by the unwary and average customer anywhere in the market. Blockages - at
present, most products reach the rural customers generally through wholesale channels.
These intermediaries are not sufficiently under the control of manufacturing firms, which
intend to enter the rural market in a big way. Skewed Distribution of Outlets - not
surprising therefore, 76% of the estimated 3.7 million rural outlets are concentrated in
seven states. They have all sprouted in relatively sizeable and well-off villages where
sufficient consumer demand exists to sustain them. Then again, there are about 60,000
villages which do not have even a shop each. Poor infrastructure for most villages in most
areas which chronically suffer from lack of periodic supply of goods, poor availability of
credit and capital and low purchasing power of patrons.
The FMCG companies change the track of distribution to attract customers as studied by
Bhattacharya3. Several FMCG companies have taken to unconventional modes of
distribution. CavinKare Pvt. Ltd. has created two separate brands - Chinni for smaller
pack sizes and Priya for larger packs - And instead of using the conventional distribution
route, they have created a `sachet' sales force that sells only sachet packs to small
retailers, including cigarette and pan shops. Emami Ltd. tied up with the Post and
Telegraph Department to place its products across 5,000 post offices. Wipro Consumer
Care and Lighting (WCCL) have been using the Andhra Pradesh Government's e-seva
project, which aims at enhancing the common man's interface with the Government.
Coupled with traditional distribution methods, this approach allows WCCL to reach
consumers who otherwise may not come to a retail point. Alternative distribution
channels do not offer better margins and are, at best, tools to gain accessibility in certain
areas. Also, distribution margins across these channels are identical to those in
conventional routes, so there is little cost saving. So, while alternative distribution
options are gaining acceptability, it may be some time before these become a rage.
Rajagopal12
reported that the performance of global brands in low-profile consumer
market segments is constrained by high transaction costs and coordination problems
along the brand promotions, consumption and consumer value chain. Hence, firms
looking towards managing brands in Bottom of the Pyramid (BoP) market segments need
to reduce brand costs by increasing the volume of sales and augmenting consumer value.
Brands of BoP market segments are socially and culturally embedded. They are co-
created by consumers and firms, and positioned with the influence of brand equity of the
premium market. Unlike traditional brands, BoP brands may be sufficiently malleable to
support brand interpretations in the rural and suburban consumer segments. The paper
offers new business strategies to managers on brand positioning and targeting in suburban
and rural markets with convenience packaging, pricing and psychodynamics.
Khicha8 studied that television and direct marketing activities help rural consumers learn
about different brands, ensuring product availability is even more critical. Marketers in
rural India claim that setting up a supply chain that reaches the remotest rural areas is
extremely arduous given the infrastructure in the country. HUL Project Shakti targeted
rural women from existing self-help groups to work as “direct-to-home” distributors for
HUL products, and helped the company break into a market they were unfamiliar with. A
“hub and spoke” model of distribution is the “future.” As he explains Dabur has
successfully adopted the hub and spoke model in India and it has worked very well. Here,
feeder towns, primarily on the highways serve as hubs, where companies can rent a
warehouse and stock their products. Spokes are comprised of ‘cyclist salesmen’ who then
distribute products to small retail outlets in nearby rural pockets.”
There are two distinct segments of consumers in the rural market. Sarangpani et al17
studied that one set of rural consumers is less educated or even illiterate. They cannot
read, write or understand with ease. They do not buy branded products. They have their
own method of identification of products and communication with the retailers. For
instance, they ask for Erra Sabbu (for Lifebuoy), Pacha Sabbu (for Nirma), Neeli Sabbu
(for Rin), etc. Rarely do they purchase branded packaged goods and values associated
with them. On the contrary, there is a different segment of consumers, the younger 18-35
years age group; they are educated, more mobile and have urban exposure. They are
brand conscious. They ask for brands of their choice. Their brand usage and recall rate is
comparable to their counterparts in the urban areas.
Methodology
Purpose of the study
There is a greater degree of rural base elite who would be going for greater consumption
of FMCG products with reference to Kolhapur and Sangli districts. It is interesting to
note that there is a greater degree of rural population much more oriented towards urban
patterns of living and life style and their preferences for FMCG are on larger scale. There
is a predominant concentration of well-to-do rural population who have recently migrated
and settled in urban areas of Sangli district, therefore their consumption pattern would
sway between rural taste and the elite urban style of preference. Some impressive facts
about Sangli and Kolhapur districts are - Sangli and Kolhapur districts11
have the highest
literacy rate in India, i.e. 77.23 and 77.19% respectively. Per capita district domestic
product11
is Rs 20,411/- and Rs 20,019/- of Kolhapur and Sangli districts respectively
which are one of the highest in the country.The prosperity and the resulting spending
prowess of Kolhapur and Sangli people5
was famously reported in a list of districts with
the highest number of Mercedes Cars in the state of Maharashtra, where Kolhapur came
second only to Mumbai. Retaining experienced channel members to cater to rural market
is a big challenge for all the marketers because the attrition of rural channel members is
double the urban counterparts. So it needs to study the various attributes such as
promotional schemes, number of assortments and their availability which decide the
channel satisfaction. Presently, there is a lot of gap between the urban and rural
distribution system and to make rural customers to visit and buy their needs from the
local shop requires in-depth analysis and suggest how to catch them hold so that the
customers regain their confidence.
Statement of Hypothesis
For the present study, the following hypotheses were formulated:
Existing FMCG channels of distribution in rural Maharashtra serve the customers
well
Channel members are satisfied with the distribution of FMCG in rural market
Selection of sample
Two companies - Hindustan Unilever Limited (HUL) and Godrej Consumer Products
Limited (GODREJ) which are pioneers in Fast Moving Consumer Goods (FMCG) in the
rural market were selected to study their distribution channels in rural districts of
Maharashtra. The researcher wanted to focus on two rural districts of Maharashtra to
study the FMCG distribution channels. Sangli and Kolhapur districts rural market were
found to have all types of channel levels. In the initial stages, details of only one
distributor who caters to the Kolhapur urban market was obtained from the Pune based
HUL distributor. There are only three HUL distributors in one district. After meeting
with him personally, the details of one rural distributor of HUL who covers three
Taluquas in Kolhapur district were sought. After establishing rapport with him and
gaining his confidence, a comprehensive list of other members from different levels were
sought. The distribution levels identified were- Distributors, Super-stockist, Wholesalers,
Stockists, and Retailers.
Once the questionnaires were finalized, the researcher started establishing contact with
distributors of HUL and Super-stockist of GODREJ who then provided a comprehensive
list of wholesalers, stockists and retailers with their contacts. Side by side, the researcher
began tele-calling and fixing appointments explaining the objectives of the present study,
after which questionnaires were administered. The researcher was often required to meet
them personally and assure them that all the information sought would be kept strictly
confidential and would be used exclusively for the research study. With the prior
permission from retailers, the questionnaire for rural consumers was administered which
was a surprise for them. Interestingly, a few literate customers (contacts suggested by
retailers) were contacted immediately to ascertain the authenticity of their responses and
followed up with them promptly. Many of them evinced keen interest to offer additional
information and discussed certain points out of the topic.
In all, 16 distributors/stockists, 1 super-stockist and 48 wholesalers were interviewed but
the researcher was able to get the responses from only 11 distributors/stockists and 40
wholesalers. The remaining 6 questionnaires for distributors/stockists and 8
questionnaires for wholesalers were found to be invalid. Similarly, the researcher
attempted to cover 10–12 retailers under wholesalers and distributors from randomly
selected 45 villages, but again only 60 were found to be valid. 3 customers at each retail
shop were interviewed, i.e. a total of 170–180 rural customers but again only 100 fully
filled up questionnaires were finally selected for the research analysis since the remaining
were incomplete in many respects and hence were discarded from the final research. The
non-probability purposive/judgmental sampling technique was used. The researcher
chose the sample based on common trait of interest that would be appropriate for the
study. The research study being conducted with a purpose in mind, the sample was
selected to include people who evinced interest and excluded those who did not suit the
purpose.
Validation of hypotheses
To validate hypotheses, researcher used the statistical tools like Spearman’s Rank
Correlation and Chi-square Test.
Constructing a scale to measure the effectiveness of FMCG distribution channels in
rural Maharashtra
The main purpose of the researcher was to construct a scale so that it can come out as a
benchmark for companies to measure satisfaction of consumers regarding nine fast
moving consumer goods. To do this, the researcher thought Multivariate Linear
Regression Analysis (MVLRA) was the most appropriate tool to analyze the data.
Results and Discussion
Table: Extent of Satisfaction for Action Taken Against Channels’ Complaints
Extent of Satisfaction Distributors (N=11) Wholesalers (N=40) Retailers (N=60)