15p108_shashank kothari_pidilite industries_interim report
TRANSCRIPT
Summer Internship Program
Project Report
Creating an Ideal Distribution Network for sub
50,000 Population Strata
(Company: Pidilite Industries Ltd.)
By:
Shashank Kothari
Management Development Institute Gurgaon 122 007
May, 2016
ii
A Project Report on
Creating an Ideal Distribution Network for sub
50,000 Population Strata
(Company: Pidilite Industries Ltd.)
By:
Shashank Kothari
Under the guidance of: Mr Sanjay Kumar Panigrahi
President, Rurban Division
&
Mr Ashfaq Mohammed Nathani
Sales Development Manager, Rurban Division
Management Development Institute Gurgaon 122 007
May, 2016
iii
Certificate of Approval
The following Summer Internship Report titled "Creating an Ideal Distribution Network for sub 50,000 Population
Strata" is hereby approved as a certified study in management carried out and presented in a manner satisfactory to
warrant its acceptance as a prerequisite for the award of Post-Graduate Diploma in Business Management for
which it has been submitted. It is understood that by this approval the undersigned do not necessarily endorse or
approve any statement made, opinion expressed or conclusion drawn therein but approve the Summer Internship
Report only for the purpose it is submitted
iv
Executive Summary
With increasing focus on the Bottom of the Pyramid, every organisation worth its name is spending
heftily to create a strong position in the rural markets. Apart from the obligatory facts of high population
proportion residing in the rural India, it is also necessary to both appreciate and understand the growing
incomes, and thus the growing consumption in the rural markets. To state the facts, the rural per capita
income growth has surpassed the same urban parameter by two percentage points to stand at a
throttling growth rate of 19.2% during 2011-12. More so now, looking at the current saturation of the
markets, it is obvious that rural markets hold the key for growth for many companies.
The objective of this project is to come up with modules to whether and how the company should enter
a particular location. The initial part of the report deals with the exploration of various parameters and
pre requisites of starting the study; and further delves into the current distribution model followed in
the company. Post this both the modules are presented, followed by conclusive discussion.
The second module entails forming a strategy to enter into these smaller towns and villages based on
their idiosyncrasies. The module consists of a two by two matrix to ease the decision making process.
As an epilogue, a rough equation is given to calculate the cost of entering any given location.
v
Acknowledgement
Any accomplishment requires efforts of many people and this work is no exception. I appreciate the
contribution and support that various individuals have provided for the successful completion of this
project and report. I wish to express my gratitude towards my project guides and mentors, Mr Sanjay
Panigrahi and Mr Ashfaq Mohammed as they provided me with a golden opportunity to work under
their able direction. Their guidance and suggestions helped me a lot along the duration of the project. I
thank them for constantly motivating me and guiding me in the right direction.
I also wish to thank Mr Raj Kumar and Mr Varun Thakkar for being always ready to take time out to
review my findings. I want to extend a special thanks to Mr. Raj Dubey and Mr Vinay Bajpai for guiding
me, addressing my queries and discussing my ideas. Ms. Priya Maitra who constantly cared and made
this entire internship period very smooth and Ms. Jaya Luthra for being present at any time to provide
help, she was a big support.
Thank you very much.
Shashank Kothari
MDI, Gurgaon
vi
Table of Contents
Certificate of Approval ................................................................................................................................. iii
Executive Summary ...................................................................................................................................... iv
Acknowledgement ........................................................................................................................................ v
List of Tables and Figures ............................................................................................................................ vii
Introduction .................................................................................................................................................. 1
Problems in the Rural Markets ..................................................................................................................... 3
4 As of Rural Marketing ................................................................................................................................ 4
Current Distribution Network, Pidilite Ind. Ltd. ............................................................................................ 6
Market Insights ............................................................................................................................................. 7
The Issues Faced ........................................................................................................................................... 8
Channel Conflict .................................................................................................................................... 8
Delayed Supply ...................................................................................................................................... 8
Low Area coverage ................................................................................................................................ 8
The First Module ......................................................................................................................................... 10
Issues ................................................................................................................................................... 10
Deciding the veracity of entering a Village ......................................................................................... 12
The Design ........................................................................................................................................... 12
The Second Module .................................................................................................................................... 14
The Design ........................................................................................................................................... 18
Collaboration and Demand Aggregation ............................................................................................ 19
Extending the Indirect Channel ........................................................................................................... 20
Annexure 1 .................................................................................................................................................. 21
Annexure 2 .................................................................................................................................................. 23
Annexure 3 .................................................................................................................................................. 25
Annexure 4 .................................................................................................................................................. 27
Annexure 5 .................................................................................................................................................. 28
Feeder Markets: An end note ..................................................................................................................... 29
vii
List of Tables and Figures
F.1 Employment Generated .......................................................................................................................... 1
F.2 Employed Under Cultivation ................................................................................................................... 2
F.3 Villages Electrified ................................................................................................................................... 2
F.5 4As of Pidilite .......................................................................................................................................... 5
F.6 Dealer Issues ........................................................................................................................................... 9
F.7 Population Spread ................................................................................................................................. 10
T.1 Village Spread ....................................................................................................................................... 11
F.8 Road Connectivity ................................................................................................................................. 11
F.9 Mode of Transport ................................................................................................................................ 14
F.10 Problems with BISR ............................................................................................................................. 17
T.2 Number of Haats ................................................................................................................................... 17
F.11 Channel Matrix .................................................................................................................................... 19
1
Introduction
n todays times it is imperative to talk about the rural markets in India. It has become the focus of attention for
almost all the sectors of economy, including but not limited to the auto sector, the banking sector and particularly
the FMCG sector. The growing focus on the rural market however is not at all uncalled for. Apart from the
obligatory facts of high population proportion residing in the rural India, it is also necessary to both appreciate and
understand the growing incomes, and thus the growing consumption in the rural markets. To state the facts, the
rural per capita income growth has surpassed the same urban parameter by two percentage points to stand at a
throttling growth rate of 19.2% during 2011-12i. More so now, it means that looking at the current saturation of the
markets, it is pertinent that rural markets hold the key for growth for many companies. The rural markets showcase
an opportunity that cannot be ignored by any organization worth its name.
Companies have been experimenting with different go-to-market strategies for their products, and the FMCG and
the telecom sectors are at the very vanguard of the revolution. The reach of these companies into the rural markets
is unparalleled.
It is not surprising that following a saturated urban markets, these companies are venturing into the rural spheres to
continue their growth. Where the population, of course, in rural India form the major chunk of the total Indian
inhabitants, prime impediments deterring the big companies from entering into the rural markets are fast receding.
The income levels are growing no doubt, but with them there is a marked improvement in the psyche of the rural
buyers. The rural buyer wants convenience and is aping the urban population to improve his lifestyle. These socio-
economic changes mean growing demand for consumer products. According to MART, a rural marketing firm based
in New Delhi, the rural populace consumes around 45% of the cold drinks; more than 59% of cigarettes are sold in
the rural markets and roughly 50% of all two wheeler sales come from the hinterlands in Indiaii.
With increased government focus on the rural economy, this boom is set to persist and even increase in the coming
decades. Schemes like MGNREGS, Jan Dhan Yojna, and Gram Jyoti Yojna etc are set to improve rural lifestyle further,
and this only helps the argument of improving the way companies service their rural customers.
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
2006–07 2007–08 2008–09 2009–10 2010–11 2011–12
Employment Generated
Employment Generated
I
2
The employment provided under the MNREGS has increased from exponentially over the past decade which is
bound to increase the income levels and spending abilities. This is one of the prime factors that would increase the
market potential of smaller villages in the coming times.
Also we notice that the number of persons employed under cultivation have reduced dramatically over the last two
censuses.
This is a positive sign as this means that the rural economy is slowly shifting from agriculture based economy.
Also the number of villages electrified has increased and in recent years, over 94% of the Indian villages have been
electrified. It is conjectured that all the villages would be electrified by 2018. But even though there are a lot of
0
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
140,000,000
2001 2011
Employed under cultivation
Male Female
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2013
Villages Electrified
Villages Electrified
3
positives and the situation is improving rapidly, there still persist certain fundamental issues with the rural
ecosystem.
Problems in the Rural Markets
Although the rural markets seem alluring, they are not free of problems. There are certain factors that have been
hampering a full-fledged unconditional foray into the rural markets even by companies with huge pockets. There are
a lot of inhibitions that curtain the marketer from penetrating all the levels of rural India as of now. Poor road
connectivity, low per capita disposable income, low population density etc. are some of the factors that decrease the
viability of entering directly in all the villages. Some of the more pertinent issues are:
Scattered Markets:
The rural markets in India are highly scattered and disparate insofar as chunks of villages with varied
population sizes are placed sporadically and intermittently across geographies.
Agro base economy:
Roughly 60% of the income in the rural India comes out of agricultural activities.
Lack of Infrastructure:
The road connectivity and the infrastructural issues with respect to the rural markets are sometimes too
pertinent to service them in a cost effective manner.
Orthodox mind-set:
The rural population as such is highly resistant to change. It takes a lot of persuasion for a marketer to make
them accept introduction of a new product.
Low per capita sales:
The low per capita spending by the rural population results in a lower sales volume figure derived from the
smaller villages. This reduces the viability of servicing that village/town.
These factors in totality reduce the profitability of servicing a number of villages directly and hence results in loss of
sales, probably to a local player.
4
4 As of Rural Marketing
Let us first try and understand the basic factors that affect the growth of any product(s) in the rural arena, i.e. the
growth drivers in the rural market. Balakrishna et al. suggest 4As that the marketers must keep in mind to sustain
and succeed in the rural atmosphere:
Affordability
Availability
Awareness
Acceptability
The first challenge is to ensure the Affordability of the product. With low disposable income levels and low per
capita spending for consumer products, it is imperative to provide the products at low costs. Thus this also provides
an impediment for the companies to ensure that their distribution network is cost effective so as to pass this cost
savings to the rural populace.
One of the most popular examples of innovation in this regard is the sachet revolution pioneered by HUL, where INR
1 priced shampoo sachets were launched, particularly to service rural needs. Another example is that of Nirma
detergent which gave a hard time to the Surf range of detergent from HUL. Nirma had a lower price point than Surf,
which was a premium product offering by HUL. This primarily was the factor that helped Nirma gain a higher market
share in the early days.
The second challenge, and probably the most important one is that of Availability. India is a land of 6.27 lakh villages,
spread over more than 3 million sq. km. More than 2/3rd of the Indian population resides in these villages. Servicing
the more than 37iii lakh outlets in rural India is an enormous task in itself.
Many FMCG, Telecom and Durables companies have resorted to a hub and spoke model off late. This is because it is
the fastest and the cheapest way to service the villages that are spread sporadically, far and wide. Some companies
have also tried several innovative channels, such as the demand aggregating model followed by ITC’s Choupal Sagar
and Hariyali by DSCL. Other examples of piggybacking come from HUL’s Shakti Amma project, where HUL tied up
with an SHG to create women entrepreneurs who buy products on cash basis from HUL and sell in the villages.
Innovation in the distribution model is one of the most important drivers to the growth of any company; this will be
discussed in detail further.
The third factor is that of Awareness. The media reach into the rural areas in increasing at exponential pace. Mass
media has penetrated around 57% of the rural marketsiv. The Rural Reckoner compiled by Impact Communication
suggests that TV penetration in the rural areas has exceeded 45%. According to the 2011 Census report, more than
56 lakh Households own a television, and more than 91 lakh households own a Telephone/Mobile Device. Although
these figures are relatively high, they still aren’t and shouldn’t be the only source of generating awareness in the
rural markets. Market Activation is one of the most important aspects of marketing and B-T-L activities form a very
important part in the rural markets per se. Using the Haats and the Mandis for conducting product demonstrations
and for customer engagement is one of the newest and most innovative way in which companies can reach their
rural customers. Further using Vans to supply goods, where the vans are exclusively branded for creating awareness
can also be used.
Last but not the least, Acceptability by the rural populace is the last make or break factor for any product. LG, in
1998, came up with a TV, specially customized for rural requirements and christened it Sampoorna; Coca-cola
supplies the rural markets with low cost ice boxes to store drinks because of intermittent energy supplies. These
success stories give us much to learn and understand.
5
4As of Pidilite
The survey showed that 75% of the dealers in larger towns rate the quality of Pidilite’s products highly
Whereas many of the products are widely recognised and identifiable, there still are some products about
which the general population doesn’t know. Thus the awareness quotient is around 70%, this is to say that
70% of the dealers rate the awareness level to be above average
Again as far as affordability goes, 57% of the dealers rated the products above average.
1
2
3
4
6
Current Distribution Network, Pidilite Ind. Ltd.
I travelled extensively in the UP cluster to understand and study the distribution model followed by Pidilite Ind. Ltd.
The Rurban Division of Pidilite currently follows a Hub-and-Spoke Model of distribution, which is significantly
different from the rest of its divisions.
The prime members of the channel are:
Super Distributor (SD)
Rurban Mixed Distributor (RMD)
Self-Working Sub Stockist (SWSS)
Mini Rural Distributors (MRD)
Van Rural Distributors (VRD)
The company appoints an SD (Super Distributor) in a district which is serviced directly by the company. There are
certain qualifying criteria which the SD needs to fulfil before it actually could be appointed as one. This SD services
the SWSS, ideally, but it also sometimes services the retailers directly. However the company gives incentives to the
SD to not service the retailers directly to avoid channel conflict, such as subsidies and rebates. The SWSS in turn
service the retailers in and around his area.
There is a set territory for each SD and SWSS which again help alleviating channel conflict.
The MRD (Mini Rural Distributor) and the VRD (Van Rural Distributor) are also directly serviced by the company. The
difference is that they are smaller than the SD and they in turn directly service the retailers. Their margin is more
than that of the SWSS but after including the costs of transportation, the ROI of both the SWSS and the MRD/VRD is
more or less equal. The VRD runs Vans on pre-decided routes and services the dealers lying on this route.
The company also recognizes the “Feeder Markets” which service the dealers in nearby villages that aren’t directly
serviced by the channel. This forms an extended channel for the company and is rampant in smaller towns and
villages.
SD RMD
7
Market Insights
On my market visits, I talked to a plethora of retailers, both from larger town/villages and from smaller villages that
the company doesn’t service directly. The feeder markets form a very important channel to service these un-served
locations. Following were the major findings of the past market visits:
The retailers of these small villages come to the larger markets and buy in bulk whatever their need be. In
general, they buy everything this way, from shampoo to Fevi-Kwik.
Moreover, there isn’t any difference between a Kirana Store and a Hardware store in these small villages. A
small retailer retails almost everything one may need, including M-Seal, Fevi-Kwik and FMCG products.
For a village of population 1,500, it is apt to assume that there exist 5 – 6 retail shops on an average. Further
this assumption is scalable quiet accurately. (The average shop density being 2721)
I talked to a construction worker who was involved in an ongoing construction (in a village of 500 pop
strata). I asked him where he procured the cement from and he reported that he buys such material from
nearby towns. I further asked him if he uses LW+ or the chemicals of the likes; to which he replied negatively
to the former and affirmatively to the latter question.
From these facts, we could get a feel of what actually goes on in this informal channel. It could be possible to get
viability of servicing these villages, but that would require a higher volume of sales. Therefore it wouldn’t be a good
idea just to serve Pidilite’s products through a completely direct method here. Secondly, one more insight that can
be gained from the market, and probably it is one of the more important ones, is that when these small retailers
come to buy products from the larger ones, they buy all the products that they need. Now even if the company could
service them with both Fevicol and Steelgrip, let’s suppose, it is quite possible for the local brand to still cut into its
sales here because the small retailer would still go and buy from a bigger market where he would get all sorts of
cheap products. The POS here is completely untapped. The small retailer would buy whatever is cheap, primarily
because of lack of awareness, and utter indifference to the quality of the product.
One more point that can be gathered here is that if, the company services this retailer directly, and the small retailer
might not consider an option of a cheaper product, because he would evaluate the competition if we service him
directly at his doorstep.
There are added advantages to servicing this guy,
Lower competition from local brands as mentioned before.
High product visibility in the village itself.
Awareness could be created about the various uses of our products, and a whole range of products could be
pushed here.
The control of the POS comes back to our channel and we can influence the retailer at this point directly.
There are valid questions that can be raised over the cost of such servicing. My conjecture is that once we start
servicing these villages, either directly or through extended networks, we would be able to increase per capita
consumption of our products both by cutting competition and by increasing awareness.
Thus we are faced with a paradox currently. One theory suggests that servicing only the villages that are viable must
be the way to go; where the other says that servicing could in fact increase the viability of the village.
1 Refer Annexure 4
8
The Issues Faced
There are a number of issues that need to be sorted out in the distribution network itself. There is a very high level
of channel conflict and there are many areas that are underserved as of now. One of the most important issues that
have been noticed is that of a conflict in the Rural Urban distribution channel. It has been noted that many of the
SWSS are unable to sell to some bigger dealers in their territory because that dealer happens to procure his stock
from a company distributor in the Urban Divisions. There are many reasons for the same; some of them are pretty
straight forward, that the cost to the dealer is lower if he buys directly from the distributor. What is surprising
though is the fact that even if he buys from certain wholesalers in the urban areas, it still costs him less than having
to buy from the SWSS.
For instance, a product, which the SWSS supplies for INR 1550, is procured from an urban wholesaler for INR 1500.
Thus he doesn’t have any incentive to buy from the SWSS. Moreover, it has been frequently noticed that the goods
reach pretty late to the distributors and thus it gets late to the dealers, which further encourages them to buy from
the urban wholesalers.
Another issue that pertains to the Rurban Division per se is the fact that all the TSIs have to travel far and wide to
reach their markets. Thus they generally take a bus or a train. This results in a loss of chance to market all the areas
falling in the route.
To summarize and put in perspective these facts, let’s go over them once again:
The high level of channel conflict between the Rurban and Urban divisions
Delay in the supply of goods
Loss of areas falling in the route of a TSI
These are very basic issues that if sorted could result in a very rapid increment in the sales.
Next we look at how to tackle these issues.
Channel Conflict
The issue is a serious one and needs some work done to counter this. Increasing the Margins for the distributors
could potentially increase his ability to play the prices, but another way to achieve this could be to fill the SWSS or
the said distributor with the products. These bigger dealers sometimes hold more stock than the SWSS in their areas.
This undermines the distribution channel and hence cuts into the sales of the Rurban division per se. Supplying the
distributor with timely and ample goods could help improve the situation.
Delayed Supply
The transportation used to supply these products is generally local and depends on the infrastructure and other
facilities of the area. Nothing too dramatic or pragmatic can be done on this fore, but the company could tighten the
noose around the transport companies and could keep following up with them regularly and more vehemently.
Low Area coverage
One thing that can be and should be done is increasing the manpower. A TSI does a lot of work and handles a
sufficiently large territory. He has to manage relations, keep ledgers and perform secondary and primary sales. Over
that he has to cover new areas and develop markets there. As mentioned before, the travel in the division is such
that all the territories en route are often ignored. This can be amended by increasing the manpower.
9
Increasing the manpower would also free up personnel to control the logistics much better, ensuring timely delivery
of goods to the distributors and the dealers.
I also noticed that a lot of dealers reported that the margins they get are a prime reasons why any other brand
would cut in. the second most popular reason was the availability. Around 83% suggested the former reason, and
remain 17% suggested the latter.
Dealer Issues
Margins
Availability
10
The First Module
The increasing hype over the growing rural markets has led to a race in the industry to service the rural areas. C.K.
Prahlad’s “Fortune at the Bottom of the Pyramid” has changed the way the industry has always approached with its
distribution and marketing. The increasing rural income levels and improving life styles have further fuelled the race.
Thus it is imperative for any organization to have a foothold of the rural markets.
This module will help in recognizing which town/village is lucrative enough for direct servicing and which should only
be serviced indirectly or through a different channel altogether. The issues arise because not all villages or towns
generate enough demand to be viable of a direct servicing. In a nascent market like India, where the per capita
consumption of chemicals is very low than the universal average, it is very important to categorize and filter the
viable markets from the non-viable ones.
Issues
There are a lot of issues one needs to think about before servicing directly a village or a small town. Some of these
are as follows:
Low per capital consumption of chemicals:
The Per Capita consumption of chemicals of the Indian population is one of the lowest in the world, around
one – tenth of the world average. But this also brings to fore the fact that there is a huge potential in the
Indian market, particularly the rural markets for organizations such as us.
Dispersed Population:
India is a population of quarter and a billion people, spread over the Indian landmass. Thirty cities have a
population of more than a million residents, even though these cities account for less than 15% of the total
population. Although urbanization is increasing at a very rapid pace, more than 60% of the population still
resides in the rural areas.
The pie chart depicts the spread of the rural population across the various village sizes. The majority of the
population, i.e. 32%, stays in villages with a population size of 2,000 – 5,000; followed by villages of
population size 1,000 – 2,000.
Further the number of villages falling under each population strata differs a lot.
14%
25%
32%
13%
Population Spread
Less than 200
200–499
500–999
1,000–1,999
2,000–4,999
5,000–9,999
10,000 and above
Village Size:
11
Table 1: Village Spread
Village Size Number of Villages
Less than 200 219,070 200 – 499
500 – 999 145,412
1,000 – 1,999 210,393 2,000 – 4,999
5,000 – 9,999 14,806
10,000 and above 3,962
Thus it is very difficult to provide every village with a similar level of servicing. It is important that any
organization categorizes the villages according to their size and demography.
Low Connectivity to the urban centres:
The road connectivity for many of the rural markets is very poor. Villagers travel through more than a
kilometre of broken roads before they reach the main connecting roads from where they could travel
further. The bad conditions of the road networks also have a huge impact on the feasibility of delivering the
products in these villages. Also it needs to be noted that construction new roads and up gradation of old
roads has slowed down from past yearsv.
Lack of electricity and pucca houses:
However more than 94% of the villages had been electrified by 2011, only 55% of the households have
benefitted from itvi. Although the pace of electrification is fast improving, it currently shows a dismal picture.
Secondly, most of the houses there are semi-pucca houses, which further reduce the demand for a variety of
construction chemicals. However this is also one of the primary reasons for the sale of Piditint and Fevicol
during the Diwali season in the rural markets.
Low shop density:
The retail density in India is amongst the highest in the world, but still in the rural markets, the density is
very low as compared to the urban areas. It is a proxy of the demand of the population in that particular
region; hence low shop density means a lower per capita spending on the product in question. Especially for
hardware and chemicals, it is noticed that small villages seldom have a separate retail counter for them,
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2006 2007 2008 2009 2010 2011 2012
Axi
s Ti
tle
Road Connectivity
New Construction
Upgradation
12
denoting the low demand for the same. It won’t be feasible for organizations to go into these markets to
service negligible number of retail counters.
The data collected through the project suggests that the shop density of smaller towns is generally quiet low.
The average shop density of over 15 small villages studied comes out to be roughly around 270 persons per
retail outlet2. The same data when translated for the whole nation comes out to be approximately 180
persons per retail outlet.vii
Deciding the veracity of entering a Village
The decision that now has to be made, keeping in view all the above issues in mind, is to decide what territory
should an organization enter. For judging the viability of any given village, town or any geography, there are a certain
parameters that need to be kept in mind. It is neither possible nor feasible to enter all the geographies; therefore we
have to optimally distribute the resources to get the maximum benefit out of the venture.
PCS/Income Levels:
The Per Capita Sales of any village depicts the sales as a ratio of the total population; hence it is a more
comparable measure to gauge the market potential of any given geography. But it might not be possible to
get PCS data for towns that a company currently doesn’t service. Therefore, Per capita Income levels act as
an appropriate measure to gauge the potential of any given village/town.
Shop Density:
The average shop density according to the sample as noted before is roughly 270 persons per retail outlet in
the villages. Any village with a better density must be given a higher rating as opposed to other villages, in
terms of servicing the said village directly. This is because of a simple fact that a better shop density means
higher market demand potential in the area.
Road Connectivity:
The road connectivity is another factor that needs to be considered while deciding on whether a village is
worth servicing or not. This is to say that a village with paved road connectivity will be easily serviceable and
therefore is a better prospect than a village which lacks this amenity.
Electricity and Infrastructure:
The electrification level of a given town/village is as important as road connectivity as we are moving
towards gauging the future potential of the market. Absence of electricity in any geography is never a good
sign and is associated with backwardness and scarcity. Hence an electrified village is always a better option.
Moreover for some of the products such as Steelgrip and other up and coming electric products, availability
of electricity directly is a sign of potential sales.
Educational and Medical facilities:
As is the case of an electrified village, so is the case of a village endowed with a school or a hospital.
Moreover a location with a school/college/hospital generally becomes a hub of activity, attracting other
people from nearby villages.
The Design
According to the data collected from various government sources and NGO databases, I compiled the data for the
number of villages, population, Literacy Rate, Income Levels, Bank Deposits made and percentage of villages
electrified; district wise for the state of Uttar Pradesh to calculate the impact these factors had on the MPV levels as
given by RK Swamy organization. As the MPV levels indeed depict the market potential of the district, it is a great
proxy to be used.
Thus from the regression conducted, following was the equation derived:
2 Refer Annexure 4
13
Y = -340 + (42.51394227) Log(X1) + (36.76965182) Log(X2) + (10.0421593) Log(X3)
Yi = MPV Score
X1 = Population (in ‘000)
X2 = Literacy Rate
X3 = Income Levels (in Rs ‘000)
The above weights can be used to reach at a cumulative score for any given geography. An MPV score of 35 or more
could be considered well, (the average final score being 35), and any score upwards of 50 is to be considered perfect.
The exact compiled data for the number of schools, number of bank branches and hospitals per district wasn’t
available; however such a data for a village level entity is certainly availableviii. Thus to feed this data in the equation,
we introduce three more variables A1, A2 and A3; which stand for the number of schools/colleges, banks and
hospitals. Also to add certain infrastructural variables, we introduce three dummy variables, D1, D2 and D3; which
stand respectively for the availability of paved road, Post Office and electricity.
The weights for these variables were calculated using the data for 35 villages of Lucknow district in Uttar Pradesh. All
these variables are equally important and hence an average weightage is being put on them. Further these variables
are synergistically clubbed to acknowledge their impact accurately. The MPV data for village level geographies was
unavailable. Thus the weights were derived by judging the impact of these variables on Income levels and then
discounting the magnitude by the impact of Income levels on the MPV score.
The weights assigned to A1, A2 and A3 is 0.0051 and that assigned to D1 through D4 is .0053.
One more variable, SD, for shop density is also added at this point. The average shop density calculated as per the
survey is 272. Now again as per the survey data, PCS levels were regressed on retail shop density to get the weight
for the same, which came out to be -0.08. The coefficient is negative because when the population per shop
decreases, it is evident that the number of shops is higher, i.e. the demand is higher, and thus PCS levels are higher.
Thus the final equation is:
Y = -158 + (42.51394227) Log(X1) + (36.76965182) Log(X2) + (10.0421593) Log(X3) + (0.011) (A1 +A2 + A3) + (0.0012)
(D1 + D2 + D3 ) – (0.08) (SD – 272)
The calculations for the same have been attached as Annexures to the document. The data was appropriately scaled by discounting for a village level parameter to make it feasible to come up with a strong quantitative indicator for a small village.
The module was composed keeping in mind the prime focus of attention, i.e. a small village. Some sample scores
calculated are thus again attached as Annexures.
14
The Second Module
It is noted during the market visits that feeder markets form the most important channel in supplying to the smaller
villages. The retailers in these villages go and buy from the retailers or wholesalers in a nearby bigger town/village.
To begin with, let me first give you a hint of the survey done. The survey was conducted over 15 small villages and
data was collected from over 30 retail outlets. Also data was collected from 8 bigger towns, again sampling over 30
retail outlets of all kinds including Kirana stores, hardware stores, paint stores etc. Some of the major findings are
listed below.
From the data collected, an average small village retailer spends roughly about INR 50 on the round cost of procuring
these products. Again according to the data, the retailer travels about 4 times a week to collect inventory for his
store. Thus we know that monthly expenditure for an average shop owner in procuring the product is upwards of
INR 750, which forms about 5% of his total revenues. A lot of these retailers, more than 50%, procure these products
on bicycle or public transport, which makes it difficult for them to procure heavier products (like boxes of Fevicol SH
perhaps). Even if they do use a vehicle of their own, it is a motorcycle, which would also be not too feasible to carry
bulky products.
Most of these retailers buy their products from the bigger retailers in the town, and only a very small number of
them buy from the wholesalers. These retailers generally own only a single Pidilite in their stores, Fevi-kwik, at max
they could also store one more products; either Piditint or MR. a very small fraction of these outlets sells M-seal or
Steelgrip. Also it is seen that they sell competitions of FeviGum and Steelgrip.
The prime focus of this module is to come up with a distribution strategy for different Pidilite products into the
smaller towns and villages. Increased penetration comes with an incremental cost, which would fade out in
subsequent periods. My main focus is to increase penetration at lowest cost possible.
According to the data collected, our flagship product, Fevikwik sells perfectly through the indirect, informal channel
of the feeder markets. For products such as Fevicol SH and other carpentry related products, it is noticed that there
is no household demand currently. But the fact is all the influencers actually reside in these small villages and work
Mode of Transport
Bicycle
Public Transit
Vehicle
15
out in the workshops located in bigger towns, and hence they are in fact loyal to our products. This might show a
probable gateway into the untapped smaller markets in the times to come.
Informal Channel:
The informal channel that Pidilite has, is working perfectly for Fevikwik. But seeing as Fevikwik is our flagship
product, any other channel has to carry Fevikwik to increase penetration. Some of the ASF products could be
sold through the existing informal channel if it is leveraged properly.
An Extension -
As it is the bigger retailers are servicing the smaller retailers; then why shouldn’t they go and service them at
their doors? This would in fact help the company counter both the local competition and increase visibility
and awareness. The dealer could sell him for a little more than he does currently and the smaller retailer
would save transportation cost. The bigger dealer could use a Hawker to service these villages, is what I
thought. But instantly I was struck with everything that could go wrong with this model. The dealer could
push products of our competition if they give him a bigger margin; if we give him a subsidy to push our
products, what is topping him from just taking the subsidy and doing nothing; there could occur a channel
conflict with other retailers if this prospect is scaled up and lastly, the dealer might not be as loyal to us to
generate interest of this prospect in him.
I then went to talk to an SWSS in Negohi and offered him this same prospect. Instead of the retailer
following the hawker model, the SWSS could do that, servicing 10 – 15 villages nearby through a cycle. This
removes the contingency of a local competition cutting in, because an SWSS would be loyal to us. Secondly
territory conflict would not happen and thirdly he could actually push for the whole range of our products.
But this model again has some issues with it. For instance what if the incremental costs are higher than the
incremental sales?
An answer to this problem could be found in the VLE model followed by many companies currently. VLE,
Village Level Entrepreneurs can be used to service these villages. They would be sold the product from the
SWSS on cash basis, and he could then service the nearby villages; keeping the additional margin. To
encourage him further, we could ask the SWSS to provide him with yet a little cheaper rate. Moreover one
SWSS could service a number of VLEs, because once sold to the VLEs, it’s their conflict, not ours. Then the
market competition would dictate the type and number of VLEs in any given geography.
This model is applicable to areas where the villages are nearby, not particularly apt for areas like Rajasthan
where villages are separated and scattered. A huddled bunch of villages is a necessity to bring feasibility to
this model as our products don’t sell in bulk.
Co-operative Banks:
Co-operative Banks are one of the most influential bodies in the rural India. They have become an integral
part of the rural financial structure and have helped the rural populace to feel secure and empowered. They
are one of the most exhaustive networks in the country with more than 200 million members. They reach
over 65% of the villages and fund roughly around 16% of the whole rural creditix.
These banks generally perform all the functions a typical bank would, but are democratic in their set up,
owned by its members, which prominently belong to a particular profession or community, and the board is
elected through voting. Their main aim was to build and develop the community, and to bring banking
facilities at the doorsteps of the populace.
The following are arguments, on how these banks play this crucial role. Cooperative banks create
opportunities for employment and income generation in the rural areas. They increase accessibility of goods
and services, all of which also contribute to economic growth. They encourage performance and
competitiveness, as their members are also the beneficiaries (Ranjan, 2010).
We can leverage the influence that these banks have over the villages to promote our products for both
household needs and for bigger community projects including the irrigation projects that are carried out in
the geography.
16
UltraTech Business Solutions:
According to the UltraTech website, UltraTech Building Solutions, (UBS), is a one-stop shop designed on the
"plan, build and support" philosophy, which offers home building solutions right from planning to
completion. UBS is based on a franchise model that caters to the building and construction needs of the
individual home builders as well as the building and construction fraternityx. UBS functions on a franchise
model, and its retail outlets offer both basic construction material and services that include technical advice,
product training, and technical meets for its customers. This not only helps UltraTech reach the end
consumer directly, but it influences the consumer during their decision making stage and hence cuts off
competition at a very elementary level, all this while maintaining relations with their current distribution
partners. Our partnership with UBS is also going to help us get all these advantages.
UBS has around a thousand outlets across urban, Rurban and rural locations in India. The outlet generally
has 300 to 400 sq. ft. of space with additional storage space. UltraTech undertakes the renovation and
maintenance of the outlet to maintain the same atmosphere across the outlets. We as a company can
increase our participation in this unique venture by sharing their costs and by increasing our presence in the
product portfolio maintained in these shops.
Something similar can envisaged for the Automobile sector with partners like Castrol, where we team up
with garage owners, mechanics and repair centres to provide one stop servicing outlets for all automobiles.
They can be provided with the products directly from the SD at the SWSS landing price to encourage them to
use our products. Further it would not entail the cost of establishing or maintaining the outlet. The location
of these outlets can be decided basis the feasibility of transporting goods from the SD directly to them.
Bike ISR:
The Bike ISR model followed by the company is one of the models that have the potential of increasing the
company’s presence by a huge magnitude. The company needs to be more involved in the decision making
and maintenance of the project during the first year and have a little more hands on, micro-managing
approach. This is primarily because of two reasons; first the SD could have a laid back attitude towards the
project and hence wouldn’t be able to handle it carefully. With increased profitability and sales, an SD should
be encouraged to employee multiple BISRs and devise routes to cover more villages. Also after getting some
level of sales, focus should be on increasing the number of villages covered.
The dealers in the rural markets are not completely satisfied with the BISR services. Out of the sample, 13
dealers received their products from the BISR, and out of the 13 dealers around 50% said that they have an
issue with the same. In fact they were quiet aggressive in stating their predicaments and were pretty vocal
about the issues.
Some of the more prominent issues that I noted were:
The BISR does not visit these dealers regularly
The BISR does not inform the dealers about products other than those about which the dealer
knows already
The BISR doesn’t push products
The aim of the BISR is to just cover the routes , that too as quickly as possible
The BISR’s loyalty lies with the SD and not the company; and because the SD gets a subsidy for the
BISR, he actually is a little laid back in its management
These problems could be solved if the BISR was to be employed directly under the company, which would
increase loyalty and would also include the BISR into the sales circle, improving information dissemination
and would help improve his performance through peer learning.
17
Another method to incorporate these changes is to get the TSI more involved into the BISR model and let
him monitor the BISR model directly. Currently the TSI does actually follow up on the sales, but what they
lose out in the hindsight is the lost potential through the market. The BISR must be made aware of all the
company’s products and must be encouraged to push newer products that the dealer is not buying as of yet.
Haats/Mandis:
Table 2: Number of Haats
State No. of Mandis State No. of Mandis
Andhra Pradesh 171 Madhya Pradesh 188
Arunachal Pradesh 6 Maharashtra 227
Assam 22 Manipur 1
Bihar 58 Meghalaya 1
Chandigarh 1 Nagaland 6
Chattisgarh 51 NCT, Delhi 9
Goa 6 Odisha 66
Gujrat 109 Pondicherry 2
Haryana 60 Punjab 163
Himachal Pradesh 32 Rajasthan 84
Jammu & Kashmir 3 Tamil Nadu 196
Jharkhand 26 Uttar Pradesh 97
Karnataka 148 Uttrakhand 18
Kerela 11 West Bengal 1
Lakshwadeep 1 Total 1764
Mandis are weekly markets held in the rural areas. They are a ready market with a good footfall of
population coming in to buy groceries, clothes and other miscellaneous products. The above tablexi depicts
the number of Mandis across India. There are more than 1,750 Mandis in the country, with almost a
hundred in the state of Uttar Pradesh alone. These Mandis could be utilised to sell the company’s ASF and
consumer MNT products such as M-seal, Fevikwik, Steegrip etc.
The Mandis can also be put to another use of market development. The high population participation can be
leveraged by conducting market development activities such as engaging games, distribution of free samples
and product development.
Problem with the BISR
Yes
No
18
The company currently has collaborations with ITC where they jointly hold kiosks in the Haats and Mandis.
The kiosk though, is organised and maintained by ITC. This is the right way to go as Pidilite would not be able
to hold a kiosk on its own and attract as many customers as it would with an FMCG company. Thus
collaboration with an FMCG is the way to move forward, but the company needs to more proactive and
hands on with this model, and be equal partners with ITC.
Petrol Pumps for Auto Products:
The petrol pumps generally sell automotive oils and other ancillary products as it is. Most of the petrol
pumps in rural areas as well as urban areas as it is have small repair shops too. This may act as an aggregator
for the demand of our auto products. These shops might be covered by the BISR, or the proposed hawker
model specifically targeting the petrol pumps and these shops. Also certain promotional activities can be
envisaged around the petrol pumps, for example free polishing of bikes with MotoMax.
There are around 30,000 petrol pumps in India belonging to HPCL, IOC, BPCL, RIL and other players. Pidilite
could also collaborate with any of these companies to exclusively deal in their petrol pumps.
These petrol pumps may also be used to store some of our products and they could be supplied elsewhere
too.
o Increased visibility for our product
o Storage space for inventory at the closest point to villages
o Increased penetration and sales.
Now these petrol pumps lie in the highways and in the district with a bigger population. The pumps on the
highways are in the middle of the route from a bigger town to a small village. Hence they can directly be
serviced by our SWSS. It would also find the right target population from the villages because every person
who owns an automobile has to visit the petrol pumps.
Collaborating with these companies may be very useful to us. We could come up with an agreement with
them on cost sharing basis. We could also pay storage rent to the company owned petrol pumps.
Agro Dealers for PVC, M-seal:
Another major demand aggregator can be the Agricultural retail outlets which stock products like fertilizers
and seeds. Here we have a chance to both involve with the government run outlets and the private run
outlets like those by the Tata and Reliance. There are other smaller retailers in smaller villages who sell only
during one season and are dull for the remainder of the year. We can encourage them to store other
complementary products like M-seal, PVC, Steelgrip, Zorrik, Wraptape etc. and they can also stock other
products during off season. This avenue needs to be further studied.
The Design
For villages with a high cumulative score, it is important to serve them as directly as possible; and with receding
scores, the channel could be less direct and less formal. This is the very basic idea on which this design has been
made. One more things that must be understood is that we need to club nearby villages and understand the scores
of each village. Viability of a direct channel will come only if all the villages in a cluster show promise of a sufficiently
high market potential. Thus it is the cluster’s total potential that will matter initially.
Collaborations with other companies form an important part of the channel. Collaborations with IOCL, BPCL and
other oil companies, collaboration with UltraTech under the UBS, collaboration with ITC for entering into the village
haats etc. are very important and have a long term strategic benefit for the company.
Because of the highly diverse geographies and demography, a one size fits all approach is not the most prudent in
Indian context. To understand fully the process of formulating distribution strategies, I have come up with a 2X2
matrix, which charts the market potential on the one hand, and cost of entering on the other.
19
The situation where the market shows a very high potential and the cost of entering is on the lower side, it is a no
brainer. The company should enter that market directly. Note that a market here is not just a single village, but a
cluster of huddled villages, in a specified circle of distances. Another most obvious fact is that if the cost of servicing
is very high, and the market potential is relatively low, the company should avoid that area.
When the cost of entering a location is very low, but the market potential is low too, the company must aggressively
work towards developing market for their goods; this can be done through various methods such as BTL activities
that are being carried out throughout the country, free samples, creating awareness through product
demonstrations etc. The company can also, as a part of their CSR activities, work towards developing the social
infrastructure of these locations particularly.
Channel Matrix
Cost of Entering
High Collaborate Avoid
Low Enter Develop
High Low
Market Potential
If the market shows very high potential, but the cost of entering is very high too, the company should consider
collaborating with other strategic partners to service the location either directly or indirectly.
To calculate the cost of entering a market, we need to consider the distance from the nearest distributor, the cost of
servicing the outlets i.e. the salary paid to the salesman, cost of transportation per unit of goods transported, the
number of times the goods need to be transported monthly and the number of units to be transported.
A rough equation to show the same is hence:
C = (kD/SD’) (N) + rM + V/m + Contingent Amount of 5%
k = Cost of transporting per km (includes petrol charges and other travelling allowances)
D = Distance in km
SD’ = Number of shops per km
N = Number of trips per month
r = Cost of servicing one shop (Salary paid to the salesman per month per shop)
M = Number of shops serviced per month
V = Cost of Vehicle
m = Life of the Vehicle in months
This is only a prospective form of the equation used to calculate the cost of entering a location and there is still much
to be done towards this.
Collaboration and Demand Aggregation
For areas with low market potential and high cost of entrance, collaboration and demand aggregators form a very
important which the company could increase its reach. Through these routes, the cost of servicing will be distributed
20
among the participants for collaboration, or would decrease substantially for a demand aggregation model. To
successfully create a collaboration model some things need to be kept in mind:
The relation must be strategic for both the parties
An appropriate benefit sharing model needs to come up
The collaboration must be commenced keeping in mind the long run benefits to the company
The responsibilities of the participants must be clearly defined
Pidilite has formed collaborations with UltraTech under its UBS initiative. The UBS also acts as a demand aggregator
and thus allows Ultratech to influence the buyers’ decision at a very nascent stage. Pidilite can look for other
avenues of such a collaboration, for instance with companies like Castrol for its automotive products.
Petrol Pumps may also act as a demand aggregator for auto products. As mentioned before, the company could tie
up with the company itself, or work with respective retail outlets directly, whichever is cheaper.
Extending the Indirect Channel
For a given cluster of villages with very high market potential, we can replicate the BISR model at the SWSS level.
Instead of a bike though, the distributor could hire autos or tempos, in essence outsource the transportation to a
third party, thereby incurring the cost as and when required instead of having to pay a fixed monthly salary to a
salesman.
The village level retailer would benefit because his own transportation cost is being reduced, and the SWSS could sell
at a price higher than he generally sells. Let’s do the following math to understand better:
SWSS sells a product to the bigger retailer at suppose INR 100. This bigger retailer then sells it to the small village
retailer at INR 110. And there is an incremental transportation cost also which the village retailer has to bear.
Now the SWSS can sell the goods to the village retailer directly at a price more than INR 100, but less than the total
cost of buying from the bigger retailer.
This model would only function for areas where the villages are located close by, and for the clusters which show a
very high market potential. Through this channel, the distributor may be able to sell a larger number of items, and
would also be able to cut down on local competition.
Haats and Mandis
The haats and mandies act as a demand aggregator, as well as a prime location for market development. As
mentioned earlier, haats are places where weekly markets are set up and people go in to buy groceries to vegetables
to clothes to toys and many other items. The bigger haats attract a very large number of people from in and around
a village. Thus the company would be able to reach a lot of people in a very small span of time. This medium could
be extensively used to develop markets with lower potentials with low cost of entering. But this is limited by the
presence of the haat itself, a variable which cannot be controlled by the company.
21
Annexure 1 (Questionnaire: For the Dealer)
Name: Type of Shop: Location:
Basic Information
1) For how long have you been in this business?
a. <2 years
b. 2-5 years
c. 5-10 years
d. >10 years
2) For how long have you kept our products?
a. <2 years
b. 2-5 years
c. >5 years
3) How many (and what all) products do you store?
Product Yes/No Product Yes/No
Fevicol SH LW+
Fevicol MR MotoMax
FeviKwik Steelgrip
M-Seal PVC
Piditint Others
Business Information
1) What is your monthly turnover?
a. <INR 20,000
b. INR 20,000 – 50,000
c. >INR 50,000
2) What percentage do our products make of your monthly turnover?
a. <5%
b. 5-10%
c. >10%
3) Where do the bulk of your sales come from?
a. Contractors
b. Carpenter/Masons/Influencers
c. End consumer
4) What are the factors that affect the sale of our products
Particular Very High High Medium Low Very Low
Local Competition
Season
Price Parity
Availability
Awareness
22
5) What are the reasons because of which the Local competition cuts into our market share?
a. Price
b. Quality
c. Availability
d. Margins (Ask Shrewdly)
6) Product Consumer Matrix:
Customer\Pro
duct
SH MR MotoMax FeviKwik LW+ SteelGrip M-seal
Contractor
Influencer
End Consumer
Small Retailer
7) How do you get your product?
a. SWSS
b. Bike ISR
c. SD/RMD
8) Do you sell to small villages nearby?
a. Yes
b. No
9) How many villages are there in the nearby villages?
a. >5
b. 5-10
c. >10
10) What is the average population size of the surrounding villages?
a. >500
b. 500-1,000
c. >1,000
11) If no, why?
a. Lack of demand
b. Others
12) If yes, then how much sales do you get from one village?
a. <INR 5,000
b. INR 5,000 – 7,000
c. INR 7,000 – 10,000
d. >INR 10,000
13) What percentage do our products make of your sale to these villages?
a. <2%
b. 2-5%
c. >5%
14) Do they buy more of our product or that of a competition? If latter, why?
15) Who from these villages buy the product?
a. Retailers
b. Households
23
Annexure 2 (Information: About the small villages)
Name: Type of Shop: Location:
General
1) Population size:
a. <500
b. 500-1000
c. 1000-2000
d. >2000
2) No. of carpenters/plumbers/masons:
a. <10
b. 10-20
c. >20
3) No. of retail shops:
a. <2
b. 2-5
c. 5-10
d. >10
4) Condition of:
Particular Very Good Good Neutral Bad Very Bad
Technology
Infrastructure
Road Connectivity
Income Levels/Spending
Retailers
5) How do these retail shops procure their stocks?
a. Bigger retailer
b. Dealer
c. Distribution through Bike ISR
6) Monthly turnover on an average?
a. <INR 1,000
b. >INR 1,000
(Get Figure)
7) Sales of :
a. FeviKwik
b. Fevicol MR
c. Fevicol SH
24
d. Steelgrip
e. M-seal
f. MotoMax
g. Others
(NOTE: The sales includes competition of the said product, for the lack of category names, the product names have
been used to denote their respective categories)
8) How many of our products does he stock?
a. 1
b. 2
c. 3
d. 4
e. 5
f. >5
9) Monthly cost of transportation, to procure products?
25
Annexure 3 (Calculations)
The following Regression was done, for the district level data for UP, on the MPV Score to calculate the initial
intercept and the weight for the equation. The Income levels used here were adjusted by discounting for the income
levels of the villages. The ratio of their averages was used as the discounting factor.
Further weights were calculated using the village level data mined online and collected for more than 30 villages in
Lucknow district of UP. These data points were used both to adjusted the Income level data for the above
regression, and was used to calculate the weights for the remaining variables. The final intercept was a simple
average of the two intercepts so calculated.
SUMMARY OUTPUT
Regression Statistics Multiple R 0.932903554 R Square 0.870309042 Adjusted R Square 0.864413998 Standard Error 3.97909578 Observations 70
ANOVA
df SS MS F Significance
F Regression 3 7012.558851 2337.519617 147.634031 3.26139E-29 Residual 66 1044.991413 15.83320323
Total 69 8057.550264
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept -349.361592 35.59772403 -9.81416 1.59E-14 -420.435 -278.288
Population 42.51394227 4.288488759 9.913502 1.07E-14 33.9517 51.07619
Literacy Rate 36.76965182 14.69144946 2.502793 0.014806 7.437227 66.10208
Income Levels (Adjusted) 10.0421593 4.468680747 2.247231 0.027974 1.12015 18.96417
26
SUMMARY OUTPUT
Regression Statistics Multiple R 0.912603118 R Square 0.83284445 Adjusted R Square 0.767435757 Standard Error 45.04038723 Observations 33
ANOVA
df SS MS F Significance
F Regression 9 232474.4 25830.49 12.73293 5.33E-07 Residual 23 46658.64 2028.636
Total 32 279133.1
Coefficients Standard
Error t Stat P-value Lower 95% Upper 95%
Intercept 33.46462201 41.17186969 0.812803068 0.424004134 -51.3304 118.2597
Primary Schools 0.840145091 12.51716854 0.06711942 0.947020548 -24.9394 26.61974
Middle Schools 68.16352663 27.55926657 2.473343275 0.020533394 11.40415 124.9229
Hospitals 4.785626944 6.121825098 0.78173206 0.441713179 -7.82251 17.39376
Commercial Banks 84.49350831 26.96852397 3.133041631 0.004376405 28.95079 140.0362
Electricity 29.89770993 40.68131845 0.734924803 0.469223751 -53.887 113.6825
Post/Telephone 33.23150177 22.27457388 1.491902918 0.148236909 -12.6438 79.10685
Paved Road -50.0942884 22.13104908 -2.26352976 0.032536939 -95.674 -4.51454
This regression was done on the income levels for these villages. Then the average of the clubbed weights was taken
and was multiplied with the weight of Income levels calculated in the initial regression model. The Income levels
here were again adjusted against the per capita sales calculated as per the primary survey.
Average of the first four variables is 18.17 and that of the latter three variables is 19.07. These are then multiplied by
0.000283 to get the final weights of 0.0051 and 0.0053 respectively. These are the weights used in the final
equation.
27
Annexure 4 (Calculations)
Populationxii Retailers Pop/Retailer
Average Monthly Turnoverxiii Total Sales
Per Capita Sales
Babina 5953 50 119.06 7000 350000 58.79388544
Bodhpura 2523 10 252.3 45000 450000 178.3590963
Faridpur 1300 5 260 28000 140000 107.6923077
Jharulia 1400 1 1400 10000 10000 7.142857143
Kashikhera 1800 15 120 16000 240000 133.3333333
Kukargaon 3321 18 184.5 32083 577500 173.8934056
Luhar Gaon 1600 10 160 2500 25000 15.625
Magrayan 897 5 179.4 16000 80000 89.18617614
Margayan 5280 15 352 19000 285000 53.97727273
Naka 1536 15 102.4 16000 240000 156.25
Padhin 1800 15 120 17583 263750 146.5277778
Jamuni 1000 5 200 9000 45000 45
Ghautiya 500 3 166.6666667 6500 19500 39
Saraiya 2000 10 200 30000 300000 150
Avg: 272.5947619
Avg: 96.77007944
To capture the impact of PCS data, the average PCS data was used in discounting the village income levels.
SUMMARY OUTPUT
Regression Statistics Multiple R 0.443116033 R Square 0.196351819 Adjusted R Square 0.129381137 Standard Error 56.02846263 Observations 14
ANOVA
df SS MS F Significance
F Regression 1 9203.809469 9203.809 2.931907117 0.112540758 Residual 12 37670.26349 3139.189
Total 13 46874.07296
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Shop Density -0.08028475 0.046887597 -1.71228 0.112540758 -0.18244405 0.021874544
28
Annexure 5 (Sample Calculations)
Village Score Village Score
Ahmamau 132.2745
Bijnor 153.7819
Ain 140.6623
Chakoli 107.1007
Andhpur Umrao 103.8448
Dadoopur 126.2178
Andhpurdev 106.7473
Ahmedpur Khera 155.1296
Aorava 115.3495
Ancharamau 121.9915
Ashraf Nagar 115.9172
Ashnaha 114.1323
Badhamau 121.2426
Chanda Coder 110.0081
Bani 117.9551
Chandanpur 139.7881
Banthar Sikender Pur 162.7239
Meethanagar 120.2621
Barauna 143.4524
Saidpur 123.7576
Behta 140.0199
Achalikhera 102.1334
Benti 133.4724
Adhaeya 114.1361
Bhadoi 123.1404
Ahmadpur Ajamli 130.5014
Bhagu Khera 118.7933
Bairisalpur 124.0854
Bhat Gaon 48.96536
Bhaudhari 108.1338
Bhokapur 31.80054
Bibpur 86.67931
These are the sample calculations3 done for some of the villages. The literacy rate data for a village was not
available, therefore the literacy rate of 70% was assumed for all the villages.xiv
3 The calculations done for these villages do not involve the data for shop density as the data was not available.
29
Feeder Markets: An end note
Feeder markets for a very important informal channel to supply goods to small villages. As mentioned several times
in the report itself, and seen in the market, this informal channel must be at the vanguard of Pidilite’s distribution
network into these small villages. Thus it makes the identification of the feeder markets a very important aspect.
Using the first module, we can derive the relative score that a feeder market must have, but there still remain
certain qualitative aspects that a feeder market has that aren’t included in the equation. Thus a high score, does not
a feeder market make.
However a high score is indicative of a feeder market, but a market with relatively lower scores could also have the
potential to become a feeder market. Case in point is Etora, a village in Jalaun district near Kalpi, where an SWSS is
situated. Etora is a small village with a population lower than 2,500. Still it functions as a feeder market for nearby
villages. The Score for Etora as calculated according to the First module is 117, which is a good score, but is still
below the stipulated mean score of 125. But as there are some retail outlets which have a high monthly turnover,
and thus they are able to demand more than their score indicates. Thus there are other factors too that need to be
taken into account before categorizing a village into a feeder market.
In general though, a village with a score more than 150 may be considered to be a feeder market, but this also needs
to factor in that these scores are not completely perfect for Pidilite. These scores are perfect for an FMCG product,
but because Pidilite’s products have lower per capita consumptions and low volume sales, it is just indicative of the
potential. And because these scores need to be understood in relative terms instead of absolute, this problem is
taken care of to a great extent.
Further, a breakdown of the score basis the equation would be a good idea to judge whether a given location can be
categorized as a feeder market or not. This gives more information about the character and features of the village,
which would further help us in servicing particular needs of the area and make informed decisions.
A feeder market must also be surrounded by villages and the cost of servicing the market must be low. The road
connectivity and accessibility of the village is to be considered too.
NOTES i Masters of Rural Markets: Profitably Selling to India’s Rural Consumers, Accenture, 2012 ii C. Natarajan and G. Murugesan, Rural Marketing in India: Marketers’ Perspective
iii Surajit Dey, Dr. Sameena Rafat, Puja Agarwal, Organized Retail in the Rural Markets in India, IOSR-JBM, Volume 6, Issue 1 (Nov.
- Dec. 2012), PP 16-25 iv Chintan Shah and Rency Desai, The ‘4 As’ of Rural Marketing Mix, International Journal of Management and Social Sciences
Research (IJMSSR) Volume 2, No. 1, January 2013
v Bharat Nirman website (http://pmgsy.nic.in/BN_T&A.asp, accessed on 14 May 2013), Ministry of Rural Development.
vi
Sources: Village electrification data from Central Electricity Authority (CEA) website
(http://www.cea.nic.in/reports/monthly/dpd_div_rep/village_electrification.pdf, accessed on 30 August 2013); No. of rural
households, and household electrification data are from Census of India, 2011.
vii
120 crores of population with 65 lakh retail shops viii
http://www.censusindia.gov.in/Census_Data_2001/Village_Directory/View_data/Village_Profile.aspx
30
ix Financial Inclusion through Cooperative Banks: A Feasible Option for Inclusive Growth, Ranjan Kumar Nayak, 2010
x www.ultratechcement.com
xi Compiled by Impact Communications, The Rural Reckoner, 2015
xii
Absent Population Data replaced by the Survey Data xiii
Absent Data replaced by Average figures; the average monthly turnover is simply the average of the monthly turnover of all the sample in a given village xiv
All these villages are from the Lucknow District, and the literacy rate of Lucknow District is 71.2%