Last Mile Distribution

LAST MILE DISTRIBUTION
Dr. G. Sridhar
Indian Institute of Management, Kozhikode
Dr. G. Sridhar, IIM Kozhikode
Last Mile Distribution Decision Process
Scale up
Adapt/
Standardize
Identify Voids
Political Voids
Does government provide support or restrict to do business in
rural markets?
What are these benefits; funds, infrastructure, tax benefits?
How is the support of local self governing institutions like village
revenue offices?
How are the local informal institutional mechanisms like SHGs
organised? Are there any political motives behind such informal
groups? Can they be leveraged?
Industry Voids
How is the competition in these markets?
How are industry associations at national and regional
level encouraging the market penetration?
How such institutions are indulging in advocacy to central
and local governments for growing business?
Market Voids
Are the sources of data on BoP consumer behaviors adequate and
reliable?
Can BoP consumers obtain information on the quality of the goods
and services they want to buy?
How good is the marketing infrastructure like retail penetration,
size of retail outlets, channels to rural markets?
How good is the physical infrastructure like roads, rail connectivity,
power supply, telephone connectivity?
Do consumers trust goods from private organisations?
Market Voids
How different is the consumers income, per-capita and
occupational structures in these markets?
Is there a predominance of religious bias, caste and creed
imbalance, gender discrimination and family structure?
How different are the norms, values and consumer
aspirations?
Market Voids - Examples
Large no. of small markets

Dispersed population and trade
Poor road connectivity and lack of all weather roads
Multiple tiers in channels
Poor availability of suitable dealers
Low density of shops per village and high variation in their concentration
Inadequate banking and credit facilities hence poor viability of retail
counters
Poor storage system hence inadequate stocking
Highly credit driven market and low investment capacity of retailers
Visibility and display in rural counters is poor
Poor communication of offers thanks to media and other sources
Physical Infrastructure
Only 33 percent of the villages are connected with good
road facilities while 1.2 percent villages are connected by
rail.
Teledensity in rural areas is only about 3 per cent which
implies that out of the over 700 million people who live in
our villages, only 20 30 million have a phone (Sethi,
2007).
Availability and consumption of power is also significantly
different (Mishra and Pal, 2002).
Coverage Status in Rural Markets

An IMRB survey identified that big villages are more
developed than small villages
Its easy and cost effective to sell a truck load of stock in
urban when compared to rural
1.68 million outlets in urban are spread over 5000 towns and cities
3.5 million outlets in rural are spread over 6 lakh villages
Villages
No. of Shops
Pop. Strata
None
1-4
5-15
16+
Upto 500
26
56
15
501 2000
41
41
10
2000 +
43
46
Source: IMRB, Note: Figs

Percentages
Dr. G.inSridhar,
IIM Kozhikode
Distribution of villages
Population
Less than 200
200 500
501 1000
1001 2000
2001 5000
5001 - 10000
No. of
% of Villages/% of
Villages
Population
96855
15.7 / 1.2
136454
21.4 / 5.9
156737
24.6 / 14.5
140751
22.0 / 25.9
87206
13.7 / 37.5
20263
3.2 / 15.0
Source: Census, 2001

Hardly any shops in

2.3 lakh villages
17% of villages, 50%

Of rural population
And 60% of rural
wealth
Distribution of Towns
Class of Town
Population
No. of Towns
% of Towns
Class I
More than 1
Lakh
423
8.6
Class II
50000 99999
498
9.6
Class III
20000 49999
1386
26.9
Class IV
10000 19999
1560
30.2
Class V
5000 9999
1057
20.5
Class VI
Less than 5000
237
4.6
5,161
100
Total
Source: Census, 2001
90% of durables
Purchased by
Rural people are
From these
1,900 towns
i.e. class II and III
towns
Retail Network
Fig in %
Average number of shops per village

stands at 5.85.
Highly skewed distribution of retail
counters. Seven Indian states account
for 76 percent of the countrys rural
retail outlets, the total number of
which is placed at around 3.7 million.
There are 5000 wholesale assembly
markets, 25,000 haats and shandies,
over 20 lakh retail outlets in India
(Jha, 2003, Prem Kumar and Sweety,
1985)
Shops
Villages with
Population
None
1 to 4
5 to 15
16 +
<500
26
56
15
500
1999
41
42 10
2000 +
44 46
Source: IMRB
Bottom Line
In case the voids are higher
The transaction costs for the buyer and seller is going to be
very higher
Information Asymmetry between buyers and sellers is going to
be higher thus results in loss of trust.
The ease with which the buyers and sellers come together in is
also going to be far less thus increasing difficult to serve
Results into poor money flows in the channels
Hence, if voids are not bigger, the organization can

standardize their strategy. Else adapt.
Bottom Line
Tinkering with price or product may provide value to
consumers but delivery is also important.
Adapting the channels and products synchronously is the
key to success in last mile!!
Last mile distribution decisions should always consider
the efficient flow of information, product and money.
Last Mile Distribution Framework for Adaptation

Channel Adaptation
Altering the existing channels
of distribution (design, levels,
nature & types of
intermediaries) to bring in
more efficiency and
effectiveness in delivery of
value
Product Adaptation
Altering the existing
product to meet local
conditions or consumer
preferences. Broadly, these
are related to design,
quality and features,
packaging and labelling
Adaptation - Approaches
Mainstream: No direct or overt involvement in the
wellbeing of society/consumers to offer or deliver value
Developmental: Organization engage overtly in catalyzing
the social wellbeing/capacity building and thus offer and
deliver value.
Note: Adaptation of channels, products and approaches are not dichotomous
but can be placed on a continuum

Product
Same
STANDARDIZATION
Mainstream: Tata Nano
Developmental: ICICI Pru
PKAP
CHANNEL ADAPTATION
Mainstream: Colgate Palmolive
Cycle Salesmen
Developmental: HUL Shakti
PRODUCT ADAPTATION
Mainstream: Mahindra Maxx
Developmental: P&G Pur
ADAPTATION
Mainstream: Movirtu Cloud
Phone
Developmental: Novartis Arogya
Parivar
Different
Same
Channel
Different
Sources: Few Journal/conference articles and several popular media like newspapers, magazines and internet (For details contact author)

Product
Same
STANDARDIZATION
Mainstream: Tata Nano
Developmental: ICICI Pru
PKAP
Different
Same
Channel
Different
Let us see a small presentation about Tata Nano.. http://www.tatanano.com/home.htm (Press the Nano Story ikon)
Tata Nano
After the initial euphoria as worlds cheapest car, the
company had to face a steep decline in sales
Recently company reported increased sales in rural
markets, primarily owing to an expansive distribution and
financing network for customers
Using the conventional channels the same product is sold
by expanding into rural markets to boost sales volumes of
Nano
Source: http://www.motorbeam.com/cars/tata-motors/tata-motors-to-expand-to-rural-areas/
ICICI Pragati Ka Anokhi Paathshala

(Unique School for Progress)
Source: Rohit Raheja and Atul Kumar (2011), ICICI Prudential Life Insurance: Selling Insurance in Rural India, Case Studies in Marketing Effectiveness, SPJIMR, 23 -47.
Why PKAP?
First mover advantage and almost
sarkari image by Life Insurance
Corporation of India (LIC)
Difficulty in selling insurance to
rural is not about numbers or
geography but mindset
Given their limited earnings, savings
though are important, is limited
Lack of knowledge about several
instruments also builds this mindset
Several NBFCs and shahukars have
deceived them in the past
Private players are treated with

suspicion ICICI wanted to
overcome this
PKAP is a unique learning
opportunity for rural children who
are talented by lack exposure and
guidance
Attempted as a workshop to
provide tangible educational value
and alter engage with parents to
gain their commitment for
education
Opportunity
In rural areas, education of children ranked as

second important priorityimmediately after
having a good crop (A C Neilson, 2010)
A Villager wants his son to study and work in
the citybut is ignorant on what it takes to
make him successful in future (Indica Research for ICICI Pru)
Can ICICI Pru seize this opportunity and sell
the Childrens Education Policy
Should they make the parents to think about
the financial planning, understand the level of
preparedness requiredmay be..
Objectives and Delivery

Objectives
Increase overall sales by 50% in

activation locations
Impact and improve brand
preference and brand
consideration scores
Delivery
Expose children to education

similar to their urban
counterparts
Show the parents the
opportunities available for the
children
PKAP Architecture
Communication Skills
D
A
Y
1
D
A
Y
Memory Enhancement Skills

Vedic Maths and Logical
Reasoning
Arthyudh
2
400000
350000
300000
345140
319180
250000
200000
242398
209872
188738
210236
196436
150000
120558
100000
115000
126570
50000
0
Aug, 2009
Sept, 2009
Oct, 2009
Non PKAP
Nov, 2009
Dec, 2009
PKAP
Rolled out in Aug, 09

Covered above 68,000 children, 23,000 parents by 09-10
and generated 60,000 leads
Successful in sales and brand impact

Same
Product
CHANNEL ADAPTATION
Mainstream: Colgate Palmolive
Cycle Salesmen
Developmental: HUL Shakti
Different
Same
Channel
Different
Colgate Palmolive Mobile Traders

Existing Channel Structure
Source: Benjamin Mathew, Amit Mookerjee (2008), "Evolution of a Sustainable PPP Model in the BoP Market", Internal MART document, August
Access to population below 2000

Toothpaste Toothpowder
All
48.6
34.7
Urban
74.9
30.6
India Rural
37.6
36.5
North
47.8
37.1
South
61.8
35.7
East
40
30
44.4
36.1
Zones West
Oral Care Penetration in India
Traditional models are not cost

effective for small villages
Ideal channel partner is one
who promotes the brand,
communicates brand
messages, sells the product
and, thereby, earns a
reasonable living
Catch them young and train
enough is the motto
Source: MART Internal Report

Colgate Mobile Traders Model

Identify educated, unemployed youth in villages
as potential channel partners for Colgate
products
Select youth who act as entrepreneurs, paying
cash for stock and earning from sale of products
To keep costs low, youth will travel by bicycle with
a stock box attached for product storage.
Makeshift stall, using a branded umbrella,
erected at venue to attract buyers.
Branding of channel partner through company
logos on T-shirt, bicycle and box will increase
visibility and ensure authenticity

Map the uncovered territory of the rural
Colgate stockists.
Select a cluster of 20-30 uncovered
villages within a 10 km radius. Ensure
Haats are present.
Allocate territories and develop a
permanent journey cycle plan to cover
these markets.
In one day, the entrepreneur covers 2
village retailers and one Haat. On non
Haat days, the entrepreneur covers 4
villages

The youth is linked to the nearest company stockist
and buys stock on cash, usually weekly
The entrepreneur margins are approximately 3%
selling to village retailers and approximately 8%
selling directly to consumers at Haats, creating a
weighted average margin of 7%.
Initially CP gives a monthly stipend of Rs.1500/- pm
Later reduces it as mobile trader gets more revenue
Benefits for CP
Hindustan Unilver Limited - Project Shakti

Direct reach of HUL is only 16%
of rural markets
Distribution nightmare for
villages with population below
2000
Achieve a holistic marketing
objective of business and social
development
Extend reach to untapped
markets and develop brands via
local influencers
Provide livelihood options for
underprivileged rural women
Challenge To Reach:
90% of villages smaller than 2000
population
Over 500,000 villages not reached by
conventional models
Challenge To Communicate:
Low literacy hampers effectiveness of
print
Poor media-reach: 500 million Indians
lack TV.
Challenge To Influence:
Traditional habits
Low category penetration,
consumption, brand awareness
Process
The principal customer of HUL is an

individual woman member from the SHG
group
She works as a HUL distributor and is
known as a Shakti Entrepreneur
Receives stocks against cash payment at
her doorstep from the HUL rural
distributor
Sells direct to consumers as well as to
retailers in the village
Each Shakti Entrepreneur services 4-6
villages in < 2000 population locations
Sells $300 -$500 per month; makes net
profit of $25 -$35 per month (~7% average
margin)
Impact
34,000 entrepreneurs across 15 states
SEs sell to homes and outlets in clusters of 3-5 villages
Impact on entrepreneurs
Economic - average income of $15 per month doubles household

income, supplements other income
Social women empowered to set up and run their own businesses
Corporate
Penetration into markets

Brand communication
Project Shakti turnover in 2004 was 4 times that of 2003; thus
increasing rural share to about 13 %
Image of socially responsible company

Product
Same
Different
PRODUCT ADAPTATION
Mainstream: Mahindra Maxx
Developmental: Novartis Arogya
Parivar
Same
Channel
Different
Mahindra Maxx
- Transport Vehicle
Why Maxx?
The rural consumer usually travels in a group. He is used to

wide open spaces.
Therefore he seeks the same attributes in his vehicle.
Also seeks space for luggage

He needs a vehicle that is rough & rugged, yet comfortable
Personal vehicles are also hired out when not being used or
in demand
Incidence of hiring of vehicles is greater than ownership
City & urban is aspirational
Optimization is a way of life but image & show is very critical
Hence Rural needs a vehicle that has
MORE Space
A vehicle that is MORE Rugged & Tough
Least Cost of Ownership, MORE value
MORE aspirational image
More means Maxx
Mahindra launched Maxx

Variants
MaXX Standard 10 seater for value conscious
MaXX TX for Taxi Operator
MaXX Festiva for Image seeker who was the tourist taxi
operator
Fuel consumption (14 - 15 Km/Litre)
Competitors - 10 - 12 Km/Litre
Maxx had good space inside also
Distribution by the traditional channels only
Thus Maxx happiness for owners and passengers
Water Crisis
1.1 billion people i.e. 1/6th in the world do not have
access to safe drinking water.
50 percent of people on earth lack adequate
sanitation.
20 percent of freshwater fish species have been
pushed to the edge of extinction from contaminated
water.
Half of the worlds 500 major rivers are seriously
depleted or polluted.
The water we drink today is the same water the
dinosaurs drankthere is no new water.
Problems
80 percent of diseases in the developing world are caused by
contaminated water
2.2 million people in developing countries, most of them
children, die every year from water related diseases.
Waterborne diseases cost the Indian economy 73 million
working days per year.
Nigeria loses $9 billion (20% of its Gross Domestic Product)
Half of the world's hospital beds are filled with people
suffering from water related illnesses.
In the past 10 years, diarrhea has killed more children than
all the people lost to armed conflict since World War II.
In China, India and Indonesia, twice as many people are
dying from diarrheal diseases as from HIV/AIDS.
Problems
If we did nothing other than provide access to clean
water, without any other medical intervention, we
could save 2 million lives a year.
The average distance that women in Africa and Asia
walk to collect water is six kilometers.
More than 40 million hours are wasted each year in Africa

alone from women and children gathering water.
Tens of millions of children cannot go to school as

they must fetch water every day.
Drop out rates for adolescent girls, who even make it
that far, skyrocket once they hit puberty as there are
no private sanitation facilities at their schools.
Consumption
We have the same water what Dinosaurs drank
Only 2.5% of total water is fresh which is about 28 acre foot.
Of this only 7 acre foot water is usable directly rest is in some
other forms like glaciers, humidity etc.
The average person consumes water to the extent of
in the developing world - 2.64 gallons a day.
United Kingdom - 35.66 gallons a day.
United States - between 100 and 175 gallons a day.
Almost 70 percent of the available fresh water gets used for

irrigation in agriculture.
More than half of the water used for irrigation leaks, evaporates or
runs off
Liters it takes to make your meal size

Barista Coffee
137
Bread
148
Glass of Wine
244
Mixed Salad
481
Glass of Milk
981
Pork Chop
1961
Hamburger (abt 100 gms)
10730
0
2000
4000
6000
Source: Blue Planet Network and data confers to what UN also states
8000
10000
12000
Economics
Every $1 spent on water and sanitation generates a return
of $9 in saved time, increased productivity and reduced
health costs in Africa.
The UN estimates it would cost an additional $30 billion
to provide access to safe water to the entire planet. Thats
a third of what the world spends in a year on bottled
water.
Despite the size of the problem, we have made little
progress against it.
Major water borne diseases receive just one percent of
total public and private funds devoted to health research.
Can Corporate Marketing Solve the Problem?

Water is a $400 billion dollar global industry; the third largest
behind electricity and oil.
Much of this business is in the Bottled Water.
Are there solutions that are provided for grassroot citizens?
What benefit will corporate get?
50
Provided over 3 Billion Liters of

Clean Drinking Water in the
Developing World
Let us see a video

Product
Same
ADAPTATION
Mainstream: Movirtu Cloud
Phone
Developmental: Patrimonio Hoy
Different
Same
Channel
Different
Cloud Phone
Cloud Phone
Service Model
VPO: Village Phone Operator
Revenue Model
Novartis is a forerunner in poverty alleviation by improving health of the poor, thus enabling better
income capabilities
To improve healthcare access for the under-served poor located at bottom-of-the-pyramid using
social-business approach
Source: http://www.novartis.com/corporate-responsibility/access-to-healthcare/our-key-initiatives/social-business.shtml
Background
Rural India market 65% lack
access to medication [WHO]
80% are daily wage-earners & 40%
earn < $1.25 / day
Key healthcare issues: water
purification, sanitation, undernourishment, iron deficiency,
vaccinations, TB, & diabetes
Low ability to pay: healthcare
entirely out of pocket; low
affordability for large packs
Key obstacle : lack of awareness
and weak health-infra
Approach
A complete healthcare solution and not just access to medicines
Supports development of poor healthcare infrastructure : Micro
Credit initiative
Complete health value chain : patient awareness to drug compliance
Awareness
Patient Awareness: Disease and therapy awareness local Health Educators
Physician Education: Disease and Novartis portfolio education Cell
Community address
Patient awareness & education
Supervisors
Adaptability
Customized Portfolio and Marketing: TB, antibiotics, supplements, GI, pain,
Calcium in local languages
Local faces in team
Accessibility
Physician education
Enhanced Distribution: Through setup of Arogya local sub-distributors &
health camps by doctors
Affordability
Custom small packs with smaller price points

Social Business Model

SOCIAL
BUSINESS
AVAILABILITY
HEALTH EDUCATION
Referral Cards
Collection
Distribution
Community
Meetings
Health Camps
with city doctors
Drug compliance
Doctors
Education & loans
from MFIs
Medicine supplies &

loans from MFIs to
pharmacies
RESULTS (by June 2010)

270 cells * in 11 states
530 Educators & Supervisors
29000 villages with 42 million
people
22000 doctors & 18000
pharmacies
cell = 100 villages over 35 sq. kilometers with avg. 180,000 people
61IIM Kozhikode
Dr. G. Sridhar,
Key Learning
Learning : Consumer behavior
Poor also spend on health if counseled
Villagers prefer strong, fast-acting drugs to avoid loss of
daily earnings
Small purchase size but more often due to limited out of
pocket
Equitably priced smaller packs for BoP facilitate customer
acquisition
Learning : Marketing efficiency analysis
Very strong interest in and recall of education programs & health camps
A few local parameters drive success: pop. density, pop. purchasing power, density
of roads, efficiency of free government programs
Trust needs time to be built & word of mouth Influence works better
Locals play more role than mass media
Local faces in Arogya field team [from NGO background] A must for credibility
Managing patient flow, from awareness to compliance, is essential

different market different approach

Sustainable CC & Market Access
Outcomes
Reconfigure way-to-market and supply

chain solutions
Price alone is not the key barrier to medicine
access in BoP
Ignorance and Infrastructure are bigger
challenges
Health alliances and partnerships are needed
for total healthcare solutions and not just pills
Medicine access improved for 42 million

people in 28,000 villages
Health education to 4* million villagers each
year
*Percent of patients reached in community meetings who then visit doctors
Upfront social investments before business

growth
Participate with government and regulatory
Long term market development investments
for future middle class

Last Mile Distribution

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LAST MILE DISTRIBUTION

Dr. G. Sridhar, IIM Kozhikode