Structure of Distribution in Rural Areas – Empirical Evidence from Villages in Karnataka and Gujarat

Synopsis 

The essence of marketing lies in the exchange process and channels of distribution facilitate this exchange process by providing the linkage between the producer and the consumer. Research in distribution channels has predominantly been embedded in the urban context and very few studies have been done in rural areas where the population density is low and spread out, and with low-purchasing capacities. This research is an attempt at filling this gap; it seeks to describe and explaining the structure of distribution in the villages of two states.

This research was undertaken with three broad objectives: first to provide a description of the existing structure of distribution in villages, which basically translates into the number and type of retail shops in the villages, the purchase preference of retailers and the structure, which exist to serve them. Second; to explain the existing distribution structure in rural areas and to single out variables, which influence the channel structure. A literature review provides the inputs to the initial conceptualisation through which the variables are identified and their influence on the structure hypothesised. Third; to come-up with a framework that can be of use to companies in rural markets, both existing as well as the ones, which are planning to enter rural areas for the first time. The framework would help companies assess their own distribution efforts in rural areas and enable them to fine-tune their efforts in accordance with the drivers. Over and above these three objectives the overarching goal of the work would be to contribute to existing theories of distribution structure by explaining the structure of distribution in areas with low and spread-out populations.

Importance of distribution in the rural marketing has been acknowledged by practitioners as well as academicians. It has been described as the first barrier which needs to overcome (Banga, 2005). Infact many a time’s rural distribution and rural marketing are often synonymously used, and for most of the companies operating in the rural area it this third ‘P’ of the marketing mix which needs to be addressed first. Rao S L (1973), Sarin, Sharad, et.al.(1988), Krishnamoorty R (2000) have acknowledged that distribution systems are the most critical component and a barrier which needs to be overcome(Prahalad & Hammond 2002) for success in marketing in rural areas. The task of distribution in these areas is considered to be more difficult than in urban areas (Balakrishnan D Mandira, 1977). Direct delivery of goods even to the top one percent of villages cost twice as much as servicing urban markets (Ganguly A S,1985).

Within various issues in distribution channel research, the current work has identified structure of distribution channels in rural area as critical issue of study as researchers have acknowledged the critical linkage between understanding structure of distribution and developing a viable distribution system (Robenson & Kollat, 1985). Thus providing a description and explanation of the distribution channel structure in the rural areas in the country would be a step forward in helping develop viable distribution systems in India.

In the study the issue of distribution structure in rural areas has been conceptualised as being influenced by three broad set of issues related to the environment, the distribution strategy and the rural retailer.  The external environment geographically is about reaching the villages, which are spread-out, diverse, and with sparse population. According to Census of India 2001, 97 percent of India is rural geographically. The geographic dimension of rural markets has been such an overwhelming problem, that for decades many organizations didn’t operate in these areas only because of the lack of access to these markets. But with the improvement in the status of roads and connectivity to villages the situation has improved but geographical aspect of the external environment still remains a formidable barrier which needs to be overcome.

To address the issue of geographic spread and diversity every company operating in rural areas devise their own distribution strategy. The strategy at the company’s end is decided after taking account the products that the company distributes and objectives in rural markets. The literature on the evolution of distribution channel structure points to the influence that distribution strategies have on the structure. Each company by following its own unique strategy influences the structure in its own unique way.

The terminal point before reaching the rural consumer is the village retailer. The rural retailer by virtue of his size, purchase behaviour and preferred channel partners influence the structure of the channel. In terms of movement of the product very little is known about how exactly the product reaches the rural retailer, which intermediaries does he purchases from. The problems are compounded by the fact that the rural retailers are physically small in size, and the quantum of business done by each of them is also small.
 

The interaction of these three elements – the task environment, distribution strategy and rural retailer leads to the formation of distribution structure. This emergence of structure happens over a period of time, but because the current study is cross-sectional in nature it doesn’t look into the evolutionary issue in channel structure formation. The study aims at providing an explanation of structure which exists at a particular point in time, and traces its existence to these three major elements in the conceptualisation and the explanation hinges on the three influencers identified.

Survey method has been relied upon predominantly for this research. Six talukas across two states have been selected across two states and variations in the distribution channel structure across these taluka have been studied. A total of 686 retailers across 103 villages were surveyed. The respondents were predominantly village retailers and other intermediaries like the wholesalers and dealers in the channel. Reponses were elicited through the administration of a structured questionnaire. The three product categories which were chosen for the study included tea powder, detergents and toothpaste.

Data gathered through the survey have been subjected to various statistical analysis, including  correlation analysis, percentage analysis to understand the linkages between various variables; ANOVA to  test if the structure of distribution channels in the talukas selected were significantly different from each other. The findings show significant differences in distribution structures across the selected talukas . This is inferred as suggestive of the influence of the task environment . The physical characteristics of the village in terms of the accessibility have the predicted impact on the channel length, but the issue of the village population did not have a significant influence on the structure. The same is the case of the impact of distribution strategy on structure of distribution. But the retailer behaviour in terms of quantity and frequency of purchase has the influence on the structure as was hypothesised.
 
Implications of the above findings are discussed from the vantage point of rural marketers through a ‘Step-wise plan’ for designing rural distribution.

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