Cost Service Dilemma becomes more acute

The constraints affect adversely the service as well as the cost aspect in distribution. Maintaining the required service level in delivery of products becomes very difficult. At the same time, costs of distribution are escalated. The scattered nature of the market and its distance from the urban based production points compound the difficulty. Larger pipeline stocks and larger inventory in warehouses is the natural outcome of the constraints. In other words, transportation as well as inventory costs are high in the rural market. Costs of channels too turn out to be much larger in the rural market. IT has been estimated that the overall distribution cost per unit is higher by as much as 50 percent on an average in the rural market as compared to the urban market.

Scared by the high distribution costs, some firms try to operate in the rural market by remote control. They simply consign the products to some wholesalers in select areas and retire the bills through banks. But, experience has shown that firms with major aspiration in rural marketing cannot vote for such remote control operation. They cannot simply rely on a trickle down of stocks to the rural buyers. They need a network of clearing and forwarding (C&F) agents and distributors at strategic locations for facilitating proper distribution of the products in the rural market. They have to commit themselves to servicing the village markets intensively and directly. Direct contacts with villages will help not only the availability of the product, but product promotion as well.

In the matter of transportation, combining different modes can be cost-effective. Trucks for medium-distance movement and delivery vans and bullock carts for local haulage may serve the purpose better. In fact, the distribution arrangement must be flexible enough to incorporate every possible transportation means such as Trucks, Delivery vans, Bullock carts, motorized two-wheelers, bicycles and the foot soldiers. Bullock carts have a special role in rural distribution, especially in tertiary transport. They are cheaper; they are available in plenty and are ideal for the rural roads.

The delivery van has a key role in rural distribution. The companies concerned or their C&F agents/stockists/distributors operate these vans. In some cases, independent third parties operate them as a service for a fee. Companies like Hindustan Lever and ITC, who are pioneers in rural marketing in India have a fleet of company delivery vans for rural distribution. The van takes the products to the retail shop in every nook and corner of the rural market. Besides facilitating product delivery the van serves certain other vital purposes. It enables the firm to establish direct contact with rural dealers and consumers. It also helps the firm in promotion. But, the cost of operating such vans is quite high. And the proposition can work only if the area assures substantial business. Initially the firms have to necessarily consider it as an investment. Firms like HLL and ITC had the resources as well as the wisdom to consider it as initial investment in the market. Through the van, they were not only solving the transportation problem of the rural market, but were also developing the market for their products.

Multiple tiers add to the cost: The distribution chain in the rural context usually requires more tiers, compared with the urban distribution chain. The distance between the production points and the rural market, and the scattered location of the consumers make it necessary. At the minimum, the distribution chain in the rural context needs three tiers, viz., the village shopkeeper, the mundi-level distributor and the wholesaler/stockist/C&F agent in the town. In addition, it involves the manufacturers’ branch office operations in the territory. Such multiple tiers and scattered outfit push up the costs make channel management a major problem area.

Producer who can reach the customers through the shortest distribution chain can do better in this market.